Sep 21, 2018

Building and shaping of institutions

Prof. R Jayraman

What is an institution? The Oxford dictionary defines an Institution as an organization founded for a religious, educational, professional, or social purpose, an established official organization having an important role in a society, a large company or other organization involved in financial trading, an established law or practice.

The defines institution as an establishment, foundation, or organization created to pursue a particular type of endeavour, such as banking by a financial institution; consistent and organized pattern of behaviour or activities (established by law or custom) that is self-regulating in accordance with generally accepted norms. For example, political institutions are involved with (and regulate) competition for power; and economic institutions (such as markets) encourage and regulate production and distribution of goods and services.

Institutions are characterised by length of existence (the longer, the better, indicating sustainability due to continued relevance) (examples: GM, Ford, Tata Group); purpose for existence (a highly refined focus on a specific aspect of transactions, well supported by breadth of coverage in relevant and related areas) (for example, NASA, ISRO); popularity and respect evident for the institution in large numbers of members of society (for example, M&M, HDFC, Kotak Bank); significant, superior, signal, senior achievements by its members in the areas that it stands for, and is known for, in large numbers (for example, NASA, ISRO, HDFC, Kotak Bank); impacting the society in its chosen fields of endeavour as also the general public (for example, Marico, TVS, Wipro); a continuous, high performance profile, serving stakeholders interests by generating wealth and sharing with them (for example, ONGC, BPCL); continuous leadership position in the chosen fields of endeavour (for example, Coca Cola, Pepsi, McDonalds).

Institutions are developed over many years. Usually, the development is spearheaded by one mans vision. This is a special characteristic of any institution. Only actions guided by a powerful vision, supported by an able coalition, can create institutions. Passion, hard work, influencing people, continuous and persistent efforts to overcome seemingly insurmountable difficulties, are hallmarks of great institutions. As a result of the coming together of all these factors, institutions are resilient, purposeful and well regarded by society.

Shaping an institution is done by the visionary. The many actions initiated by him, and his team, lead to a conglomerate of structural and human paraphernalia, which, together, constitute the shape of the institution. All the characteristics of an institution described in the afore paragraph define the contours of the institution. Shaping an institution takes time, energy, efforts, cohesion, determination and persistence.

There are two types of shaping that we can broadly realise in practice. The first, is the work done by the original visionary, who initiates the institution-building activities, by design or otherwise, culminating in the creation. The second, which leads to the continuation of the existence of the institution, is the work of the followers, who succeed the original.

In business institutions, the succession planning method, which is of recent origin, has been replacing the more traditional family governed businesses. Since most businesses are founded by a businessman, the successor is also a businessman, usually from the close family. This is true of most parts in the world. In non-family owned businesses, so-called ‘professionally managed’ ones, the successor carries on the work of his predecessor, in some cases, and mostly not, in other cases. ‘Leaving ones imprint’ is a popular concept in ‘professionally managed’ businesses, which often leads to actions not necessarily aligned with those of the predecessor.

Many US companies are family managed and the vision of the founder carries on for a sufficiently long time, so that the shaping of the institution continues the alignment with the founder. Examples are: Ford, Walmart, Kimberly Clark, Wallgreens. In the professionally managed ones, the vision of the originator falls along the way, usually. Examples are: GE, GM, Raytheon, Boeing. Such companies, could be likened to institutions for a period of time, but, due to the ‘leaving ones imprint’ syndrome, cease to be institutions, in the long run. However, there are exceptions to both the ‘rules’. Examples are: (of the first type) General Dynamics, the Great Atlantic and Pacific Tea Company; and HUL, Siemens, Larsen and Toubro (of the second type).

In all cases, after the demise of the originator, shaping means making the changes to keep the institution relevant and current with the current developments. Thus, you have the P&G, Philips, Nestle, Coca Cola and Pepsi, where, a succession of leaders, have done the shaping. Such shaping remains successful, as long as the changes made do not jettison the original purpose of the founder. The successors do all that the founders did, and more, to keep the flag flying high, so to say.

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