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K V Kamath | February 09, 2005

K V Kamath, ICICI Bank MD and CEO. Photo: AFP/Getty Images

ICICI had a problem of atrophy, and we had to break out of it if we were to survive. In 1996-1997, we had this wonderful situation where youngsters would come and atrophy within a year.

They were a small group of twenty, all from the top 10 per cent of the four major B-schools. One day I asked one of these youngsters to mail merge 25 letters.

Two days later I asked what happened to those letters. He made some excuse. I went back to my room and in twenty minutes I did the mail merge, printed out the letters, signed them, and left them on his table.

My colleague, (Executive Director) Nachiket Mor, threw up his hands in frustration. His question was, 'What has changed these youngsters?' They were bright and bubbly, top of the class people. Yet within six to eight months of working at ICICI, they had atrophied, lost their motivation.

The atrophy ran deep.

My last job before I went to ADB (Asian Development Bank [Get Quote]) was to put technology into ICICI. We were the first organisation in the country to put Oracle into place.

When I returned in 1996, I asked a senior group of forty people at a meeting, 'How many of you use Oracle?' None!

I accessed it, and found it was still DOS-based, still had a DOS front end. I was amazed. Why hadn't the new graphics front end been put in? Why hasn't somebody asked for it? OK, the technology guy may not have put it in, I can somewhat understand that, but why hadn't somebody asked for it?

So I asked a professor how we could change this situation. He said I was too soft! I was a bit skeptical about his answer. 'How do you rate people?' he asked me.

'On a five point scale,' I replied. 'That's your problem. If everyone gets a four or five, the status quo is the easiest way to work. What's the point of working hard?'

He advised me to start reading and do what other companies do, i.e. grade people. So now we grade people, and the bottom 2 per cent to 3 per cent have to go. We have come a long way from those days.

I learnt how to deal with people who are stagnating - dead wood - at this point in time.

It is a habit of mine to learn from everybody, and as I was reading an article in a magazine, I came across the phrase, 'parking'. It gave me the solution I was looking for.

In any organisational change, you give people a golden handshake but there will still be people working in areas from which you want to push them on or out. So you park them in other spots, you remove the blockage, and get the flow going the way you want it.

We parked people all over the place. A year-and-a-half later, we offered people a second golden handshake. Many 'parked' people took it and went away. By the time the third one came, the job ended.

The important lesson for us was that the organisational chain must be free, the flow has to be free, you can't have anyone clogging it. Typically, this is something that Indian management does not do, and it is extremely damaging.

Correction of the organisation has to be done all the time. Hire and fire works. I think we use 'parking' very effectively.

Once you introduce meritocracy, people start leaving -- gracefully. In the last eight years we have created a whole stream of goodwill ambassadors because when people understand the process and realise that it is fair, there is greater acceptance of it. And then they find better opportunities in their own ways.

We also do a lot of counseling. I meet people, talk to them, tell them we need them as ambassadors, give a big pat on the back. I want them to succeed in their new opportunities, and I think it is a win-win situation for both.

It wasn't always so. Our challenge in the first two years was how to help the bitterness which emerges when people think we are being unfair. But over the last six years, this has changed. It's an interesting side effect.

I constantly look for proxies, observing what happens elsewhere.

Take a simple example. I've had some exposure to South East Asia. In the last fifteen years, with a per capita income of $500 to $600, the whole continent gained momentum. First China and later Indonesia, the Philippines and Thailand created the right conditions with low interest rates and stable inflation. What happens elsewhere can happen here also.

It's a question of the feasibility of applying in the domestic context and retro fitting. In a nutshell, one has to read the market early, read all the available proxies and take a decision, often with limited information.

My entire team and I have a bias for action.

If we see an opportunity, we don't hesitate. Take technology, unexplored technology. We believed that the Indian customer was prepared to look at technology. So we said, let's put in the ATMs, Internet banking and a call centre -- the key technology channels. So I think we have the ability to read what will happen a little faster than the competition.

We discover opportunities in markets earlier than others. We saw a drop in interest rates and we felt that this would mean that customer lending will move fast. We stepped ahead of the competition and were able to seize market share.

Frankly, this is the easy part. So many CEOs can strategise after looking at environmental factors. But after the decision-making comes the execution. This is the real challenge.

People try to execute in a status quo. You can never execute in a status quo. The organisation is not geared to it. Is the structure right for what you want to do? If I don't think it is right, I won't allow people to do it, because it won't work. I've heard the phrase, 'You cannot have a third generation strategy with a second generation organisation run by first generation workers' and it's totally right.

I've been here eight years and the organisation has gone through five structural changes during this time.

The first two changes were gut-wrenching. Oddly enough, the last one, a major organisational change which should have been the most painful one, was accepted in the organisation. Change by this time had become acceptable.

We had tremendous resistance in the first year. People were willing to come to blows and there were emotional breakdowns. After that we saw a clear change in attitudes and outlook, in the way people went about their work.

It was a question of communicating. Every time I went to one of our offices, I would meet maybe twenty to thirty people, sit for three hours and discuss why we are doing what we are doing. We would set targets and we found they were all achieved.

The second time round, we created relationship groups. This was a complete departure from the way we used to do things around here earlier, again gut-wrenching. Both in the bank and in ICICI Corporation, I invited senior managers to tell me how they plan to run their business.

Everybody came with an organisation chart, and I'd just tear them up, saying, 'I don't want to know that. I want you to explain the relationships you have and will have, who relates to whom, who will do what and how. I don't want boxes.'

After the first one or two days, people understood what we meant. First, they came out with their own relationships within their line of responsibility, then the relationship between them and the rest of the organisation. Slowly thereafter new business came in, meeting our targets.

Timing and how you deal with uncertainty is an important part of success.

We took the right decisions and we were bold enough to take those decisions. But had the timing not been right, we could have lost out.

In 1999, we were working in a completely blind world. Banks were faced with the Internet threat. Experts were predicting that banks would face competition from the likes of telecom companies, media companies, and any company with a large database and the ability to talk to customers on the Net. Customers would migrate, they warned. It's an interesting example of dealing with uncertainty. Most banks were not bothered but for us it was a key part of our strategy.

The challenge was what kind of partnerships do you commit to? We took some decisions which at that point of time were hasty.

Three to four months later we realised that the Internet was moving at a different pace. We quickly retracted from the strategy and took a different path. I would say that this is the only time in the last eight years where we took a wrong call.

The important attribute here is that we could retract, we looked around, talked to people. There's no point in sitting in your seat and waiting to see what is happening around the world. We quickly discussed what we saw and took action.

On the other hand, timing was on our side in 1996. All our technology implementation took place after the mainframe era, and we could take advantage of the huge breakthroughs in computing power at the time when our customer base was exploding from 10,000 customers to 600,000 to 2.5 million to 5 million to 10 million today.

You need to simplify the complex.

When in a problem, everybody knows the problem, and any amount of analysis is done, but most often no decision comes out from that analysis. Ultimately the decision needs to be taken from the gut.

We take decisions after a lot of analysis but it is a quick analysis. We don't allow any decision to take more than a few days. Detailed worksheets will be available later but in the beginning a lot can be deduced from back-of-the-envelope calculations.

I think a lot of companies hesitate to take decisions. The status quo is not acceptable. You have to see how you can stretch the boundaries. There must be stretch, stretch and stretch again in any organisation.

If you achieve the target, the target must be raised again. You have to raise the bar internally and not allow people to become complacent. You can make things happen.

You need to be bold.

The impact of status quo is clear to see among our competitors. We survived because of change. After eight years in this job, having seen the things I have seen such as creating the team, creating the structure, getting the ideas and executing them, I realise one element is critical: to be bold.

In our situation, you needed to be bold and have the confidence to go along with the entire diversification play. In hindsight, it was a brave decision to diversify. We had no product knowledge, no processes and no people to run the business. But we had the bold factor.

We clearly had to recast portfolios and leave the status quo. In this change journey, I trusted the leaders, allowing them to lead and make mistakes within the boundaries of their responsibilities.

Of all the new businesses, one leader had to change jobs, that too for personal reasons. Everybody else succeeded. Even he is doing well now, but in a different job.

There is a paradox which escapes many Indian managers, relating to employee productivity and technology productivity.

The key today is really technology productivity not employee productivity because in India, labour is a low cost, it is not a significant contributor to P&L expenses. In our context, what is significant is technology.

The cost of technology -- say a system, both hardware and software, identical to Citibank's in the United States -- is no different in India than in the West. And technicians here earn one tenth of those in the West.

Suppose both have the same number of employees, it's a no brainer that India would be ahead.

The paradox in banking is that the average customer transaction and ticket size in India is one tenth of that in the West. The average deposit in the West is $15,000, but for me it is $2,500. For a government bank, it is less than $200 to $300. They still don't understand what they are doing and it is not my job to tell them what they have not understood.

You can't get technology and say I'm going to do what others are doing because I can afford it. We have to run technology in a completely differently way from Western banks.

Take ICICI Bank [Get Quote]. We may have $30 billion in assets -- but we also have 10 million-plus customers. To put that in context, our customer base is equal to the combined customer base of the three largest banks in Singapore. Yet in terms of assets, we are only one-tenth their size.

Internationally, banks make money on the transaction side and on the deposits. We do not because we don't have the deposits and we do have a large number of small transactions. In the Indian context, you have to squeeze employee productivity, squeeze techno-logy efficiency.

Less than 30 per cent of customers come into the branch. Almost 70 per cent of transactions take place through technology channels. With 500 branches, we would not have survived otherwise.

The 90-day rule is again one of my learning experiences.

I was at a seminar on the use of technology in New York. It was fascinating. Someone described the '90-day rule' or how an entrepreneur starts off in Silicon Valley. He has to design a concept, build a product, test it and take to the market within 90 days otherwise he will be dead because 25 other people are thinking along the same lines.

I started thinking, why can't we do this? When I reached London, I called Mumbai. 'You are starting the '90-day rule' today,' I told a team which was working on a technology project, 'and the countdown began ten days ago when you started the project, not 90 days from today.'

It was a completely new mindset. In the next six months we took up about ten to twelve projects and they were all brought in -- in 90 days. This concept now has a strong grip in the organisation.

I know because I many times put my ear to the grapevine.

I don't have to walk around to access the grapevine. People tell me. People who are successful, the guys who will become leaders, are the people who have their ears glued to the table. They know exactly what is happening, who the good people are, and who's good at what.

And not necessarily people working in their teams. They know people across the organisation. The grapevine is not a tool for playing politics. I believe that if you are driven by clear objectives, and everyone understands them, the organisation has less politics.

And I have no compunction in taking a huge stick to politics, which I make clear in public. So I don't see people politics in our organisation, I see merit-based jockeying. This is healthy, it is required. All jobs are open postings.

Open postings means you can pick people from anywhere. If a leader has a really critical issue about one of his people being picked up by another, they come to me.

We discuss openly about where the person is most required in an organisation. Then I will call the person and say this is what I want you to do, this is where I want you to go. Probably people can't challenge me, but one avoids the challenge.

Once you start compromising on this issue, I think you are dead, because the organisation will not grow. You will not be able to clearly see the final objective, which is that the organisation is more important than the individual. So the grapevine is a very interesting thing.

And I've seen that youngsters are absolutely clued into who is what. When they get to be a manager they know exactly whom to pick if they have a choice.

You have to mix entrepreneurship in a professional context. You have to have a strong base of entrepreneurial leadership, not just a single charismatic entrepreneur. Ideally you want everyone to have entrepreneurial ability. It is desirable if they have different make ups, that adds to the organisation.

Earlier, our office was opposite Hindustan Lever [Get Quote], and we built a lot of our building blocks looking at Hindustan Lever. It is an organisation with a strong entrepreneurial drive, with a depth of management talent.

I don't know much about Hindustan's history but every five to ten years a strong entrepreneurial leader emerges. There is clearly a process of building talent. We have always admired that.

So what we are trying to do in our own way is to build a parallel process of identification of leaders, to mark people as the new leadership. In our context, people enter the organisation at age 24. By the time they are 32 or 33 years old, they become general managers, and by 35, they have reached the second level from the top. So we don't have much time.

We need them to grow, to demonstrate personal leadership traits and that they can manage the business and people. Sometimes you think you have a leader, but when you stretch across other operations, they break. They were excellent managers at a particular level, but you throw them into the next level which is two steps into the leadership chain, they are not able to handle the challenges.

We find this happening repeatedly. Our damage rate maybe is between 25 per cent and 30 per cent. In ten people, two won't make it. I can live with this because, first, I have a pool coming in all the time, and, second, we have learnt to deal with short-term damage. It is a tricky one.

In several management books, the authors try to make a case that there is something wrong about charismatic leadership. I don't agree fully with this thinking. It may appear to be a single quality but it is not a single quality.

Charisma is a trait that develops in you based on several other things that you do, on how you change; as well as being the outcome of several things that happen around you.

I think a bit of charisma is required because people like to follow a charismatic leader. If you don't succeed, you won't be seen as charismatic.

Good leaders are those whom followers love and respect. But to be respected is ultimately what will carry you through. If you lead through love, maybe you compromise, you give in. You have to earn respect.

Finally unless your team sees leadership attributes in the same way, it is no good. At the same time, they should not be your clones, you need a culture of different skill sets. We have a wide variety of leaders at the board level.

I can confidently say that there are no two people who are fully alike among my top fifteen people. But there is no difference in understanding how the organisation looks and the way it does things.

The challenge is to identify the leaders from the crop coming in.

I had joined ICICI a few years ago, and one fine day in 1974, I read an advertisement in the newspapers calling for people with a technical background such as engineers -- MBAs weren't all that common then -- and offering a salary for two years experience which was significantly higher than what we were getting after more than four years of being in the company.

Some of us started calculating. We took a hard point of view. Shirish Nadkarni, who later became chairman, was very, very upset. He called a meeting of all the project officers to discuss the issue.

It was the first time we took a stand, and it had a negative impact on the organisation. Lateral recruitment stopped. For the next twenty years ICICI did not recruit laterally! This was too much of a penalty for our organisation, I can say this today.

I think ICICI should have continued to recruit - maybe set the payscale right and continue to recruit. Later, we did start campus recruitment and building from the grassroots level up.

From 1986 onwards I went to campuses for three years to formally recruit people. But in 1996 when I came back, there was no lateral recruitment, we had only people that had grown from within. We started lateral recruitment from 1997.

Maybe I contributed to changing a policy at that point, maybe twenty years later I contributed to completely changing the policy again. For our growth, we have to recruit laterally.

When I joined ICICI, I thought my career would be a track within ICICI, but I got several breaks and two or three career changes. The first one was when Mr Vaghul asked me to become his executive assistant. He was chairman at the time. Working with him gave me a completely different insight into how businesses work, and how he ran the business.

He is a wonderful mentor and put me on a different track. He told me to go to London and get trained. That was the first change.

The second change was equally interesting. I wanted to create a strategy group. It was one of the most fun periods of my life. And I started the treasury group also. Neither departments had people, so I had to start by recruiting people in groups of about eight to ten people.

Every day at 8.30 am a new idea would come up.

Mr Vaghul would come in with them and the first half hour of the day was always interesting. Seeing someone outstanding at work changed my career and let me grow. In 1988, when I got the opportunity to go to ADB, he encouraged me to go.

The idea was that I would come back after a few years. This period was a time when India was in deep trouble, so I stayed on. The eight years in ADB were uneventful. I made a bit of money but it was not challenging.

But I did keep my eyes open, tried to understand what was happening in places like China and South East Asia, so it was a great learning experience.

When I came back, I could actually draw from my learnings. But to be very frank, in 1996, I started with a clean slate. I have tried to pick people who would lead ICICI, and find ways to reinvent the business.

The author is the Managing Director and Chief Executive Officer of ICICI Bank.

Design: Rahil Shaikh
Photo: AFP/Getty Images

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