1990, I was at HBS. Back then, it was a totally different place, with exactly three Indians — Jayant Sinha, Tarun Khanna and me — in a class of 900. We had a fantastic time and remain very close friends.
During summers, most students would intern at McKinsey, Goldman Sachs, Unilever or wherever they hope to work eventually. I thought I would write about a question that had been bugging me. It came from my experience at the manufacturing unit; we had turned it around but the unit was closed down anyway, with production outsourced to suppliers. So, the question was — what should a company do by itself and excel at? And what should they outsource to a network of partners or suppliers?
After visiting six companies, such as John Deere and International Harvester, and working with their CEOs, I formulated my answer. I sold the research three times to three different companies and became the only one in my class to graduate with no student loan. When most students ended the course with a $60,000 debt, I sold my research for $20,000 a pop and it became another best-selling article in the Harvard Business Review!
I passed out as a Baker scholar, almost at the top of the class. Although I had my pick of companies including McKinsey, Microsoft and Goldman, I decided to go back to Cummins. The Cummins CEO wanted me to decide what to outsource and help the company get out of all the legacy businesses. At 29, I was working for the chief operating officer, driving this. It was very, very energising.
In 1996, I decided to come back to India for multiple reasons. One, India had started liberalising, and we were hearing interesting stories from the country. Two, both my parents had terminal illnesses and I wanted to be around. Three, I wasn’t meeting the right woman there!
How I met Sonali was unusual. One of my junior colleagues, Ajay Kumar, was traveling on a train and happened to chat with a very talkative lady. Her daughter was living in Japan and refusing to meet guys for marriage. Ajay talked about his 33-year-old boss who was finding it hard to make a match. That boss was me. They teamed up and introduced the two of us. Sonali and I didn’t decide immediately, but dated for ten years before marrying in 2010.
When Cummins realised I wanted to be back in India, they offered me a role, though the CEO did try to stop me from leaving the US. He said, “Look, you’re actually a high potential person; you don’t have to take this job.” I insisted and he said, “Well, your job is to close down a business venture with minimum amount of outgo and come back.”
The company was Tata Cummins, a joint venture Cummins had signed with Tata Motors. This was sealed when Henry Schacht was the chairman and CEO of Cummins Diesel, and he got along well with Ratan at Tata Motors. But after that, both went into other roles, and this JV was orphaned.
No one expected us to get the company back on track, so I didn’t ship my things from the US and instead put them in storage. Every month, I thought I would return within a few weeks.
Jamshedpur was not comforting. In fact, it was a shock. First, it was a very different city. Then, the environment was very hostile with partners who did not trust each other. There was no cash, and the engine plant that was designed to produce 250 engines a day was making one a day! On my first day there, I discovered there was no money to pay salaries and our power supply was disconnected because no one had paid the electricity bill. It was a mess and no one had faith that I — a 33-year-old, inexperienced guy who had just come from the US — could set it right.
Americans can often be very transactional, compared to Indians who are keen on building relationships. I respected that difference and began working on closer partnerships with Mr Rawal, Mr Arya and Mr Tel Prakash by having meals together, going to their houses or simply talking regularly. That was one part of rescuing this JV, the other was the agreement itself. It was exceedingly unfair. The deal was to split profit 50:50, shared equally between Cummins and Tata Motors, but losses would have to be entirely absorbed by the latter.
Cummins believed they were supplying the engine, so why take any hit if Tata’s trucks were not selling. By 1999, Tata Motor’s losses accumulated to Rs.4 billion and Ratan was willing to break the agreement. We renegotiated a fairer deal.
The third problem was a combination of bad strategy and poor execution. When the project started, the management decided that they didn’t need roadside mechanics to repair the engines. They believed the engine would be that reliable. Within a year of the launch, it became pretty obvious that that was not the case. The truck used to break down in the middle of nowhere and where would one go for full service? There were no parts. No mechanic had been trained to fix it, and so the driver would be stranded.
When I went for the TELCO (Tata Engineering and Locomotive Company, now Tata Motors) dealer meet, people physically attacked the general manager (sales). They had pawned their wives’ jewels to buy the trucks and they were stranded somewhere. There was anger, boiling anger.
Cummins had left the engineering to Tata Motors and they’d done a very poor job, initially. Normally you measure defects, defects per hundred vehicles. Here, we had hundreds of defects per vehicle. The damn thing had not been indigenised for Indian operating conditions. We acted immediately and put together teams to go after every defect.
There was a fantastic article written by Ray Stata of Analog Devices, which talked about the half-life of quality. The idea was to note all the quality problems and draw a line at half — or defects that contribute to half the problems — and work on those. I read this and said, “This is amazing! Let’s do it.” Our quality defect rates came down exponentially.
Then, a big part of the problem was the cost of the engine at Rs.450,000. Ratan said they couldn’t afford to pay more than Rs.120,000 — take it or leave it. But at that rate, we would lose money. Therefore, we began an intense cost-reduction effort. For every component, we put together a cost-reduction team. Within one year, we had brought it down to Rs.150,000 and kept going till we hit Rs.80,000. It made Tata Motors jealous, because they thought we were making obscene profits!
What was supposed to be closed was now roaring. In 1999, we were looking at capacity expansion. I was made the chairman of all of Cummins in India, including the listed entity. Finally, I gave up my storage space in the US.
Cummins was no walk in the park. I ended up with a legacy company, Kirloskar Cummins, which was established in 1962. Legacy companies have a lot of issues — complacent staffers for one. Within the first three months of joining, I sacked the entire senior team, two managing directors and all VPs except two — Chaubalad, Phadke — who seemed exceptional to me. My sweeping changes were foolishly hasty.
These changes were seen as this Tamilian guy coming to a Maharashtrian company and throwing out all the Maharashtrians. Those guys ran to Shiv Sena, and Balasaheb Thackeray was king during that time. I was sitting in my office in Kothrud, Pune, when a bunch of goons walked into my office, sat down and said that they would not tolerate this kind of thing. It was scary!
I went to Rahul (Bajaj). He was very helpful and advised that I meet Sharad Pawar. I did and he calmed everyone down. It was fine in the end, but I learnt that you have to manage the ecosystem. You need its support, or things can get ugly very fast. I took that lesson to Microsoft.
Within the company, I changed many things, like our genset business. Big generators were not selling then, so I started selling small generators. Every house, mall and telecom tower had a small one. We did something crazy too. We started buying engines from Simpson and Tata Motors and started assembling them into gensets. One day, the CEO came and we proudly showed it off. He asked us who gave us approval and we realised, “Oops, we had forgotten to ask.” Thankfully, it was selling well and so the CEO said, “Let’s make this a global business that you run from India!”
Then, I started an IT company because all my friends were doing that in California in 2000. It was called Cummins Infotech, but it didn’t really go anywhere for some time. It was a listed company. Still, I did things without asking headquarters! When they noticed it, they said it was losing money, so it couldn’t go on. I then went to Ravi Pandit of KPIT, which was weakening in those days. We merged the two badly performing companies saying, “We’ll make it a winner!” We also struck a deal saying we’ll start outsourcing Cummins work to KPIT Cummins and, for every dollar that we bring, we’ll get equity in the new entity. That’s how KPIT Cummins Infotech was born, and it became a spectacular success.
By 2004, India was contributing 20% to Cummins’ global profits. Very, very few companies did that. But that was possible only because we were very entrepreneurial and the company allowed us such freedom; no MNC manager can imagine that today. Tim Solso, who was the chairman and my boss, was a fantastic manager and mentor.
But, when I turned 40, I began getting restless. I had worked only in one company, while my friends in the Valley were building interesting enterprises. Here I was, wasting my life building diesel engines and generators, and dealing with troublesome unions!
In the midst of that funk, I got a call from a headhunter. He said it was for Microsoft. Back in 2003, I didn’t even do email. My secretary used to print them out and file them for me every day. So, I thought it was a joke. But the recruiter persuaded me to meet Bill Gates. In those days, he used to personally interview every senior hire. I thought that could be my only chance to meet Gates; so, why not?
Our meeting was at his office in Redmond. It was meant to last 20 minutes but went on for over an hour. What struck me most about Gates was his curiosity. He also wanted to know about the diesel-engine business, how it worked, emission standards, the trucks and so on. In the end, he said that my ignorance about tech was a good thing. I would rely on my common sense then.
At Microsoft, I was shocked at how small the company was in India. It was only $150 million and growing at 11%. I came from a diesel-engine business, which was growing 18% on a much larger base. My first task was to build a great team. You look at who’s who of the tech industry today — Neelam Dhawan, Rajan Anandan — more than a dozen tech company CEOs today were part of that eight-year journey of building Microsoft.
Things started going well and by 2008, we were growing at 35% CAGR. But obviously, so many bright guys working together wasn’t going to be easy. We would all fight like mad. Then, I remember going to (NR Narayana) Murthy one day and asking him how he had built such a great team. By then, Infosys was the largest customer for Microsoft India, and I used to manage multiple senior relationships — Murthy, Nandan (Nilekani), (Mohandas) Pai, Kris (Gopalakrishnan). Murthy and Nandan had become good friends and I would go to them for advice.
Murthy had great wisdom to offer. First of all, he said, a team has to be mutually exclusive and collectively exhaustive. Only Murthy could dream up something like this! So, you should have people with different skills. At Infosys, Nandan was phenomenal with marketing and ideas, Phaneesh was the sales guy, Shibu (Shibulal) and Kris were the best in technology and delivery. Each different, but together, complete. So, harmony is not important. In fact, he said, the founding team of Infosys would disagree on a lot of things, but he had laid out some guiding principles. One rule was: Infosys must always come first, then the team and then you. And the other rule, you should disagree without becoming disagreeable. That’s how I stopped striving for harmony. In fact, I realised that harmony is not good. It meant you are not pushing the boundaries.
Those days were extraordinarily challenging for Microsoft even in terms of public perception. There was so much hostility; every business was trying to use open-source software and reduce its reliance on Microsoft. Governments across the world were investigating it for abuse of power and monopolistic practices. India was no exception.
In 2005, (Dayanidhi) Maran became the IT minister and he was very young. He was impatient to make a difference, and his first speech was centered on the growing digital divide. I knew we had to act immediately and went to meet Maran.
We invited Maran to Seattle. He agreed to come, but said, “I’m India’s IT Minister and I’m coming to your company, not to Washington. So what’s in it for me?” He wasn’t asking for a bribe. He wanted a better deal for the country, in low-cost Windows for India. I knew Microsoft had developed a low-cost version called the Starter Edition, but Microsoft didn’t want to bring it to the market.
I went to Seattle and sat with my friend Will Poole, who was the head of Windows, and asked him if the low-cost version could be made available to India. I returned and told Maran, yes. My boss in the US exploded in anger, asking who authorised me to do this. He said, the company wouldn’t do it. I went to Bill, saying it was crucial for our relationship with the Indian government. He finally agreed but, he said, let’s limit its features.
That’s how Starter Edition was born and it had an Indian flag. It was a huge win. My strategy of asking for forgiveness instead of permission helped, as always! In 2008, when Nicholas Negroponte at MIT Media Lab wanted to give one laptop to every child at $100, bringing down the cost by attaching Linux, the Starter Edition saved the day for Microsoft.
Another incident I can’t forget is when Bill came to India. Maran knew he was coming. We were going to do a big announcement in Delhi but after day two, Bill was going to go to Tamil Nadu as a representative of his foundation. It was to launch a project when Jayalalithaa was the chief minister. Maran was furious. He threatened to open an IBM open-source centre the day Gates came to Chennai! The headlines would then be open source and IBM, not Microsoft! Sweat, sweat, sweat, sweat!
Gates Foundation had done a lot of work on HIV and also on education with the government of Tamil Nadu, so Bill was categorical that he would meet the chief minister. I was caught in between.
In the twelfth hour, we found a way out. After Bill meets Jayalalitha, that evening, he would go to Karunanidhi’s home for a cup of tea! Silly, but that was the face saver.
This is the second part of a three-part series. You can read part 1 here. Stay tuned for part 3.