Just when Calcutta's corporate chieftains were all ears, Ghoshal told a tale of two places to introduce the concept of "smell" that distinguishes hugely successful businesses from one that is coasting along with "satisfactory underperformance" towards the edge of a precipice.

Picture this: downtown Calcutta in July, when Ghoshal comes down from the London Business School for his mandatory annual holiday in the city. Temperatures at 100 plus, humidity near the hundred-mark. A visit made to keep his children in touch with his home city, but a holiday that actually leaves him tired.

Now imagine the forest of Fontainebleau in France, the site of INSEAD, the business school where Ghoshal taught for a few years. The forest is so beautiful and energising, Ghoshal said, that heoften felt like jogging and jumping when all he wanted was a relaxing walk.

Ghoshal's point: "the smell" of an organisation often indicates whether it is heading for the edge of a precipice or for new heights of excellence.

"Unfortunately many managements end up creating a downtown Calcutta in July inside their organisations," he added.

The flip side is that it is possible to create the "smell of the forest of Fontainebleau"--the atmosphere that makes people do things--inside an organisation. And one can convert the smell of downtown Calcutta in July to the smell of the forest of Fontainebleau, and sustain it.

"But you cannot manage third generation strategies with second generation organisations and first generation managers," Ghoshal told an audience that had the likes of Sudhir Jalan, president of organisers Ficci, GP Goenka of Duncans and Bata India managing director Keith Weston, apart from all the chamber presidents.

There are scores of books by experts on how to manage change, and theirprescriptions are not very startling. So why is something so easy so hard to achieve?

Then Ghoshal launched his broadside, pointing dramatically at the audience. "The real problems are not recalcitrant labour, not poor infrastructure, not governments," Ghoshal said. "They lie in this room, in the heads of top management!"

"Look below you, 16 levels below, at the operating units, and check out the `smell'. Are your frontline people always trying to excel? Or are they working in a dead circle of constraint, contract, control and compliance imposed on them from the top?" he asked.

Management today is a victim of dead theories, Ghoshal stressed, which creates constraints for employees. Suggesting a shift beyond William Whyte's organisation theory, Ghosal said the strategy-structure-systems model was created for an era when capital was the scarce resource.

In the 1910s and 20s, it was wonderful. But it is this doctrine that more and more companies in the west are giving up while more in India are adopting,Ghoshal lamented.

"Today, the real scarce resource is knowledge and initiative," he said.

Companies must now move from strategy to purpose, from structure to process and from systems to people.

The "purpose" has to be shaped by the top management. The "process" part views the organisation as a set of roles and relationships, against the earlier aggregate of activities and tasks. Lastly, the shift from systems-- where people are replacement parts--to "people", where each individual is helped to become the best he or she can be.

Ghoshal stressed that companies will have to move beyond the earlier model and not away from it. Radical performance improvement comes only from a "sweet and sour" recipe--the sour being the usual focus on resource productivity and cost controls, the sweet being the creation and pursuit of opportunities that lead to growth.

Introducing the concept of "stretch", Ghoshal said "it is something that induces each employee to do more and not less. His attitude then drives hiscolleagues, his organisation and his company."

But he cautioned that "stretch" has to be coupled with self-discipline to lead to radical performance improvement.

Ghoshal warned against the period of "satisfactory underperformance" that precedes a decline and fall. During this time, a company is happy making a "billion guilders of profits every year" ignoring the fact that the actual return on assets is very poor.