The India Way
Peter Cappelli, Harbir Singh, Jitendra
Singh, & Mike Useem
The Wharton School
Peetr Kapalli
(embed “photos” video clip here)
2
Why do we care about Indian
business?
• It’s doing really well
– 2nd fastest growing economy in the world
– Major corporations succeeding internationally in
services where US wants to be
– India is a really big place
• US business is not
– Complaints about lack of social responsibility
– Lack of benefits for employees
– Overall lack of performance
3
4
Source: Central Statistical Organization, Government of India, 2009
Source: World Bank, 2009
Indian Business Leaders Think Differently
How CEOs Rank Their Priorities
•
•
•
•
•
•
•
•
1st Chief input for business strategy
2nd Keeper of organizational culture
3rd Guide or teacher for employees
4th Representative of owner and investor interests
5th Representative of other stakeholders (e.g.,
employees and the community)
6th Civic leadership within the business community
7th Civic leadership outside the business community
Focus on strategy and internal human capital drivers
of performance
Indian Business Operates
Differently
•
•
•
•
Social Mission is paramount
Business Strategy comes from within
Invest in and Engage their employees
Jugaad – a unique approach to solving
problems
8
Social Mission Drives Business Goals
•
•
•
•
•
(EMBED “K.KAMATH UNBANKED” VIDEO HERE)
Hindustan Unilever’s Project Shakti
ITC’s Mission Sunehra Kal
(EMBED “Smart Cards” video here)
Tata Group – 65% goes to charity
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Does “Mission” Pay Off?
• Motivation – task significance, social needs
• B. Muthuraman, the managing director of Tata Steel, “Our history in
corporate social responsibility has enhanced the group brand. That proved
invaluable for recruiting and retaining employees at Tata Steel.”
• Future customers remember
10
Strategy from Within
• Sticking with traditional customers, tackling
their persistent problems
• Little interest in chasing markets, M&A
• (EMBED “K@W MITTAL” here)
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12
Invest and Engage Employees
• IT new hire training averages 60 days
• “Pantaloon” clothing chain – 6 weeks training,
then 5 weeks in-house training
• Dr. Reddy’s – one year for all outside hires
• Infosys 6,000 trainee campus
• (EMBED “GOPALAKRISHNAN NO LAYOFF” HERE)
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Figure 3.5. How the Learning Function Provides Stategic Value
to the Organization
Capability building
Performance improvement
Leadership development
Talent management
Transformation
India
Strategic implementation
US
Business unit establishment
Innovation
Globalization
0
10
20
30
40
50
60
70
80
Percentage "To a large extent"
Sources: Survey of Indian companies, and American Society for Training and Development, 2006
90
Engagement and Transparency
• HCL’s “Employee 1st, Customer 2nd”
• MindTree’s Ethics policy
• Sasken’s “single status” policy
15
Figure 3.1. Extent of Human Resource's Involvement in the Organization
HR works closely with senior management in implementing organizational strategies.
HR works closely with senior management in creating organizational strategies.
HR has achieved a level of respect that is comparable with other depts. in the organization.
Senior management realizes that investments in HR make financial sense.
HR implements strategies and processes to drive business results.
HR is involved in the communication of the business goals.
India
HR is involved in the alignment of the business goals.
The role of HR is increasingly more focused on strategic interests.
US
HR involvement is essential in all major business activities and decisions.
HR is involved in the development of the business goals.
HR is involved in monitoring the achievement of business goals.
HR creates strategies and processes to drive business results.
0
10
20
30
40
50
60
70
Percentage "To a large extent"
Sources: Survey of Indian companies, and Society for Human Resource Management, 2006
80
90
Figure 3.4. Company Use of Human Resource Metrics
Recruitment and selection processes
Performance management
Compensation management/rewards programs
Benefits management
Employee relations
Health, safety, and security programs
Budgeting
Retention programs
Employee communication programs
Diversity practices
Employee engagement
Analysis of trends and forecasting
Leadership development
Human capital measurement
Retirement planning
Talent management
Skills development
Work-life programs
Succesion Planning
Employment branding
Corporate social responsibility
0
India
U.S.
10
20
30
40
50
60
70
80
Percentage "Frequently"
Sources: Survey of Indian companies, and Society for Human Resource Management, 2006
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The Principle of Jugaad:
Trial-and-error, adapt and adjust
• The “License Raj” and the culture of scarcity
• (Embed “India Traffic” here)
• Cardiac Surgery at Narayana Hrudayalaya
Hospital
• (Embed “K@W Apollo Hospital” here)
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Does the India Way Translate?
• It’s not a simple application of Indian culture
– Service to others fits the culture
– Empowerment does not
• New Start after 1991
– Multinationals never were very important
– Slate was wiped clean, old companies fell away
• Borrows from others – Silicon Valley
• But the blend and emphasis exists nowhere else
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Indian Business Rising
 India’s GDP had been rising by better than 9 percent per year (projected at 6 %
in 2009) – several times that of the U.S. and nearly that of China (in 2008 the
American GDP rose 2.2% in 2007, Brazil 5.4%, Russia 8.1%, India 9.6 percent,
and China 11.4%).
 The American GDP was 18.5 times the size of the Indian GDP in 1990 but the
ratio had dropped by 2007 to 12.6.
 Annual FDI in India rose from $100 million in 1990 to $18.5 billion in 2006.
 Annual Indian direct investment abroad rose from $2.5 million in 1990 to $10.6
billion in 2006.
 In 1990, Indian companies deployed $2 million in merging with or acquiring
companies abroad, but by 2006 that figure had reached $7.4 billion.
 In 1991, foreign companies had spent less than $1 million in merging with or
acquiring Indian enterprises, but by 2006 that figure had grown to $5.2 billion.
 Private equity investing in India rose from under $1 billion annually in the early
20
part of the 2000s to $14 billion in 2007.
Sunil Mittal Reverse Outsources at Bharti Airtel
 Strategy drives structure, but in the case of Sunil Mittal, chairman and managing
director of Bharti Airtel, his structure requires a change in the strategy.
 Forecast customers base in 2004: 75 million by 2008, 125 million by 2010
 As Reliance Infocomm outspent Bharti in infrastructure, Mittal was overwhelmed.
As a radical response, Mittal signed outsourcing contracts for the network and
information technology (all activities except the customer interface) with Ericsson,
Nokia, Siemens and IBM worth more than $1.1 billion.
 The reason: Airtel could not expand its staff and organization fast enough to meet
the rapidly growing customer demand.
 Mittal: “We’d need to hire 10,000 people, maybe 20,000, within two years. Did we
have the resources to do that? Were we the best company to attract that kind of
talent? The answer, clearly, was no.” The solution: selectivity in activities, turning
over critical activities such as network, IT, and billing, to vendors. Radical
outsourcing, value chain innnovation.
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Bharti Airtel Annual Revenue
and Number of Employees, 2002-08
300
30,000
Revenue
25,000
Employees
200
20,000
150
15,000
100
10,000
50
5,000
0
Employees
Revenue (Rs. billion)
250
0
2002
2004
2006
Year
2008
Source: Company records.
What are distinctive aspects of Indian
corporate Governance?
•
•
•
•
•
•
•
•
•
Family Owned/Promoter Owner 25%
Evolving in India, emulating the U.S. 25%
Driven Primarily by Regulation 13%
Inconsistency across companies 9%
Lack of strict enforcement 8%
Value based (India) versus rule based (U.S.) 7%
Importance of other stakeholders (employees, communities) 5%
Lack of Independence of Directors 4%
Not Much Difference between India and the U.S. 3.5%
Will Corporate Governance Practices
Converge to US Model?
• Unequivocal Yes 51%
• Yes, but with some distinct differences (culture,
context, etc) 12.5%
• Yes, but not with U.S. (Europe, U.K.,
international model) 19%
• Move towards the U.S., but middle ground
(U.S. is extreme) 8%
• No, convergence is not desirable 9.5%
Attributes of Non-Executive Directors
Director Attribute
Percentage of
Responses
Relevant professional exp
29%
Reputation
19%
Independence of thought
18%
Domain expertise
13%
Integrity
9%
Diversity of experience
8%
Commitment to job
4%
Focus on professional atributes – strategic vs compliance board
Possible Limitations
• Improvisation can also be destructive –
inconsistency, circumventing rules
• Transcendent purpose may have been a
necessity – ineffectiveness of government to
build infrastructure and help weaker sections
• Business government interactions are high in
transaction cost, raise cost position of the firms,
have potential for side payments
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Comparison to Baseline: PrincipalAgent Model
• Themes:
–
–
–
–
Values, vision, sense of legacy
Engagement, flexibility and resilience
Organizational architecture and culture are vital and adaptive
Trial and error strategy – higher incidence of exploration in
the mix of exploration and exploitation
– Transcendent purpose: broader agenda encompassing
multiple stakeholders, corporate, regional national agenda
– Stark contrast to the principal agent model, managerial
resource model
• These themes collectively define The India Way
(
How Indian and American Business Leaders Have
Changed Their Allocation of Time Over the Past Three Years
Items in bold: more than half of the executives affirmed)
Leadership Tasks
1. Regulatory/compliance issues
2. Reporting to the Board
3. Shareholder relations
4. Setting strategy
5. Media relations
6. Day-to-day management
7. Fostering workplace diversity
8. Customer relations
%
mor
e
time
98
72
58
47
31
28
26
22
%
less
tim
e
2
1
4
9
11
27
13
27
%
mor
e
time
41
41
41
93
31
24
21
62
%
less
tim
e
24
17
31
0
17
55
41
7
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Number of Students Completing Wharton School MBA
Program, 1990-2008
120
India
China
100
80
60
40
20
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Wharton School, 2008
Frenetic Growth: ICICI Annual Revenue
and Number of Employees, 2002-08
450
45,000
Revenue
Employees
350
Revenue (Rs. billion)
40,000
35,000
300
30,000
250
25,000
200
20,000
150
15,000
100
10,000
50
5,000
0
Employees
400
0
2002
2004
2006
2008
Fiscal Year
Source: Company records.
Indian Foreign Direct Investment Inflows and
Outlfows, 1990-2006
20,000
Millions of Dollars
18,000
16,000
FDI Inflows
14,000
FDI Outflows
12,000
10,000
8,000
6,000
4,000
2,000
0
1990
1992
1994
1996
1998
2000
2002
2004
Source: Euromonitor, Global Market Information Database, September, 2008
2006
Private Equity Investment in India, 2000-07
16
14
$ Billions
12
10
8
6
4
2
0
2000
2001
2003
2005
2007
Source: India Venture Capital Association, 2008