The India Way – Book Notes

By newspaperport on March 22, 2010 • ( Leave a comment )

The India Way

by Peter Cappelli, Harbir Singh, Jitendra V. Singh, Michael Useem

Broad Mission and Purpose

- Government and Business, Not Government Verses Business (36)
  - As good economics has become good politics, business leaders now have a much more open dialogue with the government on both policy and execution. The altered relationship stemmed in part from the fact that company prosperity now depended far more upon executive performance than government patronage, and national prosperity depended more upon company performance than government edict. (37)
  - Eventually, business came to be seen as a cornerstone in achieving the country’s broader social goals. (38)
  - Many Indian executives preemptively engaged themselves and their companies in tackling societal shortcomings even without government entreaty, investing in medical clinics, employee housing and community services.
  - Indian enterprises realize their responsibility as economic organs of society.
    
    Companies , like Tata, showed that they were committed to a broader agenda of contributing to Indian society by sharing 2/3 of its annual profits with charities (pg 21)
    
    Mukesh Ambani (Reliance Industires) dwells more on creating jobs than on private profit

- Besides reforms, our purusharthas have also affected Indian business leaders choice to be socially responsible (40)
- Improvisation and Adaptability
  - Stifling regulatory environment in India prior to 1991 reforms (pg 19)
  - In learning to make do and even do better with less-than-stellar public provisions, business leaders and others have helped to embed an innovative attitude in the national psyche. (32)
    
    Case in Point: Tata Group
    
    Learned to operate in various environments , from extremely regulated conditions to a highly independent but much more competitive environment
    
    Pre-reform ,Tata had relied on low labor costs, post-reform, they added quality service to retain customers

- - Many Indian companies found themselves having to rethink their way of doing business, as international firms arrived
    - Open trade and investment policies forced Indian firms to improve their competitiveness by upgrading technology and by seeking international partnerships for capital, market access and technology.

Holistic Engagement with Employees

As entrepreneurs learned to build on the opportunities opened by the reforms, they also discovered special advantages that were specific to India- above all, the country’s trained and eager workforce. 33)
Employees understood that they were “one big family” (pg 21)

Four qualities (Broad Purpose and Mission, Improvisation and Adaptability, Creative Value Propositions and Holistic Engagement with Employees) of the India Way are played out in five distinct areas:

- People management (chapter 3)
- Executive leadership (chapter 4)
- Competitive strategy (chapter 5)
- Company governance (chapter 6)
- Social responsibility (chapter 7)

Chapter 2 “The Way to the India Way: Economic Reforms Drive Development of New Capabilities”

Reforms

The inflection point for Indian business and the appearance of the full India Way can be traced to India’s economic reformation of the early 1990’s. (pg 21)
- Context for the “Indian economic miracle”
  - One of the most diverse workforces in the world (22)
    
    18 official languages
    
    6 major ethnic groups
    
    Caste system that had not completely disappeared
    
    Very distinct wealth and poverty line
    
    Religious conflicts
  - The license raj (22)
    
    Imposed upon Indian business at India’s independence
    
    Severe bureaucratic regulations
    
    Strong government control borrowed from Soviet economic theories
    
    Highly regulated financial market meant few investment opportunities (23)
  - Poor infrastructure (highways, communication links)
  - Real growth close to zero due to population growth
- Factors in reform implementation
  - China and other nearby countries showed much clearer signs of growth
  - Geopolitical
    
    Collapse of the Soviet Union
    
    Brought policies into question
    
    Left India without a partner
    
    First Persian Gulf War
    
    Suspension of oil supplies from Iraq caused a spike in energy prices

- Key players in reforms (26)
  - Prime Minister P. V. Narasimha Rao
  - Finance minister Manmohan Singh
  - Commerce minister Palaniappan Chidambaram
- Results of the reforms (26)
  - Massive deregulation
    
    Only defense firms, atomic energy and railway transport remained under central authority
  - Import licensing was reduced for consumer goods and abolished for capital goods
    
    Import tariffs had previously been has high as 400 percent
  - India moved to a flexible exchange rate and the Indian rupee appreciated
  - Foreign reserves soared
  - Foreign businesses began to operate in India (30)
    
    IBM, Microsoft, Sun Microsystems
  - India became a favorite destination for direct investment (41)
  - Introduction of current account convertibility
    
    Allowed Indian companies for the first time to open offices abroad, hire employees abroad, travel for business abroad and engage consultants from abroad
  - Elimination of government control over price setting
  - Rising Status of Business Leaders
  - problems still to combat- education system not liberalized enough

Chapter 3 “Managing People: Holistic Engagement of Employees”

Indian business leaders credit their success to their employees and the process of jugaad (improvisation)
They know that motivated employees are innovative and dedicated
Dedication comes from a sense of mission and purpose as well as the ability to look beyond immediate self-interest
So, Indian business leaders try to connect their employees to the broader social goals and to create a sense of “task significance”, or seeing the link between the small tasks they perform and the bigger goal
Indian companies built employee commitment by creating a sense of reciprocity with the workforce, looking after their interests and those of their families and implicitly asking employees to look after the firm’s interests in return.
Extensive diversity programs are a common means to reach a broader labor market
American companies tend to use focus their human resource attention on cost reduction while Indian companies tend to see their employees more as capital investments to be supported and managed
- Employee first, customer second (motto of HCL)
  - Give employees whatever they need, even autonomy, so that they can meet the needs of customers (53)
- The inverted pyramid (HCL)
  - Employees encouraged to submit electronic tickets on what needed to be changed, including the personal issues
  - Public feedback on senior managers
  - more transparent organization
  - if you are willing to be accountable to your employees, then the way the employee behaves with the customer is with a high degree of ownership (54)
  - Vineet Nayar (CEO) on a campaign of “Destroying the office of the CEO”
  - HCL described by Fortune as the “world’s most modern management”.
- Trust Pay (HCL)
  - Moving away from the traditional practice in IT of having 30 percent of the employee’s pay at risk until goals accomplished. Instead, trust pay implemented (full salary with expectation of full employee commitment)
- Human Resource Priorities (57)
  - Indian business leaders are concerned with four main themes
    
    Managing and developing talen
    
    Shaping employee attitudes
    
    Managing organizational culture
    
    Internationalization
  - Indian firms were far more likely than their American counterparts to closely intertwine HR management and business strategy
  - Indian business executives were overwhelmingly of the view that competitiveness derived from people, not just for their own businesses but for India as a whole
  - Much greater stress in India on developing talent, much more likely to track human resource performance (62% in India, compared to 26% in US)
  - Most common mention of any human resource issue in Indian firms was to thank employees for their contributions (63) Followed by mentions of employee capabilities and efforts to train and develop employees as well as contributions employees were making to broader community
- Building Employee Capabilities
  - Three sets of practices define the holistic management of employees fostered by the India Way
    
    Investment in employees for current jobs and promotions
    
    Empowering Employees
    
    Creating a culture that pushes employees to act in the interests of the organization
  - Investment in Employees
    
    Recruit the best talent
    
    Target parents and family of potential hires (67)
    
    Looking for general academic ability, not skill
    
    Project Genesis to reach students from smaller towns with less access to good education
    
    Training center designed to feel like a college campus
    
    Managers have to keep their own skills current (68)
    
    Focus is on future performance, not accounting for past outcomes
    
    Looking and training outside the box
    
    Hiring and Training at Yes Bank
    
    Created an employee value proposition- a set of practices, programs and organizational culture that attracts the right kind of employees with the right attributes
    
    Hired with workplace diversity in mind for broad customer base
    
    Hired outside company and yet had several programs for internal development
    
    Training and Development follows
    
    Indian firms typically provide about 12 weeks of training
    
    Some companies provide two weeks of training every year for current employees
    
    The fact that Indian companies opt for the long term strategy of investing in employees despite the high turnover rates says a great deal about the commitment to employees in the India Way (71)
    
    Some companies (Wipro) track candidates outside the firm who they would like to attract and keep tabs on them and opportunities to hire them
    
    Indian human resource initiatives include identifying high-potential candidates and job rotational assignments to build cross-functional skills

- - Empowering Employees
    - Empowerment produces not only better ideas but stronger commitment to their execution
  - Create a culture that pushes employees to act in the interests of the organization
    - Role Modeling
      
      Business leaders see themselves as a keeper of organizational culture and as a teacher or role model for employees
      
      Employees learn about organizational culture by seeing what gets rewarded, noting priorities when strategic choices have to be made and observing how company leaders behave

- - Some lingering problems
    - Overlay of caste traditions causes respect to turn to deference (80)
    - Sometimes emotionality is higher than rationality (80)
    - Difficult to reach scientific, reasonable assessments of white-collar productivity (83)
    - Paternalism (84)

Chapter 4 “Leading the Enterprise: Improvisation and Adaptability”

While Western management principles are well known, Indian executives report they are not necessarily emulated. Rather over the past two decades, Indian business executives have evolved their own leadership style and developed ideas that reflect a unique cultural heritage and history. (90)
Emphasizing improvisation and adapt ability, Indian business leaders stress sideways movements (as opposed to a predetermined, straight forward path to reaching goals) into areas with promising prospects. Emphasizing broad mission and purpose, Indian business leaders also place special emphasis on personal values, a vision of growth and strategic thinking. (90)
Improvisation and Adaptability
- Trial and Error
  - Learning by doing
    
    Example: Deepak Parekh (chairman of Housing Development Finance Corporation) found out that customers didn’t just need money but counseling. He believes his company’s direction must be strengthened and nurtured by an analytical ability that assesses emerging environments and strategic alternatives and exploits opportunities as they emerge (not necessarily beforehand)

- Flexibility and Resilience
  - The business environment in India has all the dimensions of poor infrastructure, uncertain infrastructure and challenges from the regulatory side and with labor relations. These multiple challenges are much more than the typical consumer or trade challenge that you face anywhere else in the world. As a result, Indian management is a much better rounded management than people who have trained and evolved in more stable market places in the world. Indian business leaders have a much greater ability to cope with uncertainty, they don’t get disturbed by uncertain events, they keep an even keel and they are more balanced as they pick their pathway through. They also tend to be more creative as a result because they have to face these sorts of untoward situations almost on a daily basis, and therefore they have to really stretch into creativity across the whole business model. (94)
- Jugaad and Adaption
  - Jugaad is the ability to manage somehow in spite of a lack of resources (95)
  - Subhash Chandra of Zee Entertainment Enterprises said that in his experience Indian leaders seemed more adaptable than US business executives. “We can bring our level of thinking down and meet with a truck driver and deal with him at his level,” he said, “ and at the same time we can also bring ourselves up to the level of the head of the state if required and then deal with him at that level.” (96)

Broad Mission and Purpose

For Indian business leaders, the long term pictures were more a matter of reaching millions of customers with new kinds of products, or helping to lift vast numbers from poverty, or giving people of limited means what had only been available to the affluent, whether air travel, mobile communication or auto transport. (97)

- - The most important role for a leader today is being able to make sense of all the different trends that are in the market (Manvinder Singh Banga of Hindustan Unilever)
  - Another important goal is to have extensive communication with employees and customers and absolute transparency

Transformational Leadership
- Transactional leadership vs. Transformational leadership vs. non-leadership
  - Transactional leadership: striking deals with subordinates where the leader matches the individual’s interest and needs to specific job-related outcomes.
  - Transformational leadership (charismatic leadership) is when the leader influences the interests and needs of subordinates, inspiring them to care about the goals of the organization… you should identify with the success of the company because its mission is important, and you should work hard because you care about that mission. (104)
  - Non-leadership- a passive approach in which executives essentially leave subordinates alone and let the administrative systems manage their behavior. (management by exception)
- Indian management tends to choose transformational leadership
Expansive thinking
- Example: ICICI Bank’s Chanda Kochhar
  - The implementation of the banks goals were accomplished without bringing in experienced banking veterans who could help ICICI adjust to new business opportunities . Instead, the bank’s leadership opted to combine expansive thinking about the new markets with a trial and error approach to finding what worked in largely untested markets. (108)
  - Rather than waiting for customers to make a specific request and then responding with a product offering, the bank identified which clients most likely needed what products and then preemptively proposed an appropriate set of products. (109)
  - Kochhar’s approach involved a combination of farsighted judgment about how her vision should translate within all the markets, with an experimental approach to discovering what succeeded in each of them.
- A Team of Leaders
  - To find a team of leaders, need to draw on five criteria:
    
    Intellect or a high level of competence
    
    Entrepreneurial leaders with the ability to pick the right people for the job, people who are able to build and manage teams
    
    Have a can-do attitude
    
    The ability to withstand shocks without getting flustered or losing direction
    
    The ability to focus

Chapter 5 “Competitive Advantage Delivering the Creative Value Proposition”

- When Indian business leaders were asked to identify the two capacities that have been most critical to their exercise of leadership over the past five years, they placed their greatest stress on four internal capacities:
  - Visioning
  - Architecture and culture
  - Personal qualities
  - Human resource issues
- The Western business model believes that structure is the result of strategy. Indian business leaders agree but believe that the organization’s structure, especially its architecture and its culture, serve as a vital foundation. Therefore, structure also influences the organization’s strategy.
- Organizational Architecture and Culture
  - A Committed Top Tier
    
    Indian business leaders view building their top tier of mangers as the single most important component of company architecture. All players have to be aligned and loyal to the cause more than profits.
  - Pushing Decisions to the Front Lines
    
    There is a push for decentralization of decision making and a tolerance for decision error (eg. Zee Entertainment)
  - Customer Centricity, Indian Style
    
    Traditionally market driven business relies on research to identify the best customers who offer the highest profit margins. In Indian firms, however, leaders rely on their company’s culture to focus employee attention on customer service
  - Moving Sideways
    
    In complex environments like India, where you know the environment changes fairly dramatically and fairly quickly, there’s little benefit to extremely long term thinking.
    
    Try several different techniques at once
    
    Long term, supportive and trusting relationships among executives are essential for sideways strategy.

- Innovative Structure and Strategy Examples
  - Bharti Airtel: Reverse Outsourcing for Scale and for Speed
    
    Used “reverse outsourcing” to solve an architectural problem occasioned by its explosive growth.
    
    A key driver I his reverse outsourcing was theconstrained human resource position in which the company found itself as it was rapidly ramping up. Bharti Airtel could not have hired the more than 10,000 required employees. Other bigger companies were hugely resourced and could better handle this issue.
    
    Winning by losing
    
    By outsourcing, Sunil Mittal would no longer have to acquire and maintain equipment. He would instead simply pay a lump sum to the European vendors, according to the traffic they handled and the quality they provided. He also contracted out most of Bharti Airtels information technology services, ranging from customer billing to the company’s own intranet, in a $50 million deal with IBM.
    
    A major European CEO telephoned Mittal to warn him that he was giving away the life and heart of his business and that he’d regret it because it has never been done before.
    
    In 2008, Bharti Airtel outsold its competitor Reliance Infocom y over 40 percent
    
    Proved that structure sometimes determines strategy
  - Cognizant: Creative Value Propositions for New Customer Segments
    
    Decided to steer away from acquiring new customers and instead develop deeper relationships with fewer customers. The strategy was to turn away a certain number of prospective customers in favor of deepening partnerships with existing clients, and that in turn proved to be a platform for lateral expansion.
    
    Placed its headquarters in New Jersey, although bulk of engineers and other employees still work in India. Also haslocations in China in order to better service its customers through various time zones.
    
    Expects that customers will buy other products and advertise by word of mouth.
    
    Better serving existing customers by giving up potential customers
  - Hindustan Unilever: Architectural Innovation and Creative Value Propositions
    
    Conventional media only reaches half the population of India
    
    Hindustan decided to reach more customers by becoming involved with self-help groups for women. The women in rural areas of India would sell their products, simultaneously advertising the companies product and providing some income for this population.

- Summary
  - Indian companies give birth to fresh business ideas that combine a transcendent company vision, fresh value propositions for reaching new customers, innovative value chains for producing and distributing products and services and a strong emphasis on building architectural and cultural capabilities for the long haul. (150)
  - They viewed strategy as a general set of enduring principles for competing, an approach to business that they deeply encoded in the architecture and culture of the company.
  - Leaders emphasized a broader mission and purpose that enhanced both corporate agendas and the development of the Indian market.
  - Company executives brought substational innovation to the value proposition, as seen in Cognizant’s quality service at moderate cost.
  - Indian business leaders emphasized holistic employee engagement with customers, a mindset by which frontline employees would hear and provide what customers really sought, as shown by Bharti Airtel’s placement of mobile phones at low prices into the hands of millions of new consumers.

Chapter 6 “Company Governance: Fulfilling Broad Mission and Purpose”

The conventional American model of corporate governance is notable for its formal clarity and conceptual simplicity. Company directors are elected by the firm’s stockholders- one share, one vote to pursue and protect investor interests. (153) In theory, at least, these measures strengthened the monitoring hand of the board. Still, in 2009, the US Securities and Exchange Commission announced that it would investigate the governance failures at a host of financial institutions.
India also has its share of monitoring failures, Satyam Computer Services, for example (155-156). However, these are more the exception than the rule.

Perkins of HP has defined two kinds of boards:
- Compliance boards- directors see their role as enforcing regulatory rules and strictly monitoring management
- Entrepreneurial boards- directors view their role as a partnership with management to create new products and services
Corporate governance in India differs substantially from that of the US in its ownership structure. Indian boards tend to be entrepreneurial in nature.
- Some attributes of Indian business ownership
  - Many firms operate under an umbrella of business groups
  - A significant number of infrastructure firms are owned by the government
  - Ownership often remains concentrated in the promoter family’s holdings
- There are essentially four patterns:
  - Publically traded companies that have a majority share of their ownership in the hands of a business group, which is in turn controlled by a founding family (the dominant Indian form)
    
    Aditya Birla
    
    Godrej
    
    Anil Dhirubhai Ambani
    
    Reliance Industries
    
    Tata
  - Publicly traded but largely government owned companies
    
    State Bank of India
  - Stand-alone publicly traded companies (more familiar to Americans)
    
    ICICI Bank
  - Publically traded subsidiaries of multinational corporations (more familiar to Americans)
    
    Hindustan Unilever

- Just as Indian companies differed in ownership structure from many American firms, so did they differ in how owners sought to exercise their rights. The largest owners of America’s largest corporations were institutional investors who have proved reluctant or unable to exercise ownership rights. Business group companies in India have often set up long-standing “shadow” boards comprising family dominated operating committees. Indian executives generally placed less weight on the board’s monitoring than was common in the West. This doesn’t necessarily mean that they have less influence on their companies; the India Way simply conceives of a director’s role in more holistic terms.
- Value Based Governance
  - - Indian boards tend to be less rule based and more value based (161)
    - There is an inherent limitation in relying on rules
    - American firms less spirit based and more procedural
    - Many Indian directors not only act as the eyes, ears and enforcers for absent owners but also take on the additional role of working with company executives to set the right direction for the company
  - Socially Responsible Governance
    
    The single most distinctive feature of corporate governance across Indian companies was dedication to the interests of people beyond the stakeholders, including employees, customers and the community.
    
    American companies tend to distance themselves from a strictly “American” status; Indian companies identify themselves with India
    
    Social responsibility was particularly evident among promoter-led or family owned businesses
    
    Although social responsibility transcended company self-interest, executives and directors found material value in it. The immediate costs were balanced by the promise of long term financial advantage.
  - Securities and Exchange Board of India (SEBI)
    
    Created in 1992
    
    In 2000, SEBI put forward a set of corporate governance guidelines, including specific requirements for board composition and the roles of the chief executive, board chair and key committees. (Clause 49)
    
    Clause 49 remained more lax than its American Counterpart (the Sarbanes-Oxley Act of 2002) regarding financial disclosure and transparency. Some, however, have adopted these rules despite this.
    
    11 companies are listed on the New York Stock Exchange: Dr. Reddy’s Laboratories, HDFC Bank, ICICI Bank, Tata Motors and Wipro.
    
    However, 30% of companies have not yet brought their boards into 80% compliance with Clause 49’s stipulations.

- - Nonexecutives serving on boards in India are valued for their expertise, not their monitoring abilities. Everyone is concerned about the company’s evolution.
  - In the American model, immediate impact on shareholder value (not long term company value) is of much more concern to non-executives.
  - Many Indian business leaders predict a convergence of US and Indian business models
  - Infosys Technologies is in compliance with rules based governance but has managed to build a values based governance model.

Chapter 7 “Learning from the India Way: Redefining Business Leadership”

Financialization vs. the India Way
- Financialization- the belief that the shareholders’ interests are primary- became key to US economic theory in the late 90’s.
  - Businesses that act according to the financialization model are tempted to act in ways that increase profits at the expense of the community. To counter these incentives, governments typically impose strict and costly regulations.
- The India Way, by not resorting to financialization, preserves capitalism and avoids the excesses of the American model.
  - Corporate responsibility also enhances the reputation of companies.
  - When businesses begin with the broader interests of society as part of their goals, as happened so often among the Indian companies, they sharply diminish the need for regulation and monitoring.

Contrasting Stockholder-centric Management with Stakeholder Management
- Stakeholder based orientation: backing off from actions that will help a business to profit in order to pursue other goals, such as protecting the community
- it is easier to motivate employees about a social purpose than shareholder value
- doing good for the community helps to retain customers
- a holistic environment also helps to retain employees and keep them motivated
Can the India Way translate elsewhere?
- Businesses in India benefit from helping the community. Whether the investments in employees and in the communities would be as useful in countries where the infrastructure is better is an open question (199)
- Bill Gates recently called for a new approach to business, a new form of capitalism where business aims to solve social problems and not just make money, such as the course taken by J. Pierpont Morgan.
- The India Way is more than social responsibility; it is an approach to business strategy, to the pursuit of competitive advantage.
- The India Way as a guide for individual leaders
  - US leaders need to try not to emphasize shareholder value as much, need to incorporate a long term perspective
  - Need to focus less on new opportunities and consider how to deepen already existing opportunities
  - Should focus on strategy
    
    What is the company’s forte?
    
    Keep focus on this
    
    Who creates this competency?
    
    Employees