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The India Way Peter Cappelli, Harbir Singh, Jitendra Singh, & Mike Useem The Wharton School.

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Presentation on theme: "The India Way Peter Cappelli, Harbir Singh, Jitendra Singh, & Mike Useem The Wharton School."— Presentation transcript:

1 The India Way Peter Cappelli, Harbir Singh, Jitendra Singh, & Mike Useem The Wharton School

2 Peetr Kapalli (embed “photos” video clip here) 2

3 Why do we care about Indian business? It’s doing really well –2 nd 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 4

5 Source: Central Statistical Organization, Government of India, 2009

6 Source: World Bank, 2009

7 Indian Business Leaders Think Differently How CEOs Rank Their Priorities 1 st Chief input for business strategy 2 nd Keeper of organizational culture 3 rd Guide or teacher for employees 4 th Representative of owner and investor interests 5 th Representative of other stakeholders (e.g., employees and the community) 6 th Civic leadership within the business community 7 th Civic leadership outside the business community Focus on strategy and internal human capital drivers of performance

8 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

9 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 9

10 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

11 Strategy from Within Sticking with traditional customers, tackling their persistent problems Little interest in chasing markets, M&A (EMBED “K@W MITTAL” here) 11

12 12

13 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) 13

14 Sources: Survey of Indian companies, and American Society for Training and Development, 2006

15 Engagement and Transparency HCL’s “Employee 1 st, Customer 2 nd ” MindTree’s Ethics policy Sasken’s “single status” policy 15

16 Sources: Survey of Indian companies, and Society for Human Resource Management, 2006

17 17

18 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) 18

19 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 19

20 20 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 part of the 2000s to $14 billion in 2007.

21 21 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.

22 Source: Company records.

23 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%

24 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%

25 Attributes of Non-Executive Directors Director AttributePercentage of Responses Relevant professional exp29% Reputation19% Independence of thought18% Domain expertise13% Integrity 9% Diversity of experience 8% Commitment to job 4% Focus on professional atributes – strategic vs compliance board

26 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 26

27 Comparison to Baseline: Principal- Agent 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

28 28 Leadership Tasks % mor e time % less tim e % mor e time % less tim e 1. Regulatory/compliance issues 98 2 41 24 2. Reporting to the Board 72 1 41 17 3. Shareholder relations 58 4 41 31 4. Setting strategy 47 9 93 0 5. Media relations 31 11 31 17 6. Day-to-day management 28 27 24 55 7. Fostering workplace diversity 26 13 21 41 8. Customer relations 22 27 62 7 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)

29 Source: Wharton School, 2008

30 Source: Company records.

31 Source: Euromonitor, Global Market Information Database, September, 2008

32 Source: India Venture Capital Association, 2008

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