While the United States struggles to right itself from the worst economic crisis since the Great Depression, the Indian economy steams ahead with an annual growth rate of more than 9 percent. How did India sidestep the financial meltdown as supposedly more sophisticated operators in the U.S. stumbled?
Indian leaders have a different business model – the India way – which has little in common with the model from China, the developing country that gets most of the attention and where government guidance and massive investments in infrastructure push the economy forward. Indeed, the joke in India is the economy grows while the government sleeps. Companies there succeed despite a significant lack of public infrastructure.
The India Way
The Indian economy is not driven by low-wage manufacturing operations. It rides on the success of big corporations increasingly competing and winning in human capital-intensive industries such as pharmaceuticals, business services and IT, which have long been seen as the preserve of the West.
The India way takes a different approach to management and strategy, including different ideas and practices around learning. Differences begin with leadership: Indian business leaders are deeply involved in solving societal problems. Hindustan Unilever’s Project Shakti, for example, used the principles of microfinance to create a sales force in some of the subcontinent’s most remote regions. ICICI Bank describes its company goal as meeting the savings and banking needs of hundreds of millions of poor in India, to “bank the unbanked.” Bharti Airtel, one of the world’s fastest growing cellphone companies, is committed to bringing affordable communication to those who don’t have it.
Some of this doing good for society is necessary to do business in a country with massive problems and a government that cannot solve them on its own. Some of it comes from a long-standing tradition of corporate philanthropic giving and Hindu principles around service. These companies often put their money where their mouths are with respect to charity. Two-thirds of the profits of the Tata Group companies, for example, go to its charitable foundations and then back into Indian society. The Godrej Group built schools, medical clinics and living facilities for employees on a massive scale, unknown among American companies, where directors and executives are far more likely to see employee welfare as a drag on shareholder value than an asset for company growth. Pharmaceutical company Dr. Reddy’s Labs guaranteed to meet the health care needs for 40,000 children. Infosys built and staffed entire hospitals, rolled out a nationwide curriculum for school-age students — in part to improve its future applicant pool — and engaged in hundreds of other projects, all in one year. ITC’s rural initiative, Mission Sunehra Kal, the Golden Tomorrow, includes knowledge portals to advise farmers, help for them to band together to negotiate with suppliers, job opportunities for women and expansion of education involving five million people. This level of focus on mission can pay off in substantive effects on employees as recruits and current employees are often attracted to the notion of helping others.
Other practices come from within companies. Indian business leaders see their firms as organic enterprises where sustaining employee morale and building company culture are critical to execute strategy and business success. People are viewed as assets to be developed, not costs to be reduced, as sources of creative ideas and pragmatic solutions, as leadership at various levels in the company, as a source of competencies that drive competitiveness.
Consider how respondents in equivalent U.S. and Indian companies see their respective learning functions. Not only do the Indian companies see learning as important, they see it as especially important to build capabilities that drive competitiveness. U.S. companies are more likely to see learning as something that supports execution of strategy rather than a factor that creates competitiveness and business strategy.
What CEOs Say
One reason Indian companies place greater importance on learning is the priority CEOs give to talent development as well as the role they see themselves playing. Some of the CEOs from the 100 biggest Indian companies rank being a personal “guide or teacher for employees” above being a “representative of owner and investor interests” and right under managing culture and guiding strategy.
Companies make significant investments in their employees despite tight labor markets that make retention a challenge. Tata Consultancy Services, for example, has a seven-month training program for science graduates being prepped for business consultant roles, and everyone in the company receives 14 days of formal training each year.
Even relatively low-skill industries, such as business process outsourcing and call centers, receive roughly 30 days of training, and retail companies require about 20 days. New recruits for customer service jobs at retail company Pantaloon, for example, receive six weeks of training, including five and a half days in residence at a company training center followed by five weeks of on-the-job training directed by local store managers. In comparison, available U.S. statistics from Training magazine’s 2010 Annual Industry Report show average training expenditure per learner was $1,041, with an average of 40.1 hours of training per employee per year.
Indian companies make use of these investments to empower and engage employees. Vineet Nayar, CEO of fast-growing international IT service firm HCL, developed the motto, “Employee First, Customer Second” to get employees’ attention and reflect employees’ importance to business strategy. The idea was to give field-based employees whatever they needed, including autonomy, to solve customer problems on-site.
To ensure employees come first, the company requires 360-degree feedback on the 1,500 most senior company managers worldwide, including Nayar. Employees can evaluate their boss, their boss’s boss and three other managers. The 360-degree feedback, including the CEO’s, is posted on an intranet for all to see.
The software company MindTree adopted a host of innovative methods to foster ideas and execution, beginning with an entire menu of ways for employees to give feedback to executives, including “All Minds Meet,” a regular open house where the company’s leadership tackles issues on the spot, and the “People Net” intranet, which was set up to address grievances. The most unusual aspect of the MindTree approach is the company’s integrity policy: MindTree posts accounts of ethical failures and violations of company policies, and the lessons the firm learned from each, on its website. The idea is that by acknowledging mistakes, especially those made by leaders, the company encourages others to admit theirs and follow its lead to make changes.
The high-water mark for a culture of openness and flat hierarchy could go to the Sasken Corporation’s single-status policy. Every employee, from entry-level to CEO, is governed by the same policies: same offices, same travel policies — coach class — and the same criteria for compensation: no separate executive compensation policies. Those policies also include extensive programs for leave, including a six-week sabbatical after four years of employment.
The Performance Connection
Indian companies also appear to take assessing performance more seriously than their U.S. counterparts. Investments in employees and empowerment pay off through a direct relationship with competiveness. Indian companies’ ability to improvise solutions to tough, persistent problems is at the heart of their success. In a complex, often volatile environment with few resources and much red tape, Indian managers have learned to rely on their wits to circumvent their innumerable, recurrent hurdles. The Hindi term “jugaad,” an innovative fix, captures much of the mindset. Anyone who has seen outdated equipment nursed along a generation past its expected lifetime with retrofitted spare parts and rigged solutions has witnessed jugaad in action. Adaptability is crucial as well, and it too is frequently referenced in an English-Hindi hybrid, “adjust kar lenge,” which means “we will adjust or accommodate.”
The best-known contemporary illustration of jugaad may be the Tata Nano, a family car unveiled in January 2008 that came in near a price point of $2,500; almost $8,000 below the nearest competitor. The company did it by improvising: using plastic and adhesives rather than metal and welding, borrowing parts and ideas from motor scooters, and giving up on expensive and heavy standard equipment such as power windows and air conditioning. The Nano also began life as a social mission: to provide safer transportation for poor families who otherwise were traveling by motor scooter.
Given the large and intensely competitive domestic market with discerning and value-conscious customers, most of modest means, Indian business leaders also have learned to innovate. Bharti Telecom, which began as a startup and now has more than 100 million subscribers, beat much bigger competitors to the market through reverse outsourcing: farming out the technical operations of the new network to western companies. Cognizant Technology Solutions abandoned the traditional IT outsourcing model where representatives travel back and forth from India and created a new approach with headquarters in the U.S. and representatives based close to customers. Health care giant Apollo pioneered telemedicine with mobile diagnostic equipment, beaming information on rural patients back to urban-based hospitals.
So, how did India and its leading companies sidestep the financial and economic crisis that still holds down the United States? One reason is the Indian economy was not focused on finance. The financial industry remains well-regulated, focused on investing in companies. It never got into the gambling that can happen on Wall Street.
Further, prominent CEOs don’t often talk about financial deals, mergers and acquisitions, or other strategies focused outside the firm, as having anything to do with their success. Instead, businesses and the economy as a whole focus on traditional business operations. Indian companies see their competitive advantage as sticking to long-term customers, solving tough problems those customers face and doing so by developing solutions from within their own organizations. Finally, Indian CEOs didn’t pay much attention to financial markets or the finance industry. Many thought if they took care of their companies, profits and financial performance would follow.
Not all Indian businesses have this approach, and not all Indian business leaders are saints or sages. And these practices are not unique to India. But the extent and consistency with which Indian businesses pursue them is something quite distinctive from which all business leaders can learn.
Peter Cappelli, Harbir Singh, Jitendra Singh and Michael Useem are professors of management at the Wharton School of the University of Pennsylvania and co-authors of The India Way: How Indian Business Leaders are Revolutionizing Management. They can be reached at firstname.lastname@example.org.