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HR’s Rising Star in India

In the hottest sectors of India’s booming economy, HR concerns are key business issues and good human capital management is a business necessity.

With an enormous, young workforce (the median age is 25) living in the largest democracy in the world, India is poised to become one of the global economy’s newest powerhouses. Since India opened its markets to foreign investment in the early 1990s, its economy has grown at an impressive average 8 percent annual rate, and the nation is now projected to become the world’s third-largest economy (behind China and the United States) within two or three decades, according to global investment banking and securities firm Goldman Sachs and other economists.

Most of the nation’s job and economic growth has been generated by family-owned Indian enterprises and multinationals in industries such as information technology (IT), telecommunications, business process outsourcing (BPO) and pharmaceuticals.

Maintaining high growth rates is a high priority for these industries because they face increasingly stiff international competition, most notably from China. But sustaining growth may be difficult, due—ironically—to a lack of qualified people.

Despite the fact that India has a population of more than 1 billion people, and a workforce of 422 million, its literacy rate is a low 59.5 percent (compared with 99 percent in the United States). Further, only about 48 million people—less than 12 percent of the entire workforce—are college graduates. And those who do hold college degrees often don’t possess the skills needed by the nation’s surging industries.

The human capital challenges facing some of India’s hottest sectors are similar to the skills shortages that some employers in the United States face today—and that more may encounter in the future as vast numbers of baby boomers retire, legal immigrant labor grows scarcer and America’s educational system continues to struggle to produce qualified new workers. (For more on these factors, see the cover story in the March 2005 issue of HR Magazine.)

But while similar challenges face both nations, the stakes are higher in India. For many companies in highly competitive sectors, a lack of talented workers constitutes a “make-or-break” HR issue, which makes the value of good HR management readily apparent to top executives. The profession, as a result, is gaining both respect and attention—the kind that comes from being on the hot seat.

The results from HR are mixed, however, with some observers complaining of large-scale failures and others pointing out high-profile successes.

Many Are Called, Few Answer the Challenge

While the HR challenges facing many Indian companies are both daunting and crucial to the continued success of their businesses, the number of enlightened HR leaders helping to tackle those challenges in a strategic fashion is small, some claim.

HR still has not reached the strategic level that it should be at, says Watson Wyatt’s Belani. “Even in the larger companies, they talk about being strategic, but in the main they’re not doing it. In the last five years, the way growth has happened, no one has thought about the real issues. Attraction and retention are all they can focus on. These are important, of course, but they don’t go further. They don’t look at the big picture. How many are actually doing workplace planning? They tell us they want to do human capital measurement, but very few really are.”

Of 50 companies in the automotive supply sector, Lahiri estimates that only three or four are trying out cutting-edge HR practices. “It’s a case of overpromise and no deliver,” he says. “From an intellectual standpoint everyone nods their head and says strategic HR is great. Whether leaders are engaging and motivating people on the ground is a question. We seldom come across a CEO client that loves the HR managers: They’re constantly complaining about how the HR guys are clueless on the business practices.”

Mostly, Indian HR managers seem content to leave the strategizing to others. “Too many HR people expect themselves to be in the back office rather than the front,” says Mansukhani. “Bottom line, HR people are immersed in transactions that don’t add too much value.”

Similar Challenges

CEOs in India report HR challenges that may sound familiar to U.S. HR executives:

1. Creating a high-performance culture.

2. Retaining talent.

3. Recruiting.

4. Moving from patriarchic, hierarchical management to a more team-based, informal organizational culture.

5. Linking training with performance.

6. Compensating knowledge workers.

7. Building interpersonal relationships/managing conflict.

8. Going global.

Source: CEO survey 2006, by Aneeta Madhok, dean, faculty of management studies, and professor, organizational behavior and HR, at the Narsee Monjee Institute of Management and Higher Studies.

Talent Management: A Top Concern for Top Executives

HR executives who do have success tackling India’s human capital management problems are doing so under a spotlight. Especially in those sectors where a company’s growth is limited by its ability to obtain and keep talented employees, India’s key human capital issues are key business issues—ones attracting the attention of top business leaders.

In fact, many CEOs in India recognized the need for good human capital management almost as soon as their markets were opened to foreign investment, says Wayne Brockbank, professor of HR management at the University of Michigan at Ann Arbor. Brockbank has been consulting in India since 1994, when he was hired by Indian companies to share HR strategies he and other experts had been extolling in the United States for decades.

In those early days, Brockbank recalls, CEOs in India “realized quickly that the human side of the business is what you have to compete with. Your people will save you, not your factories.”

Recognizing the importance of talent management, some CEOs who lacked specialized HR expertise in-house took on the role themselves. Brockbank cites ICICI Bank, the major Indian financial institution that is going head-to-head with mammoth Citibank in some markets.

“In 1998, ICICI had 8 percent of the financial services market in India,” says Brockbank. “Today it has 30 percent. Ask the CEO who guided the company during this period and he’d say his levers for creating this juggernaut are his HR practices. Initially, he actually became his own HR VP.”

Other CEOs in India went outside the HR pipeline to find executives with business acumen who could add a strategic HR perspective. For example, when the leadership team at Mahindra & Mahindra wanted strong HR leadership, they hired Yale University-educated Dubey as president of HR and corporate services. In a career path not usually seen in the United States, Dubey previously had been a CEO for two companies in the Tata Group, India’s largest private conglomerate.

“I had never been part of the HR function, but I dealt with a lot of HR issues when I was a CEO,” Dubey says. Now, he leads 150 HR professionals at Mahindra & Mahindra. “We do a lot of work that’s strategic to the success of our businesses: talent management, creating synergy, creating a culture of integration, mapping, succession planning and developing a global mind-set.”

The Importance of HR

The value that many top executives in India place on human capital management is clear.

“Whereas in the United States, HR often has to make the value case for human capital, it’s not lost on Indian CEOs,” says Salil Agrawal, head of the IT, BPO and Telecom Practice at ECS Ltd., a consulting firm in Gurgaon, India. “The moment CEOs talk about ramping up—which almost everyone is—finding people becomes paramount. Unless they partner with HR, they know they won’t be able to deliver.”

The importance of human capital management also is reflected in the types of executives who are hiring HR consultants.

“Six years ago, our clients were HR managers and directors, and we focused on traditional transactional activities like compensation studies,” says the Hay Group’s Lahiri. “Today, our clients include CEOs and line managers, and we’re asked to address strategic issues about managing growth and change.”

Ultimately, HR issues are business issues here, and those who tackle human capital issues in a way that meets business needs are prized—and sometimes rewarded with far broader responsibilities.

For example, at Skyworks Solutions’ facility in Hyderabad, India, the HR director is part of a triumvirate that runs the operation along with the site director and the controller, says Felando. The India HR director “sits on the board of directors of the Indian company. Along with traditional HR duties, he’s tasked with running the site from an operations perspective. He truly is strategic.”

The generally high value placed on HR management in India is illustrated by the results of a recent salary study commissioned by Hutchison Essar: Senior HR executives were the third-highest-paid executives in the country behind network architecture and sales executives.

This does not surprise Mansukhani, who says, “The way you manage HR issues in India can make or break you.”
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Dear Sir,
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