Hay Group India Blog

As our recent research on India’s Most Admired Companies, prepared in collaboration with FORTUNE magazine in India, proved – size does not matter anymore. The Most Admired Companies are those that go beyond the metric of financial soundness, to focus on a more comprehensive approach involving quality, talent management, leadership, innovation, and CSR.

As we delved further into this aspect, we were able to identify five parameters to provide an effective prescription for managing an organization in uncertain times. My first advice to you would be – don’t overreact! Often, managers inadvertently transmit panic to employees, which trickles down to insecurity and demotivation amongst the workforce. Our research has suggested that recession-related downsizing does not work in the long run. Layoffs are sure to shrink costs, but companies who indulge in them often damage their ability to rebound and generate revenues again. The best companies are those that take their culture and values seriously and can identify precisely the kinds of people they are looking for – so that there is no ‘fat’ to skin off and a lean organization is in place. Corroborated by our research on the World’s Most Admired Companies, we have found that they see career development as an investment, which allows them to promote from within while being able to reward high-performers for their good work.

Thus, it is critical to focus on your people. The best companies are those that identify their critical players on an ongoing basis, and set in motion systems and processes that focus on retaining this pool of top talent. This also allows the workforce to remain engaged.

Additionally, fact-based insights about your workforce are critical to understanding the drivers of organizational culture and performance. An employee dashboard, a comprehensive tool to capture employee-related data, will be essential to pinpointing critical issues and taking decisive action. With this, an array of relevant surveys can be used to provide timely feedback from all constituencies – not just from the employees; ensuring that you manage your workforce by fact.

Besides the people aspect, our research shows that the World’s Most Admired Companies have been proven to be more ‘satisfied’ with the quality and breadth of their leadership; their pool of ‘high-potentials’; and, their effectiveness in developing future leaders. For such degree of success in developing leadership effectiveness, organizations must realize the importance of social and emotional skills in leadership success, instead of solely focusing on technical skills. Not only does this ensure more ethical leadership – as this allows for less tolerance of inappropriate top management behaviors; but it also ensures a more optimum use of competency models.

When times are uncertain, some organizations may opt for creating separate business units with clear P&L accountabilities; not realizing that the opportunities for growth lie in the remaining ‘white space’ and not the silos. To ensure that your organization is prepared for growth, there are four approaches that can be adopted: appointing a Champion to spearhead growth by uniting all quarters; forming a mid-level committee for deeper insights on opportunities; building a matrix that allows for greater communication; and, most importantly, focusing on the team right at the top.

What this boils down to is a crystal-clear focus on your people, culture, leadership, and clarity. 

We see a greater push towards M&As in India Inc., with not only deals by majors, but also other domestic players opting for the inorganic route. As India shifts gear to explore the opportunities presented by the global economy, this will generate greater foreign investment into India over the next decade and significantly more Indian-driven M&A activity. Many mid-sized companies in India, which have done well in the last three to four years, are looking at cross-border acquisitions. Also, the success that Tata and Aditya Birla Group have had in being able to acquire and integrate has given confidence to a wider cross-section of companies.

Previously, deal-making activity was resource-driven, with markets like Australia, Africa and South America being the most popular. Now, it is likely to be the US and Europe as assets are looking cheap due to the slowdown. 

There are a few key factors that are driving this sustained M&A spurt, the most prominent being that of more cash, because of sustained performance over the last three to four years. Companies are also getting more structured and skilled at screening, conducting due diligence, etc.; they have now got dedicated corporate development teams which are boosting their capability in the area.

My sense of it is that we can expect activity in FMCG and energy for cross-border transactions, while media and telecom are ripe for market consolidation. Companies will have to manage the integration process carefully to minimize churn of consumers and talent attrition. 

That said, India is not to be taken for granted when it comes to JVs. Unlocking opportunities in India will require a detailed and careful approach to strategy, an understanding of the role played by local regulators and above all, patience. Each market within India is very different – and independently large. New, foreign entrants would really need to tailor their value proposition to reach out to the massive Indian market. For companies investing in India or forming a joint venture company in India, it normally takes between five and seven years before they see any profits.  

As a checklist to consider, it is important for companies to understanding the motivation of owners/CEOs on both sides; as well as deeper, more genuine personal relations, in conjunction with getting detailed terms of the joint venture.

In my daily work interactions with owners of family-owned businesses, we keep coming back to one challenge – the dilemma of ‘professionalization’.

Professionalization could mean introducing professional management practices and systems, or the decision to bring professionals into the business – my focus here is on the latter and the five challenges it presents to owners.

01.  When is the right time to professionalize? As a business grows, there is greater demand on the owner towards day-to-day execution. Most entrepreneurs don’t thrive on this role, which fuels the desire to bring in a professional. It may also stem from the need for expertise in specific businesses such as Strategic Planning, SCM, People Management, etc.

Whatever the reason, the decision is often precipitated by something more urgent; a crisis that needs to be dealt with. So an idea borne out of rational need ends up being executed in urgency; a key reason why many attempts are doomed at inception.

The owner of a large industrial goods manufacturer had invested millions of his own money and borrowed heavily from the bank for setting up a massive facility. Though the company had never executed a project this large, he continued to use his in-house experts; and 18 months in, the project was in crisis. After 6 more months of escalating costs, time delays, and procurement issues, he decided to bring in a professional Projects Head. It took 5 months to find one – and his immediate mandate was to deliver the project on the cost and time parameters promised to the bank. 6 months later, this Projects Head was deemed a failure, because while the losses had reduced, the project continued to bleed; but more so because he had said the initial timeline and cost estimates were untenable – he had the audacity to demand the rationale behind them.

02.  Will the professional carry my legacy forward? Most owners nurture their business as they would, their children. The business is inextricably intertwined with their own identity. Till the recent past and in most cases today, this was partly resolved by passing business on to the rightful heir. A professional, however, is a largely unknown entity. Will he/she continue to bring to life the owner’s dream?

I once worked with the dynamic head of a fast-growing company, whose biggest driver was to create a global footprint. Having expanded the business in India and the US, he was selecting a CEO for the upcoming Europe operations. All he wanted to see in the candidate was passion for growth; and he ended up choosing a relatively inexperienced person from a small company, simply because he saw in him a passion to grow, a risk-taking appetite and shrewd business acumen. It worked well, and after five years when this CEO left, the owner found it very difficult to replace him. 

03.  Will the professional respect my values? The family structure provides the unique context of passing on values in a web of reinforced actions over time, while the professional brings his own values to guide his work ethics.

Once speaking to a successful CEO of a consumer goods company, who was the first professional to be brought in, I asked him the secret to his six-year success. He replied: “The owner and I connected from day one. We believed in the same things.” Both people in this case were ambitious, displayed drive and energy, and valued speed and the ability to make deals.

Another time, we worked with an infrastructure company whose owner was reluctant to professionalize HR, owing to a bad experience. He had hired a seasoned HR professional, who after just four weeks in the business, recommended that the owner fire some old hands. What he did not pick up was that most owners prefer to take their loyal people along as far as possible – so while his diagnostic may have had merit, it was definitely not a good starting point. He was out in six months.

04.  Will the professional commit to my business, even in adversity? Professionals are generally wired to deliver pre-set y-o-y objectives, while owners want professionals who will commit to their business over time. Results-orientation and loyalty are the two most-valued traits in their eyes.

05.  Where and how do I find the right professional? Often, the owner has to personally get involved. Professionalizing is a mutual learning process, weaved by the appetite of the owner to let go and of the professional to make something of it.

Here are some key questions an owner could think about to prepare for this journey.

• Why do I want to professionalize?
• What will I do after handing the work over?
• Which values will I never compromise on?
• Am I ready to respect and trust the expertise/judgement of the professional?
• Am I ready to persevere through a tough selection process?
• Am I prepared to commit to his/her success?
• What is my role in this?
• Am I clear about my expectations from him/her? 

The idea of dealing with something as neatly bounded as a ‘business strategy’ certainly has its obvious attractions. Alas, strategies don’t achieve results; people do! No strategy can work unless the organization has the right people, with the right skills, in the right roles, motivated in the right way, and supported by the right leaders.

Especially today, when lean and mean organizations are scrambling to do more with less and the ever-dynamic modern organization makes it difficult to specify roles and responsibilities; an engaged workforce is the best source of competitive advantage. Not only do companies with high levels of employee engagement show 40 per cent less turnover than their peers, Hay Group research has also proved that highly engaged employees are 10 per cent more likely to exceed performance expectations. Moreover, engaged employees display higher levels of the two types of commitment: affective commitment (their attachment to the organization) and continuance commitment (their desire to remain a part of it); thus making them more likely to go above and beyond formal job requirements and enabling greater levels of productivity.

While this idea has a certain appeal to it, we still find that workplace productivity is still haunted by a silent killer – employee frustration. Employees can be frustrated for various reasons: inadequate resources to get the job done, a manager who does not listen, or an unsupportive work environment. These factors frustrate even the most motivated of employees, who although want to work simply cannot as they are not enabled for it!

Our research has found that Employee Enablement is the missing piece to the engagement story. Employees who are engaged but not enabled to be able to do their jobs represent a lost opportunity for organizations; constituting about 20 per cent or more of the total workforce. As you will appreciate, this is a bit of an undertaking that makes enablement an urgent prerogative.

So, how can you stop your best people from walking? The first, and foundational step, is to develop systems that provide better support for employees’ success. There should be no barriers for employees to get their jobs done, including bad business practices such as duplication of efforts. Operating efficiency concerns are particularly important in high-workload environments.

Second, putting the right people in the right roles will ensure that all roles are optimized. In deploying people to roles, manages must take into account the requirements of the job as we well as the employee’s ability to meet them. Wrong employees placed in the wrong roles can quickly become disillusioned and unproductive.

Finally, employee enablement requires that the organizational leaders must be equipped with the right competencies to create a positive work climate, thereby engaging their teams. Our research shows that business results can vary by as much as 30 per cent purely due to the differences in the work climate created by the team managers.

If organizations succeed in rolling out these measures, I am confident they will reap the rewards of a highly engaged workforce, where employees are willing to put in discretionary effort, which the organization has not asked of them, to make the organization a further success. And in today’s stormy economic conditions, this is perhaps the most sustainable source of competitive advantage.

The global economic meltdown has radically changed the deal landscape. Research findings from Hay Group reveal that there are several critical success factors for all executives to keep in mind which make the difference between winning and losing in the M&A game.

Whilst the collapse of debt-fuelled financing put the brakes on M&A activity,
the virtual disappearance of private equity investors, reduction of sovereign fund investment and a rush to divest non-core assets to shore up balance sheets, has increased opportunities for strategic M&A investments. And, as always with M&A, the stakes
are high. Has deal-making become a game of Russian roulette for those who pulled
the trigger and chased cheap deals?

This is what led Hay Group to look again at how executives are maximising value from their M&A activities. Are businesses now paying a higher price than they expected? Partnering with merger market, part of the FT Group, we asked global business leaders about their experiences of integrating newly acquired businesses.

Our research revealed that those actually running businesses were not necessarily aligned with shareholders on the rationale of mergers or acquisitions. Whilst half
of respondents said growth was a driver for M&A activity, only four per cent aimed to increase shareholder value through deal-making.

As Israel Berman, head of Hay Group in Europe, said in his opening remarks at this year’s Hay Group International Conference in Berlin, what differentiates the best companies from the rest is a powerful corporate culture that drives great performance, enabling teams and individuals to realise their strategy and their own potential.

Culture drives performance through three channels, explained Hay Group’s Jean-Marc Laouchez:

• Shared purpose and values – the true heart of culture.
• Organisational messages and reinforcements – role models, organisational design, management systems, brand language.
• Actions and behaviours – clarity about desired behaviours, managing performance in line with these, reward programmes that reinforce them.

It is critical to have alignment between the organisation’s core values, the messages it sends to people and the behaviours it expects of them.

And alignment has proven results. Hay Group’s research finds that organisations with well-aligned cultures show consistently better results than other companies, with an average five-year return on investment that is twice as high and gross profit margins that are 27 per cent higher.

The changing face of reward examines how the business drivers of reward are changing due to the impact of the global downturn and other macroeconomic trends in the global economy. The study is based on face-to-face interviews with senior HR specialists from over 230 companies in 29 countries, which collectively manage more than 4.7 million people and generate annual revenue streams of approximately US$4.5 trillion.

Across all sectors and regions, organizations are struggling to re-build profitability following the recession. With revenue growth hard to come by, they are focusing on cost containment and performance improvement as the paths to profit growth. This requires them to balance four, often conflicting, challenges: cost containment, performance improvement, talent engagement and risk management.

In particular, the tension between cost containment and talent engagement was a very strong theme to come out of the research. Organizations are very concerned about retention and motivation, particularly for top performers, high potentials and those with scarce skills. However, the option of paying more for retention or performance is often no longer available and companies are focusing more on intangible rewards (such as motivational leadership, challenging work and career development) to boost engagement.

New Delhi/Mumbai, December 4, 2012: Hay Group, global management consultancy, today released the annual Top Executives Compensation Report 2012-13, revealing that the compensation of CEOs and their top executives is set to increase by a modest 9 per cent & 9.4 per cent respectively in the coming year. This exhibits a dip from the double-digit growth witnessed in previous years.

The Top Executive Compensation Report 2012-2013 features insights from about 158 organizations across the sectors of Auto, Chemicals, Basic Resources, Oil and Gas, FMCG, Retail, Construction and Materials, Telecommunication, Utilities, Industrial Goods, and Transportation. It is designed to enable organizations to understand prevailing compensation practices and trends in India.

Sridhar Ganesan, Rewards Practice Leader, Hay Group India explains, “Hay Group research has found that markets, strategy, culture, and ambitions are the four real drivers of modern-day executive compensation. This is important to keep in mind as data analytics on executive compensation have to be interpreted beyond just the stated numbers”.

Statistical analysis between the Hay Level (proxy for job contour in terms of scope, scale, size, complexity, etc.) and Total Cost to Company (CTC) found a co-relation of 0.26 – indicating that other factors, besides just the organization’s contour affect CEO compensation. 

Nothing stays the same–ever–and your current leaders won’t be around forever. So who are the people who will lead your organization in the future? Having identified them, how do you develop and retain them? Which critical activities will provide the right experience for the fastest growth and development?