Mature international companies appear to do a more rigorous diligence exercise than our managements.
After a decade and a half of reforms, what big changes are there for us to see in the Indian managements? Clearly, there is a widening chasm that is separating the managements into two distinct clusters of those that have evolved and those that have not. The term “evolution” here connotes the ability of the management to be contextual in the changed business scenario, especially, with regard to international operations, competition, funding, and better governance. In a market where these are important additional elements of competitive advantage, those managements that have embraced this new paradigm serve their shareholders better than those that continue to place their bets only on licence, tax breaks, and other traditional tools of Indian entrepreneurship. While the progressive managements have indeed embraced more of the right practices, there remains a couple of areas—understanding and mitigating risks and shaping a strategy that is more sustaining inter-phasing with the environment—that are yet to be fully addressed.
For the progressive management teams in India, the most visible changes have occurred in the space of their core operations, such as inventory control, cash management, production efficiency, distribution channel management, cost management, staffing, employment practices and the like. In this aspect, the top companies in India compare well with their international peers. This is evidenced by parameters like energy consumed per tonne of cement produced, gross current assets of steel and engineering companies, inventory turn-around ratio, yield on treasury, and, at a more macro level, return on assets.
Areas of day-to-day management where the Indian management teams needs to close the gap include customer understanding and satisfaction, quality of manufacturing, service quality, shaping markets strategically, employment training, and organisational efficiency. We still do not have fully developed market survey techniques, a customer satisfaction index, and clear market segmentation, both in terms of customer demographics and behaviours. Therefore, there is a misty boundary between the value-for-money segment versus premium customers. This in turn leads to sub-optimal pricing efficiency and net sales margins as sales and support efforts might not be in true sync with the required product segments. So, we do not have ratios such as return on sales, sales per salesperson, business per customer, etc. which are tracked much more assiduously in the US than here. In the odd case that these ratios are tracked, we compare very poorly with our Western counterparts.
At a more strategic level, the differences between Indian managements and their Western counterparts abound. Generally the Western managements do a far better job of securing strategic systemic advantage that sets up the business for sustained success, whereas Indian managements generally carry on the battle for market at a more tactical level. Initiatives such as the WTO, trade blocs, bilateral treaties, multi-fibre agreement, etc. are conspicuous by their absence as Indian initiatives. We are getting better all the time, but most efforts have been defensive rather than proactive, and as a country we are yet to belong to any significant forum that will yield competitive advantage to the businesses that Indian managements operate.
Further, I think the Indian managements have not perfected the art of risk-adjusted-return decision making. When the initial bout of opportunities arose, most management teams in India jumped both feet first, even without looking! Many actually drowned in the folly. The more competent survived. But barely! While there were a number of external challenges, a more diligent risk assessment might have reduced the losses. Having got the confidence of doing business in a more open environment, most Indian managements have gained tremendously in knowledge and expertise. However, it is not clear yet as to whether the crucial lessons on estimating risks and anticipating challenges are fully on board and, if so, whether they are being heeded to. There appears to be a need for better preparation and developing fail-safe strategies. The evidence that this area requires much more attention is both the continued venturing into non-related areas and into overseas markets with relative speed and nonchalance. The more mature international companies appear to do a more rigorous diligence exercise than our managements appear to be doing in driving decisions, especially when dealing with new paradigms. Our managements’ decisions appear to be little more intuitive and based on their confidence in tackling challenges as they emerge, as opposed to perhaps a more conservative and objective decision making that the Westerners display. Fortune hopefully favours the brave!
At an even higher level of strategising, when Indian managements harbour serious global ambition, issues like country risk, overall portfolio allocation, governance architecture, level of localisation in each geography, level of centralisation and control that they will seek to exercise on their operations, selection of brand, global value chains, and the supporting logistics are all new areas that we have to be make much progress on. It is important to understand what inherent support systems—often not obvious as they are so embedded—are a prerequisite to the management’s capability to control and succeed in a new environment where such support systems might not exist. Similarly understanding the competition’s innate strengths and what support they enjoy in those alien markets are important to formulating competitive strategy. Understanding the culture of the workforce in a new environment takes time and serious effort, and is a major exercise in confidence building. Like pregnancy some of these are natural human processes that have limited malleability. Underinvestment in these efforts and overconfidence borne out of recent successes at home might build up avoidable future challenges.
This analysis is not intended as a comprehensive comparison between the Indian and Western managements. It is an assessment of the progress made by the Indian management teams over the past fifteen years as well as in the changed business context. The challenges that have been highlighted above are by no means an opinion on the outcome of their actions. The stakes have indeed gone up and we now see bold moves that are betting their whole store; moves that are perhaps necessary to make up for the time we may have lost over the past decades. The right prudential tempering of the energetic endeavours will go a long way in increasing the success of the Renaissance Indian Corporate.
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