competitiveness and indian firms

7/31/2019 Competitiveness and Indian Firms

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207

Bracing for MNC CompetitionThrough Innovative HRMPractices: The Way Ahead forIndian Firms

Ashok Som

Executive Summary

With increasing globalization, firms are entering a dynamic world of international

business that is marked by liberalization of economic policies in a large number of

emerging economies like India. To face the challenge of increasing competition that

has resulted from liberalization, Indian organizations have initiated adoption of

innovative human resource management practices both critically and constructively

to foster creativity and innovation among employees. With the help of 11 in-depth casestudies, this article tries to understand how innovative HRM practices are being

adopted by Indian firms to brace for competition in the postliberalization scenario.

2006 Wiley Periodicals, Inc.

INTRODUCTION

The decades of the 1980s and the 1990s witnessed an upheaval in economicthinking and brought about major societal changes. Firms entered a more

dynamic world of international business with globalization of world markets,marked by the emergence of new international business blocs and economic lib-eralization of most developed and emerging economies. The dramatic surge inmarket reforms throughout the developing world meant that more than 75developing and postsocialist economies, with a combined population of morethan 3 billion people, aimed at integrating themselves into the global market sys-tem. Dozens of these economies in Asia, Latin America, and central Europe have

Ashok Som is associate professor and co-chair in the Management Area at ESSEC Business School,

Paris. He received his doctoral degree from the Indian Institute of Management (IIM), Ahmedabad.His research has been published in Human Resource Management, the International Journal ofHuman Resource Development and Management, Keio Business Forum, and the Asia CaseResearch Journal. He is currently the representative of France at the International Management Divi-sion, Academy of Management, USA. Web site: http://www.ashoksom.com ([email protected]).

Thunderbird International Business Review, Vol. 48(2) 207237 MarchApril 2006

Published online in Wiley InterScience (www.interscience.wiley.com).

2006 Wiley Periodicals, Inc. DOI: 10.1002/tie.20093


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succeeded in attracting large flows of capital, and, most strikingly,more than 30 countries have succeeded in establishing stock marketscapable of attracting international portfolio investments. These

changes have had profound implications for the entire world econ-omy and are leading to a reallocation of global savings and invest-ment. These changes have propelled the most dynamic of thereforming countries into unprecedented levels of sustained economicgrowth and reshaped global capital markets by introducing newopportunities for both portfolio and foreign direct investment. India,one of the most important emerging markets in the world, with atremendous potential for sustained high rates of economic growth, isincreasingly becoming a key player in the world economy.

The liberalization of the Indian economy created a dynamic businessenvironment that has resulted in hypercompetition. To face thishypercompetitive environment, organizational adaptations and alter-native adaptations of innovative practices have been put in place byfirms for survival and for sustainable corporate performance. Thisarticle attempts to examine how Indian firms have braced for com-petition through creative and innovative human resource manage-ment (HRM) strategies and practices in the aftermath of liberaliza-

tion of the Indian economy in 1991 and the HRM adaptations thathave been relatively more effective in this dynamic context. This arti-cle presents a theoretical framework of aligning effective innovativeHRM strategies and practices for effective corporate coping in a com-petitive market. For the purposes of this article, innovative HRMstrategies and practices are defined as:

Any intentional introduction of HRM program, policy, practice,

or system designed to influence or adapt employee attitudes and

behaviors that is perceived to be new and creates current capabil-ities and competencies.1

In this article, HRM strategies and practices indicate a proactivepro-cessthat has been well accepted and recognized in the literature andis being used only recently by Indian corporates as part of their over-all business strategy.2 The Indian context provides an excellent illus-tration of the phenomenon of large-scale entry of multinational cor-porations (MNCs) and the resultant changes in the competitivestructure of the markets where more creative, innovative HR prac-tices keep employees motivated.3 This article presents evidence from11 different in-depth case studies that have dealt with the variousfacets of HRM practices. The findings reveal how Indian firms areadopting, aligning, and integrating their strategic initiatives with

Ashok Som

208 Thunderbird International Business Review DOI: 10.1002/tie MarchApril 2006

The liberalization

of the Indian

economy created

a dynamic busi-

ness environ-

ment that has

resulted in

hypercompeti-

tion.


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innovative HRM practices in order to be competitive in a new,dynamic business environment.

ABOUT THE RESEARCH

This article is based on case-based research conducted over a periodof five years (19982003) in 11 large Indian organizations in nineindustries. Each organization, a leader in its respective industry, hasundergone an extensive restructuring process to equip itself for theimpending competition that arose due to the phased deregulation,liberalization, and privatization initiated by the Indian government in

1991. A number of managers were interviewed from these compa-nies, and primary, secondary, and archival data were analyzed. Theseorganizations were also monitored to record substantial changes intheir business and HRM strategies during the last five years. Fromthis research, case studies have been written on some of the organi-zations. The focus of the research was to understand the innovativeHRM practices that can help Indian corporates improve performancein a hypercompetitive environment.4

THE INDIAN ECONOMY

India has been identified as one of the largest emerging markets, withan immense economic potential for sustained economic growth.5 Ithas a billion customers and one of the worlds largest pools of tech-nical, scientific, managerial, and entrepreneurial manpower. It is oneof the worlds leaders in the areas of research and development(R&D) in information technology, and nuclear, space, and rocket

technologies. It is among the first three countries in the world thathave built a supercomputer (the fourth-generation PARAM) on itsown, with the United States and Japan being the other two. India isamong the six countries in the world that have launched their ownsatellites. It has the largest set of remote-sensing satellites, theINSAT. It is also one of the worlds largest diamond-cutting and -polishing destinations. India is among the six largest industrialeconomies and five largest agricultural economies. It has been grow-ing for the past 20 years, at an average growth rate of about 6% perannum, the rate exceeding 8% in 2003. Yet it has a long way to go.The journey of Indias liberalization of macroeconomic policiesstarted in earnest in 1991 to modernize the economy and actualizeits economic potential. It began moving away from a closed, regu-lated licensed economy to a dynamic market economy.

Bracing for MNC Competition Through Innovative HRM Practices: The Way Ahead for Indian Firms

209Thunderbird International Business Review DOI: 10.1002/tie MarchApril 2006

India has been

identified as one

of the largest

emerging mar-

kets, with an

immense eco-

nomic potential

for sustained

economic

growth.


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LIBERALIZATION OF THE INDIAN ECONOMY

The 1980s in India witnessed a rather limited deregulation in indus-

tries such as cement. By contrast, the reforms of the 1990s in theindustrial, trade, and financial areas, among others, were much widerand deeper. The most significant steps in the liberalization processwere rationalization of taxes; selective and phased lowering of exciseduties; setting up of the national stock exchange with electronic oper-ations; opening up of the insurance, petroleum, and retail sectors;reform of Indias labor laws; and dereservation of small-scale indus-try products. All these changes have contributed significantly towardhigher productivity in the economy. Real GDP growth, which had

dipped to 0.9% in 19911992, recovered to 5.1% during 19921993,representing one of the fastest recoveries from a macroeconomic cri-sis. Growth rates have risen considerably since then. Foreign currencyreserves, which had fallen to almost U.S.$1 billion in mid-1991recovered swiftly and stood at U.S.$6.4 billion in March 1993,U.S.$42 billion in March 2000, and U.S.$104 billion at the end of2003. The proportion living below the poverty line has fallen from36% to 27%. These results and possibilities have generated consider-able interest in the Indian economy on the part of the international

business community, international institutions, and scholars.

A decade of opening of the economy has produced new dynamism,most dramatically in the information technology sector, as in others.The new technologies, especially information technology and biotech-nology, have provided fresh opportunities for economic and socialdevelopment. The current positive trend has been witnessed in mostsectors of the economy such as the manufacturing sector (automobiles,auto components, textiles, building materials, electronics, foods, and

cosmetics) the service sector (IT software, business processing, bank-ing, insurance, consulting, merchandising, and retailing), and R&D-intensive sectors (pharmaceuticals and software development). Demo-graphic trends, especially a slowing population growth rate and a risingshare of people of working age, are contributing to the rising income.The world is waking up to Indias crucial position as the largest democ-racy and as a dynamic economy, if still a low-income one.

It is important to note that despite the global slowdown in

19971998, the average growth rate during 19941998 was 7%, sig-nificantly higher than the growth rate of 5% achieved during the1980s. Moreover, the growth in the 1980s was not sustainable, as thelack of export dynamism brought the infamous balance-of-paymentscrisis at the end of that decade.

Ashok Som


The world is

waking up to

Indias crucial

position as the

largest democ-

racy and as a

dynamic econ-

omy, if still a

low-income one.


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INDIAN ECONOMYS RESPONSE TO LIBERALIZATION

The Indian economys response to liberalization appears, by and

large, to be effective. Critics of the liberalization process were con-vinced that opening the economy before giving it a chance tobecome competitive was parallel to throwing the industry to thewolves (Som, 2002). Results show quite the opposite of what skep-tics believed. The success in exports, in fields such as informationtechnology, in which competition is fierce and technological changerapid, and success in auto components and pharmaceuticals showsthat the industrial sector overall has responded positively to the inten-sified competitive pressures. For example, in the automobile industry,

15 of the worlds major automobile manufacturers are now obtainingcomponents from Indian firms. In 2002, the value of exports of autocomponents was U.S.$375 million. In 2003, it was close to U.S.$1.5billion. Estimates indicate they will reach U.S.$15 billion within thenext six to seven years. Hyundai Motors India (HMI) is about tobecome the parent Hyundai Motors Corporations (HMC) globalsmall car hub. In 2003, HMC sourced 25,000 Santros from HMIsplant in India. By 2010, HMI is targeted to supply half a million carsto HMC. It was only in 1999 that HMI got its first outsourcing

contract, and already, in 2003, 20% of its sales worldwide came fromthis outsourcing hub. It is exporting cars to Indonesia, Algeria,Morocco, Columbia, Nepal, Sri Lanka, and Bangladesh. Ford Indiagot its first outsourcing contract in 2000. Within three years, out-sourcing accounted for 35% of its sales. Ford India supplies to Mex-ico, Brazil, and China. The parent Ford is sourcing close to $40 mil-lion worth of components from India and plans to increase this in thecoming years. Ford India is already the sole manufacturing and sup-ply base for Ikon cars and components. These are being exported

to Mexico, China, and some African countries. Toyota KirloskarMotors chose India over competitive destinations like the Philippinesand China for setting up a new project to source transmissions.Europes leading tractor maker, Renault, has chosen InternationalTractors (ITL) as its sole global sourcing hub for 40-to-85-horse-power tractors.

In other industries such as retail, textiles, and chemicals, Wal Martsources U.S.$1 billion worth of goods (i.e., half of its apparel) from

India. GAP sources U.S.$500600 million worth, while Tommy Hil-figer sources U.S.$100 million worth from India. Asian Paints hasproduction facilities in 22 countries spread across five continents. Ithas recently acquired Berger International, which gives it access to 11countries, and SCIB Chemical SAE in Egypt. Asian Paints is the mar-



The Indian econ-

omys response

to liberalization

appears, by and

large, to be

effective.


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ket leader in 11 out of the 22 countries in which it is present, includ-ing India.

In the R&D sector, more than 70 MNCs, including Delphi, Eli Lilly,General Electric, Hewlett Packard, Heinz, and Daimler Chrysler,have set up R&D facilities in India in the last five years. In 1998, Intelhad 10 people working in India; today, it has over 1,000. Eli Lillysresearch facility at Gurgaon is its largest in Asia and the third largestin the world. GEs John F. Welch Technology Center in Bangalore isthe companys largest outside the United States. With an investmentof U.S.$60 million, it employs 1,600 researchers. The Indian centerdevotes 20% of its resources to fundamental research with a five-to-

ten-year horizon in areas like nanotechnology, hydrogen energy, pho-tonics, and advanced propulsion. GE Medical in Bangalore has devel-oped a high-resolution imaging machine for angiography to meetGEs entire global requirement. Two-thirds of GE Plastics 300-member research team in India is involved in fundamental researchon molecules. GE Plastics has contributed to the development of afamily of polycarbonates of engineering plastics that is being used inauto headlamps and CDs. It has also developed heat-resistantmonomers for applications in aircraft bodies and high-end medical

equipment. GE Motors India has developed an almost noiselessmotor for GEs most sophisticated washing machine lines in theUnited States; it is also the sole sourcing point for a million of thesemotors every year. Monsanto has been in India for more than 50years; it set up its first non-U.S. research facility in Bangalore in 1998.This facility is responsible for Monsantos R&D for Asia. The com-pany is involved in research on promotersaccelerators thatimprove crop productivity. Whirlpools Pune Research Lab developsrefrigerators and air conditioners for Asia (including China) and Aus-

tralia. Forty percent of this facilitys resources are devoted to globalprojects. The Daimler Chrysler Research Center in Bangalore isengaged in fundamental and applied research in avionics, simulation,and software development. HP Labs India has built a prototype thatcan scan handwritten mail through a small handheld device instead ofa scanner. It has also built the prototype of a computer for unsophis-ticated users.

As shown, the vast opportunities thrown open by liberalization haveattracted many MNCs to India. The entry of more and more MNCsto tap into the vast Indian market has changed the dynamics of doingbusiness in India. Consequently, the environment has become hyper-competitive and turbulent for Indian organizations, which operatedin a protective environment before. India has slowly become a com-

Ashok Som


The entry of

more and more

MNCs to tap into

the vast Indian

market has

changed the

dynamics of

doing business

in India.


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petitive battleground for more than 15,000 MNCs. In order to facethis competition, several Indian firms undertook significant organiza-tional changes during the late 1990s. They tried to adopt new strate-

gies to cope with the ever-changing and turbulent environment.These firms were able to successfully adapt to the dynamic corporatescenario because of their foresightedness, technical expertise, andmarketing abilities.6 For example, Hero Honda is the largest manu-facturer of motorcycles in the worldwith an output of 1.7 millionmotorcycles a year. A hundred thousand Indica cars of Tata Motorsare marketed in Europe by Rover, UK under Rovers brand name.Tata Indica has been designed, developed, and produced ingeniouslyin India. Bharat Forge has the worlds largest single-location forging

facility. Its client list includes Toyota, Honda, Volvo, Cummins, andDaimler Chrysler. It has been chosen as a supplier of small forgingparts for Toyotas global transmission parts sourcing hub in Banga-lore. Hindustan Inks has the worlds largest single-stream, fully inte-grated ink plant, with 100,000 tonnes per annum capacity, at Vapi,Gujarat. It has a manufacturing plant and a 100% subsidiary in theUnited States. It has another 100% subsidiary in Austria. For the pasttwo years, General Motors has awarded Sundaram Clayton its BestSupplier Award; the volume it sources from India is growing every

year. Essel Propack is the worlds largest laminated tube manufac-turer. It has a manufacturing presence in 11 countries, includingChina, and a global manufacturing share of 25%, and caters to all ofP&Gs laminated tube requirements in the United States, and to 40%of Unilevers. Maruti has been the preferred supplier of small carsunder the Suzuki brand for Europe. Suzuki has now decided to makeIndia its manufacturing, export, and research hub outside Japan. TataIron and Steel Company is today the lowest-cost producer of hot-rolled steel in the world. TVS Motor Company has been awarded the

coveted Deming Prize for Total Quality Management. Indias phar-maceutical industry has earned a worldwide reputation like theinfotech industry. It is already worth $6.5 billion and has been grow-ing at 810% a year. It is the fourth-largest pharmaceutical industryin terms of volume and 13th in terms of value. Its exports havecrossed $2 billion, and have increased by 30% in the last five years.India is among the top five manufacturers of bulk drugs.

Indias liberalization has had one major implication for the corporateworldcreation of a hypercompetitive environment due to the low-ering of barriers to entry and the opening up of opportunities forgrowth through the removal of regulations. However, very littlework in general has been done on the response of Indian corporatesto the liberalization process and practically none on how they are



For the past two

years, General

Motors has

awarded Sun-

daram Clayton

its Best Supplier

Award; the vol-

ume it sources

from India is

growing every

year.


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bracing for competition from MNCs through innovative HRM prac-tices. In the developed countries, aligning and adopting HRM strat-egy for competitive advantage is common7 but not so in emerging

countries such as India. In light of the progress made by Indiasreforms and the growing worldwide interest in India, this article triesto bridge this gap with an analysis of 11 corporates (Table 1 summa-rizes the demographics of the 11 firms) that are believed to be lead-ers in their business sectors. It is envisaged that this article will go along way for both managers and academicians toward developing adeeper understanding of the recent developments in India and of theinnovative HRM strategies adopted by Indian firms for superior per-formance.

THEORETICAL FRAMEWORK

For this study, a contingency-based theoretical framework wasadopted that took into account the contextual factors while measur-ing the impact of those. The core adaptations to liberalization byIndian corporates represent a strategic choice. The adaptations coverboth strategic and systemic organizational responses. Strategic

responses relate to vision, mission, goals, values, and business strat-egy of the organization. Systemic responses are those related to struc-tures, functions, cultures, and processes. This study focuses on themain systemic responses (i.e., innovative HRM practices that Indianorganizations have adopted to face competition in the Indian mar-ketplace). Figure 1 summarizes the theoretical model. Further detailson the research design, methodology, and data are provided in theAppendix.

DISCUSSION AND FINDINGS

The findings from the 11 case studies are discussed with reference tothe theoretical model.

Hypothesis 1: The more HRM practices synergize with changing

business strategies, the more they will create social networks within

the organization, which will probably necessitate the expansion of

the HR departments role from administrative experts to strate-

gic partners, change agents, and employee champions.

As firms debate the role of HRM as a change agent, a strategic part-ner, an employee champion, or an administrative expert, it is clear

Ashok Som


In the developed

countries, align-

ing and adopting

HRM strategy for

competitive

advantage is

common but not

so in emerging

countries such

as India.


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Table 1. Demographics of the 11 Firms

Turnover

Industry (Operating IncomeCompany in mn Euroa) No. of MNCCompany Activity 1999 2003 Employees Competitors

Bharat Petroleum Petroleum: refining, 3,455 7,851 5,600 Shell, BP, Amoco,Corporation Limited retailing, LPG, TotalElfFina,

aviation fuel Caltex

Mahindra & Automobile/tractor: 630 821 17,000 Ford, Mitsubishi,Mahindra Ltd manufacturing Jeep, Renault

industrial engines

Maruti Udyog Ltd. Automobile: 1,084 1,344 3355 Ford, Mitsubishi,Owned by Suzuki utility-car segment Hundai, Daweoo,

Motors Ltd., Japan manufacturer Honda

Mehta Group Diversified, - - 15,000 Lafarge, Cimentinternational trade, Franaissugar, packaging,engineering, cementetc -

State Bank of India Largest government- 30,735 53,840 200,000 Citibank, ABN-owned bank with Amro, ANZ20% market share Grindlays, HSBC,

Deutsch Bank

Arvind Mills Garments and textiles: 171 269 11,000 Levis, Wrangler,denim, cotton Crocodile, Diesel,shirtings, blends and Arrow

voiles, others

Clariant (I) Ltd. Chemicals: agro/ 43 58 ~ 400 Varied in differenttextile chemical, segmentsdyestuff

Wipro Corporation Diversified (medical 324 733 30,000 R&D sites insystems, vegetable IT Services: India of:ghee, oils) and 17,600 Microsoft,IT/software Oracle, IBM,

Intel, SunInfosys Software development 93 659 23,000 Micro Systems

in form of services,turnkey projects

Ranbaxy Pharmaceutical: 194 503 ~ 5,000 Abott, SmithKlinemanufacturers of Beecham, Glaxo,drugs, medicines, Novartis, Bayer,cosmeticsm and E-Merck, Rochechemical products

TISCO Steel: manufacturers 1,141 1,781 46,000 Local competitors:of rails, fish-plates, Essar Steel, Ispat,

bars, light & heavy Jindal, Kalyanistructural, galvanized Steel, SAIL,sheets MNC: Sesa Goa,

Ugine

a1 Euro = 55 Indian Rupees.


10/31

that HR professionals must become key players in the design, devel-opment, and delivery of a companys strategy.8 Organizations stilldebate the measurable worth of the HR department. They often treatthis function as secondary and, on several occasions, redundant. Sev-eral companies, while trying to rationalize their workforce, do away

Ashok Som


Figure 1. Drivers of Family Conglomerates


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with the HR department, on the premise of outsourcing nonessentialfunctions. In todays environment, where the need for nurturinghuman capital has been recognized as precious, this decision might

be to the detriment of the company in the long run. An example sup-porting this point is that of Maruti Udyog Ltd, a leading company inthe Indian automobile industry, which started as a joint venture withSuzuki of Japan. Maruti revolutionized the automobile and compo-nents industry in India and set high standards for its products andservices. With the deregulation of the automobile industry in India,Maruti went from being the undisputed leader, controlling about84% of the market until 1998, to seeing its market share reduce dras-tically with increasing competition from both the local players like

Telco, Hindustan Motors, and Mahindra & Mahindra (M&M) andthe foreign players like Daweoo, PAL, Toyota, Ford, Mitsubishi, andGM. The industry structure changed dramatically during19982002. To face this intense competition, the company launchednew models that could cater to different market segments. Marutialso shifted its business focus from a production-oriented company tothat of a customer-caring, service- oriented company prioritizingaggressive marketing. During the same time, a change in leadershiptook place. Prior to this change, when there was negligible competi-

tion and Maruti sold what it produced, HRM was considered apaper pusher and a time keeper. It played a marginal role, wasgiven no targets, and was not accountable to top management. TheHR department was not involved in the strategic decisions, and therewere times when there was no head for the HR department. Man-agers considered a posting in the HR department as a punishment. Anew managing director appointed in 1998, however, decided toprofessionalize the HRM function and to link HRM strategies to thebusiness strategy of the whole organization. As a result, professional

HR managers were hired. New initiatives in performance appraisals,competency mapping, and job rotations were undertaken. HRM wasmade responsible for the clarity and transparency in communicationwithin the organization and for negotiations with the union. Therole of the HR department was reactivated and they were heldaccountable for defining job profiles and simplifying procedures.The significant improvements implemented by the HR departmenthave led Maruti to develop excellent teamwork, and its compensa-tion system was recognized as the best in the industry. Turnover,employee morale, commitment, and job satisfaction increased withinthe organization.

Synergizing distinctive HRM strategies helps to create unique com-petencies that differentiate products and services and, in turn, drive



when there

was negligible

competition and

Maruti sold what

it produced,

HRM was con-

sidered a paper

pusher and a

time keeper.


12/31

competitiveness.9 Senior managers remain aloof to the fact thatHRM practices extend to nearly all the activities of an organizationand are not just restricted to one or few department(s). Well-orga-

nized HRM practices are a prerequisite for a successful strategicchange. HRM plays a pivotal role in redefining new strategies so thatthey can suit the changing environment. At times, HRM not onlycomplements the new strategy, but also becomes the deciding anddefining factor in pursuing a particular strategy. To keep abreast withthe dynamic business conditions, Indian firms have revamped theirHRM strategies and now incorporate part-time work, outsourcing,and temporary workers. This represents a drastic shift from the tradi-tional personnel management polices. However, implementing such

modern HRM strategies is not an easy task for senior management,since changing the mind-set and motivating workers to agree to thechange process is an uphill task by itself. An interesting example ofthis case was Mahindra & Mahindra Ltd., the flagship company of theMahindra Group. The M&M Ltd Tractor Division was sufferingfrom manufacturing inefficiencies, low productivity, an overstretchedproduction cycle, and poor output. The primary reason behind thisinefficiency was the underproductive and excessively unionized laborforce. The situation was further aggravated by the changes taking

place in the external environment due to the modifications in thebusiness environment and government policies. The company had toadopt a new strategy in order to survive. In 1995, the company intro-duced business process reengineering (BPR), focusing on a totaloverhaul of the style in which the company was organized. Instead ofimproving or changing procedures, the scheme focused on reformu-lating the way the company carried out its business. This initiated sev-eral changes in the organizational structure, which enabled the com-pany to realign itself with the BPR mechanism. The introduction of

BPR was opposed by the labor union. Prior to BPR, the HR depart-ment was not part of the strategy-making process at M&M Ltd. BPRadopted innovative HRM practices, such as group work, that usedthe churning effect to change the traditional mind-set of theemployees and enforced concrete HRM policies and practices. First,from a multilayered structure, the company adopted a flat structure,which reduced the disparities existing in the different levels. Itbrought together people from different departments that encouragedcross-functional teamwork. Regular meetings with workers were

encouraged to enhance the companys belief that HR cannot func-tion in cabins. Furthermore, the company repositioned existingpeople in key ranks and placed emphasis on training programs. It fol-lowed a simple recruitment philosophy by refusing to hire highlyqualified people who had a history of leaving the organization for a

Ashok Som


To keep abreast

with the dynamic

business condi-

tions, Indian

firms have

revamped their

HRM strategies

and now incor-

porate part-time

work, outsourc-

ing, and tempo-

rary workers.


13/31

competitor MNC. Instead, it believed in hiring professional consul-tants to take care of advanced work practices and simultaneously cap-italized on its existing employee talent through intensive retraining

and redeployment strategies. The company also began outsourcingnoncore manufacturing activities. After eight years, in 2003, theresults of implementing BPR in synergy with new, innovative HRMpractices within the organization were spectacular, as it allowed thecompany to maintain steady profits, reduce working capital levels,and rationalize the manufacturing process. Redesigning innovativeHRM strategies and expanding the HRM practices became an effec-tive method to reengineer the firms plants. It created a social net-work within the organization and led to the effective team building

lacking before.

Competency-based strategies are dependent on people, and whenpeople are regarded as a key strategic resource, the creation of socialnetworks within the organization is an effective way of managingpeople. HRM policies differ depending on the rapport an employeeshares with the company and how this rapport is co-opted with otherstakeholders of the organization. Hiring of external consultants canplay a key role in implementing strategies decided by a company as it

tries to strengthen the networks within the organization by providingtools to adopt innovation. Tata Iron and Steel Company (TISCO), aTata flagship company and Indias most cost-effective steel plant,provides an example. TISCO undertook a management restructuringprogram with the objective of transforming TISCO into a high-per-forming, high-growth organization. The key strategic drivers toachieve this goal were to focus on current growth, enhance thedegree of profit and accountability, provide exciting career opportu-nities, and build a team of high-performing professionals. McKinsey

& Co. was appointed to assist the company in achieving these objec-tives. McKinsey started with an organizational restructuring programby creating a lean and a flat strategic business unit (SBU) structurewith enriched jobs, greater accountability, and autonomy. Accord-ingly, unit teams were formed comprising unit leaders and facilitators.In the beginning, McKinsey provided the facilitators who wouldcoordinate a units performance. Each team had to set targets andwork toward achieving them. The Performance Ethic Program (PEP)was introduced to promote young dynamic personnel to higher posi-tions to replace the policy of seniority-based promotions and to cre-ate new socially vibrant networks. The PEP institutionalized and tai-lored the management development programs for officers. A newperformance management system (PMS) was institutionalized to sup-port the new innovative practices that McKinsey implemented. The



Redesigning

innovative HRM

strategies and

expanding the

HRM practices

became an

effective method

to reengineer the

firms plants.


14/31

PMS included alignment of key result areas (KRAs) with businessstrategy at all levels and clear career paths to enable the company toidentify and reward the strong performers and provide them with

growth opportunities. The compensation and rewards were linked toperformance and pegged to the market. This program made perfor-mance and reward systems transparent and fair within the organiza-tion, boosting the employees initiative to succeed.

Hypothesis 2: The more the organizations follow professionalized

and innovative HR practices (recruitment, selection, career

development), the more likely is the development of a pool of

knowledge workforce and the more likely is the creation of leaders

for tomorrow within the organization.

With the demand for knowledge workers increasing in a competitivemarket, enhancement of profitability depends on recruiting, select-ing, and retaining them in the organization. Until recently, access totechnology was considered as the prime area of focus for many Indianfirms. With increasing competition, knowledge workforce (i.e., peo-ple) have become competitive differentiators.10 The HR executivesare under pressure to stretch their capabilities and provide value-

added services by professionalizing the HRM practices. Organiza-tions are recruiting and selecting professionals who can comprehenda complex organization structure and the requirements of a companyin a dynamic business environment.

A remarkable example is that of an internationally renowned IT com-pany, Infosys Technology Limited. Infosys is one of the biggestIndian exporters of software and offers IT consulting and softwareservices to many of the Fortune 1000 companies. The determination

and the effective management skills of the chairman, NarayanMurthy, were the driving force behind the success of the company.His strong belief that Indian professionals have the capability to han-dle complex projects led the company to establish a name for itself inthe foreign markets. He implemented the best reward system in theindustry to ensure that his employees were taken care of. Accordingto him, they represented the companys most powerful wealth. Heencouraged them to communicate with each other and to interactwith the management through meetings. He set up a LeadershipInstitute in Mysore to prepare the Infosys employees to face the chal-lenges of a dynamic market scenario and to groom them to be effi-cient leaders. The CEOs profound faith that human resource is themost valuable asset of the company certainly motivated the employ-ees to strive for excellence.

Ashok Som


Organizations

are recruiting

and selecting

professionals

who can com-

prehend a com-

plex organization

structure and the

requirements of

a company in a

dynamic busi-

ness environ-

ment.


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The rapid expansion of this software export and information tech-nology company from 42 in 1987 to 23,000 in 2003 called forredefining and innovating its recruitment, selection, and career devel-

opment practices. For about 700 advertised positions in 2003, thenumber of applicants exceeded 160,000. The sheer number of appli-cants requires a tough recruitment process, which is followed atInfosys Technologies Ltd. Infosys carries out a rigorous interviewprocess for selecting candidates, the primary selection criteria beingcapacity to learn. After diligently scanning the curricula vitae of thepotential candidates, Infosys selects a small number of applicants forfurther tests. These tests include a set of puzzles and math algorithmsin order to evaluate candidates learnability. The exact skills required

are not tested for during the screening process, as Infosys trainsemployees to acquire those. The candidates that pass the test stagehave to further undergo an interview round, which determines theirjobs at Infosys. Prospective candidates are tested primarily for analyt-ical, problem-solving, and communication skills to enhance adynamic learning environment, the key to success in an industrywhere technology changes rapidly. This strict and thorough selectionprocess ensures that the company manages to attract the most skilledpeople available in the job market. The chairman is confident that as

long as the company innovates, it will survive and succeed. In hiswords:

The biggest challenge is to build a first-class company in a third-

world country. To become a global firm, we need not only the art

of selling internationally but also the art of recruitment, compen-

sation, training, and the art of teamwork across borders. The

quality of people is a survival imperative.

A similar philosophy was followed at Wipro Corporation, the other

leading IT firm in India. Wipro Corporation is a large, diversified,family-owned business, with business interests in many unrelated sec-tors. One of the most profitable of them is Wipro Systems, a com-pany dedicated to computers, information technology, and softwaredeveloping. Wipro believes in employing the best people and invest-ing in their career development. Wipro prides itself on being PeopleBusiness, Business People. Wipro recruits from the leading Indianeducational institutes, such as the Indian Institutes of Technology(IITs) and the Indian Institutes of Management (IIMs) through thecampus placement programs. For any new business it enters into, thefirst chance for promotion is always given to its own employees. Ifinternal talent is not found, the company recruits the best from thecompetitive labor market. Each employee is meticulously trained andgroomed to respond effectively to the businesss requirements. In the



The chairman is

confident that as

long as the com-

pany innovates,

it will survive

and succeed.


16/31

words of the chairman, Azim Premji, The key to success in all ourefforts, as always, is our people.

Wipro believes that they are in the business of leadership and the realworth of an organization is powered by people who work for it. Mr.Premji believes that:

in todays dynamic environment the leaders that they nurture will

lead them into the future. The attitude to nurture the potential

capabilities of employees, coupled with sensitive and innovative

people practices, has resulted in a deep pool of talent in the orga-

nization. It is this depth of leadership that has fueled Wipros sus-

tained growth and success.

Many Indian companies that perform well in the domestic markethave not yet expanded to the international arena. Several factors, suchas lack of confidence, technical know-how, and resources, inhibitleading Indian groups to expand their area of activities to other partsof the world. Innovative HRM practices can play a crucial role inchanging the attitude of the companies and its employees in order tofacilitate entry and presence in the foreign markets. This is effectivelyillustrated by the case of the Indian pharmaceutical giant Ranbaxy,

which succeeded in expanding its business internationally due to thesingle-handed determination of its past CEO, Dr. Parvinder Singh,and the manner in which he strived to change the mind-set of hisemployees. Ranbaxy found itself at the bottom of the pharmaceuticalcurve11 in spite of being active in the export market for 18 years. For-eign markets had stringent quality requirements in terms of rawmaterials, packaging, and physical properties of pharmaceutical sub-stances. This implied heavy costs in research and development andcareful organization of distribution and marketing activities. Despite

entering the foreign markets at the bottom rung of the value chain,Ranbaxy inched upward because the employees shared their CEOsbeliefs and dreams that they were in a position to harness theirresources and capabilities to be successful in foreign markets.Together, they developed continual cross-border learning programsto enrich their ways of working and functioning. Their boardattracted managers from different parts of the world. This stepenabled them to catalyze their globalization process. Moreover, theCEO led the company to integrate backward, to enter new markets,and to develop novel drugs. This provided Ranbaxy with the edge tosucceed in the global marketplace.

In this age of intense competition, the examples of Infosys, Wipro,and Ranbaxy show that Indian companies realize that the differentia-

Ashok Som


Innovative HRM

practices can

play a crucial role

in changing the

attitude of the

companies and

its employees in

order to facilitate

entry and pres-

ence in the for-

eign markets.


17/31

tor for superior performance is people. Intelligent and skilledemployees are a prerequisite for companies that wish to climb the lad-der of success. As more companies acknowledge the worth of

employees in India, the competition for the limited and precioushuman resource will get fiercer. The challenge is not just to attracthuman capital and enhance its skills and competencies to suit a com-panys needs but also to retain it within the company. This is certainlynot an easy task given the increasing mobility and flexibility of theworkforce. As the battle to win and retain a talented and knowledgeworkforce intensifies, the HRM department has to step in to play animportant role in the conception, formulation, and execution of acompanys strategy.

Hypothesis 3: The more organizations practice proactive perfor-

mance management systems, the relatively easier it is to build,

retain, retrain, and redeploy talent.

Organizations need to incorporate country-specific institutional fac-tors that affect patterns of organizational practices like HRM.National institutional embeddedness of firms plays an important rolein shaping HRM practices.12 With competition, the responsibilities

and the domain of the personnel management need to expand tobecome proactive and innovative HRM. The HR department not onlyhas to develop new skills regarding recruitment and selection proce-dures but also has to craft innovative compensation and integrationschemes for the employees in order to retain talent in the organiza-tion. An interesting example is that of Arvind Mills. Arvind Mills,which belongs to the Lalbhai Group of companies, is a family-ownedbusiness, producing textiles, ready-to-wear apparel, agro-chemicals,and dyestuff. In the late 1990s, it was the third-largest producer of

denim in the world. However, with the change in fashion trend fromdenim to gabardine and corduroy, the company was adverselyaffected. The threat from powerlooms, the need to increase exports,and the growing demands of consumers led the company to introducea new strategy. HRM played a crucial role in this business plan. Thecompany created a Manpower Planning and Resource Group to takecharge of the selection and recruitment procedure, to organize the jobstructure, and to define the task description of various employees. Thegroup absorbed fresh talent from top management and technicalschools and established a compensation system that matched theindustry standards. Innovative new methods of recruiting wereadopted such as the Selection Information System (an online recruit-ment system) that provided facilities from generating call letters, fix-ing interviews, and evaluating online interviews. This program was



As more compa-

nies acknowl-

edge the worth

of employees in

India, the com-

petition for the

limited and pre-

cious human

resource will get

fiercer.


18/31

linked to the Compensation Information System and the TrainingInformation System. A Management and Organizational Develop-ment Group was incorporated to look into the training of the employ-

ees. It provided three kinds of training programs: functional, behav-ioral, and global. Another innovative concept (in the Indian context)developed at Arvind Mills was the Management by Objectives(MBO), which focused on producing results desired by the manage-ment in keeping with the satisfaction of the employees. Arvind Millssucceeded in finding a harmonious balance between the top manage-ment and the industry workers. Udaan, a kite-flying competitionbetween the management team and the operations team, is a perfectexample of building healthy relations between the two. In addition,

programs such as Booboos (rock show) and Umang (forum) wereintroduced to create synergies among workers. These were some ofthe ways that Arvind Mills adopted to build and retain talent.

Most Indian companies still follow age-old practices and customs.Consequently, their HRM strategies are also based on the traditionalindustrial model, which involves several features like seniority-based promotions, strong union influence, and strict job classifica-tions. With the advent of a new wave of thinking, several firms have

decided to break away from the conservative model and adopt newand dynamic methods from their Western counterparts that weremore in sync with the changing industry standards. Clariant (India)Ltd is one such example. With the demerger of Sandoz (I) Ltd, a newautonomous company called Clariant was born. Clariant develops,manufactures, and markets dyes, pigments, chemicals for textiles,leather, plastic, paints, and inks. A new company meant that man-agers had new responsibilities to handle. A special program calledClariant Participation to Improve Profitability Through Performance

and People (CLAP) was put into place to efficiently guide the transi-tion. The unique feature of this program was that managers who hadhandled multidivisional responsibilities earlier were able to remark-ably unlearn their experiences and adapt their learnings to new situa-tions. The program aspired to change the mental process by intro-ducing several changes in the companys way of functioning. Thecompany moved from top-down close communication to up-down open communication, from we and they to do ittogether, from control to leading and managing. All theseefforts enhanced the communication process. Task forces and cross-functional teams increased employee participation and involvement.Furthermore, the company introduced a goal-setting program thatincreased motivation among the employees. The personnel depart-ment of Sandoz, which was mostly involved with administrative activ-

Ashok Som


With the advent

of a new wave

of thinking, sev-

eral firms have

decided to break

away from the

conservative

model and adopt

new and

dynamic meth-

ods from their

Western coun-

terparts


19/31

ities, expanded its role as a catalyzer, supplier of information, facilita-tor, and developer, thus trying to develop and retain talent.

On the other hand, Infosys designed its performance managementsystem to build, retain, retrain, and redeploy talent. Since employeesare considered as the prime assets at Infosys, the HRM practices arosefrom the belief that the employees stayed with Infosys because themanagement was able to satisfy the threefold needs of the workforce:learning value-added, financial value-added, and emotional value-added services.

In the words of Chairman Narayan Murthy of Infosys:

If there is one challenge that Indian software industry faces, it is

how to recruit, enable, empower, and retain the best and the

brightest professionals.

On the learning aspect, Infosys provided its employees with anopportunity to accept responsibilities at an early stage in their careers.On the financial side, Infosys provided stock options and low-inter-est and zero-interest loans to its employees. On the emotional side, a

friendly, open, and transparent atmosphere within the company keptthe employees motivated and involved. As a consequence, Infosysdeveloped an ambience that fostered the overall growth and well-being of its employees. Infosys built a campus that was a set of mul-tifloored buildings constructed on a sprawling five-acre land that pro-vided banking facilities, an ATM, volleyball and basketball courts,shower rooms, bus facilities, and housing if employees needed towork overtime. Respect for people enabled the company to create aleading position for itself in the Indian market and to gain esteem in

the international arena.

This is the same story as Azim Premji, CEO of Wipro Corporation,who managed to exploit the talent of his employees. The biggestchallenge faced by his company was holding on to its skilled employ-ees. For new local entrants and MNCs like IBM, Microsoft, Oracle,and Texas Instruments that wanted to recruit talented people fromwell-managed Indian companies, Wipro became a prime target. AzimPremji realized this problem and took necessary steps to retain hisskilled workforce. Human resource managers considered employeesas talent investors and treated them as partners to be rewarded asother investors are. Wipro, as Infosys, was one of the first Indiancompanies to launch employee stock ownership, which they calledthe Wipro Equity-Linked Reward Program.



Respect for peo-

ple enabled the

company to cre-

ate a leading

position for itself

in the Indian

market and to

gain esteem in

the international

arena.


20/31

Hypothesis 4: Innovative HRM practices (in general and those

affecting rightsizing, delayering, and decentralizing in particu-

lar) are positively related to organizational effectiveness and rel-

atively superior performance.

The new concept of HRM calls for segmenting the workforce accord-ing to different criteria like age, educational background, and busi-ness background. Policies need to be tailor-made according to theneeds of each group, in order to optimally utilize the resourcesoffered by each segment. In the wake of liberalization, the State Bankof India (SBI), Indias largest public-sector bank decided to under-take an intensive restructuring program. With the entry of foreign

and private-sector banks, SBI faced competition from both theIndian private as well as foreign banks. It turned to business consul-tants McKinsey & Co. for suggestions and improvements. Accord-ingly, the business was divided into eight major functions, Personneland HRM being one of the five most important divisions. The HRMdepartment was divided into four branches in order to serve the var-ied needs of the organization: Corporate Office, Local Head Office,Zonal Branch, and Individual Branch. The Corporate Office handledmost of the HRM activities; each branch was delegated specific

responsibilities, which made the management and decision-makingprocess in the bank simpler and effective. The HRM strategy placedspecial attention on the policies carved by the top management,which were subsequently implemented by the middle managers. Carewas taken to ensure that the new strategies that were designed for themiddle managers corresponded to their needs. But the implementa-tion of the restructuring program had its share of difficulties.

When a company is undergoing a restructuring phase, it is likely to

uncover many problematic areas that hinder its smooth functioning.At such times, innovative HRM practices enable the company toimprove its efficiency. This was the situation encountered by the SBI,when it introduced the Voluntary Retirement Scheme (VRS), or theGolden Handshake system. With the advent of new technologieslike ATMs and Internet banking, the dynamics of banking hadchanged dramatically in the late 1990s. SBI found itself faced withthe problem of a redundant workforce. The vast workforce that wasonce regarded as one of SBIs strongest assets became a liability fol-lowing the computerization of the bank. In order to protect its deal-ings and to remain profitable, SBI realized that it would have toundertake rigorous cost cuttings and the VRS. The VRS deal pro-posed 60 days salary for every year of service or the salary to bedrawn by the employee for the remaining period of service,

Ashok Som


The vast work-

force that was

once regarded

as one of SBIs

strongest assets

became a liabil-

ity following the

computerization

of the bank.


21/31

whichever was less. When the VRS was offered, a large number ofable employees accepted the offer and joined competitor banks. SBIwas in danger of losing most of its talented employees and being left

with less-efficient employees. The introduction of this scheme led tostrong protests from the unions, which claimed that the bank hadmade a hasty decision without undertaking correct manpower plan-ning measures. Unions and media strongly criticized SBIs VRS onthe grounds that it was arbitrary and discriminatory. At this crucialmoment, SBI needed to implement the right HRM practices in orderto retain its talented workers and to do away with the excess unskilledworkforce.

A similar story is that of Mehta Group and its innovative HRM prac-tices. Mehta Group is a leading conglomerate that houses twocement companiesSidhee Cement and Saurashtra Cement in west-ern India. Sidhee has been declared as a sick unit and is under theBoard of Industrial and Financial Reconstruction (BIFR) whileSaurashtra is a loss-making firm. The group wanted to synergizeoperations of the two companies in order to reduce competition andthe declining market share. A strategy to develop synergy betweenthe two companies was devised in which strong emphasis was placed

on innovative HRM practices. There was a complete redefinition ofthe organization structure. Job roles and work descriptions wererevised, new positions were created, and competency exercises for theemployees were effectuated. Instead of pursuing a retrenchment andrecruitment philosophy, the group followed a redeployment policy. Itreorganized its employees into technical experts, industry experts,and market research personnel. By enhancing human resource devel-opment within the company, Mehta Group was able to record signif-icant improvement in performances and optimally utilize its

resources.

Liberalization forced domestic firms to adopt new changes to faceforeign competition. Innovation became paramount, as it was theonly way to satisfy the rising consumer needs and requirements.Companies began reorganizing their organization structure and theirbusiness model. HRM became an essential element in this restruc-turing phase in order to enable companies to improve the recruit-ment procedures, hire skilled workers, and enhance their potential bydevising distinct career paths. A striking example of this situation isthe case of Bharat Petroleum Corporation Limited (BPCL). BPCL isa public-sector organization that is one of the leading companies inthe Indian petroleum industry. BPCL had benefited immensely, asthe petroleum sector was a monopolistic market enjoying adminis-



By enhancing

human resource

development

within the com-

pany, Mehta

Group was able

to record signifi-

cant improve-

ment in perfor-

mances and

optimally utilize

its resources.


22/31

tered prices fixed by the government. In 2002, when the industry wasderegulated, it led to a significant loss of market share for both multi-national oil companies and Indian firms. The challenge faced by

BPCL was to retain its market share and to continue to be profitable.The company decided to redesign the organization whereby HRMstrategies were regarded as important support services (along withfinance and information technology). Three kinds of servicesembedded support service, shared support service, and corporate ser-vicewere developed, and each contributed to the successfulturnaround of the company. BPCL used the HRM services to cush-ion their main stream of business with respect to refining and retail-ing. Since BPCL is a public enterprise, it could not downsize the

labor force. Instead, BPCL undertook a strong retraining and rede-ployment program to efficiently use the excess manpower within theorganization. Consequently, its sales force was increased by 50% with-out hiring any new manpower. Competency mapping was intro-duced, and new people were hired for only specialized positions. Theperformance management system of the company was revamped andmade more customer-oriented. Moreover, BPCL introduced a cre-ative learning experience program for its employees called the Foun-dation of Learning Plan that encouraged the development of an

employees ability to work in high-performing cross functional teams.The introduction of this program led to a boost in the competenciesof the employees and their motivation to excel. The example ofBPCL illustrates how innovative HRM strategies can not onlyrespond to traditional personnel problems but also improve and sus-tain superior performance. Table 2 provides a summary of the strate-gic initiatives and the innovative HRM practices of the 11 firms.

Ashok Som


Table 2. Innovative HRM Practices Adopted by Indian Companies

Adoption of InnovativeCompany Industry Strategic Initiatives HRM Practices

Bharat Petroleum Petroleum Face deregulation of Redeployment and retraining ofCorporation petroleum industry employeesLimited Retain customers HRM regarded as an important

Maintain profitability support service Revamped Performance Appraisal

System

Mahindra & Automobile Creation of productive BPR scheme to reinvent businessMahindra Ltd Tractor labor force process

Rationalize manufacturing Flat structure that encouragesprocess teamwork

Outsourcing workforce foradvanced and noncore activities

(continued)


23/31



Table 2. Innovative HRM Practices Adopted by Indian Companies (continued)

Adoption of Innovative

Company Industry Strategic Initiatives HRM PracticesMaruti Udyog Automobile Launch new models for Hire professional HR managersLtd. utility-car diverse markets Make HR responsible for internal

segment Increase dealer network communication and relations with union Reduce costs and increase Creation of an excellent

operating efficiencies compensation policy

Mehta Group Cement Curtail competition Redefinition of organizationbetween the two structurecompanies belonging Redeployment policy to optimallyto the group utilize human resources

Develop synergy interms of structure,

manpower, and resources

State Bank of Bank Competition from foreign Segmenting the HR departmentIndia and private banks into strategic business units

Trim the size of its work- (SBUs) with specific dutiesforce to rationalize costs Introduce VRS to cope with automation

Arvind Mills Textiles Recover from the change Implementation of innovativein fashion in the apparel recruitment, compensation, andindustry training procedures

Increase exports Development of synergies between topmanagement and workers

Clariant (I) Ltd. Chemicals Transition from Sandoz Introduction of the CLAP programto Clariant Change the mind-set of the employees

through communication and goal setting

Wipro IT Sustaining the wealth of Introducing employee stock optionCorporation their human capital schemes

Talent investors, people business

Infosys IT Accept the challenges of Employee-driven campus programsglobalization like Infosys Toastmasters Club to

Powered by intellect and provide support to the employeesdriven by values Construction of a Leadership

Culture of ethics, Institute to foster the qualities ofperformance, meritocracy leadership within the employees

Creation and sharing of Leadership through INSTEP programwealth where three-to-six-month internships are

given to students from across the globe

Ranbaxy Pharmaceutical Climb up the curve of Founder Chairman and CEOs vision,globalization belief and dream about his company

Initiating cross-border learningprograms through every acquistion

Backward integration, new druginvention

TISCO Steel Focus on current growth Building cross-functional teams of and profitability high-performing professionals with

Enhance accountability clear career paths for individuals Cost reduction Started PEP and revamped its PMS by

aligning KRAs with strategy at all levels Institutionalized tailored management

development program for officers


24/31

CONCLUSION AND IMPLICATIONS

This article focused on understanding some of the innovative HRM

strategies and practices that stem from functionally logical strategicinitiatives in response to a hypercompetitive, complex, but opportu-nity-rich environment that had opened up due to the economic lib-eralization in India. These innovative HRM strategies and practicesare not a random collection but practices that may be consideredbest practices that have yielded excellence in performance.

How Universal Are These Innovative HRM Practices? How Are

They Important to MNCs?

The economic reforms have attracted foreign direct investment andMNCs that are more interested in managing their investments throughcost, quality, or innovation. Indian organizations face a number of chal-lenges, the most important being to make the best use of their existinghuman resources and compete on the basis of innovative HRM prac-tices. These challenges have a direct implication for the HRM function.Literature on HRM suggests that the practices or their close versionsseem to have applicability both in developed countries and emergingeconomies like India, and therefore may be relevant to most sectors

and industries anywhere in the world wherever there is a competitivemarket economy. Taken together, the wealth of different HRM strate-gies incorporates much strength. The adoption of different innovativeHRM practices in some of the Indian companies has improved businessperformance. This finds support from recent studies linking HRMactivities and firm performance. The study supports the decade-oldargument that investments and adoption of innovative HRM strategiesare a potential source of competitive advantage. Nevertheless, scholarshave little understanding of the processes required to realize this poten-

tial or the specific conditions under which the potential is realized.13

This provides MNCs two important lessons. In constantly changingenvironments, first-mover advantage is critically important. But Indiancorporates have been late movers, though fast bracing to competitivepressures. MNCs must manage their organization efficiently and effec-tively to brace for this renewed competitive challenge from Indian firms.Second, Indian firms now have more resources to invest in developinginnovative HRM strategies (see reverse causality in Figure 1), which has

accrued from cost-reduction mechanisms, integration of support func-tions such as information technology in their work process, boostingmorale of employees, and high retention of skilled employees. ThoughMNCs have deep pockets, which is an important driver in the labor mar-ket, this study of 11 firms indicates that Indian firms are relentlessly try-

Ashok Som


The economic

reforms have

attracted foreign

direct investment

and MNCs that

are more inter-

ested in manag-

ing their invest-

ments through

cost, quality, or

innovation.


25/31

ing to reduce employee turnover by adopting innovative HRM strate-gies. For those MNCs that understand this challenge of doing businessin India, the ultimate benefit is not to fall into the trap as their prede-

cessors did, but to leap toward an integrated and innovative HRM strat-egy that can attract, develop, excite, and retain key talent. MNCs suchas Castrol, Shell, Exxon (petroleum sector), Renault Tractor, Ford, Mit-subishi (automobile sector), Lafarge, Italcementi (cement industry),Citibank, American Express (banking sector), Levis, Pepe (textiles),IBM, Microsoft, HP-Compaq, Oracle (IT sector), Bayer, Roche (phar-maceutical), Coke, KFC, McDonalds, and Procter & Gamble, whichhave learned or are beginning to learn the hard way of doing businessin India.

How Generalizable Are the Implications and Insights?

The study of the 11 Indian organizations, which are leaders in theirfield of expertise, may have insights regarding similar processes occur-ring in other emerging markets such as Asia, Latin America, and East-ern Europe. In countries like Argentina, Brazil, China, Mexico, Hun-gary, Israel, Poland, and Slovenia, numerous MNCs are investing andaffecting local economies and changing the dynamics of the businessenvironment. While the MNCs contribute to the economic growth

of these countries, they also pose a threat to local competitors. Localcompanies in similar environments will have to adjust to the newrules of the game and practice innovative HRM strategies.

The study has its limitations because of its small sample size, and isrestricted to nine industry sectors. However, within the limitations, itcontributes to the field of HRM in general and specifically to aca-demicians and practitioners who are interested in emerging countryenvironments.

This article might encourage academics to conduct future researchexploring the different modes of adaptations by local companies toenvironmental changes. The growing importance of research hasalready been reported not only in international HRM but also incomparative HRM studies. Researchers might want to look at the dif-ferences, if any, in the adoption of innovative HRM strategies andpractices from developed and emerging market perspectives.

MANAGERIAL IMPLICATIONS

In an increasingly globalizing economy, this study has five distinctimplications for managers worldwide. Although the sample is small and



Indian firms are

relentlessly try-

ing to reduce

employee

turnover by

adopting inno-

vative HRM

strategies.


26/31

the definition of innovative HRM strategies and practices broad, it maybe worthwhile for managers to look into their own organizations andask whether there is a need to redefine, redesign, and innovate their

HRM strategies and practices. There might be issues that may soundtrivial at first but may be a precursor to long-term competitive advan-tage and superior performance. Second, managers may want to look athow top management teams oversee innovation efforts in the work-place in general and the HRM issues in particular and strike a balancebetween guiding and adopting at least some of those efforts that tran-scend embedded interests. Third, the findings in this article are consis-tent with the strategic choice perspective; understanding business strat-egy is critical in understanding HRM strategies by emphasizing either

the competence or the behavioral aspect. Thus, given the businessstrategy, innovative HRM strategies can be chosen to fit the overallintent. Fourth, the findings are pertinent to MNCs (doing business inboth emerging and developed economies) and expatriates working inthose companies, as they can benchmark the differences in managinglocal businesses. The results of this research highlight that local com-panies are fast catching up with MNCs by adopting innovative practicesrather than following a universal set of HR best practices. Finally,understanding the wealth of different HRM strategies and practices is

relatively easy; managing and adopting them within the cultural her-itage of the organization is the difficult part. Competitive advantagethrough people processes is difficult to achieve and even more difficultto sustain, but once achieved, it is not easy to duplicate.

ACKNOWLEDGMENT

I would like to thank Professor Kazuhiro Asakawa, Keio Business

School, Lalita Saptagiri, Visiting Professor, ESSEC Business School, fortheir comments and Sejal Gupta, ESSEC MBA student, who helped mein the second phase of this research, and three anonymous reviewers.

NOTES

1. For a detailed discussion, see Kossek, E. (1987). Human resources management innovation.Human Resource Management, 26, 7192; Som. A., & Bouchikhi, H. (2003, April). Whatdrives the adoption of SHRM in Indian companies? ESSEC Working Paper, DR-03009.

2. For a detailed review of the growing proactive nature of the HRM function, see Lengnick-Hall, C. A., & Lengnick-Hall, M. L. (1988). Strategic human resource management: A reviewof literature and proposed typology. Academy of Management Review, 13, 454470; Schuler,R., & Jackson. S. (1999). Strategic human resource management. London: Blackwell.

3. Although the field of strategic HRM has been discussed and debated in great detail in West-ern literature, it seems from existing Indian HRM literature that there is a time lag of about810 years regarding development of personnel functions. For example, the shift from person-

Ashok Som



27/31

nel management (industrial relations, administrative role of personnel function) to a moreproactive strategic role of HRM function started in the West in the mid-1980s, while in India,the debate started in the 1990s with the adoption of the concept of human resource develop-ment (HRD). Only as a response to the liberalization of the Indian economy did both aca-

demicians and practitioners start to notice the direct implications of strategic HRM as a tool tobring about large-scale structural changes in organizations in order to cope with the challengesbrought by the structural adjustments. The difference between personnel management andHRM strategies have been discussed from mid-1990s. Recently the discussion on creation ofcreative and innovative HRM processes and the role of HR in managing the change processhave taken the center stage. In Budhwar, P. (2000). Indian and British personnel specialistsunderstanding of the dynamics of their function: An empirical study. International BusinessReview, 9, 727753, the author has reported that 70.80% respondents agreed that because ofliberalization of the Indian economy, there is increased competition, and therefore there is aneed to make employees more creative and innovative and keep them motivated. Also, 29.16%of the respondents said that there is a gradual shift toward taking care of people and empha-sizing behavioral skills and group activities (i.e., realization of importance of HRs; p. 735). Formore detailed discussion, see Budhwar. P., & Sparrow. P. (1997). Evaluating levels of strategicintegration and development of human resource management in India. International Journal

of Human Resource Management, 8, 476494; Budhwar. P., & Sparrow. P. (2002). StrategicHRM through the cultural looking glass: Mapping the cognition of British and Indian man-agers. Organization Studies, 23, 599638.

4. For a detailed discussion of liberalization, redesigning, and restructuring of organizations,see Som, A. (2002). Role of human resource management in organizational redesign. Unpub-lished doctoral thesis, Indian Institute of Management, Ahmedabad, India; Som, A. (2003).Building sustainable organizations through restructuring: Role of organizational character inFrance and India. International Journal of Human Resource Development and Management,3(1), 216; Som, A. (2003). Redesigning the human resource function at Lafarge. HumanResource Management, 42, 271288; Som, A. (2005). Mahut Group: A failed case of organi-zational restructuring, Asia Case Research Journal, 9(1), 123; Som, A. (2004). Strategic orga-nizational response of an Indo-Japanese joint venture to Indias economic liberalization. KeioBusiness Forum, 22(1), 114.

5. For a discussion, see Prahalad, C. K., & Liberthal, K. (1998). The end of corporate imperi-alism. Harvard Business Review 76, 6879; Prahalad, C. K., & Hart, S. L. (2002). The fortuneat the bottom of the pyramid. Strategy + Business, 26, 114.

6. For a detailed discussion, see Khandwalla, P. (2002). Effective organizational response bycorporates to Indias liberalization and globalization. Asia Pacific Journal of Management, 19,423448; Virmani, A. (1999, October). Potential growth stars of the 21st century: India,China and the Asian century. Chintan Occasional Paper. There have also been various businesspress articles from Indian business journals such as Business Today, Business India, BusinessWorld, India Today, Fortune India, and Outlook, as well as articles by Arun Shourie, Ministerof Divestment, Government of India.

7. See Randall, S. S. (1992). Linking the people with the strategic needs of the business. Orga-nizational Dynamics, 21(1), 1832; Randall, S. S., & James, W. W. (1990). Human resourcestrategy: Focusing on issues and actions. Organizational Dynamics, 19(1), 519; Pfeffer, J.

(1994, Winter). Competitive advantage through people. California Management Review, pp.928; Ulrich. D. (1997). Human resource champions: The next agenda for adding value anddelivering results. Boston: Harvard University School Press.

8. For a richer discussion, see Ulrich. D. (1998). A new mandate for human resources. Har-vard Business Review, 76(1), 124134.

9. Cappelli, P., & Crocker-Hefter. A. (1996). Distinctive human resources are firms core com-petencies. Organizational Dynamics, 24(3), 722.

10. For example, see Bartlett, C., & Ghoshal. S. (2002, Winter). Building competitive advan-tage through people. MIT Sloan Management Review, pp. 3441.

11. For example, see Bartlett, C. A., & Ghoshal, S. (2000). Going global: Lessons from latemovers? Harvard Business Review, 70(5), 132142; Khanna, T., & Palepu, K. (1997, July-August). Why focused strategies may be wrong for emerging markets. Harvard BusinessReview, pp. 310.

12. Gooderham. P. N., Nordhaug, O., & Ringdal, K. (1999). Institutional and rational deter-minants of organizational practices: Human resource management in European firms. Admin-istrative Science Quarterly, 44, 507532.

13. The causality whether innovative HR best practices yield performance excellence or otherwisehave been debated and discussed by scholars in the last decade. For further detailed discussions, seeArthur, J. B. (1991). Effects of human resource systems on manufacturing performance and




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turnover. Academy of Management Journal, 37, 670687; Cutcher-Gershenfeld, J. (1991). Theimpact on economic performance of a transformation in industrial relations. Industrial and LaborRelations Review, 44, 241260; Huselid, M. A. (1995). The impact of human resource manage-ment practices on turnover, productivity, and corporate financial performance. Academy of Man-

agement Journal, 38, 635672; Delantey, J. T., & Huselid, M. A. (1996). The impact of humanresource management practices on perceptions of organizational performance. Academy of Man-agement Journal, 39, 949969; Huselid, M. A., Jackson, S. E., & Schuler, R. S. (1997). Techni-cal and strategic human resources management effectiveness as determinants of firm performance.Academy of Management Journal, 40, 171188.

APPENDIX: RESEARCH DESIGN, METHODOLOGY, ANDDATA COLLECTION

The aim of this article was to examine the impact of liberalization inthe Indian corporate sector, and the focus was to understand innova-

tive HRM strategies and practices that helped Indian corporatesimprove performance during a hypercompetitive environment. Theresearch questions were threefold:

1. What has been the impact of economic liberalization on Indiancorporates?

2. What were the innovative HRM strategies and practices thatIndian organizations have adopted to brace for competitionfrom MNCs?

3. Were they successful? If yes, how were they implemented? Ifnot, what were the difficulties?

This study was based on a sample of 11 Indian organizations that areleaders in their respective nine sectors. These nine sectors representedthe most dynamic business environment where phased deregulationresulted in multisided competition and, consequently, organizationalrestructuring. The 11 firms were chosen for two specific reasons: (a)access and willingness of the organization to participate in the study

and (b) all the firms were leaders in their respective sectors and mayshow the way forward to other Indian firms.

Research Design

Given the primary objective of the present study to examine the rel-evance and applicability of the contingency theory of organizationsand an evolving nature of the main linkages in the model, exploratoryresearch was conducted. Qualitative research is usually recommendedfor studying process-related issues and also when the phenomenon

being studied is not to be delinked from its context.

Qualitative research (i.e., case studies) gave a thorough grounding anda feel of the real-life situation, especially where theory developmentand research are in early stages.1 The research setting involving link-

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age with innovative usage of HRM strategies and practices is still at anearly phase in the Indian context. To develop a clear understanding ofthe innovative usage of HRM practices and strategies that were

adopted for superior performance, there was a need to look at varieddata from multiple sources and study the phenomenon in its own con-text. The case method permitted a holistic analysis of a wide range ofvariables, open-ended and descriptive data, and multiple data sourcesand data-collection techniques within the research setting.

Methodology

The methodological approach in this study was to focus in depth ona limited number of organizations across varied industries and

observe the innovative HR strategies and practices that they werepracticing to compete, grow, and perform sustainably in the after-math of economic liberalization. Within the research setting, a holis-tic approach and multiple case design was used, as it provided morescope for attempting generalization. A deliberate choice was made tofocus on depth rather than breadth because it would have been unre-alistic to try to attempt detailed, in-depth analyses of a large sampleof organizations. The exploratory methodology provided a means tostudy the process of HRM strategies and practices and their linkages

between context, process, and outcome of the contextual variables.Becker and Huselid2 orchestrated the study of five firms to provideinsight into the state of the practice by case study methodologydescribing HR strategies employed by firms known to be leaders inthe management of people.

Data Collection and Analysis

Data were collected to study how economic liberalization in theIndian context affected Indian corporates and how innovative HRM

strategies and practices were adopted to brace for competition. Infor-mation was sought on the above issues over a period of time(19982003) right from the beginning of necessity to change, thechange process, and the postchange results. Longitudinal data wasnecessary to capture and observe the change process. Also longitudi-nal data could observe the reinforcements, if any, of HRM strategiesand practices. It also let us record the timeline of events with respectto major decisions taken and the dates of their actual implementation.

The data required during this study called for top management involve-ment. This is because the information needed was of strategic decisionstaken by the organization, and only the top management team was ableto do justice to the information sought. The data required were mostlypost hoc. To reconstruct an accurate account of the strategies, the




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informant also needed to have good knowledge of the events and beeither a participant in the change process or a close observer. Thisresearch necessitated a wide array of informants from both HRM as

well as other functional departments. Interviewing a range of infor-mants enabled cross-checking of the data and identified multiple per-spectives and differences of opinion within the organization.

There were two primary data sources used in this case study research:interviews with informants and archival data from organizations.Archival data were collected from different databases, academic jour-nals, published cases, business press, and news items. Company doc-uments, organizational records, circulars, appraisal forms, employee

manuals, consultant reports, press releases, and other documentswere collected to gather new insights for the interviews and to cross-check the details during interviews. This gave a more holistic pictureof what was reported in the business press and academic journalsabout the organizations and how it matched with the real data.

Constant effort was undertaken to increase the reliability and validityof the study. Multiple respondents across functions and hierarchy,together with HRM heads, professionals, and executives, provided

the required reliability and validity. They provided insights into theevolution of the organization during the economic liberalization pro-cess and verified the details in the subsequent interviews. The studyundertook several measures in getting accurate and actual informa-tion. First, complete anonymity was assured to the respondents giv-ing the information. Second, trust was built with some organizationsand executives through multiple visits and by keeping in constanttouch during the course of the research project. Third, informationwas sought informally outside the organizational premises where the

respondents were more comfortable talking about sensitive issues.Fourth, an alumni group from my school who are working for thosecompanies was contacted for further data. Finally, information wassought through indirect ways rather than posing direct questions. Itis my belief that the data rec

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