Time For PSEs To Up The Ante

The public sector enterprise (PSE) is a complex entity in terms of objectives and goals. We expect PSEs to churn profits but assign projects and terms which no private sector organisation will touch with a barge pole. We keep comparing their results with their counterparts in the private sector, and more often than not, forget that they were created and exist for citizen- and society-centric purposes, rather than profit-centric purposes. Post-independence it was the public sector that provided the required thrust to the economy, and developed and nurtured the human resources that are vital ingredients for the success of any enterprise; public or private. This is not to say that all public sector organisations in India have been the epitome of public service; we know better than to paint them with the same brush. However, over the years, for reasons real or perceived, the public sector which was an automatic choice for aspiring technocrats and bureaucrats, lost its sheen as a preferred employer of the best technical and business talent in the country.

Therefore, when Union Bank of India becomes the largest recruiter at one of the best business schools in the country, we need to look deeper than a perfunctory assignment of cause to a recessionary economy. Look deeper and we see that PSEs that today contribute about 8 per cent of our GDP have recruited 16 per cent of the graduating class. The slowdown must have helped, but the PSEs also must be doing something right to be able attract the best talent. In the face of such data, The Human Factor started talking to employees and management in the large PSEs, and discovered remarkable employee-centric practices. From BHEL to Nalco to ONGC to the other large PSEs, we saw remarkably perceptive leadership teams lending their support to implement employee engagement processes that would make a true-blue MNC proud.

Public sector employees today are at the helm of complex challenges of administration in critical sectors like policing, manufacturing, education, healthcare, transportation, land management, infrastructure, skill promotion, employment generation, rural development and urban management. All these are intricate issues which call for domain expertise, long experience in the sector, and deep insights into the social and economic realities. And of course, all of these would need to be backed by a leader who has a vision and wants to make that difference. There is need to foster excellence in the public systems, and consistently attract the best talent and expertise, while ensuring that they remain citizen-centric. And our PSEs have risen to that challenge. Processes of recruitment, periodic training, promotions and postings, and strategic career management are undergoing an overhaul to help public sector executives develop these skills. Performance-pay has been introduced while seniority-based promotions, once the bane of the government sector, have been considerably suppressed. No wonder then, the PSEs have started going up the popularity charts as preferred employers at the best graduate schools. There is, however, no margin for complacency, as once the economy rebounds and the private sector remunerations become more attractive, PSEs may once again see an exodus of talent. This, therefore, is the time for PSEs to up the ante and create policies and work environments that are superior to the private sector even in a growth economy.

There is inspiration close to home though, with Singapore being able to attract and retain the best talent in its public sector, which has resulted in the country being ranked as the best place to do business. In India too, we will hopefully have the public sector attract the best in the near future, which in turn, would make India a preferred investment destination for the private sector.

We Express Our Concern

Organisational health is an oft quoted but mostly ambiguous term in today’s management circles. Is it employee health and its impact on productivity we are talking about, or is it the health of the organisation’s business relative to the environment in which it functions? There is, however, no question in the mind of chief executives that financial measures no longer provide enough data about the health of an organisation, and measuring human capital is a key element for assessing organisational performance and leveraging talent in the workforce.

There is evidence to show that improving workplace wellness and employee satisfaction can lead to a healthier bottom line. Managing companies for success across time frames, while dealing with the ever growing phenomenon of managing stock market sentiments from quarter to quarter - a requisite for achieving both performance and long-term health - is one of the toughest challenges in business. While this year has been especially hard on executives, with the turbulent economic conditions forcing them to concentrate on the short-term, research does show that stock markets value the long-term as much as they want to make quick gains. As markets mature and take lessons from the debacles, we will see the re-emergence of the wise investor, who will value the long-term over the short. Leadership must act today to ensure that it can convert growth prospects, capabilities, relationships, and assets (which in today’s economy more often than not is human capital) into future cash flows.

The good news is that leading companies are becoming health conscious on the rebound of a number of corporate health failures of yesteryears. Most board directors are today spending more time discussing future strategy, risks and talent management, issues that pertain to a company’s long-term health rather than the latest financial results. C-level executives are making it a point to visibly spend more time nurturing talent, and directing holistic reward strategies. A growing number of employers are beginning to capitalise on the convergence of these two trends, and are positioning health and wellness initiatives as valuable elements of a total rewards package. Just as the central tenet of a total rewards strategy is to align compensation, benefits and other incentives with business goals and employee needs, the same holds true when implementing effective health promotion strategies. In both cases, the objective is to understand the relevance and perceived value to the employee, and then design a programme that optimises the potential for achieving the organisation’s goals.

An impediment towards the acceptance of the ‘organisational health’ method has been the ambiguity surrounding the metrics which will allow an objective measure of health while directing us towards the prescriptions required, if any. What is more alarming though in organisations that are following the method, is the tendency to look for a ‘one size fits all’ approach, while management consultants prescribe cure-alls like the Balanced Scorecard. Companies should identify the health and performance metrics most important to them depending on their growth goals and the nature of their industry, which could mean technology and customer satisfaction for some, while talent retention and product innovation for others. The metrics should however necessarily include appropriate weightages for operations and processes, short- and long-term financial outlook, products and services, leadership and strategy, as well as continuous improvement and corporate governance.

While we look forward to change for the better, from the sweltering summer to a cooler monsoon, and from a depressing recession to a more positive economic climate, here is wishing you and your organisation the best of health.

Bitter Pill, But Just Swallow It

In a recent gathering of old friends and peers, the economic downturn dominated discussions as usual. Interestingly though, the emphasis had changed from comments concerning the implications and issues around a tight labour market, to real issues like reward and retention of key performers, and the importance of adhering to the key fundamentals of sound practices of human resource management when dealing with performance and talent management.

The HR community is well aware of the number of organisations that are revising their budgets to reflect nil or very low movements in pay. This is happening across many sectors and industry groups at present and while the trend is clear, the end result is not. In some sectors, for example in organised manufacturing, the issue will be complicated by collective agreements running through for the next eighteen months or so where average per cent movements are built in. While these agreements made good sense at the time they were agreed upon, they clearly appear generous now and most likely will be out of line with those of other groups negotiating in the current climate.

Managing a small to nil salary increase budget in today’s environment will be a new experience for a number of young HR managers. With increases given in previous years averaging fifteen per cent and more, giving some individuals a small or no percentage movement based on their performance has its difficulties. The regular performance management systems, which produced results to decide on salary movements, will be tested in this climate where similar results would have to be interpreted in the new economic context. But just because the system would be tested, taking the step to forego the entire performance management system will be counter-productive.

When you have a smaller pie to work with, it is even more important to distribute funds judiciously. Your star performers will demand that they are treated fairly relative to the rest of the organisation. In this environment, it is imperative to keep morale up by ensuring that merit-based compensation is equitable. Workforce reduction may be a bitter pill to swallow for the HR professional, but when it does become necessary, you cannot afford to make mistakes. If your performance management programmes include career and succession planning, you will have an unbiased snapshot of your critical roles, key people, and relative performance ratings. Armed with this data, your managers can make more informed choices about whom to let go - and avoid the pricey fallout of letting go of key performers inadvertently. The truth is that great people are hard to find in good times and bad. The golden rule in talent management is to never take your talent for granted.

It might sound clichéd but recessions, while challenging, do present opportunities. We must remember that workforce optimisation is the core objective of performance management and talent development, because employees are the most critical assets of every organisation. We should use this downtime to critically review our performance management and talent development programmes and align them with corporate strategy. The companies who diligently pursue their objectives and align business and people strategies will not only weather the storm, but will be primed up to take advantage of the recovery that seems to be in the horizon.

Survival Training

Early last year when the economy and the stock markets were hunky-dory, training managers had a difficult time convincing executives to take time out for training activities. Line managers were reluctant to let employees attend training, lest they lost out on the frenzied revenue earning opportunities. Today the training manager faces a different obstacle; budget cuts.

In a manufacturing economy, we would intuitively keep lubricating and maintaining our plant and machinery; failing to do so would mean seizure of the resource that justifies our existence. Take that premise, place it within the context of the knowledge economy, and we have the clear analogy that failing to lubricate and develop the collective mind of the workforce risks the stagnation and decay of the very resource that will sustain an organisation through this slowdown as well as help it grow once we reach the inevitable stage of economic recovery. It is then counterintuitive for businesses to cut budgets for training when they have the manpower resources available for learning and development activities. There is also a significant body of work suggesting a strong relationship between training and business sustainability. “Businesses must resist the temptation to slash training to cut costs. Why? Because businesses that don’t invest in talent are two and a half times more likely to fail, whereas those that carry on training will recover more quickly,” says John Denham, Secretary of State for Innovation, Universities and Skills in the United Kingdom. The numbers come from a peer-reviewed report called ‘Training and Establishment Survival’. The key finding of the report was that the strong association between training and survival was found to be true across establishments in nearly all sectors, of all ages, sizes and types. The evidence does suggest that training is a key component of a great many business strategies for adaptation or survival in recessionary conditions, as well as for growth in better times. But it is only one component of the overall business strategy and cannot produce results in isolation, and therefore the strong case for aligning learning strategies with organisational strategy.

When the economy slows, corporations are forced to respond. Because cash flows take a nosedive, there is simply much less money to spend, and budget cuts are a fact of life that we must adapt to. This then is the time for the HR division to take a hard look at budget allocations across the spectrum of learning and development activities, cut down the frills, and focus on activities that are direct responses to the slowdown. We need to use learning and development strategically, and when I say strategy I mean it in the classical form of defining for ourselves a position that gives us a competitive advantage. While developing the strategy, it is also imperative that we look beyond the horizon of the recession and position ourselves for a robust and competitive economy. Organisations that are able to give their workforces the tools and skills to innovate and collaborate, by leveraging core competencies within key individuals and the organisation, are the ones that will prosper. Organisations that take the axe to training by making broad and sweeping budget cuts in learning and development may not survive to see the benefits of their cost cutting exercises.

Tomorrow Can Arrive Today

A Chief Executive’s job is dramatically complex. Background, experience, education, and talent may not prepare you for the all-encompassing, globally-pressured, quarterly-earnings-report work that comes with leadership at the top. In a world where most starry-eyed, young business graduates dream of becoming CEOs by 40, about 40% of CEOs fail within 18 months. Demands on leadership alongwith increased accountability of corporate boards have compelled many companies to place a premium on the way they plan for leadership change. A constant, collaborative process is crucial for a successful transition; and to counter the countless examples of failed successors, it must begin the first day a new CEO takes the helm. Unfortunately, many Boards allow CEO succession to be handled through an ad hoc, political process. This leaves the bigger question of what sort of long-term leadership the company truly needs unanswered.

Despite some notable examples of organisations that have succeeded in making smooth leadership transitions by investing in and nurturing internal bench strength, most boards do not take succession planning seriously as they can always fallback on external talent acquisition. A Booz Allen Hamilton study shows that home-grown CEOs deliver 1.9% more shareholder returns than externally appointed CEOs. In the face of such concrete evidence when boards decide to hire externally it sends a dangerous message to employees that they are seen as incompetent.

Promoting internally through a short list horse-race has its own pitfalls though. There is a real danger that once a candidate has risen to the top, companies can end up forfeiting talent that has been nurtured for leadership role to competitors. The ‘losers’, who no longer see a future at the company, decide to leave for greener pastures, often taking their key people and clients with them. To avoid these problems, companies that employ the horse-race succession approach successfully require ‘teamwork’ among the candidates during the trial period, testing for their ability to work collaboratively. Organisations need to find ways to recognise ‘losers’ after the transition by elevating them to senior Board-level positions.

The process of acquiring or promoting a leader must be at least as rigorous as that of acquiring a high-value asset or choosing a strategic partner. With both processes fraught with risks, whether a board considers internal or external candidates or both, the starting point should be a specification for a CEO who reflects the strategic vision of a company’s future, not its present. The specification should reflect the best characteristics of world-class leaders in the company’s business segment. This strategy requires consensus on the board about future growth and a vision of where the company should be in five years. And while we want the future CEO to embody the organisation’s future vision, the specification cannot overlook the unique history, culture, and present-day situation of the organisation. Leadership changes are not easy, nor are they stamped from a mould. A highly skilled or a highly successful leader in an organisation may end up being a complete failure in another.

In a world characterised by the scorching pace of change, the succession planning process cannot remain static and needs to be revisited ever so often by the Board to incorporate contextual change. Boards of Directors must embrace the fact that few things matter more to an organisation than having the right leaders in place today and in the wings for tomorrow - recognising that tomorrow can arrive today.

Time to Get Altruistic?

Over the last couple of years we have seen the notion of sustainable growth emerge from the woodworks of academia into the real and robust world of business. The sustainability game is changing from one of reluctant compliance to that of business gains in the green space.

The notion of triple bottom line (People-Planet-Profit) or 3BL has given a new perspective on what a carbon-constrained world might look like; not a negative cramping of human and business potential but the sort of paradigm shift offered by the digital revolution - only bigger. Evidence of this business potential is today visible all around. One estimate has China’s clean-tech market increasing to US$186 billion by next year and a massive US$555 billion by 2020. Japan is busy working on a solar-powered ship. The Netherlands is developing neighbourhoods based on cradle-to-cradle concepts. Cisco Systems is building a water system for the community in a developing country where it is expanding. Greenpeace is advising the Chinese national government. Dr. Nick Axford of CB Richard Ellis, who coauthored the CoRE 2010 research, refers to the acceptance of 3BL as “altruistic self-interest.” Companies as significant as AT&T, Dow Chemicals, Shell, and British Telecommunications, have used 3BL terminology in their press releases and annual reports.

Our expectations from workplaces are changing, and an increasing number of prospective employees pre-assess the social and environmental commitment of companies before choosing an employer. The pride shown by the winners of employee benchmarking initiatives (such as Fortune’s ‘Best Companies to Work For’) highlights the importance attached to workplace issues as a source of corporate reputation. While there is little evidence that people apply for jobs on the basis of CSR ranking, the quality of performance on benchmark issues, and the organisation’s contribution to the environment and society are important criteria for more and more employees.

Sustainability is not a window-dressing or peripheral programme that can be deferred or discarded in tough economic times. It is a vital and robust strategy for tough times. Over the short term, it offers quick, money-saving fixes with significant return on investment. Over the long term, it cuts costs and generates revenue, giving your company a competitive advantage over less sustainable rivals. Green buildings reduce energy costs by about 35%, water use by 30-50%, and waste costs by 50-90% when compared with conventional buildings. Sustainable facilities also help companies make money by improving productivity by 6-16%, according to several studies.

But - and it is a big ‘but’ - in today’s difficult economy, businesses must focus on embedding genuine sustainability in their corporate culture, not just in their press releases. No more self-congratulatory announcements about the branch manager who sometimes rides a bike to work to reduce the bank’s carbon footprint. Environmental issues are understood to be more serious today than they were during the first iteration of green marketing (think climate change), and consumers are shopping with a vengeance - and a conscience. The industry has been duly warned to adopt more responsible marketing courses or risk inviting regulation on dubious green marketing practices. Note the rise of grassroot bans on polluting products such as bottled water, supermarket shopping bags, and the like.

Is sustainable growth for real or are its benefits exaggerated? The mounting trends and results suggest it is not overkill. Profits must happen but not at the cost of people or the planet. The business case for 3BL is crystal clear; it simply is a better business model.

In Praise Of Productivity

Economists will tell you that the surefire solution for coming out from the slowdown and achieving economic nirvana is rapid growth in productivity. But then, we hear new voices saying that growth in productivity is a double-edged sword for an economy in turmoil, and more often than not leads to a surge in unemployment. Since advances in productivity will more than account for the expected 7 to 8 percent growth, India Inc., having shed about 1 million jobs in 2008, will now create 0.3 million jobs less in 2009.

Are we then caught in a vicious cycle of productivity growth that will continue to cause less job creation and hence prevent us from making a complete recovery? Is it because productivity and efficiency growth are not keywords that we associate with most of our PSUs that we find them to be stable in uncertain times? Surely not. We will argue that it is just the opposite. It is the unusually robust productivity gains that we have achieved (been forced to achieve, some would say) during the slowdown, that is laying the groundwork for the stronger demand that will justify next year’s new hirings. It is productivity growth that has helped support and shore up overall demand at a time when a long list of other factors unrelated to productivity have suppressed it.

Because of the elimination of the inventory excesses, the terror attacks on Mumbai and Delhi, the corporate scandals, and a hostile neighbour, overall demand rose at an annual rate of only 2.2 percent during the last two quarters. With productivity rising at twice that pace, it is clear that companies have been able to satisfy demand growth even while cutting payroll costs. However, we have started seeing better news lately, with Wipro and Infosys posting good results, and giving analysts some confidence about the fundamentals of the Indian economy. Satyam alone cannot undo the good work that the industry has done in recent years. As we keep the economy on its feet, we will see these drags either fading away or completely gone. Consequently, 2009 can be the year when the benefits of a faster pace of productivity begin to lift demand across a broader swath of the economy. In short, both businesses and households can be winners next year, and creation of more jobs is likely. The caveat: keep improving productivity.

A long-run trend in productivity growth, now generally accepted as inevitable, means the economy has to sustain growth for the payrolls to expand. But that is only part of the story. The more important part is that faster productivity growth boosts demand by lifting profits and workers’ pay. It also adds to wealth as the result of a bull run in the market. The crucial link between productivity and demand is income. When an economy generates higher output, it creates an equal amount of higher income that translates into higher salaries or business profits. The key is that faster productivity growth allows the same worker to generate more income, a process that has post-liberation added handsomely to business profits and real compensation of the salaried professional.

That is the beauty of productivity gains: everyone wins. In the end, it is income growth that determines economic performance, and that is why the premise of ‘perils of productivity’ is on shaky ground.

Growth in productivity will not hold job growth and the economy back in 2009. It will spur them on.