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.

You didn’t know that, did you?

In his first five years as the CEO, he decimated 100,000 jobs in his company. When he retired, after a few more years, he had fired more than 500,000 people! This man, called “America’s Toughest Boss” and “Manager of the Century” (awards from Fortune), said that “people before strategy” has been his mantra all his life. One doesn’t need to look farther than the above details to understand why. The man is the legendary Jack Welch; and the company in question is General Electric.

Even before one starts criticising him, is the biggest learning Welch gave to the management world – that recession or no recession, firing poor performers has to be standard management policy. Sadly, as the noted Sirota Consulting proved, “Companies do a poor job of facing up to poor performers; it’s always the most negative finding.” BCG consultant Grant Freeland writes in a BusinessWeek report, “Few things demotivate an organisation (and its top performing employees) faster than tolerating and retaining low performers.” And believe it or not, a Forbes report shows how “employee retrenchment (of poor performers) actually increases loyalty!” If your organisation has been one that belongs to the category that has been forced to live with poor performers till date, I should suggest that recession is a supremely good time to kick them all out en masse.

At the same time, I should also say that this is the time to fundamentally change the way we plan and strategically think about our human resources. For starters, rather than using HR to mollycoddle employees (oh, haven’t we heard and had enough of outdoor motivational training exercises, perks, and all that jazz), use them to push down the throat of complacent low performers that whatever be their designation in the organisation – and even CEOs be damned, for all it matters – those are profits and profits that matter the most! (Booz Allen Hamilton reports, “Under-performance is the primary reason CEOs get fired.” They show that shareholder returns improve significantly ‘when poorly performing CEOs are axed’). Truly, as bottomline pressures force headcount reductions, it is also very easy to lose top performers, damage morale and the company’s reputation amongst employees, or curtail staff development programmes. By emphasising talent and productivity in cost-cutting efforts, employers can create a positive perception among current and potential employees and position themselves strongly for growth, when conditions improve. At the same time, a nimble HR, during relatively low growth times, should ensure a flexible and multiskilled workforce composition, where concepts like temporary staffing – depending on relevance – play a significant role in the manpower planning process. The pace at which technology is progressing, we will soon see present skills becoming redundant and a requirement will crop up for employees with multiple skills.

In conclusion, managing talent in the downturn for HR does not at all mean having to put up with lower than world-class employees just because you cannot afford the best. Rather, it means ensuring that the organisation and its employees perform at never before seen productivity benchmarks. As our theory goes, brilliantly productive CEOs/VPs/Directors/Managers/Employees/Humans for short, will become narcissistic and complacent given the first opportunity to slack. The job of HR is to ensure that that never happens. The job of HR is to, therefore, promote intellect over clerical work, to support youthful exuberance over aged experience, to believe in people with passion than people with egos... And in reality, this job of HR doesn’t change whether in downturn or out of it... For people will always remain before strategy. You didn’t know that, did you?

Employees First. Always.

Well-meaning organisations have always strived to ensure that employees are broadly satisfied with their working conditions; somewhat reminiscent of a benevolent feudal set up, where employers are part of an extended family. However, leading organisations today realise that employees, like customers, have an array of options, to stay, commit, engage or move. To keep employees loyal and at their productive best, it is no longer enough to provide them with the regular set of compensation-driven packages. It is time to start afresh and put together a benefits-driven package, with HR managers treating employees the way businesses treat customers.

Once we are able to change our mindset from that of a benefactor to a service provider, there is much that we can learn and borrow from recent developments in marketing to create a ‘wow’ experience at the workplace. From a marketing perspective, branding involves the creation of values and perceptions that help the target audience to positively relate their knowledge with respect to a particular product, service or organisation. Branding, however, is not only an opportunity to shape customers’ perceptions, it is an opportunity to shape employee perceptions as well. A brand today represents the relationship an organisation has with its employees just as much as it represents the relationship that it has with its customers. The difference though is that an employee is engaged and involved with the organisation’s brand for a much longer time and in more ways than a customer is. The now oft quoted term “Employer Branding” is in most ways an extension of traditional branding, but we do need to realise that “employer branding” encompasses a much larger environment and is a rather delicate proposition, which by its very nature requires the brand building process to be more transparent and robust.

The need of the hour is to engage leaders from across functions to commit resources to this process. Successful employment branding develops a theme and establishes an image of the employment experience at an organisation (most often aligning with the company’s corporate brand), and attracts and retains the right employees to the organisation. It is not always necessary for the corporate and employment brands to be aligned, but it makes sense to do so for various reasons. Research shows that the more an organisation’s brand persona is internalised by the employees, the better employees communicate this to the external stakeholders; and in these times of turbulence you will always find it easier to garner resources if you show a synergistic relation with the bottomline. A number of organisations with strong employer brands like Google, Honeywell and Fedex have managed to keep attrition low while making significant improvements in employee productivity.

As we keep hearing whispers of “right-sizing” in the corporate corridors, it is even more important to build the “employer brand”. Employer branding is here to stay, and those of us who are not prepared will lose the very talent we want to retain. This is a market focused on keeping the best, and we need to keep improving in order to successfully retain and expand our market share.

Feeling Bullish on Governance

You may be wondering what corporate governance and executive compensation is doing as the cover story in a Human Resources magazine, and rightly so. An audacious statement it may be, but I would gladly say that if we want to set high ethical and governance standards, HR is the function rightly poised to deliver results. After all, as every CXO loves to say, “it is all about people”.

Today when we look around, we see mammoth organisations being reduced to debris. As we probe further we realise that most failures can largely be attributed to lax governance and a culture of short-term profiteering. It then becomes obvious that what is required is a cultural shift in organisational thinking and hence a cultural change in the executives who direct the organisational strategy.

HR has evolved over time to become a key strategic player in the new-age organisation, in productivity and efficiency initiatives by sourcing work and talent for better leverage, outsourcing non-core work, and moving some talent costs from fixed to variable. For HR to remain a strategic partner in these new, anxious and unstable times, it must answer the call to support and systemise governance through a cultural shift that ensures growth without crossing the fine line between performance and greed.

A study by J. Richard Finlay, Chairman of The Centre for Corporate and Public Governance (Canada), shows that many boards devote more time and energy to executive compensation than to assure that their company adheres to its own stated standards of financial integrity and corporate responsibility.

In 2001, when Oracle made a record payout of $706 million to Larry Ellison (he exercised his stock options), the full board met only five times and acted formally or by written consent only thrice, in contrast to the compensation committee which acted 24 times in written consent or formal session.

The challenge for HR, and hence our focus till date has been to instill an entrepreneurial and business reward driven culture in our executives, in the hope of transforming corporate behemoths into nimble competitors. The challenge in the coming years will be to create corporate cultures that encourage and reward integrity as much as robust bottom lines, innovation and entrepreneurship. To do that, executives need to start at the top, becoming not only exemplary managers but also the moral compass for the company. CEOs must set the tone by publicly embracing the organisation’s values. Boards and CEOs need to be forthright in taking responsibility for shortcomings, be it an earnings shortfall, a product failure, or a flawed strategy; and show zero tolerance for those who fail to do the same by integrating these factors to pay and performance indices.

Overcoming the crisis in the corporate sector will take more than a single initiative or few. The breakdown has been so systemic and far-reaching that it will require major reforms in a number of critical areas. The HR community can play a vital role, as culture and hence people, starting at the top to the frontline, will need to transform in order to embrace a more inclusive business philosophy.

The Journey Begins...

In view of the growing flood of the printed word, one feels compelled to justify a new magazine as self-consciously as one defends the publication of “another self help book.” The justification for the present journal is nothing less than a passionate effort to make sense of the dynamic world of human resource development as India strides towards becoming an important player in the knowledge economy. Before this point we have been taking baby steps, experimenting with form, style and content in our earlier avatar of a journal, but now we are making our first full stride into the world of elite focused magazines, not in small measure inspired by you, our readers’ feedback. We intend to take in the landscape, recording and bringing attention to the local and global employee engagement and human resource development issues as they evolve. The journey has begun.

The skill sets which modern HR professionals require to stay on top of change within their function are probably evolving more rapidly than those of other business professionals. Many HR professionals are entering uncharted territory as the function continues to transform, and this can be both daunting in the challenges it presents and satisfying when they get it right and enjoy the hard-earned business respect that comes with this.

Fittingly our launch issue addresses the much talked about but less understood issue of Emotional Intelligence and its significance in the new economy. As you would expect from us, we have explored, analysed and tried to make sense of EI from perspectives ranging from business and academia to sports, with views from top industrialists to the fastest bowler on earth! New perspectives we have promised you.

What we hope to offer you is unrivalled coverage of the Human Resource scenario in India (unrivalled in the sense of being the best but also in the sense that no one else is covering it), and to import complementary articles from the world outside. It is a lot of effort and late nights for the team at Human Factor and Planman Media, but we have unbridled joy in bringing the magazine to life and, it is because we speak directly with those of you, who toil at the leading edge of industry and academia, breaking new ground.

The Human Factor seeks to capture the history of policy evaluation and present day research in a contemporary format which is both academically rigorous and practically relevant. It pursues a tracing of the effects of education, manpower, socio-economic and political events, and welfare policies in the classroom, in the labour market, in the community, and in the lives of human beings. And by following this path, it will bring together investigators from a variety of disciplines, serving as a meeting ground for their divergent methodological approaches to a common set of problems.

We welcome your thoughts on the magazine and we can be contacted at thehumanfactor@planmanconsulting.com, and bearing in mind that this is a launch issue, you might want to join us in raising a toast in celebration at the coming of age of The Human Factor.

Is it time to call in the Experts?

The HR function in India today has transformed into a function that finds business solutions, and is becoming known for saying “this is how we can accomplish this” as compared to “you can’t do that”. The function was often perceived as a bureaucratic, compliance-driven function that is reactive versus proactive and that changes at the speed of a rock! In most organisations, that perception is well-earned, since a good number of HR processes are developed in response to a significant event and are intended to limit certain behaviours instead of enabling others. Some leading organisations are breaking with tradition - at least when it comes to talent management - and establishing new structures that factor in the realities of a dynamic Indian business environment. A fair amount of credit for this transformation goes to the major HR Consulting firms which have in the last few years established themselves in India. They brought with them Best Practices and systems, that were seriously lacking in the indigenous firms. Most C-level executives today realise the need for the HR function to remain central to the business strategy. Mid to large size firms have realised that they may not have in-house resources to transform their present HR departments to the company’s strategic advantage. These organisations are outsourcing a significant chunk of their HR processes, both administrative and strategic, to specialised HR consulting firms. Many organisations are extending the scope of HR activities to include formalised processes focusing on proactive management of the employment brand and retention of the star performers. These organisations, with expert advice from their consultants, are tearing down massive walls that years of political infighting had created between functions, in order to develop entirely new HR structures where all deliverables are integrated to “strategically” manage the portfolio of talent. No longer does the training function devise training programmes for skill sets that can more readily be acquired through recruitment. No longer do key employees leave an organisation because a bad manager kept them from advancing. No longer are offers to top candidates rejected due to inadequate market knowledge of C&B. The benefits of expert advice from an HR Consulting firm can repay the cost of consulting many times over. We have indeed achieved a lot, but there is still a long way to go before these Best Practices have a direct and positive impact on the Indian economy.

The irony specific to India is that the large companies, which already have established HR processes, consume a significant chunk of the consulting business, while the smaller firms or start-ups, which desperately need to transform their people processes, are either not aware of or do not have the means to use consultants. The 3 million SMEs in India constitute 50% of our industrial output and 42% of exports, while providing employment to 50% of the manufacturing sector workforce. Common sense says that a slight improvement in their efficiency will contribute significantly to our growth rate. Interestingly enough, a Stanford–World Bank research team is funding a study to analyse the operations of small manufacturers in India and, at the same time, offering pro-bono consulting to a select group of small companies to help enhance their HR processes. Will our own trade bodies wake-up and put resources into these efforts? It is time to step up to the plate. It is time to embrace new, proactive endeavours. Let us stop paying lip-service to strategic HR and start implementing.

The twain shall finally meet

Across industries it is now evident that to build a sustainable advantage, the Human Resource function of an organisation has to take on a more strategic role, rather than spending time with iterative administration functions. This is where IT has proved to be the great enabler. In larger organisations we have seen simple functions like payroll and leave administration, to the more complex but process driven functions like performance management systems and learning & development, being automated, thus allowing HR managers to focus on aligning HR strategies with overall business strategies. As the HR outsourcing space becomes more and more competitive, we will see smaller outfits benefiting out of HR automation without having to shell out stupendous amounts in building their own systems.

Planning your company’s HR technology needs for the future is an easy task – if you have a crystal ball. We cannot offer you a crystal ball, but we will try and make sense of the emerging trends and thus try to envisage where technology in HR is going.

The need to control costs will, as always, drive key trends in 2007 and in the near future, while companies strive to optimise their HR technology investments and gain greater returns. In identifying these dominant trends, The Human Factor looks beyond the latest ‘gee-whiz’ gadgets and brings you those which are actually solve business needs and produce tangible bottom – line benefits. Although ability to deliver rapid ROI was a consideration, some trends suggest that best practices can be made even more effective and accessible through technology.

The top trend includes increased access to technology, at the workplace and away, while keeping ROI in mind. Access to virtual workplace systems is becoming a given for most technology or technology - driven organisations. The growing focus is also on optimising current HR systems. Interestingly though, quite a significant number of HR leaders still felt that while investing in technology systems, HR was still a backbencher, and investment came either as an afterthought or because of zealous HR champions within the senior leadership.

For HR managers who have still not been able to garner significant investment in HR systems, the best option possibly is to show the cost – benefits of the system - the ‘numbers’ which are easily understandable by the ‘bean counters’ rather than esoteric workplace benefits. It then makes sense to concentrate on systems and processes that have the biggest budget impact – processes that affect most people the most number of times. When the cumulative impact saves hundreds and thousands of Rupees, people sit up and take notice.

At Human Factor, we will continue to bring you the latest in HR from across the globe, our abiding principle being that we deliver articles that are relevant, robust and rewarding to the HR community. Your candid feedback as always is sincerely appreciated.