The Hindu Business Line : The year the penny dropped

AMONG many lessons the year 2004 taught the world, the most telling was how slowly and painfully human beings (and therefore managers and business leaders who also fall into the category) adapt to changes in the environment. It made managers realise at last how little real control they have over their far environment, of global events, which used to affect them only marginally a decade ago.

During this year the Indian and the US electorates defied predictions and voted to power two very improbable leaders. Dr Manmohan Singh and George Bush each in their own way would have been considered very unlikely six months before they took office. In our case, even more unlikely has been the marriage of the reformist agenda of the two prominent Singhs in New Delhi and the Finance Minister with the populist rhetoric of the Leftist coalition.

The year will go down in history as one in which many unthinkable things happened to the world of commerce, among them the almighty greenback taking such a beating that the Rupee appreciated nearly 5 per cent against it, much to the embarrassment of Indian exporters and the software industry. An American President and a British Prime Minister disdainfully referred to in his own country as George's poodle took the world into an enormously expensive, so-called war for freedom and democracy, the economic impact of which reverberated across the globe. The joke went that they could not call it Operation Iraqi Liberation only because neither country wanted it to be shortened to the acronym OIL!

The year had its share of scares and catastrophes, especially reminding us that economic meltdowns, global warming and epidemics all have one thing in common — few of us are spared, and we are all taught that the human race temporarily shares a common camping ground called the Earth. In May, the Sensex went into such a dive that analysts ran out of all dire superlatives. Far from the limitless bull run reaching a level of 6,500 and 7,000 levels, which was predicted on a "friendly" Government taking office, the new Government was greeted by a disastrous month of crashing prices and jittery investors. The surprises were not over, however, as the year-end saw the return of the foreign investors taking the equity and mutual fund markets back to dizzy heights. At the time of writing the high spirits are back.

What changed fundamentally, however, was the awakening of Indian managers across a whole spectrum of industries to the second- and third-order effects of global competition. First of all, pricing, for all practical purposes was taken out of the manager's job description. The consumer and the market place decided that. From real estate prices to components and spares to retail household goods and even commodities, many examples proved that in a wide open market supply and demand and expectations ruled supreme.

As prices fell in a manner unheard of till then, manufacturer and wholesale margins dipped, and corporations such as Hindustan Lever saw an unprecedented flight of investors as a result, touching the nadir of their fortunes - the lowest market cap valuations in 11 years, at one point.

At a certain stage, the debt market collapsed after a bumper six months or so; the mutual fund industry in the first half of the year was dormant, if not dead. Consumer enticements, freebies and gifts abounded and the shopping spree of the urban middle classes continued unabated. Credit was almost free; it certainly flowed freely, and zero per cent interest was a favourite gimmick of financiers. From shampoos to motorcycles to overseas holidays many things could be bought at bargain prices and deferred payment. The airline industry broke all rules and records as a rate war erupted, and added to the emergence in India too of the Southwest Airlines phenomenon. Deccan Air made air travel an occasional treat even at the junior executive levels and not an inaccessible luxury. Motorcar sales peaked as price increases were rolled back one way or another.

Next to the reality of the consumer-led business was the realisation that "people are our most important asset" is no longer an empty slogan. With the big spurt in jobs for the `mere graduate,' a wave of recruitment in the IT and IT-enabled sectors hit the general market for talent — affecting the traditional metal-bashing industries and other service businesses too. One outcome was a general expectation at year-end that we were all in for a bonanza year for salaries and bonuses once more after the drought of the earlier three years. More businesses became oriented in a manner similar to that of the software export business.

The truth dawned on many that in a world of mobile and transitory competitive advantage, people and how you dealt with them could be a distinctive differential to make your operation more successful at attracting talent. It was no longer fashionable to look down upon the soft skills, as trainers in these were much in demand. Some of the more advanced thinkers even went to the extent of including the words "holistic" and "work-life balance" in the discussion of people policies. People changed from just HR - suddenly they could not be handled as simply "another resource" but treated as a strategic foundation and core of the organisation.

An even more significant development which will take some years to show results is the emphasis on finding fast-track means of tooling up senior managers and potential future leaders of corporations. The average age of boards has not yet gone down significantly but will doubtless do so soon, as the wear and tear of a high-pressure life of both external and internal competition takes its toll. Employers will search for quicker and low-cost means of grooming the future CEO. Training and development will have to be much more individualised, focused and include the elements of coaching and mentoring by the seniors or even retired professionals.

Women managers are coming into their own. Drawn from a smaller selective minority, their average skill levels are distinctly higher than those of the general population of males. Women managers also are found to have greater stability, intelligence, intuition, executive orientation and robustness of approach to many issues. And more of them are now visible at the top. Although banking, knowledge-based industries, consumer-contact functions and new technologies are more hospitable homes to them now, this is only the beginning. In a few years' time women will perhaps occupy at least a quarter of the senior managerial positions in many industries, and there will be quite a few more of entrepreneurs and directors.

Top managers, having realised some years ago that the world had begun changing for them, concentrated their attention naturally on cleaning up their balance sheets, shedding, merging and acquiring business units and brands. The financial and asset restructuring phases having been completed, governance issues came very much to the fore. The penny dropped, as it were, during 2004. And now CEOs are coming to grips with the yawning gaps in the organisations, which are found in the more subtle areas of strategic thinking, creativity and leadership. These alone can make Indian companies ready for the next round in the global market — these are not easily or rapidly acquired advantages, but grown like `agriculture'. It is no wonder that culture as a feature of competitive advantage is gaining attention. Here is a trend that surely will play itself out for several years to come.

(The author is a student and observer of markets, people and organisations.)

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