Sustaining cost advantage

D. Murali | Updated on February 10, 2011


What does an audit of ‘the Indian business landscape' reveal? That India has a sustainable growth trajectory, says Subir Verma in ‘ Towards the Next Orbit: A corporate odyssey' ( >

The author reasons that there would be an addition of about 20 to 30 million young producers and consumers every year into the market, with a transformative impact on the economy. More importantly, in his view, the Indian business model of providing products and services that are low-priced, affordable, convenient, and of good quality has proved to be of immense potential in a world where 80 per cent of the population in Asia, Africa and Latin America belong to the lower and the middle economic strata.

As the companies belonging to the western world are more accustomed to providing rich, luxurious, and high-quality products that are targeted at the rich and moneyed strata of the society, the Indian business model involving a sachet strategy of providing products and services meant for one or limited use is proving to be a handsome winner for the people in the lower income bracket, Verma observes. “For, the sachet strategy allows them to use a good quality product and service such as shampoos and mobile recharge only when they have the necessary earning to support their purchase. It has given people the convenience, flexibility, affordability, without compromising on quality, in purchasing and using products and services.”

Four lags

While the good news, therefore, is that India is at the centre of this innovative, low-cost, and high-quality business model, the question whether this millennium will be India's depends upon how well the country is able to overcome the four lags, viz. infrastructure, education, healthcare, and poverty, the author cautions. He points out that having a demographic advantage and the youngest population in which a large number is not educated enough – and even if educated, lacks in employable skills – would not only deprive the corporate sector of manpower but also create conditions for skill shortage, high attrition rate, and exorbitant salaries thereby undermining the low-cost advantage of Indian corporates.

What anguishes Verma is that investments by the government on roads, ports, power, healthcare and education and so on with the potential to catalyse development could come to nought ‘because of the scale of corruption where 80 per cent of investments goes into wrong hands' and because there is no compliance and consequence management, and bureaucracy has a maze of rules and regulations that are enough to drive away the most passionate entrepreneur!

Another gap that the book highlights is about labour legislation, which does not give the corporates the kind of freedom enjoyed by their global counterparts. Today, the cost of labour in proportion to the output of labour is increasing and putting India's famed labour cost advantage under great threat, warns Verma. So, cost-wise, India is becoming non-competitive, and productivity has to rise to justify the level of wages, he counsels.

Six imperatives

Laying out a road map for the corporates heading towards the next orbit, the author lists six imperatives, thus: Be perpetually prepared, be flexible, be innovative, build capacity, manage change, and manage partner ecosystem. An example of preparedness that the book discusses is of Maruti, which launched a vehicle targeted at the younger segment of the population given the emerging demographic profile of India, restructured the organisation, and developed a leadership pipeline in collaboration with the MDI Gurgaon.

The author also draws two lessons from the recent economic downturn, as follows: First, that firms which were mature, consistent, and prepared during tough times were able to deal with the volatile, complex, and uncertain external business environment; and second, that firms which had responded to the environment with a middle- to long-term perspective recovered better and gained in the process.

As for flexibility, Verma urges firms to have the ability to rebalance and reconfigure. In a classic repudiation of the strategic positioning principles, firms must have the capability to switch segments and operate in a plug-and-play mode to respond to opportunities which typically have short windows and much shorter response time, he exhorts. “Firms in their design must have an alert antenna. Boundarylessness has to be both internal and external. For, that will determine the fate of the organisation.”

Talking about the ecosystem, the author cites the case of Airtel for its leveraging a network of relationships to bring in the necessary skills, technology, and architecture, making a choice of what it was good at and outsourcing the rest to its partners. “The resounding success of Airtel is a tribute to its capability in transforming its partners to become co-creators and an inextricable part of the community…”

HR deliverables

Verma's advice to HR (human resources) is to align with business strategy, rather than remain a ‘support function.' In the reigning firmament of what firms require to do in order to succeed in the next orbit, the role of HR cannot just be recruitment and selection, training and development, salary administration, industrial relations, performance appraisal and reward management, and conducting exit interviews, he avers.

For instance, if productivity is the problem that is dogging the business head, it is then the responsibility of the HR professional to find out all the causes leading to the drop in productivity – as long as they are not technological – and devise apt solutions, the author argues. Stating that HR deliverables are therefore business deliverables, he calls for measurable value for HR investments; and demands that performance appraisals be not shorn of the understanding of financial dimensions of people performance such as EVA (economic value added), and CVA (customer value added).

Balance sheet of human capital

An insightful essay in the book is by Deepa Mazumdar, titled ‘Managerial work values in public sector banks in India: An exploratory study,' where the author prescribes that the approach to training and development should be that of investment. ROI (return on investment) should be measurable in terms of performance and linked to employees' balanced scorecard, she insists.

The essay makes a case for audit of human capital, with the balance sheet of human capital in ratio of the bank's cost of maintaining the employee as against the employee's capability and potential. “If the asset is higher than the liability, focus should be on talent retention and management, leadership, multi-tasking performance, e-learning, and e-training. In case the liability is higher than the asset, then the bank can work to bring a balance between cost and capability through a job-person fit or further training or replace him.”

Instructive compilation of value.

Published on February 10, 2011

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