The Indian Institute of Technology Madras (IITM) organized on August 14, 2010 a symposium titled “Medical Education and Research in Independent India: A Critical Review and Projected Role of IITs in Post-graduate Medical Education and Research” at its campus. Apart from the Director of IITM, Professor M S Ananth, two eminent medical professionals, Professor B M Hegde (a noted cardiologist, former vice-chancellor of Manipal University and a recipient of the Padma Bhushan award) and Dr C V Krishnaswamy (a renowned diabetologist and a pioneer in affordable diabetes treatment for the needy through the Voluntary Health Services, Chennai) delivered critical review lectures. An eminent chemist, Dr Lalitha and a reputed physicist Dr Srinivasan provided additional perspectives as panelists.
The symposium raised several open issues with the very relevance and appropriateness of modern medicine as is taught and practiced coming under serious critique by the two distinguished invitees. Both the speakers are well-known for their erudition as well as campaign against exploitative medicine. Both the speakers consider the human body as a technological energy-house, capable of rewiring itself and requiring only a minimalist medical or surgical intervention. It is not surprising therefore that Professor Ananth admitted that he stood confused after listening to their lectures. If the symposium was intended to lay a charter for the IITs in medical education, the purpose was far from accomplished. Yet, the very act of focusing on the potential role of the IITs in medical education is a ground-breaking thought. Dr Ananth deserves kudos for germinating and pursuing this thought.
The proposition of medical education in the IITs appears highly counter-intuitive given that the IITs had been established solely for excellence in higher technological education and research. The proposition appears to go against the Indian educational eco-system which for decades saw engineering and medicine as two distinct (and almost non-complementary) streams of education. So much so, at school finishing level itself the students are required to choose between a mathematics-physics-chemistry stream, which is a prerequisite for engineering education, and a biology-physics-chemistry stream, which is a pre-requisite for medical education. Given the resource scarcity in higher education in India it is also debatable if additional resources of the IITs should be spent on diversifying into medical education and research or on deepening the core competencies in scientific and technological education and research. Though the proposition, on the above counts, appears counter-intuitive to the Indian context there is a strong case for analyzing the proposal with due objectivity.
The macro-case for the IITs
The Indian Institutes of Technology (IITs) are a group of 15 autonomous engineering and technology-oriented institutes of higher education established and declared as Institutes of National Importance by the Parliament of India, and hence established directly by the Central government. The IITs were created to train scientists and engineers, with the aim of developing a skilled workforce to support the economic and social development of India after independence in 1947. In order of establishment, they are located in Kharagpur (1950; as IIT 1951), Mumbai (1958), Chennai (formerly Madras) (1959), Kanpur (1959), Delhi (1961; as IIT 1963), Guwahati (1994), Roorkee (1847; as IIT 2001), Ropar (2008), Bhubaneswar (2008), Gandhinagar (2008), Hyderabad (2008), Patna (2008), Jodhpur (2008), Indore (2009) and Mandi (2009). Some IITs were established with financial assistance and technical expertise from UNESCO, Germany, the United States, Japan and the Soviet Union.
Each IIT is an autonomous university, linked to the others through a common IIT Council, which oversees their administration. They have a common admission process for undergraduate admissions, using the Joint Entrance Examination (popularly known as IIT-JEE) to select around 8,000 undergraduate candidates a year. Postgraduate admissions are done on the basis of the national competitive examinations called GATE, JMET, JAM and CEED. About 15,500 undergraduate and 12,000 graduate students study in the IITs, in addition to several hundred research scholars. The alumni of the IITs have become top-ranking scientists, technologists, managers, and entrepreneurs globally. The IITs, especially the ones with long history, have won consistent ratings among the top technological institutions of the world. In more ways than one, the IITs have become global institutions and brands of India, attracting the best students and teachers in India.
In contrast, higher medical education in India has largely been introverted, partly due to the institutional constraints and partly due to the reluctance of advanced economies to open up to foreign doctors. Neither has it been promoted as an educational mission of national importance by the Central government as it did in the case of IITs. There are only a few national medical institutions such as AIIMS, Delhi and JIPMER, Puducherry, which are centrally sponsored. Most other medical institutions are State sponsored or private sponsored and have won reputation as teaching hospitals. If the concept of IITs as institutes of national importance has paid off, an analogous concept in medical education as a mission of national importance should be equally relevant and feasible. By extending the scope of IITs to include medical education, potentially the 5 decade experience and institutional structure of the IITs can be effectively leveraged for medical education.
The other logical treatise relates to the role of science and engineering in the field of medicine. From diagnostics to surgery, and from pharmaceuticals to human organs technology plays a major role as never before. The body scanning and blood analysis equipment and processes are getting advanced each year with more sophisticated imaging systems, informatics and predictive capability. As the sciences of human genetics and genetic engineering become more advanced the ability to predict likely disease incidence and therapeutic efficacy would only increase in future. At the other end of the spectrum, minimally invasive surgical methods, utilizing robotics and laser surgery on one hand and regenerative medicine including transfused and auto stem cell therapies would substitute the classic surgical scalpel. In more senses than one, future physicians and surgeons need to be expert biologists, physicists, chemists, engineers and technologists, all rolled into one. This indeed is a tough call and requires a highly communicative, collaborative and networked community of scientists and technologists.
By letting the current graduate studies in sciences, engineering and medicine consolidate as at present but establishing a new paradigm of post-graduate and research studies in life science technologies, the IITs can certainly make biology and technology work for medicine. The challenge is, therefore, not merely one of teaching medicine in the IITs; it is one of defining a whole new stream of life sciences technology. This would involve understanding the human body better through deployment of engineering tools, individualizing diagnosis and therapeutics through deployment of genetics, potentiating pharmaceuticals through newer molecular moieties, more patient-friendly and more efficacious delivery systems, moving surgery into an almost non-invasive technological tool, and regenerating the human body through its own immune and cellular therapeutics. IITs can certainly create these new life science technological substrates through higher education and research. Respecting that human beings can never arrogate themselves to create or modify life which is God’s great creation, some of the potential life cycle technological theorems are hypothesized below.
Modeling the human body and mind
Cellular technologies. Engineering aims to reduce the abstract to precise, visualize the hidden and optimize performance. From mathematical equations to heuristic algorithms, and from simulation to fuzzy logic multiple engineering approaches are available to model systems. Biological and medical sciences have so far used in vitro and in vivo animal models to understand how human body gets affected by disease and how it is cured by medicines. This modeling continues the principal theme of medical development despite the knowledge that exists that animal modeling does not simulate, replicate or predict human modeling. If the fundamental building block of human body, or for that matter any living organism, the “cell” is understood better the science of life and living becomes stronger. Considering that the human body is made of trillions of cells as building blocks, with different types of cells conducting different tasks, modeling, engineering and optimizing cellular behavior is the fundamental challenge as well as opportunity for newer life science technologies.
NIGA models. Engineering has moved from designing and manufacturing machines operated by human beings to designing, manufacturing and operating human-like machines, the humanoids. Science has moved from explaining the laws of physics, chemistry and biology to cloning and creating biological organisms leveraging the laws that have been discovered and defined. Yet, what propels cells to do what they do has not been understood yet. The nutrition-immunity-growth-aging (NIGA) model (the author’s unique acronym) has not been understood either as an individual model or collective system. Energy is essential for growth; yet it is not understood at what points of time, and in which manners, energy supply to, and consumption by, the human body become optimal or sub-optimal. Relating cell growth and death to alternative models of nutrition and energy would be an essential component of life science technologies. IITs, having mastered mechanical, electrical, electronics and computer engineering domains can apply these principles to establish and validate customized NIGA models at cellular levels.
Networking solutions. The human body is an impossibly complex electro-mechanical, neuron-capillary network with multiple biological pumps and filters that maintain the body and mind in harmony with themselves and in dynamic equilibrium with an often hostile environment. Principles of engineering can be utilized to model these interactions. For example, failure of venous pumps in legs causes accumulation of blood in capillaries and swelling of either peripheral or deep veins. Engineering rather than medical solutions to correct the pumping abnormalities are perhaps called for. Mapping of brain exteriors as well as interiors in neurologically challenged persons, and reviving of neural networks in brains of strokes-incapacitated patients is yet another area where electrical engineering could offer relevant solutions.
Diagnostic solutions. Clearly, major strides have been taken in developing diagnostic equipment which produce highly granulated images of the human body based on computer aided, magnetic resonance aided, and positive emission aided scanning devices. While the current equipment are minimally invasive and much faster compared to the earlier generation equipment, the continued use of radiation and radiological contrasting agents bring in risks of invasive analysis and discomfort. It is necessary to work on continued engineering solutions which not only sharpen the imaging capabilities but also correlate with clinical outcomes in auto diagnosis as well as in feedback correction model.
Robotic solutions. The use of robots for surgery has indeed been a game changer. Large incisions have now given way to key-hole surgeries. Use of robots in surgery can go a step further as new technologies enable slender, flexible arms to navigate through the contoured internals of the human body. While so far robots have provided better magnification and manipulative skills in one to one relationship with surgeons, it is possible to envisage a future whereby more than one robot could be pressed into service to perform multiple tasks simultaneously. It is also possible to envisage miniaturized robots and nano robots which can actually be placed in the internal body systems for more precise nature of body responses during the surgical processes.
Materials solutions. From creation of synthetic organs to development of artificial blood, engineering can play a major role. Discovery and development of more bio-compatible materials together with in situ design and manufacture of required human parts could lead to better outcomes, especially in orthopaedic, cardiac and cosmetic surgeries. Materials which minimize blood loss, suturing systems which promote rapid self-healing, carriers and excipients that enable better bioavailability for pharmaceuticals are all within the realms of engineering possibility.
Pharmaceutical solutions. IITs have a great track record in the sciences of chemistry and physics. Chemistry is traditionally focused on engineering kinetics and dynamics in a machine system rather than on kinetics and dynamics of molecules in a human system. Yes, these two key disciplines, can be supplemented to develop powerhouses of new chemical entities and new drug delivery systems. With the addition of newer disciplines of biotechnology and nanotechnology, the IITs are well positioned to drug discovery and drug development activities in both small molecule and large molecules spaces.
Device Solutions. Medical devices are increasingly playing a major role in monitoring patient condition, bedside. The ultimate destination of this quest should be to have a patch which when worn on the patient’s skin can provide a complete readout of all the body parameters. New biochemistry and bio-enzyme technologies would be required which could apply principles of microporosis and generate inputs to a wide range of conditions like salt and electrolyte balances in the body. This, coupled with devices which are capable of programming, feedback and self-regulation could take medicine to an auto-management mode.
IT-enabled Personalized Medicine. The IITs decades ago pioneered computer education. They also have been pioneers in mathematical and stochastic modeling as well as application of statistics and economics. All these capabilities can be applied for developing new frontiers of personalized medicine to eliminate variability in person-to-person therapeutic efficacy. A host of clinical and medical sciences such as pharmaco-genomics, pharmaco-economics, genetic prescription, personalized medicine can be expanded based on application of computer sciences. From simple archiving and analysis of clinical data to complex predictive modeling IITs can harness their computer skills to enable personalized medicine.
The above are only a few illustrative areas indicative of the capability of engineering to redefine higher medical education and research.
Life science technologies – actions for the IITs
Clearly, there are a number of domains and applications where the principles of engineering and physical sciences, including mathematics, when combined with the principles of biological sciences can provide breakthrough solutions for medical needs that are unmet or can be better met. Clearly the current medical schools which have no engineering background are not the campuses to aim for such new developments. On the other hand, given the preponderant use of science and engineering, the IITs could be the campuses where such new life science technologies can be developed.
The route to such development lies in creating centers of excellence, for each of the solution areas that have been discussed in the foregoing in an illustrative manner. For example, there could be centres of excellence for cellular engineering, NCGA modeling, network rejuvenation, diagnostic efficiency, robotic surgery, bio-materials development, pharmaceutical discovery and device optimization. These, and other similar centers, should be bound together by an integrated human life science technology system which understands the engineering of the human body and mind in a holistic manner.
As a fundamental requirement for the new stream of life science technologies, the current distinction between biological sciences oriented curricula and the mathematics oriented curricula (the former leading to medicine and the latter leading to engineering) needs to be done away with. Undergraduate students should be provided with equal grounding in physical sciences and biological sciences to be able to absorb the nuances of medicine and engineering effortlessly.
If the medical education as envisaged herein needs to take root in the IITs, the analytical capabilities need a significant leg-up. More powerful liquid and gas chromatography and mass spectroscopy instruments capable of not only conventional analytical research but also bio-analytical development and detection of entities in the minutest pico and ppq ranges would be required. Similarly, biological laboratories which can develop in vitro cellular models based on genetic sciences will also be required. New genetic engineering equipment such as protein extraction and purification equipment, gene sequences, microarrays will need to be installed. It is likely that upgradation of infrastructure alone would be in the order of one billion dollars for say five IITs together to start with.
Integrated life science technology programs at higher levels of education (post-graduation and research including doctoral and post-doctoral programs) must be flexible to accept entrants via basic bachelor’s degree in engineering or medicine. Establishment of autonomous life science technology centers within the IITs with their own dedicated programs will see a new dream fulfilled in higher education scene in India. Probably with such an effort, India could lead an educational revolution in life science technologies even on a global basis.
Posted by Dr CB Rao on August 16, 2010 (an alumnus of M Tech and Ph D programs of IITM)
Monday, August 16, 2010
Monday, August 9, 2010
Successful CEO Succession: Model of Continuity with Change
Corporate India woke up on August 5, 2010 to the news that the Tata Group, the largest Indian industrial conglomerate, would look for a successor to group chairman Ratan Tata, who is due to retire when he turns 75 in December 2012 as per the group retirement policy, which he himself had put in place. Tata Sons, the holding company of the group, stated that it had set up a panel to begin a global search for a successor, considering external or internal candidates, to replace the veteran leader who took the Tata Group to new international glory. The Group would like to complete the search process for the Chairman by March 2011.
The 142 year-old Tata Group, founded in 1868 by Jamsetji Nusserwanji Tata and developed further by Sir Dorab Tata, has a formidable reputation for its business track record and corporate value system. Tata companies operate in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals. They are, by and large, based in India and have significant international operations. The total revenue of Tata companies, taken together, was reportedly USD 78 billion (around Rs 358,800 crore) in 2009-10, with over 65 per cent of this coming from business outside India. The group probably employs nearly 400,000 people worldwide. The Tata name has consistently been respected over 14 long decades for its adherence to strong values and business ethics.
The legacy of Jamsetji Tata and Dorab Tata was taken to greater heights by JRD Tata who took over the reigns in 1938 (in his five decade tenure, covering the period 1938 to 1988, the Group grew from Rs 620 million to over Rs 100 billion and from 14 companies to 95 enterprises, and as a brand in itself). Ratan Tata who took over in 1991 from JRD steered the group into the international league. Ratan at that time was relatively an untested leader for the conglomerate as a whole, despite playing a role in certain Tata businesses. Ratan confounded analysts who were concerned that the different constituent companies, each with a powerful leader, would pull apart disparately. He represented continuity by preserving and institutionalizing the core Tata values but also led a positive change with a unique alchemy of consolidation, diversification, globalization and performance management.
Given the remarkable contributions of Ratan, it is not surprising that some wonder if the group would be able to find a leader who would match Ratan’s track record. Future proceedings would, no doubt, provide the answer in a positive manner, particularly in the context of the diligent manner the group has applied itself to the challenge of finding a fitting successor to Ratan Tata. The question of leadership succession, however, has connotations that are universally relevant to any firm in any industry and in any country.
Inevitability of succession
Virtuous institutions outlast capable individuals. Virtuous institutions are managerially programmed to grow. Individuals, however capable they are, on the other hand are genetically programmed and administratively ordained to retire. Leadership succession, especially at the Chief Executive Officer (CEO) level, is therefore of considerable importance. Not surprisingly, numerous books and papers have been written about the challenges and opportunities of leadership succession planning.
Some leadership successions, as with GE and now with Tata, are meticulously planned and executed to achieve remarkable continuity and growth. Some successions are accelerated when the leaders die in harness, as was the case with Dhirubhai Ambani’s Reliance group. Some successions are opportunistically handled, as with Apple when Steve Jobs returned in 1997, but are nevertheless dramatically successful. Some successions are seamlessly and consensually managed as with Infosys. A few others are cataclysmically induced, as experienced, for example, by a troubled BP with the major safety incident in Gulf, by certain Wall Street corporations that caused, or were impacted by, the global meltdown or by a highly successful HP facing a sudden CEO discharge. Various experiences teach us that leadership successions could be badly stuck in the middle unless well planned in advance, and as both cause and consequence, unable to balance change with continuity, and growth with stability.
The challenge of succession management lies in the fact that apex level leadership changes often assume larger than life dimensions, more so when charismatic incumbents are involved. A leadership succession is, more often than not, pivoted around the personalities of the incumbent leader and the new leader in terms of not merely their capabilities but also in terms of the new leader managing and exceeding the stakeholder expectations, relative to the incumbent leader. Most corporations, through their boards and shareholder expectations, create a halo around leadership succession leading to an overarching emphasis on results rather than means, and change rather than continuity.
An ancillary reason is that most leaders fail to recognize the transient nature of their own sojourn in their corporations and unwittingly make leadership and management a highly personalized effort. The more charismatic and aggressive a leader is, the more of a cult phenomenon leadership becomes in such organizations. The successor in such cases has not only a legacy that he has to live up to but also a perception that he needs to overwrite. Leaders often make it difficult for their successors to steer their companies in alignment with a changing environment. Comparisons with a larger than life Jack Welch at GE, for example, took long for an equally capable, but differently styled, Jeff Immelt to overcome.
Models of succession management
Ram Charan, in his paper, “Ending the CEO succession Crisis”, Harvard Business Review, February 2005, refers to the track record of perennial performance powerhouses such as GE and Colgate-Palmolive and points out that nothing affects a company’s future more than CEO succession. He proposes internal leadership development and active involvement by the Boards as critical components of a successful succession exercise. He recommends incorporation of certain non-negotiable aspects such as talent, know-how and experience in the process. Kenneth W Freeman in his article “The CEO’s Real Legacy”, Harvard Business Review, November 2004, states that CEOs have a mindset of being unable to imagine anyone adequately replacing them, which thus constitutes a major roadblock to timely succession. A non-egoistic effort by incumbent CEOs to initiate and manage selection and grooming of successors with effective board involvement is suggested by the author.
Manfred F R Kets De Vries in “The Dark Side of CEO Succession” Harvard Business Review, January-February 1988, examines the unconscious emotions that come into play during changes in a company’s top leadership. While any leadership change is unsettling, the incumbent CEO, board of directors and other top managers become particularly vulnerable to unconscious emotions during three specific points in the succession process. These time points relate to when the decision is taken on the need to hire a successor, when the successor is chosen and when the new CEO takes charge. Management of emotions based on knowledge of these time points is seen to promote a positive CEO transition.
General Electric has seen successful CEO successions over time. In 1981, Jack Welch succeeded Reginald Jones as the CEO in a process that was personally driven by Jones as the incumbent CEO. A significant nomination input from several likely candidates followed by in-depth interviews with candidates helped the process. Twenty years later, Jack Welch named Jeffrey Immelt as his successor based on a detailed evaluation of, and discussions with, three potential candidates. Welch focused on the values that he instilled in the GE’s management – speed, simplicity, self-confidence and boundarylessness – as filters to select. A larger discussion of the GE succession process can be had in James Heskett, “Succession at GE: What’s Next?”, Harvard Business School, Working Knowledge, November 2006.
Glaxo SmithKline’s (GSK’s) succession planning process was uniquely different. Dennis Carey et al discuss the GSK process in their paper “Picking the Right Insider for CEO Succession”, Harvard Business Review, January 2009. GSK took the daring decision of making its top three internal candidates very publicly compete with each other to become the CEO. While each was well qualified to run the business, GSK decided to ask them take on year long CEO-level projects under the discerning eyes of the directors and the incumbent CEO. The projects were individually different covering supply chain management, product safety and sales & marketing. The process was also expanded to include outsiders’ evaluation of the three candidates. The way the succession planning process was conducted at GSK resulted in the departure of the two unsuccessful candidates to their own new CEO pastures, despite efforts to retain them.
Leadership succession, not unnaturally, is a favorite topic of executive search firms as well. Max Landsberg, Head of Heidrick & Struggles’ Leadership Consulting Practice, in a 2006 paper (“In Search of Excellence in CEO Succession”) places selection of the new CEO on par with another crucial task of a Board viz., a decision to merge or sell the company. He argues that association of outside agencies helps in a structured and systematic review of all options and selection of the most appropriate choice which could also be potentially followed up with transition support. He advocates prior framing of the ‘‘persona” of the CEO to support the process. According to him, correct CEO succession can create substantial market value for the company while longer term and broader reviewing of the company’s senior executive cadre and succession pipeline can support both the selection of the next CEO, and also the strategic growth of the company.
Infosys, India’s leading information technology company, has been in the forefront of succession planning in India. It has demonstrated how a highly capable and collaborative team of founders could provide a rich pipeline of leadership succession. The principal founder and CEO, N R Narayana Murthy who founded the company with six others in 1981 passed on the baton of CEO when he was at his prime to his deputy and co-founder, Nandan M Nilekani in March 2002, and became the Chief Mentor. Nandan, in turn, passed on the CEO baton to S Gopalakrishnan, another co-founder after just after five years in June 2007. On August 10, 2010 Infosys took one more stride in orderly succession management by initiating a search for its Chief Mentor. Infosys model of collaborative leadership succession, from within the promoter group, meeting all the tests of merit, performance, stability and continuity is indeed unique even in a global context.
Not all leaders happen to be internally developed, however, in the global canvas. Internal development is a strong possibility, and an appropriate option, when companies have been on a consistent growth track. Such companies usually brim with talent and are potentially CEO factories (for example, GE, Unilever, Infosys, Tata, Proctor & Gamble). On the other hand, companies which need turnaround or which operate in highly competitive and volatile industries tend to look at experts from outside the industry to rejuvenate the businesses. Nor has it been found necessary for firms to have CEOs only from the core competency backgrounds of the firms. Allan Mulley from aircraft maker Boeing helped Ford, the automobile maker revitalize itself. Sergio Marchionne who engineered a stunning turnaround of Fiat (which was facing bankruptcy) in mid-2000s was a lawyer and accountant by qualification and practice, with a prior background in chemicals and banking sector. Pfizer, the world’s largest pharmaceuticals company is headed by a legal expert. So has been the world’s leading technology firm Intel, choosing to be led for the first time with a chief executive without a degree in science or engineering. The models of CEO succession thus defy easy classification in any fixed templates.
Ken Favaro et al, based on a study of the World’s 2500 largest public companies identified several trends in CEO succession covering the recent decade. The paper titled “CEO Succession 2000-2009: A Decade of Convergence and Compression” in Strategy + Business, Issue 59, Summer 2010, identifies four key trends that were discernable – the predominance of insiders, the split of the CEO and Chairman roles, the growth of the apprentice model (in which the new CEO’s predecessor assumes the job of board Chairman) and the consistence of CEO turnover rates. Importantly, natural and planned successions are being increasingly seen as the foundations for continued growth in difficult times.
The key aspect of leadership succession whether in successful corporations or unsuccessful corporations, and whether it is through internal development or external induction, is continued corporate growth and profitability. Equally importantly, the focus is on sustainable vitality in the face of increased volatility of economies, enhanced intensity of competition and heightened discontinuities in key technologies. The fact that an incumbent leader has a larger than life image of his or her contributions to the company’s progress puts a significant pressure on the new leader. In addition, the more high profile and the more comprehensive the succession process is, the greater would be the level of public approval or disapproval of the new leader’s performance. These factors bring to the fore issues in management of continuity and change arising out of leadership succession. All these issues would be further amplified in the case of succession to the top position in a conglomerate.
Recent research by Bain & Company, the noted management consulting firm, that was based on a study of 44 top Indian firms suggested that only one in five board members was even involved in talks about a CEO’s succession and little effort was made at board level to groom top leadership. By comparison, more than 60 percent of the boards at the top-ranked S&P 500 companies in the US are said to discuss CEO succession at least once a year and 80 percent of these companies have emergency succession plans in place. Building on the report, Financial Times (August 7/August 8, 2010; “beyond brics:www.ft.com/bb) stated that lack of succession planning was a key failure of boards at many family-owned businesses in India, leaving them highly vulnerable after the retirement or loss of their leaders. According to the paper, such an omission is a drag on investor appeal for many of India’s largest, fast-expanding companies. Indecision on leadership has led to family disputes that have split or disrupted companies.
The announcement by the Tata group to find a successor for Mr Ratan Tata, several months ahead of his planned retirement (to enable the successor work with Ratan and then takeover in full) demonstrates the progress the Indian businesses can make in terms of succession planning. Considering that large industrial houses and firms are grown typically by established business families and self-made entrepreneurs, the challenges of planned succession are all the greater in India. While the Tata Group and Infosys have been ahead of the rest in the systematization and professionalization of the succession issues, others such as the Birla group, Murugappa Group, Godrej group, GMR group, HCL group, Apollo group and Bharti group have started putting in place governance structures and processes to not only plan a successor, whether from the promoter group or from the non-promoter group, but also to ensure an appropriate demarcation between the promoters and the firms that they helped promote.
Tatas’ model of succession management
The review of literature on succession suggests that the more planned and the more contextual the succession is, the greater is the likelihood of its success. There can, therefore, be no singular model of succession that can be adopted by all firms. On the other hand, the right parameters for selection of the successor become paramount for each firm. Depending on the strategic needs of the firm which could range from turnaround to ramp-up on one hand and from efficiency to innovation on the other the screens for selection of the successor could also vary; relevant screens, however, are essential.
Boards and search agencies often attempt to err on the safe side by defining too idealistic a persona for the future CEO. Maxs Landsberg of Heidrick & Struggles, for example, in the earlier quoted paper rhetorically prescribes ten dimensions on which he expects leadership from an ideal CEO. He defines the ten persona of the CEO as Grand Master of Corporate Strategy, Chief Architect of the Corporate Structure, Vocal Exponent of the Corporate Values, Rigorous Shaper of the Talent Portfolio, Inspiring Forger of Exemplary Top Teamwork, Brahma-Creator; Vishnu-Maintainer; Shiva-Destroyer, Scrutineer of Quality Customer Service, Executive Settler of Disputes and Resolver of Dilemmas, Umblical Cord to Chairman and Board, and Fluent Spokesperson to the World. It appears that such a prescription is not only utopian but also off-mark in today’s competitive and unpredictable environment.
A more appropriate hypothesis is that the successful CEO of this generation requires a contextually appropriate mindset rather than a theoretically winning skill-set. The components of the CEO mindset include an ability to tailor corporate strategy to a volatile environment, a flexibility to constantly realign the organization structure to a dynamic strategy, a penchant to institutionalize operational excellence, a passion to leverage science and technology for new products and processes, a flair to connect with all stakeholders, a promise to provide an enriched work environment to employees, an evangelical commitment to quality and most importantly, balancing change with continuity. The CEO’s role is increasingly going to be mind-play rather than skill-deployment.
To validate the above hypothesis, one would need to only look at how Ratan Tata redefined Tata Group ever since he took over the reigns in 1991, confounding the analysts who doubted if he had the required skill-set for steering a highly diversified group of companies. Over and over again, it was Ratan’s mindset that led to appropriate strategies that grew as well as coalesced over hundred companies of the group into the largest Indian conglomerate. Aligning the virtually independent companies and leaders of the group to a common credo (Tata branding, values and retirement age), fusing indigenization with innovation (Indica and Nano cars , Sumo and Safari SUVs, Ace trucks), empowering individual companies to undertake ambitious global acquisitions (Tetley, Corus, Daewoo, Jaguar, Land Rover assets and marques), scaling up companies to top national and international rankings (Tata Motors, Tata Steel, Tata Consultancy Services) and numerous other business initiatives have been primarily a resultant of a winning Indian mindset that spurred bold and innovative strategies.
HBS professors Tarun Khanna and Krishna G. Palepu, authors of the new book “Winning in Emerging Markets: A Road Map for Strategy and Execution”, Harvard Business Press, 2010, speak glowingly of the contribution Ratan Tata made to the Tata Group and how it could become a role model for emerging markets. As they observe, when markets in India opened in 1992, around the time Ratan Tata became the Chairman of the group, the Tata Group had been in existence for more than a hundred years. Yet as a sprawling, diversified business group spanning nearly 100 businesses, each of which was not performing up to its full potential, it was uncompetitive. According to them, the Chairman of the group, Ratan Tata, creatively reorganized the group to make it survive in the new open global economy, and then challenged the individual companies to innovate. At the same time, Ratan Tata motivated his companies to think globally, attempting some of the never-before global acquisitions. Khanna and Palepu are right when they conclude that the Tata Group is a great example of a company that transformed itself from a successful company in a closed, local environment to a fairly aggressive player that has fostered innovation and globalization in almost a trendsetting manner in a completely different, globalized environment of rapid growth and extreme competition.
Change with continuity model
At the core of Ratan Tata’s success has been the plank of change with continuity. Following serves as an effective model of change with continuity, on a foundation of the basic Tata philosophy that the group is a trustee of the wealth that the group creates for the nation.
Investment + divestment. When Ratan took over he inherited a large diversified group of businesses. Rather than abandon the diversification strategy, he defined core businesses and reinforced them (for example, automobiles, steel, beverages, chemicals, information technology, hotels) even as he exited non-core businesses (for example, generic pharmaceuticals, soaps and detergents) and entered into new potential businesses (for example, retail, realty, telecommunications, infrastructure). Divestment of non-core was not seen as a failure to compete; it was seen more as a strategy to make the group more competent and competitive as a whole.
Consolidation + professionalization. The striking feature of the Tata group of companies in the 1980s was that most of these were led by leaders who were stalwarts in their own ways but were also highly independent. This acted to the detriment of group cohesion often. Ratan not only reigned in the individualism of the leaders but also reinforced professionalism in the group through structured retirement and succession policies as well as induction of external talent (for example, Sumatran and Ravi Kant for Tata Motors, Gopalakrishnan for Tata Sons and a few experienced expats from time to time). All through, considerable emphasis was laid in taking forward the legacy of building internal leadership talent left behind by Jamsetji, Dorab and JRD.
Growth + security. When Ratan Tata took over, the holdings of the Tatas in the group companies were in low teen percentages, making the companies vulnerable to takeovers in an economy set to open up. While the public fascination for the indigenous Tata ownership was a powerful counter to takeover attempts, he recognized that more structural defences were needed. He quickly reinforced the capital structure of the holding company, Tata Sons as well as its holdings in the group companies. Limited divestments in non-core businesses were utilized to reinforce equity consolidation. This, coupled with aggressive global acquisitions required the group to be financially bold as well as prudent in terms of global fund raising, which was also accomplished.
Globalization + acquisitions. Ratan’s key change driver has been in the group’s approach towards globalization. From 2002, the group pursued a strategy of aggressive globalization acquiring overseas companies, businesses and brands. These important acquisitions and mergers were aimed at expanding and globalizing the footprints of core companies. Close to USD 5 billion was spent by the group between 2002 and 2010 in nearly 70 mergers and acquisitions across the globe, including such high profile ones as Tetley Tea, Corus Steel, Daewoo, JLR and Hispano. Almost all of these have been successful reflecting positively on the group’s technical and managerial capabilities to integrate new businesses and operations.
Innovation + competitiveness. Scale, scope and technology were used by Ratan to make the group competitive as well as innovative. It has always been in the DNA of the Tata group to be pioneering, whether it was putting up a steel mill in the British-occupied India in early 1900s, introducing new commercial vehicles in the 1970s and 1980s, developing the first indigenous car in the 1990s and ultimately launching the world’s cheapest family car in the 2000s. With Ratan at the helm, the latter day innovations have sought to promote self-reliance, functionality and affordability for making greater numbers of Indians happy, as a true tribute to the expressed philosophy of JRD Tata.
The ten-element strategic framework as above could be effectively practised by Ratan Tata with institutional support in his office, through the Group Executive Office (GEO) and Group Corporate Centre (GCC). The former conducts strategic analysis and develops strategic decisions while the latter provides policy support and conducts portfolio and business reviews. These two entities, chaired by Ratan Tata have the top Tata leaders, R K Krishnakumar, Ishaat Hussain, Kishor Chaukar, J J Irani, R Gopalakrishnan, and Arunkumar Gandhi as their members.
Summary
India’s Tata Group has demonstrated, independent of Western management thought and practice, for several decades that Indian entrepreneurs and professionals of the Group can create a world-class conglomerate as an inspired national endeavor and with an unflinching social purpose. Ratan Tata’s growth model based on change with continuity is an eminently commendable model for effective succession management. Under the overarching umbrella of Tata vision with values, the ten self-balanced components of refining core with divesting non-core, leadership consolidation with professionalization, business growth with ownership security, globalization with acquisitions, and innovation with competitiveness, a uniquely Indian, and a characteristically Tata-stamped succession model has been brought to the fore.
It is a moot point whether the successor to Ratan Tata would follow, or would need to follow, the business strategy established by Ratan Tata in a rapidly changing global environment. Whether the successor would need to discover new core businesses such as clean and alternate energy generation, aerospace and satellite businesses, infrastructure building and management, healthcare and life sciences, and in doing so would need to adopt different strategic planks is a matter for the future. What can be certainly predicted is that the Tata Group would continue to aim at conglomerate leadership with social trust, and the successor to Ratan Tata would achieve success by following the proven succession model of “change with continuity”.
Posted by Dr CB Rao on August 9, 2010.
The 142 year-old Tata Group, founded in 1868 by Jamsetji Nusserwanji Tata and developed further by Sir Dorab Tata, has a formidable reputation for its business track record and corporate value system. Tata companies operate in seven business sectors: communications and information technology, engineering, materials, services, energy, consumer products and chemicals. They are, by and large, based in India and have significant international operations. The total revenue of Tata companies, taken together, was reportedly USD 78 billion (around Rs 358,800 crore) in 2009-10, with over 65 per cent of this coming from business outside India. The group probably employs nearly 400,000 people worldwide. The Tata name has consistently been respected over 14 long decades for its adherence to strong values and business ethics.
The legacy of Jamsetji Tata and Dorab Tata was taken to greater heights by JRD Tata who took over the reigns in 1938 (in his five decade tenure, covering the period 1938 to 1988, the Group grew from Rs 620 million to over Rs 100 billion and from 14 companies to 95 enterprises, and as a brand in itself). Ratan Tata who took over in 1991 from JRD steered the group into the international league. Ratan at that time was relatively an untested leader for the conglomerate as a whole, despite playing a role in certain Tata businesses. Ratan confounded analysts who were concerned that the different constituent companies, each with a powerful leader, would pull apart disparately. He represented continuity by preserving and institutionalizing the core Tata values but also led a positive change with a unique alchemy of consolidation, diversification, globalization and performance management.
Given the remarkable contributions of Ratan, it is not surprising that some wonder if the group would be able to find a leader who would match Ratan’s track record. Future proceedings would, no doubt, provide the answer in a positive manner, particularly in the context of the diligent manner the group has applied itself to the challenge of finding a fitting successor to Ratan Tata. The question of leadership succession, however, has connotations that are universally relevant to any firm in any industry and in any country.
Inevitability of succession
Virtuous institutions outlast capable individuals. Virtuous institutions are managerially programmed to grow. Individuals, however capable they are, on the other hand are genetically programmed and administratively ordained to retire. Leadership succession, especially at the Chief Executive Officer (CEO) level, is therefore of considerable importance. Not surprisingly, numerous books and papers have been written about the challenges and opportunities of leadership succession planning.
Some leadership successions, as with GE and now with Tata, are meticulously planned and executed to achieve remarkable continuity and growth. Some successions are accelerated when the leaders die in harness, as was the case with Dhirubhai Ambani’s Reliance group. Some successions are opportunistically handled, as with Apple when Steve Jobs returned in 1997, but are nevertheless dramatically successful. Some successions are seamlessly and consensually managed as with Infosys. A few others are cataclysmically induced, as experienced, for example, by a troubled BP with the major safety incident in Gulf, by certain Wall Street corporations that caused, or were impacted by, the global meltdown or by a highly successful HP facing a sudden CEO discharge. Various experiences teach us that leadership successions could be badly stuck in the middle unless well planned in advance, and as both cause and consequence, unable to balance change with continuity, and growth with stability.
The challenge of succession management lies in the fact that apex level leadership changes often assume larger than life dimensions, more so when charismatic incumbents are involved. A leadership succession is, more often than not, pivoted around the personalities of the incumbent leader and the new leader in terms of not merely their capabilities but also in terms of the new leader managing and exceeding the stakeholder expectations, relative to the incumbent leader. Most corporations, through their boards and shareholder expectations, create a halo around leadership succession leading to an overarching emphasis on results rather than means, and change rather than continuity.
An ancillary reason is that most leaders fail to recognize the transient nature of their own sojourn in their corporations and unwittingly make leadership and management a highly personalized effort. The more charismatic and aggressive a leader is, the more of a cult phenomenon leadership becomes in such organizations. The successor in such cases has not only a legacy that he has to live up to but also a perception that he needs to overwrite. Leaders often make it difficult for their successors to steer their companies in alignment with a changing environment. Comparisons with a larger than life Jack Welch at GE, for example, took long for an equally capable, but differently styled, Jeff Immelt to overcome.
Models of succession management
Ram Charan, in his paper, “Ending the CEO succession Crisis”, Harvard Business Review, February 2005, refers to the track record of perennial performance powerhouses such as GE and Colgate-Palmolive and points out that nothing affects a company’s future more than CEO succession. He proposes internal leadership development and active involvement by the Boards as critical components of a successful succession exercise. He recommends incorporation of certain non-negotiable aspects such as talent, know-how and experience in the process. Kenneth W Freeman in his article “The CEO’s Real Legacy”, Harvard Business Review, November 2004, states that CEOs have a mindset of being unable to imagine anyone adequately replacing them, which thus constitutes a major roadblock to timely succession. A non-egoistic effort by incumbent CEOs to initiate and manage selection and grooming of successors with effective board involvement is suggested by the author.
Manfred F R Kets De Vries in “The Dark Side of CEO Succession” Harvard Business Review, January-February 1988, examines the unconscious emotions that come into play during changes in a company’s top leadership. While any leadership change is unsettling, the incumbent CEO, board of directors and other top managers become particularly vulnerable to unconscious emotions during three specific points in the succession process. These time points relate to when the decision is taken on the need to hire a successor, when the successor is chosen and when the new CEO takes charge. Management of emotions based on knowledge of these time points is seen to promote a positive CEO transition.
General Electric has seen successful CEO successions over time. In 1981, Jack Welch succeeded Reginald Jones as the CEO in a process that was personally driven by Jones as the incumbent CEO. A significant nomination input from several likely candidates followed by in-depth interviews with candidates helped the process. Twenty years later, Jack Welch named Jeffrey Immelt as his successor based on a detailed evaluation of, and discussions with, three potential candidates. Welch focused on the values that he instilled in the GE’s management – speed, simplicity, self-confidence and boundarylessness – as filters to select. A larger discussion of the GE succession process can be had in James Heskett, “Succession at GE: What’s Next?”, Harvard Business School, Working Knowledge, November 2006.
Glaxo SmithKline’s (GSK’s) succession planning process was uniquely different. Dennis Carey et al discuss the GSK process in their paper “Picking the Right Insider for CEO Succession”, Harvard Business Review, January 2009. GSK took the daring decision of making its top three internal candidates very publicly compete with each other to become the CEO. While each was well qualified to run the business, GSK decided to ask them take on year long CEO-level projects under the discerning eyes of the directors and the incumbent CEO. The projects were individually different covering supply chain management, product safety and sales & marketing. The process was also expanded to include outsiders’ evaluation of the three candidates. The way the succession planning process was conducted at GSK resulted in the departure of the two unsuccessful candidates to their own new CEO pastures, despite efforts to retain them.
Leadership succession, not unnaturally, is a favorite topic of executive search firms as well. Max Landsberg, Head of Heidrick & Struggles’ Leadership Consulting Practice, in a 2006 paper (“In Search of Excellence in CEO Succession”) places selection of the new CEO on par with another crucial task of a Board viz., a decision to merge or sell the company. He argues that association of outside agencies helps in a structured and systematic review of all options and selection of the most appropriate choice which could also be potentially followed up with transition support. He advocates prior framing of the ‘‘persona” of the CEO to support the process. According to him, correct CEO succession can create substantial market value for the company while longer term and broader reviewing of the company’s senior executive cadre and succession pipeline can support both the selection of the next CEO, and also the strategic growth of the company.
Infosys, India’s leading information technology company, has been in the forefront of succession planning in India. It has demonstrated how a highly capable and collaborative team of founders could provide a rich pipeline of leadership succession. The principal founder and CEO, N R Narayana Murthy who founded the company with six others in 1981 passed on the baton of CEO when he was at his prime to his deputy and co-founder, Nandan M Nilekani in March 2002, and became the Chief Mentor. Nandan, in turn, passed on the CEO baton to S Gopalakrishnan, another co-founder after just after five years in June 2007. On August 10, 2010 Infosys took one more stride in orderly succession management by initiating a search for its Chief Mentor. Infosys model of collaborative leadership succession, from within the promoter group, meeting all the tests of merit, performance, stability and continuity is indeed unique even in a global context.
Not all leaders happen to be internally developed, however, in the global canvas. Internal development is a strong possibility, and an appropriate option, when companies have been on a consistent growth track. Such companies usually brim with talent and are potentially CEO factories (for example, GE, Unilever, Infosys, Tata, Proctor & Gamble). On the other hand, companies which need turnaround or which operate in highly competitive and volatile industries tend to look at experts from outside the industry to rejuvenate the businesses. Nor has it been found necessary for firms to have CEOs only from the core competency backgrounds of the firms. Allan Mulley from aircraft maker Boeing helped Ford, the automobile maker revitalize itself. Sergio Marchionne who engineered a stunning turnaround of Fiat (which was facing bankruptcy) in mid-2000s was a lawyer and accountant by qualification and practice, with a prior background in chemicals and banking sector. Pfizer, the world’s largest pharmaceuticals company is headed by a legal expert. So has been the world’s leading technology firm Intel, choosing to be led for the first time with a chief executive without a degree in science or engineering. The models of CEO succession thus defy easy classification in any fixed templates.
Ken Favaro et al, based on a study of the World’s 2500 largest public companies identified several trends in CEO succession covering the recent decade. The paper titled “CEO Succession 2000-2009: A Decade of Convergence and Compression” in Strategy + Business, Issue 59, Summer 2010, identifies four key trends that were discernable – the predominance of insiders, the split of the CEO and Chairman roles, the growth of the apprentice model (in which the new CEO’s predecessor assumes the job of board Chairman) and the consistence of CEO turnover rates. Importantly, natural and planned successions are being increasingly seen as the foundations for continued growth in difficult times.
The key aspect of leadership succession whether in successful corporations or unsuccessful corporations, and whether it is through internal development or external induction, is continued corporate growth and profitability. Equally importantly, the focus is on sustainable vitality in the face of increased volatility of economies, enhanced intensity of competition and heightened discontinuities in key technologies. The fact that an incumbent leader has a larger than life image of his or her contributions to the company’s progress puts a significant pressure on the new leader. In addition, the more high profile and the more comprehensive the succession process is, the greater would be the level of public approval or disapproval of the new leader’s performance. These factors bring to the fore issues in management of continuity and change arising out of leadership succession. All these issues would be further amplified in the case of succession to the top position in a conglomerate.
Recent research by Bain & Company, the noted management consulting firm, that was based on a study of 44 top Indian firms suggested that only one in five board members was even involved in talks about a CEO’s succession and little effort was made at board level to groom top leadership. By comparison, more than 60 percent of the boards at the top-ranked S&P 500 companies in the US are said to discuss CEO succession at least once a year and 80 percent of these companies have emergency succession plans in place. Building on the report, Financial Times (August 7/August 8, 2010; “beyond brics:www.ft.com/bb) stated that lack of succession planning was a key failure of boards at many family-owned businesses in India, leaving them highly vulnerable after the retirement or loss of their leaders. According to the paper, such an omission is a drag on investor appeal for many of India’s largest, fast-expanding companies. Indecision on leadership has led to family disputes that have split or disrupted companies.
The announcement by the Tata group to find a successor for Mr Ratan Tata, several months ahead of his planned retirement (to enable the successor work with Ratan and then takeover in full) demonstrates the progress the Indian businesses can make in terms of succession planning. Considering that large industrial houses and firms are grown typically by established business families and self-made entrepreneurs, the challenges of planned succession are all the greater in India. While the Tata Group and Infosys have been ahead of the rest in the systematization and professionalization of the succession issues, others such as the Birla group, Murugappa Group, Godrej group, GMR group, HCL group, Apollo group and Bharti group have started putting in place governance structures and processes to not only plan a successor, whether from the promoter group or from the non-promoter group, but also to ensure an appropriate demarcation between the promoters and the firms that they helped promote.
Tatas’ model of succession management
The review of literature on succession suggests that the more planned and the more contextual the succession is, the greater is the likelihood of its success. There can, therefore, be no singular model of succession that can be adopted by all firms. On the other hand, the right parameters for selection of the successor become paramount for each firm. Depending on the strategic needs of the firm which could range from turnaround to ramp-up on one hand and from efficiency to innovation on the other the screens for selection of the successor could also vary; relevant screens, however, are essential.
Boards and search agencies often attempt to err on the safe side by defining too idealistic a persona for the future CEO. Maxs Landsberg of Heidrick & Struggles, for example, in the earlier quoted paper rhetorically prescribes ten dimensions on which he expects leadership from an ideal CEO. He defines the ten persona of the CEO as Grand Master of Corporate Strategy, Chief Architect of the Corporate Structure, Vocal Exponent of the Corporate Values, Rigorous Shaper of the Talent Portfolio, Inspiring Forger of Exemplary Top Teamwork, Brahma-Creator; Vishnu-Maintainer; Shiva-Destroyer, Scrutineer of Quality Customer Service, Executive Settler of Disputes and Resolver of Dilemmas, Umblical Cord to Chairman and Board, and Fluent Spokesperson to the World. It appears that such a prescription is not only utopian but also off-mark in today’s competitive and unpredictable environment.
A more appropriate hypothesis is that the successful CEO of this generation requires a contextually appropriate mindset rather than a theoretically winning skill-set. The components of the CEO mindset include an ability to tailor corporate strategy to a volatile environment, a flexibility to constantly realign the organization structure to a dynamic strategy, a penchant to institutionalize operational excellence, a passion to leverage science and technology for new products and processes, a flair to connect with all stakeholders, a promise to provide an enriched work environment to employees, an evangelical commitment to quality and most importantly, balancing change with continuity. The CEO’s role is increasingly going to be mind-play rather than skill-deployment.
To validate the above hypothesis, one would need to only look at how Ratan Tata redefined Tata Group ever since he took over the reigns in 1991, confounding the analysts who doubted if he had the required skill-set for steering a highly diversified group of companies. Over and over again, it was Ratan’s mindset that led to appropriate strategies that grew as well as coalesced over hundred companies of the group into the largest Indian conglomerate. Aligning the virtually independent companies and leaders of the group to a common credo (Tata branding, values and retirement age), fusing indigenization with innovation (Indica and Nano cars , Sumo and Safari SUVs, Ace trucks), empowering individual companies to undertake ambitious global acquisitions (Tetley, Corus, Daewoo, Jaguar, Land Rover assets and marques), scaling up companies to top national and international rankings (Tata Motors, Tata Steel, Tata Consultancy Services) and numerous other business initiatives have been primarily a resultant of a winning Indian mindset that spurred bold and innovative strategies.
HBS professors Tarun Khanna and Krishna G. Palepu, authors of the new book “Winning in Emerging Markets: A Road Map for Strategy and Execution”, Harvard Business Press, 2010, speak glowingly of the contribution Ratan Tata made to the Tata Group and how it could become a role model for emerging markets. As they observe, when markets in India opened in 1992, around the time Ratan Tata became the Chairman of the group, the Tata Group had been in existence for more than a hundred years. Yet as a sprawling, diversified business group spanning nearly 100 businesses, each of which was not performing up to its full potential, it was uncompetitive. According to them, the Chairman of the group, Ratan Tata, creatively reorganized the group to make it survive in the new open global economy, and then challenged the individual companies to innovate. At the same time, Ratan Tata motivated his companies to think globally, attempting some of the never-before global acquisitions. Khanna and Palepu are right when they conclude that the Tata Group is a great example of a company that transformed itself from a successful company in a closed, local environment to a fairly aggressive player that has fostered innovation and globalization in almost a trendsetting manner in a completely different, globalized environment of rapid growth and extreme competition.
Change with continuity model
At the core of Ratan Tata’s success has been the plank of change with continuity. Following serves as an effective model of change with continuity, on a foundation of the basic Tata philosophy that the group is a trustee of the wealth that the group creates for the nation.
Investment + divestment. When Ratan took over he inherited a large diversified group of businesses. Rather than abandon the diversification strategy, he defined core businesses and reinforced them (for example, automobiles, steel, beverages, chemicals, information technology, hotels) even as he exited non-core businesses (for example, generic pharmaceuticals, soaps and detergents) and entered into new potential businesses (for example, retail, realty, telecommunications, infrastructure). Divestment of non-core was not seen as a failure to compete; it was seen more as a strategy to make the group more competent and competitive as a whole.
Consolidation + professionalization. The striking feature of the Tata group of companies in the 1980s was that most of these were led by leaders who were stalwarts in their own ways but were also highly independent. This acted to the detriment of group cohesion often. Ratan not only reigned in the individualism of the leaders but also reinforced professionalism in the group through structured retirement and succession policies as well as induction of external talent (for example, Sumatran and Ravi Kant for Tata Motors, Gopalakrishnan for Tata Sons and a few experienced expats from time to time). All through, considerable emphasis was laid in taking forward the legacy of building internal leadership talent left behind by Jamsetji, Dorab and JRD.
Growth + security. When Ratan Tata took over, the holdings of the Tatas in the group companies were in low teen percentages, making the companies vulnerable to takeovers in an economy set to open up. While the public fascination for the indigenous Tata ownership was a powerful counter to takeover attempts, he recognized that more structural defences were needed. He quickly reinforced the capital structure of the holding company, Tata Sons as well as its holdings in the group companies. Limited divestments in non-core businesses were utilized to reinforce equity consolidation. This, coupled with aggressive global acquisitions required the group to be financially bold as well as prudent in terms of global fund raising, which was also accomplished.
Globalization + acquisitions. Ratan’s key change driver has been in the group’s approach towards globalization. From 2002, the group pursued a strategy of aggressive globalization acquiring overseas companies, businesses and brands. These important acquisitions and mergers were aimed at expanding and globalizing the footprints of core companies. Close to USD 5 billion was spent by the group between 2002 and 2010 in nearly 70 mergers and acquisitions across the globe, including such high profile ones as Tetley Tea, Corus Steel, Daewoo, JLR and Hispano. Almost all of these have been successful reflecting positively on the group’s technical and managerial capabilities to integrate new businesses and operations.
Innovation + competitiveness. Scale, scope and technology were used by Ratan to make the group competitive as well as innovative. It has always been in the DNA of the Tata group to be pioneering, whether it was putting up a steel mill in the British-occupied India in early 1900s, introducing new commercial vehicles in the 1970s and 1980s, developing the first indigenous car in the 1990s and ultimately launching the world’s cheapest family car in the 2000s. With Ratan at the helm, the latter day innovations have sought to promote self-reliance, functionality and affordability for making greater numbers of Indians happy, as a true tribute to the expressed philosophy of JRD Tata.
The ten-element strategic framework as above could be effectively practised by Ratan Tata with institutional support in his office, through the Group Executive Office (GEO) and Group Corporate Centre (GCC). The former conducts strategic analysis and develops strategic decisions while the latter provides policy support and conducts portfolio and business reviews. These two entities, chaired by Ratan Tata have the top Tata leaders, R K Krishnakumar, Ishaat Hussain, Kishor Chaukar, J J Irani, R Gopalakrishnan, and Arunkumar Gandhi as their members.
Summary
India’s Tata Group has demonstrated, independent of Western management thought and practice, for several decades that Indian entrepreneurs and professionals of the Group can create a world-class conglomerate as an inspired national endeavor and with an unflinching social purpose. Ratan Tata’s growth model based on change with continuity is an eminently commendable model for effective succession management. Under the overarching umbrella of Tata vision with values, the ten self-balanced components of refining core with divesting non-core, leadership consolidation with professionalization, business growth with ownership security, globalization with acquisitions, and innovation with competitiveness, a uniquely Indian, and a characteristically Tata-stamped succession model has been brought to the fore.
It is a moot point whether the successor to Ratan Tata would follow, or would need to follow, the business strategy established by Ratan Tata in a rapidly changing global environment. Whether the successor would need to discover new core businesses such as clean and alternate energy generation, aerospace and satellite businesses, infrastructure building and management, healthcare and life sciences, and in doing so would need to adopt different strategic planks is a matter for the future. What can be certainly predicted is that the Tata Group would continue to aim at conglomerate leadership with social trust, and the successor to Ratan Tata would achieve success by following the proven succession model of “change with continuity”.
Posted by Dr CB Rao on August 9, 2010.
Tuesday, August 3, 2010
Employee Value Credits: Driving Organizational Transformation
Employee engagement is a critical component of organizational transformation. Genuine employee engagement aligns the employees to organizational goals, enhances the employee capabilities and builds the competitive advantage of the company. It is not surprising therefore that employee engagement is on the agenda of experts and leaders in human resources management. Yet, there are very few cases where employee engagement has been institutionalized as an effective and sustainable business process, with a universal coverage of all the employees.
The roadblocks to authentic employee engagement are many. Oftentimes it is implemented as a top-down communication program, largely driven through supervisors and managers. It is also mixed up with the goal setting and performance appraisal exercise. Many times, multiple company-wide initiatives are taken which leave the employee confused and bereft of focus. Reliance is placed also on external consultants who may lack the business grasp and individual empathy. Amongst the various roadblocks, an excessive dependence on performance appraisal system as an employee engagement tool turns out to be the most problematic.
Over the years, multiple approaches have been attempted to make the appraisal system broad-based and participatory. However, these merely have resulted in larger appraisal forms and increase in the number of appraisers than in more effective employee engagement. The reasons are not far to seek. The appraisal systems, whatever the hue, focus essentially on individual performance. Given the large employee numbers they tend to be only annual, and at best semi-annual, processes. Even more unfortunately, the appraisal systems tend to get tied to compensation increases and promotions, often bringing in a conformance pressure, related to the growth expectations of the employees and business compulsions of the company.
Expert views on engagement
Expert studies on employee engagement point to complex nuances that connect or disconnect employee engagement and employee motivation. These range from simple incentive-engagement linkage theories to more complex multi-factorial behavioral theories. Five important alternative theories are summarized below.
Jody Heymann in his book, “Profit at the Bottom of the Ladder: Creating Value by Investing in Your Workforce”, HBS Business Press, May 2010, holds that there is a demonstrated advantage in overall business performance among high-engagement companies compared with their low-engagement counterparts. According to him, it is time to unlock the potential increase in customer satisfaction, commercial sales, and diminished turnover rates that engaging and motivating low-level employees can bring, even in an economic downturn. He commends design of a customized incentive program that will increase the engagement and motivation of employees at all levels. He provides several approaches that can be tailored to almost every budget and business model, from all-expenses-paid company vacations to simple public recognition of a job well done. In this approach engagement is correlated with employee incentive and reward programs.
Kenneth W Thomas in his paper, “The Four Intrinsic Rewards that Drive Employee Engagement”, Ivey Business Journal, November/December 2009, suggests that extrinsic rewards like pay and bonus as well as other financial incentives are no longer sufficient to achieve employee engagement and motivation. He proposes a framework of four intrinsic rewards. These are: the meaningfulness or importance of the purpose the employee is trying to fulfill, the choice of work activities to fulfill the purpose, the feeling of competence and high quality delivery in performing the work, and the recognition that the purpose is fulfilled through performance. Managements which facilitate and encourage self-management by employees are seen to create high-engagement culture in organizations resulting in high performance.
In the case commentary titled “Why are We losing Our Good People”, Harvard Business Review, June 2008, Edward E Lawler III brings forth, through four experts, as to how empathy and rapport constitute the cornerstone of employee engagement. One expert commends establishment of a forum where employees can freely, and without fear of repercussions, express their concerns and apprehensions. Another expert suggests that the most important contributor to employees’ emotional commitment is a sense of connection to the company’s mission, and the company’s culture and values. The third expert suggests simplicity of management structure, clarity of corporate mission and equity in employee compensation as essential for effective employee engagement. The fourth expert concludes that an open door communication policy should be supplemented by holding leaders accountable to attracting and retaining good talent.
Nitin Nohria et al in their article, “Employee Motivation: A Powerful New Model”, Harvard Business Review, July 01, 2008, hold that the ability of an employee to comprehend is directly linked to the engagement he has. Specifically, they define engagement as reflective of the energy, effort and initiative employees bring to their jobs. Clearly, the more engaged the employees are the greater could be the performance impact. Nitin Nohria and his co-authors, however, caution against simple correlation. According to them, engagement is but one component of four factors, namely engagement, satisfaction, commitment and intention to quit that influence employee motivation. They believe that each of the four emotional levers would need to be differently pulled to achieve the right employee motivation.
A dramatically novel concept of “employees first” is now propounded by Vineet Nayar through a stirring case study of HCL Technologies Ltd, an Indian information technology major in his book “Employees First, Customers Second: Turning Conventional Management Upside Down”, HBS Press, June 2010. Vineet Nayar who is HCL’s successful CEO describes how the company defied conventional wisdom of customers first and then turned the hierarchical pyramid upside down by making management accountable to the employees first. This strategy, backed by a culture of trust based transparent communication and information sharing, created a sense of urgency and involvement in the employees, empowered them and unlocked their potential. The engagement strategy fostered an entrepreneurial mind-set, decentralized decision making and transferred the ownership of change to the employee in the value zone, according to Vineet.
Though the above five schools of thought appear to capture diverse possibilities on employee engagement, they may not offer the required framework for authentic employee engagement. The compensation and incentive linked approach is too simplistic to be of sustainable benefit while the employee-first approach is too radical for universal adoption by all companies. The mid-way behavioral approaches tend to be abstract and require leadership nuances that are unlikely to be widespread in organizations.
The Paradox of employee engagement
The opportunity in authentic engagement is that the typical employee has the intrinsic capability and aptitude to contribute to his or her organization’s processes and activities in more ways than the formal job profile demands of him or her. This, of course, is subject to the caveat that the organization has good recruitment filters which selects higher percentile candidates and has, in addition, comprehensive on-boarding practices that enable employees acquire a good grasp of the company’s business and operations. However, the challenge in a permissive system of letting employees contribute in multifarious directions is that it could lead to dilution of core responsibilities to the detriment of the goals that an organization must fulfill in a focused manner.
The paradox of employee engagement lies in terms of balancing the creativity of an employee with the focus of the organization. Over a period of time, the more creative an employee is allowed to be, the more diffused his role is likely to be; on the other hand the more focused an employee is expected to be, the less creative he is likely to become. The organization and leadership have the responsibility to solve this paradox in a comprehensive and sustainable manner to unlock employee creativity without compromise to the focus of the organization.
Such an approach needs to develop a canvas that is larger and more impactful than quality circles, suggestion schemes or idea initiatives. All of such schemes whose utility has been well established are specific and relevant to the jobs the employees carry out, and would need to be continued, regardless of any larger initiative for capturing employee creativity and seeking employee engagement. The proposed framework called employee value credits is a well-guided but open-sky initiative that enables an employee to be creative with no restrictions but at the same time prevents diffusion of focus.
Employee Value Credits – the framework
The fundamental premise of the employee value credit framework is that each employee will have the capability and plan to contribute in several areas that are not only directly or indirectly connected with the job but also some which could be currently out-of-organizational orbit but may have value at a future point of time. Each employee contributing in such a manner would be motivated to contribute only when an appropriate recognition is provided. As one is aware, the only three classic motivated aids that are available are on-the-job implementation, monetary reward and non-monetary reward.
All the three motivational tools have limitations vis-à-vis the need for authentic and global employee engagement. On-the-job implementation of new ideas is doubtless highly satisfying to an employee but the ideas that can be implemented under this route tend to be few. Monetary rewards can also be only limited in scope and in some cases may be better spent only after the real value of the engagement process is demonstrated. Non-monetary rewards by way of appreciation letters or public celebration tend to have only a transient ‘feel good’ factor. The framework of employee value credits, on the other hand, provides a robust and sustainable mechanism for employee engagement and motivation.
The theory of authentic employee engagement is based on the following five core principles, each being of equal importance and priority:
1. Creative: Employee engagement brings out the creativity in each employee, and enables him or her to contribute to the organization through not only operational performance but also through creative value-add.
2. Expansive: Employee engagement grows on the employee and the organization in an expansive manner, and enables the employee and the organization relate to each other not only on the job but also off the job.
3. Collaborative: Employee engagement breaks down the silos (individual versus individual, individual versus company, and domain versus domain), and enables the employees contribute through collaboration.
4. Expressive: Employee engagement removes fear and diffidence and enables both the engager and the engaged become expressive, and helps employees bring out the latent issues clearly and powerfully.
5. Timeless: Employee engagement is not about finding quick-fix and rapid-fire solutions to current needs; it is all about creating a bank of ideation value from which ideas can be tapped as their time dawns on the horizon.
Clearly, the principles do not become operational by themselves. The leadership of an organization must demonstrate its commitment to genuine employee engagement by a set of policies. First, it must make clear that employee engagement is not an opportunistic initiative solely to aid performance. To reinforce such a perspective, all performance improvement initiatives (example, suggestion schemes) which are job focused must be allowed to continue. Second, it must choose the mentors, or the engagers, in the engagement process carefully. To ensure this, the choice of engagers needs to be made a prestigious matter. Third, an institutional framework needs to be created to collect, receive, and analyze as well as credit the employee inputs for inherent or potential value. The framework of Employee Value Credits makes this happen.
Institutionalizing the EVC framework
The framework of Employee Value Credits starts with the creation of a dedicated department, headed by a leader positioned as a direct report to the chief executive officer. The leader of the EVC department (EVCD) should be a seasoned, empathetic mentor with an outstanding grasp of the current businesses and a good understanding of the related and substitute businesses. He should have the resilience and flair for building value for tomorrow. EVCD should be manned by professionals who have subject expertise corresponding to the functions and domains that exist in the company’s value chain with excellent conceptual and analytical capabilities.
EVCD has the responsibility, along with the human resources department to propound, articulate and propagate the concept of employee value credits and the processes that enable employee engagement and value generation. EVCD also shall have the responsibility to seek, identify and coach the engagers to enable them conduct the employee engagement process in the optimal manner. EVCD should have the authority to identify and course-correct the functions, domains and businesses which are tepid to the concept of employee engagement.
The employee value credit processes can be institutionalized through a set of guiding principles as set out below.
Responsible department: EVCD shall be primarily responsible for assigning employee value credits to the ideas, plans and programs that are generated by the employees across the organization. Employee value credit is the value that is assigned by the EVCD to each idea of an employee after due consideration and analysis.
Value definition: Value is defined as incremental revenue generated by an employee idea (that is profit adjusted) divided by the incremental capital investment required for implementing the idea. Each one million dollar of value, for example, could qualify for one value credit in a large organization. Profit adjustment of revenue is achieved by dividing the revenue by the gross margin percentage. Ideas with less than ten percent gross margin may not qualify for the value credit mechanism.
Value target: Depending upon the value chain, each business, domain or function (called employee entity) shall be eligible for setting for itself a value credit target for the year. EVCD shall have the responsibility and authority to negotiate value credit targets for each employee entity. The setting of value credit targets shall be a wholly voluntary process.
Iterative process: Each employee entity shall have the flexibility to accept individual employee value credit targets as part of the overall employee entity value credit target setting process. Ideally, it shall be an iterative bottom-up and top-down process with active participation by employee entity leadership and EVCD.
Evaluation: As employees provide their ideas to EVCD, which need not necessarily be subject to clearance by hierarchy, EVCD shall evaluate and provide value credits to the individual suggestions. For each employee and employee entity such value credits shall be grossed up over the year. At the end of the year EVCD shall publish the grossed up value credits for each employee entity and employee.
Tradability: Employees shall be able to trade their value credits at the end of each year for cash compensation during the annual appraisal processes or retain and accumulate them for future encashment or for retirement benefit. Employee entities can trade their gross value credits for special allocations beyond the normal budgeting allocations. This system would provide incentives to employees at individual level and to employee entities at corporate level.
Enhancements: There could be sophistications added to the value credit process by differentiating between ideas that have short term impact (say, within one to two years) and those which would have medium and long term impact (say, three years and beyond). Obviously, different credit systems need to be adopted between the two categories.
Flexibility: The value credit system could be refined to provide fixed credits for ideas with short term impact and minimal forecasting uncertainty, and scalable credits (basal plus variable) for ideas with long term impact and maximal forecasting uncertainty.
Collaboration: There could be functions and domains (such as corporate planning, industrial engineering) which could have certain advantages in ideation by virtue of their functional specialization. At the same time, they would need technical inputs to succeed well in their jobs. Entity value credits could be exchanged between such employee entities reflecting the mutual exchange of inputs.
When operated as a continuous process, the employee value credits framework helps the organizations achieve authentic employee engagement, unlock employee creativity, achieve employee motivation and enhance corporate growth.
Summary
The Employee Value Credit framework recognizes the intrinsic capability of all employees to be creative, collaborative and value adding. It also recognizes that not all ideas are borne equal; nor can they be treated equal. Employee value credit framework recognizes that ideas can be for current business development or could be for future businesses and accordingly provides for the needed flexibility. It rewards intellectual capability of employees at individual level and that of employee entities at aggregate level.
The Employee Value Credit framework provides incentives that are appropriate to individuals through value credit linked compensation and to departments through additional budgetary allocations to implement their plans. Needless to add, the creation of Employee Value Credit Department with an effective leadership will be a key trigger for implementation of this framework. In the overall, the employee value credits framework, when institutionalized, will create an organizational eco-system that is creative, participatory and collaborative for corporate growth.
Posted by Dr CB Rao on August 3, 2010
The roadblocks to authentic employee engagement are many. Oftentimes it is implemented as a top-down communication program, largely driven through supervisors and managers. It is also mixed up with the goal setting and performance appraisal exercise. Many times, multiple company-wide initiatives are taken which leave the employee confused and bereft of focus. Reliance is placed also on external consultants who may lack the business grasp and individual empathy. Amongst the various roadblocks, an excessive dependence on performance appraisal system as an employee engagement tool turns out to be the most problematic.
Over the years, multiple approaches have been attempted to make the appraisal system broad-based and participatory. However, these merely have resulted in larger appraisal forms and increase in the number of appraisers than in more effective employee engagement. The reasons are not far to seek. The appraisal systems, whatever the hue, focus essentially on individual performance. Given the large employee numbers they tend to be only annual, and at best semi-annual, processes. Even more unfortunately, the appraisal systems tend to get tied to compensation increases and promotions, often bringing in a conformance pressure, related to the growth expectations of the employees and business compulsions of the company.
Expert views on engagement
Expert studies on employee engagement point to complex nuances that connect or disconnect employee engagement and employee motivation. These range from simple incentive-engagement linkage theories to more complex multi-factorial behavioral theories. Five important alternative theories are summarized below.
Jody Heymann in his book, “Profit at the Bottom of the Ladder: Creating Value by Investing in Your Workforce”, HBS Business Press, May 2010, holds that there is a demonstrated advantage in overall business performance among high-engagement companies compared with their low-engagement counterparts. According to him, it is time to unlock the potential increase in customer satisfaction, commercial sales, and diminished turnover rates that engaging and motivating low-level employees can bring, even in an economic downturn. He commends design of a customized incentive program that will increase the engagement and motivation of employees at all levels. He provides several approaches that can be tailored to almost every budget and business model, from all-expenses-paid company vacations to simple public recognition of a job well done. In this approach engagement is correlated with employee incentive and reward programs.
Kenneth W Thomas in his paper, “The Four Intrinsic Rewards that Drive Employee Engagement”, Ivey Business Journal, November/December 2009, suggests that extrinsic rewards like pay and bonus as well as other financial incentives are no longer sufficient to achieve employee engagement and motivation. He proposes a framework of four intrinsic rewards. These are: the meaningfulness or importance of the purpose the employee is trying to fulfill, the choice of work activities to fulfill the purpose, the feeling of competence and high quality delivery in performing the work, and the recognition that the purpose is fulfilled through performance. Managements which facilitate and encourage self-management by employees are seen to create high-engagement culture in organizations resulting in high performance.
In the case commentary titled “Why are We losing Our Good People”, Harvard Business Review, June 2008, Edward E Lawler III brings forth, through four experts, as to how empathy and rapport constitute the cornerstone of employee engagement. One expert commends establishment of a forum where employees can freely, and without fear of repercussions, express their concerns and apprehensions. Another expert suggests that the most important contributor to employees’ emotional commitment is a sense of connection to the company’s mission, and the company’s culture and values. The third expert suggests simplicity of management structure, clarity of corporate mission and equity in employee compensation as essential for effective employee engagement. The fourth expert concludes that an open door communication policy should be supplemented by holding leaders accountable to attracting and retaining good talent.
Nitin Nohria et al in their article, “Employee Motivation: A Powerful New Model”, Harvard Business Review, July 01, 2008, hold that the ability of an employee to comprehend is directly linked to the engagement he has. Specifically, they define engagement as reflective of the energy, effort and initiative employees bring to their jobs. Clearly, the more engaged the employees are the greater could be the performance impact. Nitin Nohria and his co-authors, however, caution against simple correlation. According to them, engagement is but one component of four factors, namely engagement, satisfaction, commitment and intention to quit that influence employee motivation. They believe that each of the four emotional levers would need to be differently pulled to achieve the right employee motivation.
A dramatically novel concept of “employees first” is now propounded by Vineet Nayar through a stirring case study of HCL Technologies Ltd, an Indian information technology major in his book “Employees First, Customers Second: Turning Conventional Management Upside Down”, HBS Press, June 2010. Vineet Nayar who is HCL’s successful CEO describes how the company defied conventional wisdom of customers first and then turned the hierarchical pyramid upside down by making management accountable to the employees first. This strategy, backed by a culture of trust based transparent communication and information sharing, created a sense of urgency and involvement in the employees, empowered them and unlocked their potential. The engagement strategy fostered an entrepreneurial mind-set, decentralized decision making and transferred the ownership of change to the employee in the value zone, according to Vineet.
Though the above five schools of thought appear to capture diverse possibilities on employee engagement, they may not offer the required framework for authentic employee engagement. The compensation and incentive linked approach is too simplistic to be of sustainable benefit while the employee-first approach is too radical for universal adoption by all companies. The mid-way behavioral approaches tend to be abstract and require leadership nuances that are unlikely to be widespread in organizations.
The Paradox of employee engagement
The opportunity in authentic engagement is that the typical employee has the intrinsic capability and aptitude to contribute to his or her organization’s processes and activities in more ways than the formal job profile demands of him or her. This, of course, is subject to the caveat that the organization has good recruitment filters which selects higher percentile candidates and has, in addition, comprehensive on-boarding practices that enable employees acquire a good grasp of the company’s business and operations. However, the challenge in a permissive system of letting employees contribute in multifarious directions is that it could lead to dilution of core responsibilities to the detriment of the goals that an organization must fulfill in a focused manner.
The paradox of employee engagement lies in terms of balancing the creativity of an employee with the focus of the organization. Over a period of time, the more creative an employee is allowed to be, the more diffused his role is likely to be; on the other hand the more focused an employee is expected to be, the less creative he is likely to become. The organization and leadership have the responsibility to solve this paradox in a comprehensive and sustainable manner to unlock employee creativity without compromise to the focus of the organization.
Such an approach needs to develop a canvas that is larger and more impactful than quality circles, suggestion schemes or idea initiatives. All of such schemes whose utility has been well established are specific and relevant to the jobs the employees carry out, and would need to be continued, regardless of any larger initiative for capturing employee creativity and seeking employee engagement. The proposed framework called employee value credits is a well-guided but open-sky initiative that enables an employee to be creative with no restrictions but at the same time prevents diffusion of focus.
Employee Value Credits – the framework
The fundamental premise of the employee value credit framework is that each employee will have the capability and plan to contribute in several areas that are not only directly or indirectly connected with the job but also some which could be currently out-of-organizational orbit but may have value at a future point of time. Each employee contributing in such a manner would be motivated to contribute only when an appropriate recognition is provided. As one is aware, the only three classic motivated aids that are available are on-the-job implementation, monetary reward and non-monetary reward.
All the three motivational tools have limitations vis-à-vis the need for authentic and global employee engagement. On-the-job implementation of new ideas is doubtless highly satisfying to an employee but the ideas that can be implemented under this route tend to be few. Monetary rewards can also be only limited in scope and in some cases may be better spent only after the real value of the engagement process is demonstrated. Non-monetary rewards by way of appreciation letters or public celebration tend to have only a transient ‘feel good’ factor. The framework of employee value credits, on the other hand, provides a robust and sustainable mechanism for employee engagement and motivation.
The theory of authentic employee engagement is based on the following five core principles, each being of equal importance and priority:
1. Creative: Employee engagement brings out the creativity in each employee, and enables him or her to contribute to the organization through not only operational performance but also through creative value-add.
2. Expansive: Employee engagement grows on the employee and the organization in an expansive manner, and enables the employee and the organization relate to each other not only on the job but also off the job.
3. Collaborative: Employee engagement breaks down the silos (individual versus individual, individual versus company, and domain versus domain), and enables the employees contribute through collaboration.
4. Expressive: Employee engagement removes fear and diffidence and enables both the engager and the engaged become expressive, and helps employees bring out the latent issues clearly and powerfully.
5. Timeless: Employee engagement is not about finding quick-fix and rapid-fire solutions to current needs; it is all about creating a bank of ideation value from which ideas can be tapped as their time dawns on the horizon.
Clearly, the principles do not become operational by themselves. The leadership of an organization must demonstrate its commitment to genuine employee engagement by a set of policies. First, it must make clear that employee engagement is not an opportunistic initiative solely to aid performance. To reinforce such a perspective, all performance improvement initiatives (example, suggestion schemes) which are job focused must be allowed to continue. Second, it must choose the mentors, or the engagers, in the engagement process carefully. To ensure this, the choice of engagers needs to be made a prestigious matter. Third, an institutional framework needs to be created to collect, receive, and analyze as well as credit the employee inputs for inherent or potential value. The framework of Employee Value Credits makes this happen.
Institutionalizing the EVC framework
The framework of Employee Value Credits starts with the creation of a dedicated department, headed by a leader positioned as a direct report to the chief executive officer. The leader of the EVC department (EVCD) should be a seasoned, empathetic mentor with an outstanding grasp of the current businesses and a good understanding of the related and substitute businesses. He should have the resilience and flair for building value for tomorrow. EVCD should be manned by professionals who have subject expertise corresponding to the functions and domains that exist in the company’s value chain with excellent conceptual and analytical capabilities.
EVCD has the responsibility, along with the human resources department to propound, articulate and propagate the concept of employee value credits and the processes that enable employee engagement and value generation. EVCD also shall have the responsibility to seek, identify and coach the engagers to enable them conduct the employee engagement process in the optimal manner. EVCD should have the authority to identify and course-correct the functions, domains and businesses which are tepid to the concept of employee engagement.
The employee value credit processes can be institutionalized through a set of guiding principles as set out below.
Responsible department: EVCD shall be primarily responsible for assigning employee value credits to the ideas, plans and programs that are generated by the employees across the organization. Employee value credit is the value that is assigned by the EVCD to each idea of an employee after due consideration and analysis.
Value definition: Value is defined as incremental revenue generated by an employee idea (that is profit adjusted) divided by the incremental capital investment required for implementing the idea. Each one million dollar of value, for example, could qualify for one value credit in a large organization. Profit adjustment of revenue is achieved by dividing the revenue by the gross margin percentage. Ideas with less than ten percent gross margin may not qualify for the value credit mechanism.
Value target: Depending upon the value chain, each business, domain or function (called employee entity) shall be eligible for setting for itself a value credit target for the year. EVCD shall have the responsibility and authority to negotiate value credit targets for each employee entity. The setting of value credit targets shall be a wholly voluntary process.
Iterative process: Each employee entity shall have the flexibility to accept individual employee value credit targets as part of the overall employee entity value credit target setting process. Ideally, it shall be an iterative bottom-up and top-down process with active participation by employee entity leadership and EVCD.
Evaluation: As employees provide their ideas to EVCD, which need not necessarily be subject to clearance by hierarchy, EVCD shall evaluate and provide value credits to the individual suggestions. For each employee and employee entity such value credits shall be grossed up over the year. At the end of the year EVCD shall publish the grossed up value credits for each employee entity and employee.
Tradability: Employees shall be able to trade their value credits at the end of each year for cash compensation during the annual appraisal processes or retain and accumulate them for future encashment or for retirement benefit. Employee entities can trade their gross value credits for special allocations beyond the normal budgeting allocations. This system would provide incentives to employees at individual level and to employee entities at corporate level.
Enhancements: There could be sophistications added to the value credit process by differentiating between ideas that have short term impact (say, within one to two years) and those which would have medium and long term impact (say, three years and beyond). Obviously, different credit systems need to be adopted between the two categories.
Flexibility: The value credit system could be refined to provide fixed credits for ideas with short term impact and minimal forecasting uncertainty, and scalable credits (basal plus variable) for ideas with long term impact and maximal forecasting uncertainty.
Collaboration: There could be functions and domains (such as corporate planning, industrial engineering) which could have certain advantages in ideation by virtue of their functional specialization. At the same time, they would need technical inputs to succeed well in their jobs. Entity value credits could be exchanged between such employee entities reflecting the mutual exchange of inputs.
When operated as a continuous process, the employee value credits framework helps the organizations achieve authentic employee engagement, unlock employee creativity, achieve employee motivation and enhance corporate growth.
Summary
The Employee Value Credit framework recognizes the intrinsic capability of all employees to be creative, collaborative and value adding. It also recognizes that not all ideas are borne equal; nor can they be treated equal. Employee value credit framework recognizes that ideas can be for current business development or could be for future businesses and accordingly provides for the needed flexibility. It rewards intellectual capability of employees at individual level and that of employee entities at aggregate level.
The Employee Value Credit framework provides incentives that are appropriate to individuals through value credit linked compensation and to departments through additional budgetary allocations to implement their plans. Needless to add, the creation of Employee Value Credit Department with an effective leadership will be a key trigger for implementation of this framework. In the overall, the employee value credits framework, when institutionalized, will create an organizational eco-system that is creative, participatory and collaborative for corporate growth.
Posted by Dr CB Rao on August 3, 2010
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