Opportunism of Learning versus Opportunity of Development: The Paradigm of Perpetual Learning Bench

In recent years, Learning & Development (L&D) has become an important function of Human Resources Management (HRM) in a company. What used to be a small training cell, has now become equal in importance to other HR functions such as recruitment and performance management. L&D is an important bridge between recruitment from the marketplace and delivery in the workplace. L&D can play a vital role in the overall talent management of the company, receiving and providing inputs from the other HR functions. Previously viewed as a corporate function, L&D is now viewed as an important site and business function. However, its importance as a function that could bridge the gaps between academic education and industrial needs for young entrants on one hand and reskilling and retooling of the aging workforce on the other is yet to be appreciated to the full potential. There are, however, reservations as to whether the function is living up to the expectations. 

The reasons for such doubts are many. Firstly, there is no clear body of knowledge as to what constitutes the right methodology for L&D. An overwhelming number of CXOs would still vote for on- the-job development, largely because the L&D specialists have been unable to make an effective case for dedicated learning streams. Secondly, L&D is often seen as a soft-skill initiative (based on generic outsourced canned programmes), leaving the line managers to grapple with the challenges of technical development (that require company-specific customization). Thirdly, despite having one of the world’s largest educational infrastructures in the world, L&D departments have been unable to forge viable academic-industry collaborations. Fourthly, it is unclear if L&D function is regarded as a mainstream HR function that can throw up future heads of HR function or the businesses themselves. Fifthly, the metrics to determine the effectiveness of L&D are yet to be developed to any appreciable extent. As a result, L&D continues to be a function of high potential but beset with unclear delivery.

Opportunism of learning

It is interesting that most functions in HR are not exactly the functions that provide ‘universal joy’ in organizations, given their requirements to be objective in business partnering. Recruitment, for example, has to bring in new talent to make businesses and operations competitive, even at higher salaries; this certainly is not a matter of joy for internal aspirants. Rewards management has to structure compensation within the means available to a firm, notwithstanding what industry pays or what staff believe they deserve.  Performance appraisal introduces relativity amongst employees with all its disharmony; bell curve or no bell curve. Succession planning is a function that demands hard (perception-wise harsh) choices; many top level separations are caused by succession battles. Industrial relations in traditional companies (and right sizing in new generation firms), of course, has been the cauldron of strife and disharmony in established organizations. In contrast to all these HR functions, L&D emerges as a relatively welcome function that brings forth no hard feelings!

In-house learning has, therefore, been quick to grab for itself the joyous characteristic of non-graded learning. Sponsorship to learning programmes is seen as a relief from the day to day work drudgery. If the sponsorship is to off campus and overseas learning programmes, the joy is even higher. Usually company learning programmes have neither the rigour of institutional teaching nor the challenge of end-of-the-learning gradation. Fun though such limited company learning is, firms can hardly become competitive just based on the joy of such non-demanding learning processes. In-company learning needs to be as studious and demanding as an academic programme of a top-notch institution tends to be; this is the only way to develop the needed skill sets. L&D has to be a mini HR system; from selecting the right candidates to providing the needed inputs, and from measuring learning to rewarding learning. L&D professionals should be willing to become gentle but tough taskmasters who would be both facilitative and objective.

Opportunity of development

The real joy of learning must come from the fulfilment of the accompanying development process. Learning and development are the two sides of the same coin. There can be no development without learning and learning sans development is infructuous. Just as a student who leaves the portals of a college is expected to be decidedly better than the one who enters, every employee who leaves a learning programme must be a better performer than the one who enters. The learning programmes could be simple ones such as fortifying one’s known language skills or challenging ones such as learning an absolutely new coding language. The joy for the learners as well as the teachers of such company programmes must be in terms of measurable increases in individual competence, and hence in organizational competitiveness. L&D professionals must impart seriousness and objectivity to the process of ‘learner-teacher match’ to focus on competencies and competitiveness.

Many times, the relative short span of internal programmes is held to be working against the objective of enduring developmental impact of the programmes. The fallacy lies here itself; why should a firm undertake learning programmes that are deemed suboptimal as a design itself? Are L&D professionals giving importance to form rather than substance, operational managers giving precedence to current work rather than future potential, `and corporate managements getting bogged down by budget impacts rather than by competency needs? It is important that firms decide on a few core themes and work towards programme structures and contents that reshape the skill sets in a decisive manner. This requires that L&D professionals become a part of value chain in the laboratories, plants and markets, list out the needs and develop customized programmes. A panel of line and HR leaders must vet the programmes, oversee coaching and evaluate the outcomes.

Accessing the infrastructure

India has such a large educational infrastructure that firms can indeed develop very effective programmes in collaboration with leading educational institutions. Rather than consider expensive executive education programmes, which are again general in nature, L&D would do well to tie up with colleges and universities to provide full course programmes such as Bachelors for Diploma holders, Masters for Bachelors degree holders, and Ph D for Masters degree holders. Many public sector undertakings such as HAL, SAIL and BEL (and some leading private sector companies such as L&T) had taken the lead, decades ago, in structuring such company specific academic programmes with intensely practical slant. With newer fields such as artificial intelligence, robotics, mechatronics, sensor technologies, Internet of Things, bionics, nanotechnology, epigenetics, and wearable technologies set to transform all industries, it is important that middle level employees are reskilled in such domains so that organizations can stay contemporary at the minimum, and futuristic as a target.

There is a dilemma here though. On one hand, so much investment has been made in India by private agencies and the governments on colleges and institutions as well as teaching staff that it makes sense, at least for mid-rung companies, to utilize the investments. On the other, there does exist a criticism that Indian colleges and academic programmes are not known to be up to date in terms of knowledge base and pedagogy as a result of which the graduates do not have readily deployable skillsets, forcing companies to resort to on the job experimental development. Consequently, the confidence with which the industry can approach the academia is yet to be built. The paradox can be resolved to mutual benefit only if industry and academia decide to move together for collaborative programmes. Scale is necessary for making such programmes meaningful for companies as well as for institutions.

Learning bench

The concept of learning bench is relevant in this context. Depending on the nature of business and the technologies deployed, each firm should predetermine the number of executives in each cadre and each function that should be constantly learning. As a matter of hypothetical example, a pharmaceutical company could decide that 20 percent of its staff should constitute the learning bench at all times, so that in a span of five years the entire organization would be reskilled. Depending on the business model (whether it is research, manufacturing or marketing oriented), the relative percentages of staff in those and related domains and the nature of programmes could vary. Once a learning bench concept is embedded, selection of staff that need to qualify into the learning bench must be an annual feature with well specified criteria.

There should be a three tier approach to pass the learning bench through academic collaboration. The first tier would comprise the IITs, NITs, IIMs and other top ranking autonomous institutions such as BITS which can take the lead for creating industrial laboratory based research as well as advanced masters programmes. Entry into this tier must be based on proven potential as well as open competition. The second tier would comprise the large number of colleges and institutions which can impart academic programmes after learning industrial needs themselves. Entry into this tier would be open for the large numbers of young, operating staff who need their academic capabilities customized to industry needs. The third tier would comprise in-house programmes which are led by domain experts of the industry and institutions together with the learning bench staff that has already gone through tier 1 and 2 learning and development processes.

Companies baulk at making such huge investments on L&D as they are uncertain that executives so trained would remain in the company. The author is reminded of what an executive of Telco (now, Tata Motors) told him in 1976; he said that Telco, and for that matter all Tata Group companies invest a lot in training engineers under the Graduate Engineer Training schemes or in sponsoring middle level executives to XLRI three year evening programmes, fully aware that not all would stay. Yet, it has been the view of the Group that by training graduates and developing them and others in their companies the Tata Group is, in fact, building national competencies. That such a progressive concept was integral to Tata organizational development four decades ago, and could be articulated so clearly at a time when the fancy concepts of L&D were not in vogue in Indian industry, speaks of the visionary mind-set of Telco and the Tata Group. It should not be too much to expect the more enlightened companies of today to view learning and development as an immersive commitment, for their companies’ competitive advantage and India’s comparative advantage.

Posted by Dr CB Rao on April 30, 2016      

From Social Relationships to Business Contracts: When Word Has No Meaning, Life Has No Essence

Words have enormous power, more enormous than one tends to understand these days. In fact, the ability to express through written and spoken word is the most important characteristic that differentiates human beings from all other known living creatures. Scientists hypothesize that the development of complex language was a key to the evolution and advancement of the human race. From the spoken word to the written word, it has been a most influential and most dynamic discovery of human memory. Civilizations and cultures got preserved by the words as spoken, and more importantly as written. Yet, words do good as well as bad, and some even tend to dismiss their impact saying “these are just words”. Equally, societies got fragmented between speakers and listeners and between writers and readers.

Words are the most important constituent of social relationships and business contracts. A whole range of vows and promises as well as agreements and contracts are expressed through words, and solely words. The traditional societies accord great importance to the spoken word as a contract that must be honoured in letter and spirit. The developed societies lay great store in capturing the intent, execution and consequences in terms of long legal contracts. While there was law and order as a function from times immemorial, there is no evidence that the written word was vested with so much legal import as it is vested with now. One would, therefore, imagine that words are more important than ever. Unfortunately, however, the more legal the words became the more travesty of justice began to be encountered in modern societies.  

Word quotes

Words are so powerful that some of them become timeless quotes, retaining their power and relevance across generations. The great epics of various religions paint a rich tapestry of teachings. Hinduism probably has the world’s most extensive heritage of impactful words expressed through vedas, upanishads, epics, keertanas, mythologies and theologies. In contemporary English, an Anonymous writer has said so effectively: “Watch your thoughts, they become your words; Watch your words, they become your actions, Watch your actions, they become your habits: Watch your habits, they become your character and Watch your character, it becomes your destiny”. Societies, doubtless, are shaped by words, and words alone. Words by themselves are not worth the meaning unless backed by actions. Benjamin Franklin observed “Words may show a man’s wit, but actions his meaning”. Thoughts, without words serve no purpose, and words without action have little credibility.

Words become more powerful when they are delivered with passion, piety and authenticity. Words become more powerful also when they are backed by actions. Swami Vivekananda, the great spiritual leader of India was known for his crystal clear thinking and power packed delivery. His words ‘arise, awake, and stop not till you achieve your goal” are some of the most stirring words ever uttered by a leader. Mahatma Gandhi, the Father of India’s Independence, was known for his endearingly simple thinking but he imbued the words with great power by postulating and following non-violence and ‘satyagraha’. It is remarkable that both the great leaders were devoted to human service, committed to remove inequalities and promote holistic and inclusive living. Though both had different calls of destiny, both were highly charismatic leaders who influenced countless men with their thoughts, words and deeds in their chosen goals of spiritual awakening and national independence, respectively.

Word deluge

Modern world is overwhelmed by a deluge of words. Digital technologies have literally amplified the deluge, with unbelievable expansion of social media. Legal concerns have made words the addictive stimulants as well as fallacious solutions for a wide range of issues that never bothered the earlier generations. The romantic whiffs and emotional tethers of the past generations are now replaced by broken messages that are punctuated more by smileys and emoticons rather than by wit and sincerity. The gentleman’s understandings in business are now replaced by long essays of constraints and consequences which are incorporated more for form than substance. As a result, social relationships as well as business collaborations have become more complex, less utilitarian and finally more enigmatic. With so many meanings imputed to words, they lose their meaning. And, when words lose meaning, life loses its essence.

When the society is faced with a deluge of words there tends to be more promise than performance. This is not necessarily due to any bad intentions, per se. Promises require just words while actions require dedication, resources and efforts. The huge gaps one sees between social aspirations and promises on one hand and tangible goals and visible outcomes on the other can be attributed to people not being thoughtful about promises, and circumspect about resources. When business becomes concerned about eventualities there tends to be more unease of doing business than ease of doing business. This is not due to escapism per se. Eventualities require just plans which are tempting to make while outcomes require prioritization, focus and execution. The huge gaps one sees between business visions and aspirations on one hand and tangible transformations and accomplishments on the other can be attributed to businessmen being carried away by their visions and aspirations with less attention to resource and organizational mobilization.

Life’s essence

Life’s essence is development. Development requires collaboration. Collaboration is enabled by trust. Trust is reinforced by credibility. Credibility is a result of promise being in line with potential and performance being in line with promise. To complete the loop, authentic promises must be delivered by purposive action. It is, therefore, necessary that one must respect words one uses for their implicit meaning and endeavour to speak what is necessary, commit what is possible and deliver what is committed. This could be as simple as returning social visits or fulfilling social commitments. In fact, enduring social relationships are built when families, communities and societies stay together, and support each other. The traditional old world is built around the cared and the caretakers living together, and families being joint rather than fractured. When economic development and social diffusion throw people asunder what can still retain the bonding is the power of words on staying committed for each other.

Development’s enabler is economic activity. Economic activity requires judicious and productive deployment of resources. Those who can help must have both intent and platform to help the needy. To enable this, ease of carrying out economic activity is a must. A modern day business contract tends to have two pages of deliverables and twenty pages of warranties, assignments, terminations and consequences. All of them are signed off without the signing authorities not really delving deep into the need for, and meanings of such conditions. Today, a few companies have market capitalization greater than the GDPs of several nations. This wealth has to create more development and must improve the conditions of more people. A start-up cannot fly off immediately if the MCA portal does not function for weeks. That the development of the portal is being done by India’s iconic IT bellwether, whose new leadership is now committed to artificial intelligence and the like, and such prolonged glitches impact the exhortation on ease of doing business do imply that words are tending to have less meaning in modern business.

Gift of the gab, curse of progress

With words, and their proliferation, the ability to communicate has become a competitive strength for leaders. From intemperate filibuster to suave oratory, the ability to communicate is dictating the course of companies, governments, societies and nations. Those who have the gift of the gab – an ability and aptitude to speak fluently, glibly and persuasively – has become the hallmark of successful leadership. Swami Vivekanda’s oratory was based on deep spiritual knowledge and with ascetic-like renunciation of pleasures for uplift of the downtrodden. Mahatma Gandhi’s preaching was based on selfless practice of ‘satyagraha’ and non-violence that could galvanise a nation for inclusive, equitable and independent life. Such leaders may have had gift of the gab but they did not need one in reality, because their thoughts and words were backed by actions and outcomes.

When words are spoken with an eye on carrying the day, the gift of the gab verily becomes a curse for the society. Such approach feeds the society and economy with grand expectations with little to show on the ground. When companies hire people with extravagant promises, when businesses seek finances with magical returns, when foundations are laid without marshalling resources, and when collaborations are struck with self-serving agendas, the economic ecosystems become exploitative and stress-prone. Regimented economies as well as democratic countries have been unable to make meaningful progress when economic arrangements and business contracts are made more in letter and less in spirit. From social relationships to business contracts, the words must have meanings that are reflected in actions; otherwise, life itself would have little essence.

Gautama Buddha said,

“However many holy words you read,

However many you speak,

What good will they do you,

If you do not act upon them?”

There can be no better insight on the importance of words than this!

Posted by Dr CB Rao on April 29, 2016

       

Volkswagen Evergreen Beetle Car: Enduring Principles for Living Legacies

Volkswagen recently advertised in India the commercial launch of its iconic small car, Beetle. Sporting the almost similar exterior that made the car a folklore for decades from its first launch in 1938, the Beetle of today incorporates ultra-modern technologies. The author of this blog post is gratified that the launch coincides with the topic of retro-futurism which the author has discussed in his recent blog post titled “What Palm Holds, Eyes Behold: The Retro-Futurism of iPhone SE”, Strategy Musings, April 18, 2016. (http://cbrao2008.blogspot.in/2016/04/what-palm-holds-eyes-behold-retro.html). Without doubt, the arrival of Beetle in a new avatar is a striking example of retro-futurism, and reinforces the insights of the previous blog and offers additional perspectives.

Some comparisons and contrasts with Apple SE are also inevitable and quite necessary. 

Fundamentally, Apple SE being an electronic product and Beetle being an automotive product they are as different as chalk and cheese in design, manufacture and usage. Yet, they represent, in real time context, the relevance and practicality of retro-futurism as a concept. They also demonstrate that ‘retro’ can be as recent as four years (as is the case with Apple SE) and as distanced as eighty years (as is the case with Beetle). Given the thousands of products that have been designed, developed and used as well as rendered obsolete and phased out over all through the four hundred years of successive industrial revolutions, the impact of retro-futurism as a practical paradigm is self-evident.

Origins, growth and decline

The first Beetle was designed as an idea by Joseph Ganz, a Jewish Engineer in early 1930s. Adolf Hitler, however, grabbed the concept and ordered Porsche to develop a Volkswagen (literally, a “people’s car”). The design and manufacture of the Beetle including building of Volkswagen factory was completed in the late 1930s. Enduring the trials and tribulations of successive world wars, Beetle survived to grow as the most sustained small car design, and Volkswagen as the most dominant European automobile company. The Beetle was designed as a basic small family car at the cost of a motor cycle to transport two adults and three children (Is not Tata Nano a retro-futuristic concept?). It was one of the first to have air cooled rear engine and chassis mounted on torsion bars, and a roundish body looking like a bug!

In its long history, over 21 million Beetles were produced. Beetle’s most successful period was the decade of the 1960s, with it becoming a favourite all over the Americas and Europe. However, the emergence of new global designs, especially from Japan, brought its glory down. Volkswagen had to officially end the declining production run of Beetle in 2003, worldwide. There is no denying that Beetle was the most successful rear engine design and had little spec to spec competition in its class. Volkswagen itself had to go through several iterations before its successor Golf could be perfected and popularized.

Interestingly, Volkswagen attempted to update Beetle in 1995 itself with a redesigned vehicle based on its Polo platform. It had the same exterior but used a higher horsepower engine and multi-speed gearbox. The final edition of the New Beetle happened in 2010, marking the demise of the New Beetle as well. The phase-out of the New Beetle demonstrates that there is a difference between the ongoing requirement for annual updating of automobiles and retro-futurism as a distinctive repositioning. Typically, retro-futurism needs to deploy a few breakthrough approaches to breathe new life into the retro designs.

Upgrade versus reinvention

Over the first twenty years, Beetle had continuous upgrades which by today’s standards would look very marginal. For example, the engine capacity moved from 1 litre to 1.2 litre and engine power moved from 24 HP to 36 HP. Elimination of starter button, repositioning of ash trays, redesign of bumpers, windows, turn lights and fenders were all that to claim for upgrades. The first syncromesh gear box did not arrive till the 1960s. Such minor changes continued to propel Beetle until the fade-away years of the 1970s, which brought hot new competitive designs from Japan on one hand and stringent fuel economy and emission standards in US and Europe on the other. Yet, supported by improvements like electronic fuel injection internally and convertible body designs externally, Beetle moved on with a niche positioning until the complete phase-out in 2003.

Volkswagen realized that notwithstanding the decline in sales, there was a huge reservoir of goodwill for Beetle as a design concept and owner experience. The New Beetle which was designed in the late 1990s was aimed at making the car contemporary with 1.8 litre capacity engine developing 150 HP, transverse mounting of engine, nippier drive train, independent suspension, bright colours, ABS brakes, high intensity discharge headlights, traction control, and other stylistic changes. Yet, the combination of the largely untouched Beetle exterior profile and the more powerful Golf internals as the new Beetle was not enough to fuel a new rally for the new Beetle. This is ample proof that retro-futuristic designs must not only retain the best of the old but also integrate the best of the future.

Digital Beetle 2016

After decades of incremental mechanical engineering as above, the Beetle is now reinvented as Beetle for the millennials’ era incorporating digital technologies to make the much loved buggy car future-proof. It is a combination of classic style and contemporary engineering in a future-ready digital platform. It retains the iconic two-door design and rear wheel drive but has now a larger engine series capable of delivering up to around 200 HP of power and up to around 30 KgM of torque, previously unthinkable for such a compact car. It also sports a seven speed automatic transmission, large alloy wheels, keyless starter, light sensing Xenon headlamps, electronic braking distribution, anti-lock braking system, traction control, electronic stability programme, six air bags and digital multimedia. It features all the digital bells and whistles that make travel in a contemporary car a joyous ride of safety and pleasure.

With affordable pricing, the Digital Beetle could scale up to sell in millions again. With premium pricing it could just be an everlasting niche product, selling in just thousands. Either way, the product could continue to retain its iconic status even decades later. Beetle reflects the requirements of retro-futurism brought up in the earlier piece on Apple SE: (i) A product should be developed with a state of elegance that could enable it to qualify itself as a new product even years later, (ii) Recalling a retro design has to be more than for emotional or reminiscence reasons; it should bring the latest technologies within the restored contours, (iii) The higher the size of the industry market base (and its growth rate), the greater is the potential for retro-futuristic products, (iv) Retro-futurism is not about using old dies, moulds or chassis for cheap products but is more about creating superior products with re-optimized cost and technology balance, and (v) importantly, Retro-futurism should never be mere refurbishment; it must be on reinventing the ‘old’ as a contemporaneously relevant ‘new’. 

Living legacies

Additionally, however, there are a few important lessons from Beetle that supplement the above. It is not uncommon to have legends and legacies. What is relatively uncommon is for such legends and legacies to live on physically across generations, which is not impossible as Beetle demonstrates. The enduring living legacy principles are as follows.

Inspirational designs have no expiration risk. As demonstrated by Apple SE and Beetle, inspired, and inspiring, design have no shelf life. They can survive and succeed in perpetuity. Indian epics and Raja Ravi Varma paintings are irrefutable evidence on an entirely different level. This is because inspirational designs and products appeal to the spirit as much as to the eye.

Structured teams can continuously develop innovative themes to perpetuity. History has it that Beetle concept was the brainchild of one innovative designer, way back in 1930s. By virtue of the design getting passed to Porsche, the established car maker, the concept became a reality, with continuous updates by Volkswagen teams. Designers and Developers in harmony can embed lasting value in products.

What lasts in crisis outlasts competition. Beetle was a pre-World War car. Though essentially a civilian design, the product was hijacked for military purposes. Its manufacturing facility was ravaged in bombings. Lasting through the crises, Beetle proved its mettle as a product that is crisis-proof, and hence as a product of sustainable success over generations.

Global businesses can be built on single but marvellous products. Many companies and leaders believe that they require multiple products to scale up, more so globally. While such a strategy has its relevance, Beetle is one example (along with scores of others) that one great product can create, or at least lay a lasting foundation for, a global corporation. Sony, Intel, Microsoft, Facebook, Google, and several other global corporations, each founded on just one core product, are living examples.

Glorious past gives lasting legacies but unflinching faith shapes living legacies. Managements that are driven by numbers of margins and viability as well as phase-outs and fade-outs lose track of the evergreens they have in their midst. It requires more than ordinary managerial skill and leadership insights to identify, support and nurture designs and products of perpetual value.

It is an evolved human characteristic to be creative and innovative and to constantly invent or discover something new, and build new businesses around it. While there can be no two opinions that it is a natural path, it is equally important to retain the soul and spirit of the original innovation and creativity. The paradigm of living legacies, as discussed herein, inspires us to recognize that certain types of unique innovation and creativity are everlasting in nature.   

Posted by Dr CB Rao on April 28, 2016

The Fine Art of Building and Leading an Organization: CPOs, CEOs (and CXOs) as Mindful and Thoughtful Gurus

The Human Resources (HR) Professional, whether he or she is an executive or a leader, is a critical person in organization building. If the competitive advantage of an organization is derived from its people, the Human Resources department, and its constituent professionals are a critical enabler of the competitive advantage of the firm. This is not to paper over the direct contributions of various line and staff functions such as Research & Development, Manufacturing, Supply Chain, Sales & Marketing, Quality & Regulatory, Safety, Health & Environment, Business Planning & Development, Information Technology, Finance and Secretarial & Compliance (and several other functions and sub-functions) to the competitive advantage. While each of the functions tends to be domain-specific with reference to the people function, only HR plays an all-encompassing role in organization development, across all domains.

HR domain itself has evolved, substantially over the years, from being a mere Personnel and Administration department to becoming today’s Human Resources department that is considered more a business partner. In keeping with this evolution, heads of HR are now a part of the C Suite, with impressive titling, for example Chief people Officer (CPO) or Chief Human Resources Officer (CHRO). At the same time, there has also been a realization within the line and staff functional leaders that people management is one of their key responsibilities too. Of the commonly held HR responsibilities such as Recruitment, Training & Development, Performance Management, Compensation Administration, and Organization Design & Development, line and staff functions are taking an increasingly shared responsibility with the HR function. This trend is accentuated with scale as well as decentralization, whether at business or site level. This has led to lack of clarity on decision rights and responsibilities, with conflicts as well. 

Paradoxes abound

A major facet of a true HR professional is one of managing paradoxes skilfully. Like the CEO of a firm who has such paradoxical imperatives (for example, building businesses and closing businesses simultaneously), the CPO too faces some challenging paradoxes. First and foremost, one of the key aspects of HR is organizational culture, which can only be felt and experienced, and not metricised and measured. Second, HR is required to touch the heart but most of the financial decisions of business are made by the head. Third, organization is expected to precede other infrastructure which, in turn, must precede business but HR is usually brought into play late in new businesses, mergers and acquisitions. Fourth, HR is required to promote transparency but is often faced with situations where it cannot disclose or receive information on developments freely. Fifth, while factors such as workplace ambience, title weight, job security etc., are supposed to be hygiene factors, they tend to demand disproportionate attention and time too.

More than the above five, HR has to grapple with the challenge of developing talent to the maximum extent possible from within (without sub-optimised performance that inbreeding could cause) while also bringing in the leading-edge industry talent (without causing disharmony and disaffection). There is a clear need for HR to be the ‘best of the best’ domains in an organization, and emerge as a role model. This has to be accomplished in the face of a rather truncated view that could exist, within HR and outside, that HR’s role is to find and recruit people, fix and review salaries, identify and solve relational problems, train and develop people (usually on shoestring budgets). This has also to be accomplished without a large HR team, as often HR, like any other corporate team, is seen to be a cost to be catered to than as a value to be welcomed. The final challenge is that being a part of the C Suite, and close to the CEO, but still not a part of the direct business delivery value chain, HR gets to be drawn into top level organizational dynamics, including succession planning at the senior levels, with their own political and emotional challenges.   

Managing paradoxes

There are no set methods to manage paradoxes but by doing a few things right, the CPO and the HR function can achieve and maintain a stature of authentic leadership for themselves that would make paradox management easy and harmonious. These are as follows.

Employee as customer

As discussed initially, a fundamental task of HR is to recruit and induct people. Usually, HR is the first interface that a prospective candidate has with the organization; likewise HR is the lens through which the organization can see and feel the outside world. Mahatma Gandhi held customer as being the very reason for a company’s existence. Likewise, an employee is as valuable to the organization as a customer is to business. HR leaders and executives should treat every prospective candidate with utmost care, respect and objectivity. Not only would this be a dutiful activity but would lay the foundation for an extremely positive of view of the company by the candidates, and eventually by the employees. This approach must be a part of the DNA of HR, continuing with individual employees and the teams.

Business as process

Typically, HR processes are considered unique to HR domain just as quality processes are to the Quality department and production processes to Manufacturing, and so on. The relevant fact is that unless HR is well educated on the business value chain it would not be able to understand the real talent requirements and select the right talent. Effective recruitment is more than creation of slick job specifications; it requires a feel for the value chain. All HR executives must make it a point to spend time in R&D laboratories, plants and marketplace to understand the products, processes of manufacture and delivery, and the customer needs. While line executives take primary responsibility in the respective domains, a business savvy HR executive can be an exceptionally effective business partner.

Learning as development

Most companies provide several training and development opportunities. Irrespective of the industry, the current expectation is for superior skill levels backed by compliance to standard operating procedures. This alone would ensure high quality and support global standards. Most programmes, however, look at learning as a standalone objective of the programmes with development taking place as a follow-on activity on the job. The paradigm needs to be reversed in that actual on-the-job experiences and expectations must lead to learning programmes which must be evaluated immediately for their delivery on development. Also, rather than deploy generic canned programmes, the internal trainers must learn about the business and business processes, and develop firm-specific and business-specific content.  

Performance as journey

In an earlier blog post, the author has brought out the deficiencies of performance management as is commonly practiced in organizations. Reference may be made to “Vaunted Bell Curve: Wanted Culture Verve?”, Strategy Musings, April 20, 2016 (http://cbrao2008.blogspot.in/2016/04/vaunted-bell-curve-instead-culture-verve.html). Performance of employees is not to be measured, as an event outcome; it should not also be straightjacketed as an annual review. Performance review needs to be a continuous journey wherein supervisors and employees collaboratively discuss how to maximize performance of teams and the firm. It should not be judgemental and condescending on individual employees, teams and managers, without an appreciation of the total business and operational context. This requires the HR professional to partner the business leaders in their operational performance as well as business development.

Recognitions as rewards

The outcome of a performance review process invariably tends to be universal merit increases, and selective promotions. These certainly play a very important role in the employees feeling rewarded for their work and to be hopeful of career growth. These, however, are not real recognitions in the complete sense; more so in organizations which seek to keep such matters confidential. In organizations, the process of dispensation of such rewards, whether generous or frugal, tends to be a major source of grape-wine gossip, fuelled by an embarrassed non-disclosure.  While these kinks cannot be avoided, an objective HR system should be so convinced of its objectivity that it does not point to extraneous triggers or constraints as the causes for missed expectations. A paradigm in which open recognition of achievements in team meetings (without monetary rewards in such events) could nurture a more authentic, recognition climate. At the same time, HR must have the power to design an explicit linkage between business performance and team rewards.

Organization as ecosystem

A true HR professional helps in making an organization a lively and vibrant ecosystem. This is a concept greater than teamwork or team rewards, although team interactions are superior to individual relationships. An ecosystem is a habitat in which life thrives naturally. Organizations are synthetic creations to meet business ends but involving people competencies and emotions. Being a team, department, business etc., goes only half-way in creating a nurturing environment. The other half is made up by people feeling wanted, aligned, and achieving, with a fair balance between professional work and personal life. There must be enough adrenalin in people to achieve competitiveness but there must also be enough mindfulness amongst them not to be overly cluttered and stressed. Creation of an organizational ecosystem that nurtures creativity, innovation, competence and accomplishment in a mindful manner is the ultimate art for the HR leader.

HR leader as a Guru

The above has served to lay out the sterling qualities a HR leader must possess to nurture an ecosystem of positive culture rather than an organization of just material goals and transactional processes. To be able to lead the HR function, and also guide the CEO in such path, the HR leader has to be more of a mindful, thoughtful and reflective person than a leader of systems and processes. Whether a HR leader does that by himself/herself or seeks the help of gurus of business spirituality (for example, Sadhguru Jaggi Vasudev) is a matter of choice. Not every organization can afford a Jaggi Vasudev; nor can one Jaggi Vasudev serve the needs of the several thousands of organizations needing such guidance. The choice, therefore, is obvious! The CPOs and the CEOs (ideally, all the CXOs) themselves must embark on a personal journey of transformation to be mindful, introspective, thoughtful and reflective in whatever they say and do in order to be able to facilitate such positive practices in the broader organization development.

This is easier said than done. Human beings are genetically wired and behaviourally conditioned to be judgemental. As one attains higher positions in organizations, the tendency to be judgemental only increases. Many of the HR practices such as selection and recruitment, appraisal and compensation, training and development, and so on are prone to judgement. As leaders facing increasing clutter in their professional life but are expected to take quicker decisions, being judgemental (several times with beaming righteousness) becomes both fallacious and stressful. Mindfulness as a practice involving conscious slowing down and meditated self-introspection can declutter and destress one’s mind, reduce stressfulness, enhance cognitive abilities and improve judgemental capabilities. The CPO of an organization has a particularly challenging responsibility in initiating the mindfulness movement in an organization as he is expected to mediate and harmonize three important and complex behaviours: human emotional behaviour, organizational group behaviour and corporate business behaviour. The effort for embedding mindful leadership is certainly worth the competitive advantage and sustainable success it would bring to organizations.

Posted by Dr CB Rao on April 27, 2016

Author’s Note:

This blog post is inspired by the author’s observation of, and association with, Ken Meyers, Senior Vice President and Chief Human Resources Officer of Hospira, Inc (now, a Pfizer Company) between 2010 and 2015. Ken is currently SVP and CHRO of Hill-Rom Holdings, Inc. Ken has been a passionate advocate of mindfulness and reflection as critical enablers of effective leadership.    

  

Debt as a Socio-Economic Cost or Value: Needed a Mandated Board Role for Regulation

SunEdison has recently joined the long list of companies which have got drowned and gone bankrupt due to overwhelming debt. Most infrastructure firms (as well as capital-intensive and long gestation businesses) in India are unable to be profitable due to high debt on their books. The entire Indian banking system, especially the public sector segment of it, has almost gone into a tailspin due to delinquent loans. The ratio of equity and debt, together with return of total capital, has always been one of the most important indicators of current and financial prudence of a corporation. Ratio analysis is also a fundamental lesson that is taught in financial management. Yet, debt has emerged as the most dangerous threat to both corporate economy as well as global economy (as brought out by the 2008 global crisis).

Debt is an essential elixir for economic growth. Without debt, the level of economic activity that happens the world over would just be impossible; more so, in emerging markets such as India where equity capital is not easily available and stake dilution by promoters is frowned upon. Debt, has many components. The most basic one is the money taken from family members and friends as one embarks on a career or sets up a business. Not known to many, such debt has supported and even transformed lives or helped entrepreneurs find their roots. The more involved one is the organized credit offered by banks and financial institutions to individuals and companies or credit accessed by governments, banks, financial institutions and companies from public and other investors, nationally and internationally. As economies grew, the categories of institutions as well as categories of debt products have seen a phenomenal growth.

All-weather friend

Debt, interestingly, is a welcome friend in all ideologies, even in the contrarian ones of capitalism and socialism. In the case of former, debt is seen as the abettor for capitalists to accumulate assets and means of production ahead of demand. Debt-dependency has been extended to workers and employees as well, largely through credit card and personal loan products, enabling them to accumulate both essential and non-essential assets ahead of their savings. Carl Marx held decades ago that banking and credit had become the most potent means of driving capitalist production beyond its own limits – and become one of the most effective vehicles of crises and swindle. While one may not agree with all the ideologies of Marx, the global credit crisis of 2008 and the bailout of various banks and mortgage institutions by the developed nations at great cost points to the wisdom that was embedded in Marx’s ideological observations.    

Socialism, the opposite so to speak of capitalism, has also been quick to embrace debt. Socialist governments have, for long, used public debt and loans extended by government owned institutions as means to kick-start industrialization, support the weaker sections of society, and facilitate social equity. In fact, former Prime Minister Indira Gandhi, who nationalized 14 private banks (accounting for 85 percent of deposits) in one fell sweep in India in July 1969 claimed the need to control commanding heights of the economy, and ensure social equity, as a primary consideration for bank nationalization. The rather lacklustre financial performance of public sector banks, and their fearful non-performing asset problem are reflective of the risks of using debt as a lever for socialistic pattern of growth. Socialistic Greece accumulated as much as USD 350 billion of international debt as it sought to support public welfare at the cost pf private efficiency.

Shaken-sphere

The great Bard, William Shakespeare (whose 400 years of incomparable contributions to, and legacy for, English literature we are celebrating now), proclaimed through Polonius in Hamlet that ‘neither a borrower nor lender be’, for ‘loan often loses itself and the friend, and borrowing dulls the edge of husbandry’. Wisdom in his words apart, the Globe has indeed been shaken so much by the problem of debt that there is some serious discussion as to how to retain the essential advantages of debt and eliminate the deleterious consequences. In a sense, there is no difference between equity capital and debt capital, in the sense that both involve their own risks. Relatively speaking, however, equity capital is scarcer than debt capital. There is possibility to convert a debt into equity but not the other way. Both are, however, potentially liable for erosion and write-off respectively.

In theory, debt financing is more secure than equity financing. Firstly, debt is usually extended only after equity is mobilized by the promoters/companies. That way, promoters’ stake is considered tied to the fortunes of the company before debt is extended. Debt carries prescribed interest which the company must pay along with a portion of principal as per a pre-agreed schedule before equity investors can be serviced through dividends. Equity investors have few forums to review a company’s performance other than the annual shareholder meetings and analyst reports whereas lenders have the systems of regular reviews with the company management based on regular reporting and institutional interface on prescribed lines, besides having their nominee directors on company boards. Despite all this, the debt sphere is marred by defaults while the equity sphere is buoyed by valuations.

Debt as a bet

Like equity capital, debt is also a bet into the future of a company. However, given the fact that debt is resorted to by companies only when equity capital is no longer available (which means acceptable risk level is reached) and given also that debt is used by companies to expand and diversify more than the means in command of the company would have allowed them to (often to beat the competition), debt tends to be a huge bet for the company which borrows and to the banks and financial institutions which lend. Also, unlike equity which comes in only at measured doses, albeit at a premium, debt tends to be a continuous infusion, either by way of working capital ( based on scale of operations) or by term loans (based on scope of projects).  If proper due diligence and ownership is not exhibited by the company and the bank, collectively it becomes a national economic calamity. That said, there are many good reasons why debt is a desirable bet, particularly for emerging markets such as India.

Firstly, emerging markets need growth far more than the developed nations; debt is the only way to bridge the capital gap. Secondly, emerging markets do not have a strong and healthy equity culture that attracts and channels public and retail savings into productive activity. Thirdly, even when equity flows exist, they are into domains which (are expected to) pay off in the short and medium term, rather than in the long term and perpetuity. Fourthly, banks and financial institutions are an important limb of the economy which need to advance monies to be able to accept deposits; the size of national banks reflects the strength of national economy. Fifthly, debt fulfils a major macroeconomic imperative by smoothening the vicissitudes of equity markets. Overall, therefore, the issue is not whether debt is desirable; the more pertinent issue is how to ensure that debt does not cloud the thinking of companies and lenders, and how debt should not overwhelm and drown companies and lenders.

Indebted responsibility

With debt comes a great responsibility as debt is nothing but public money. When companies and individuals falter on debt repayments, the strength of the lenders is eroded, compromising their ability to support further economic growth. There are, however, a few ways in which debt can be a truly responsible, responsive and motivational lever for economic growth, as discussed below.

Firstly, realistic optimism must prevail. Both the borrowers and lenders must be futuristic in their growth aspirations, and be realistically optimistic. For example, it could take the shape of funding companies that cater to rural demand, Make in India initiatives or start-up dreams, on the basis that these are the directions of progress for India. Past should not be seen as a constraint for the future but should be seen as a provider of corrective lessons.

Secondly, thematic lending must increase. Certain sectors of the economy, notably infrastructure, capital-intensive sectors, and other long gestation businesses such as transportation, steel, healthcare and pharmaceuticals, need thematic financing. Lenders’ capital requirements for such activities must come from special sources such as capital contributions from governments and multilateral agencies, overseas bonds, perpetual bonds, etc., and the repayment from borrowers must synch with the special needs of infrastructure and such other sectors.

Thirdly, lenders must be client-savvy. Lenders cannot assume that their job is fulfilled by review of client project report and extension of a loan. Rather, the lenders should be able to challenge the clients with alternate models. This requires that the lenders have sector-specific technical appraisers (or, at least outsource the activity to expert third parties). Lenders should also have senior corporate leaders who can participate in company boards, and contribute on a peer director basis.

Fourthly, loan products must be tradeable. In the ultimate analysis, and in the long run, in a capitalist economy there can be no better forum to reward performers and punish defaulters than the stock markets. A portion of loans from the banks must, therefore, be issued as convertible and non-convertible debentures to the lenders, in a manner that they are rated by expert agencies and traded on the stock markets. Their performance would sober runaway managements.

Fifthly, and most importantly, debt is a responsibility that companies and lenders have towards the nation. Extension and receipt of loans is not just a commercial transaction merely between the lenders and borrowers. It is a responsibility that they both together owe to the nation. All loans must be productive, repayable and value-accretive.

From the above, it is clear that debt is not a bilateral transaction but is a socio-economic activity with major impact on the behaviour of the economy. This requires a heightened responsibility on the part of the companies on one hand and the banks on the other, with some helpful policy framework from the Ministry of Corporate Affairs, Reserve Bank of India (RBI), and Securities and Exchanges Board of India (SEBI).  The Board of Directors of each company could have a vital role in this process.

Boards as trustees

The Board of Directors of a company is a highly responsible and extremely important body to ensure good corporate governance, to ensure that the operations are run profitably as well as ethically. Over time, the Boards have got more concerned about the operations of the company, returns to the equity investors, and market capitalisation of their firms than about the debt portfolio and the position of lenders. Even under the guidance of corporate governance (Clause 49) or under the prescriptions of the Ministry of Corporate Affairs specific stress is not laid on the management of debt folio as is laid on energy conservation, technology assimilation and R&D. Boards are the trustees of all the monies that flow into a company, and their utilization. It behoves the Boards to lay equal emphasis on management of equity as well as debt. As many times systemic prescriptions are required to ensure such needed changes, the following rules and regulations are suggested.

Firstly, annual reports of companies should be mandated to include a detailed discussion of debt portfolio and strategies to correct debt profile, where required. Secondly, quarterly advertisements in newspapers on the results should incorporate a meaningful notation on the management of debt profile. Thirdly, lenders should nominate senior leaders from their institutions to participate on their behalf as directors on board. Fifthly, there should be a specific board committee dedicated to review the debt profile and debt management of the company and report to the Board in detail. Fifthly, analysts should focus on management of debt as a specific topic in their reviews of companies. Sixthly, there must be a transformation in the mind-set of all involved players that money from banks and financial institutions has enormous cost or value to the economy depending on whether it is improperly or properly deployed and managed. Productive deployment of capital is indeed the primary corporate social responsibility.

Posted by Dr CB Rao on April 25, 2016