Conquering the Chaos: Win in India, Win Everywhere (4 page)

Why is it so hard to avoid the midway trap? Why is it even harder to escape it, once
trapped? The prescriptions for success in India are hardly rocket science, and companies
are filled with extremely bright people. These questions were the most difficult to
answer. As it turns out, they’re fundamentally about corporate mind-sets.

The world is quietly entering a new era or phase of globalization, which is happening
in an unheralded and therefore more dangerous way (I describe the new era in
chapter 9
). With the economies of the developed world in trouble, multinational companies increasingly
have to look for growth in developing markets. So far, what has passed for globalization
is international expansion of companies from the affluent world, growing their presence
across developed countries and then across the developing world. Their success has
come largely from an export-driven approach in which they targeted the affluent in
every country and replicated their products, business models, and management systems
and practices across countries. However, this model of skimming the top has limits.
It is less successful in reaching the next billion emerging middle-class customers
who are far less affluent and who live in countries that, like India, have poor infrastructure,
skill shortages, rampant corruption, and very high volatility and uncertainty.

Cracking this segment requires a new model of globalization that is radically, not
incrementally, different. In a prescient article in
Harvard Business Review
, the late C. K. Prahalad wrote:

When large Western companies rushed to enter emerging markets 20 years ago, they were
guided by a narrow and often arrogant perspective. They tended to see countries like
China and India simply as targets—vast agglomerations of would-be consumers hungry
for modern goods and services. This “corporate imperialism” has distorted the operating,
marketing, and distribution decisions multinationals have made in serving developing
countries. In particular, these companies have tended to gear their products and pitches
to small segments of relatively affluent buyers—those who, not surprisingly, most
resemble the prototypical Western consumer. They have missed, as a result, the very
real opportunity to reach much larger markets further down the socioeconomic pyramid.
Succeeding in these broader markets requires companies to spend time building a deep
and unbiased understanding of the unique characteristics and needs of developing countries
and their peoples. But such time is well spent. Not only will it unlock new sources
of revenue, it will also force big companies to innovate in ways that will benefit
their operations throughout the world.
⁷

However, the mind-set and behavior change that Prahalad refers to is a paradigm shift,
which is, by definition, destabilizing and threatening. Think about the implications
of the new model. The dominant hub-and-spoke architecture of a company with an all-knowing,
all-powerful headquarters instructing and supervising the geographical subsidiaries
gives way to a new architecture of multiple hubs, including China and India, that
is run as real profit-and-loss businesses with significant operating freedom. Innovation
happens not just in product divisions and at headquarters but in geographic areas,
too. Executive leaders don’t just live at headquarters; many operate out of hubs.
The company has to cut investments in the rich, slowing markets of Europe and in product
divisions or strategic business units in order to fund investments in key emerging
markets. It also has to have the patience and tenacity to wait for these investments
to pay back. It has to prioritize markets, not on the basis of revenues but on opportunity.
This requires new capabilities, such as the ability to operate in places that are
corrupt, volatile, and uncertain. The company has to behave with humility, responsibility,
and open-mindedness in all countries. Poor safety and environmental practices, monopolistic
pricing, and the dumping of obsolete or banned products in emerging markets won’t
go unchallenged.

No wonder it’s easier to be an ostrich and simply execute the old model better.

Companies often tread cautiously and reluctantly in markets like India. The reluctance
could prove costly. Many industry leaders could be replaced by smaller competitors
or newer players from emerging markets that embrace the next wave of globalization
faster. Paradigm shifts invariably reorder leadership; incumbent leaders are slower
to adapt than hungry underdogs or new players. Just think of how Apple, Google, and
Samsung have devastated Nokia and Research In Motion and put Microsoft on the defense.
Or going back in time, how Japanese firms challenged Detroit and consumer electronics
giants like GE, Phillips, and Thompson. In a similar way, companies like Samsung,
Hyundai, Cummins, JCB, Nestlé, Schneider Electric, Unilever, and Standard Chartered
Bank are quietly creating new growth engines and unassailable leadership positions
in places like India and paving the way for industry leadership.
⁸

Because the changes we are talking about are deep and affect the DNA and operating
system of companies, to have any chance of success at all, they cannot be delegated
to leaders who operate within rigid frameworks. In most companies, globalization is
the responsibility of a president of sales or a senior vice president for international
business. The mandate of these leaders is simply to grow the business by selling more
stuff around the world. It is not within their remit to challenge the investment process
or the innovation process. The only place where it all comes together is the corner
office, which is why the CEO has to champion the strategy to win in India and other
emerging markets and the board has to explicitly support it. Leadership in emerging
markets becomes a defining choice for today’s CEOs.

The prognosis is not good. Most senior leaders in multinational companies have their
experience base in the developed world; they lack a feel for and understanding of
emerging markets. Many don’t even like emerging markets—noisy, chaotic, corrupt places
that don’t play by Western rules. It’s a tall order to expect a CEO who brings his
or her familiar food on the corporate jet to see the potential of these markets.

CEO tenures are also declining. According to a recent Conference Board survey, tenures
are now shorter than seven years. Very often, building leadership in India can take
a decade. It’s a rare CEO who is willing to pay the price by investing on his or her
watch, knowing that the credit might well go to a successor.

Obsession with China at the expense of India is another major issue. While every CEO
acknowledges that it’s all about China and India, the reality is that the rise of
China has caused many CEOs to overlook India. In the short term, China looks like
a much greater opportunity. However, a comparison of the profitability of foreign
companies in China and India suggests that on a risk-adjusted basis, the differences
may not be quite as large.

To be fair to today’s CEOs, they have an incredibly tough job, with the world’s major
economies in trouble, more regulatory challenges, more competition, more pressure
from Wall Street, and so on. In the middle of all that, we are asking them to prioritize
winning in emerging markets, with India as a lead market, at a time when India is
presenting itself in a spectacularly poor light.

CEO commitment is the starting point. In India, winning requires a very different
business leader—an entrepreneurial general manager rather than a salesperson and,
ideally, a senior and trusted insider with credibility and influence. It requires
a different organizational structure or model, where India is managed like a geographic
profit center, with the ability to make important operating decisions without enormous
negotiations and persuasion. It needs a willingness to make long-term investments
in developing capabilities on the ground and the willingness to sustain these through
the inevitable vicissitudes. Therefore, escaping the midway trap requires the commitment
of the entire leadership of the company to pull multiple levers before the whole organization
flips to a new high-growth trajectory.

In the rest of the book, I will delve into issues that determine a company’s success
in India. The single most important determinant of success over time is the choice
of the country manager. What is the role of the country manager in India? Why is it
different from that of the country manager of, say, Germany? What kind of person should
be in the role? I discuss these issues in
chapter 3
.

What kind of an operating model do you need to be successful in India? How do you
achieve speed without taking undue risks? What is the new role of headquarters? Are
there any principles for strategy that are common across industries and companies?
How do you get the whole organization aligned behind a strategy for India? These are
the topics in
chapter 4
.

In
chapter 5
, I discuss how to build the leadership and organizational capabilities to succeed,
and why that is so hard for most companies. I will also describe some best practices.

Chapter 6
is devoted to India as a lab for innovation. Why is that critical? How hard is it?
Who is doing it well? What can we learn from these companies?

In
chapter 7
, I cover questions about joint ventures and acquisitions. After analyzing why they
have a bad reputation, we will find out what we can learn from companies that are
good at JVs and acquisitions.

Chapter 8
is all about developing the resilience to deal with corruption and cope with chaos.

In
chapter 9
, the focus is on the role of the global CEO. Why do you need a globalizer and how
do you identify this archetype? What do the most successful globalizers do to ensure
leadership in India and China?

And, finally, in
chapter 10
, I will show how companies that are winning in India are learning to use the capabilities
they have developed there to break into several emerging markets.

• With the exception of a few industries, India is strategically vital for most MNCs.
  Despite many challenges, India’s fundamentals will likely make India one of the largest
  markets worldwide in the next two decades. With China and Brazil already emerging,
  India may be the last giant market where an MNC can still aspire to build a dominant
  position. Even more important, India represents many emerging markets, both in consumer
  behaviors and market structure and in challenges such as corruption, uncertainty,
  and poor infrastructure. Winning in India becomes a test of a company’s ability to
  succeed in emerging markets. India, with China, should be a hub or platform of products,
  talent, and capabilities for serving other emerging markets that lack the scale and
  capability.
  
• The biggest determinant of a company’s success in India is CEO commitment and engagement.
  Succeeding in India requires that companies think, organize, and operate very differently
  than they currently do. This is not an incremental shift. It represents a paradigm
  shift that requires a fundamental reprogramming of mind-sets, operating routines and
  the governance model, new capabilities, and different leadership. It therefore needs
  the CEO’s hands-on leadership; change management cannot be delegated to roles such
  as the head of sales or the president of international business.
  
• Deciding to look past the chaos and challenges of India and build a leadership position
  in what is or will be one of the world’s largest markets is a defining choice for
  boards and CEOs.
  
• In the absence of commitment, companies frequently fall into the midway trap, where
  they can grow no faster than the industry average and are restricted to the tiny premium
  segment at the top of the market. They end up in the 1 percent heap, where India continues
  to contribute just 1 percent of global revenues and the company has an irrelevant
  1 percent (or low single-digit) share of one of the largest markets in the world.
  Catching up once the market takes off will be expensive, since both foreign and Indian
  competitors will likely have built up entrenched leadership positions.
  

I cannot emphasize enough getting the right leadership in India. The only time we
have made progress is when we had the right set of Indian leaders in the top jobs,
fully aligned with our strategy. Anything less resulted in chaos or drift.

—TIM SOLSO, FORMER CHAIRMAN AND CEO, CUMMINS INC.

Match the profile to the job. This sounds obvious, but it isn’t. A company’s journey
in India usually proceeds through several distinct phases. The first is when the company
enters the market. The mission is incubation. The priorities are to establish a sales
and marketing organization, distribution channels, and channel partners; achieve a
basic level of localization of the product; and put in the basic infrastructure and
functional processes and controls. The strategy at this phase is often simple: sell
global products at global prices to the affluent global segment. Since the capabilities
on the ground are limited, the support and oversight of a mature regional organization,
typically in Singapore or Hong Kong, are vital.

The likely profile of the country leader for this mission is a young, driven, high-potential,
sales-oriented leader of high integrity, unfazed by ambiguity and strong in execution,
who can be developed over time into a competent general manager. A country head who
is Indian, with knowledge of the market and Indian business practices, is a big advantage
at this stage.

The leadership challenge emerges when the company has drifted into the midway trap
that I described in the previous chapter and has to play catch-up or when it senses
a bigger opportunity. Many companies currently confront this dilemma. To identify
the right leaders, they need to learn from companies in India that have successfully
made the transition to the second phase, such as Samsung, Pepsi, JCB, Nokia, Cummins,
GE, Nestlé, and Schneider Electric.

The mission at this phase, to build leadership in the large but challenging middle
market, is not easy. It is a very different game. Companies have to become local in
their operations and act much more like an Indian company, but still leverage global
brands, platforms, capabilities, and resources. The country leader’s challenge is
to be ambidextrous: execute the top of the pyramid model and entrepreneurially grow
in the middle market at the same time.

Over the past two years, I have studied several country managers who have led the
charge. For instance, Vipin Sondhi has led a transformation at JCB, the dominant player
in the Indian construction equipment industry, since 2005. GE India’s John Flannery
is leading the company out of the midway trap. Schneider Electric’s Olivier Blum has
overseen growth catalyzed by five acquisitions and a joint venture that have created
multiple brands, thirty-one factories, one thousand engineers, and seventeen thousand
employees in five short years. And Nokia’s D. Shivakumar was instrumental in the company’s
gain of a dominant 60 percent share of the Indian mobile handset market between 2004
and 2008 (although Nokia has subsequently lost share due to a combination of global
factors).

The distinguishing characteristic of all such leaders is that they are trusted, senior,
entrepreneurial, and general managers, not midlevel sales managers or functional leaders.
They are, of course, good at execution; you have to be good at execution to deliver
budgets and results predictably, despite the volatility of India. Therefore, they
lead from the front and drive their teams hard. Through personal example and emotional
connection, they inspire people to stretch, strive, and excel. They have a sense of
urgency, drive accountability, and make decisions quickly. They have a low tolerance
for bureaucracy and keep things simple. They have a strong sense about what things
really matter and stay ruthlessly focused on them despite the many distractions.

However, good country managers are more than execution geniuses. They operate like
general managers, not functional leaders. They have an end-to-end view of the business
and think not just about sales, but also the balance sheet and the bottom line, about
investments, revenues, expenses, margins, cash flow, and returns. They balance short-run
priorities with medium- and long-term ones rather than worrying only about the quarter.
They are acutely aware that short-term results are vital to bootstrap commitment and
investments, but pay attention to longer-term priorities such as growing talent and
organizational capabilities as well.

These leaders have the ability to sense and paint a picture of the massive opportunity
in India. This is not the usual macroeconomic description of India with hackneyed
phrases, like the “demographic dividend,” but a granular view of where the growth
lies: which segments, which accounts, what channels, what partnerships, and what changes
are needed in the global operating and business models to succeed in this market.
These CEOs are effective in persuading corporate stakeholders to allow experimentation
that demonstrates proof of concept: a small acquisition, a new product, a regional
success. They use these first wins to earn confidence and set off a spiral of investment,
empowerment, and growth. In that sense, they operate not unlike a venture-backed start-up
in the context of a large company.

A transformational deal or opportunity is sometimes more effective than a strategic
plan in getting headquarters’ attention. “Bring me a deal I can get excited about
rather than a strategy,” Kevin Johnson, my boss at Microsoft and now CEO of Juniper
Networks, once advised me. His advice was sound; entrepreneurial country managers
should be able to bring such a game-changing deal to the table. To do this, they have
to understand the market from a customer’s perspective, have an end-to-end understanding
of the company’s offerings, possess entrepreneurial flair and the ability to sell
ideas internally as well as externally, and lead global teams by influence rather
than authority. Shane Tedjarati, Honeywell’s president for all high-growth markets,
explains that in China and India, game-changing opportunities often present themselves
in unique ways: they are without precedent and cut across a company’s offerings. The
country manager has to be creative in packaging the company’s offerings and capabilities
into a winning proposal. Imagine the opportunity for the IBM India head in 2003 when
one of the world’s largest mobile cellular network operators, Bharti Airtel, told
him that it wanted to outsource its entire IT infrastructure, but expected the winning
vendor to enter into a long-term partnership, invest hundreds of millions of dollars,
share risks, and be prepared to earn a fraction of a cent for a minute of talk time!

In those situations, a country manager has to assemble a cross-functional, cross-business
unit team, imaginatively structure a proposal, identify risks, and sell the idea to
diverse stakeholders in the company, while racing against aggressive rivals. The stakes
are high; such a deal sets a precedent, and the winner takes many of the subsequent
contracts by leveraging its experience. IBM India, for instance, has won eight out
of ten outsourcing contracts in India on the back of its Airtel deal.

Meanwhile, the country manager in India has to deal with large gaps in people’s capabilities.
His or her counterpart in the United Kingdom would likely have a seasoned team, with
depth in marketing and supply chain management as well as leaders who can manage a
$100 million business without too much hand-holding. This is not be the case in India,
where, because of the lack of seasoned talent, the country manager has to be much
more versatile and hands-on, and understand nearly every function. He or she also
has to spend a disproportionate amount of time and effort on building a strong leadership
team and a capable organization. Successful country managers prioritize this above
all else, especially in the first three years of their tenure. As Tedjarati puts it,
“I pulled one lever more than anything else, and that was the people lever. Above
all, I was the company’s Chief People Officer.”

The final element in the profile of a country manager is trust. The physical and cultural
distance of the headquarters from India and the high levels of corruption in the country,
coupled with the need to operate differently in India, put a premium on trust. Trust
has several dimensions. At the most basic, given the risk of corruption and fraud
in India, the country manager must be a person of impeccable honesty and integrity.
A second aspect is good judgment; many situations that arise require an immediate
response based on sound common sense. These decisions can’t be made in Singapore or
Paris. The company has to be able to count on the country head to do the right thing
in every circumstance. Third, as Tim Solso of Cummins says, trust means knowing that
the country manager is implementing the global strategy and isn’t pursuing a different
agenda. Finally, there must be confidence in the country manager’s ability to execute
well. There are many advantages to having a senior leader with a track record in the
company and a network, who wields respect, influence, and authority at headquarters.
For instance, Nestlé’s Helio Waszyk ran an R&D center in Vevey before moving to India.
His ability to walk into the CEO’s office and argue the need to set up an R&D center
in India gives him an edge over even exceptional outsiders. Similarly, in selecting
senior GE veteran John Flannery to head the business in India, Jeff Immelt explained
that “it is absolutely necessary that the leader of our new organization [in India]
has an outstanding track record in the company.”

At the same time, a perpetual dependence on expats at the top isn’t healthy. French,
South Korean, and Japanese companies in particular seem reluctant to trust Indians
for the top job. That could become problematic; LG and Samsung have found it hard
to attract Indian talent, and Suzuki doesn’t have a single Indian on its executive
board, leading to speculation that some of its recent labor problems may have cultural
roots. Solso agrees: “One mistake was too many expats at certain times in our history.
They did serious damage because they did not have a clue as to what was going on from
both a business perspective as well as culturally. I would emphasize a limited number
of expats and not in the top job; everyone knows they will go back to their country
of origin and will wait them out.” Thus, the top priority, as the success of companies
like Cummins, Unilever, Bosch, and Standard Chartered in India suggests, must be to
grow a no-compromise leader who both is a trusted insider and understands India.

Some companies experiment with an interesting profile: a country chairperson who is
a weak overlay over the business and largely plays an ambassadorial role. However,
statesmanship and ambassadors are best left to the realm of diplomacy. These roles
are a legacy of an era that no longer exists. GE tried the model over the past decade
with limited success and finally abandoned it. A ceremonial role, with no accountability
for the business and the responsibility only for engaging government, industry associations,
and other CEOs, is usually not effective. Everyone—employees, customers, business
partners, government officials—will quickly see this role for what it is and dismiss
the person as lightweight. This does disservice to the incumbent and the role.

The ambassadorial country manager who smells opportunity, but is powerless to act,
can become intensely frustrated. Increasingly, the connections among strategy and
execution, business, reputation, and regulation are tightening, so an artificial separation
of these functions is suboptimal. Bringing accountability for these together in a
single leader is vital for growing competent and well-rounded business leaders, who
are capable of even being the CEO someday.

If the business does require wise counsel, access, and influence and a senior public
face, a strong advisory board headed by an iconic leader who serves as a nonexecutive
chairperson may be a more prudent approach. We followed this model at Microsoft India
with considerable success; the approach is gaining popularity at companies like Coca-Cola,
Schneider Electric, and JCB.

In 2010, I had to accept the fact that I had made a major hiring mistake. I was disappointed
because everyone had had huge hopes for this high-profile hire, an incredibly accomplished
and successful person. I was personally responsible for hiring this leader and had
followed a textbook process, yet the outcome had turned out to be poor. It forced
me to look back at my record of promoting and hiring senior leaders, including several
country heads.

On one hand, I had helped develop at least twenty-five leaders who were either CEOs
or running major divisions of companies in India by then. However, my batting average
with senior hires was only 50 percent. I was clearly better at growing than hiring
top executives, so I decided to work on my hiring ability by reflecting on my own
decisions, by talking to the best executive recruiters in the world, and by interviewing
a few leaders and leadership gurus. My aim was not to develop a robust new leadership
model; plenty exist.
¹
Nor was it to propose a comprehensive new approach to executive recruitment. My objective
was to see if some attributes correlated highly with the success of senior leaders
in India. I eventually identified five attributes that make a difference. Being rigorous
about these when hiring has made an enormous difference to my success in recruiting
senior leaders.

When hiring senior business leaders such as country managers, it is common practice
to use a standard set of competencies. The list is usually long and includes familiar
attributes such as drive for results, execution ability, strategic thinking, customer
centricity, business acumen, and people and team leadership. These may all good things
to look for, but I have found that paying attention to three traits (courage, higher
ambition, and entrepreneurship) and two competencies (learning agility and people
skills) greatly improved my own record. Let me explain.