Conquering the Chaos: Win in India, Win Everywhere (8 page)

One recent trend is to have global roles in India. For instance, Honeywell’s global
head of manufacturing and engineering and Dell’s global head of services operate out
of Bangalore. Cummins India’s chairperson is the global head of the components business;
Reckitt Benckiser India has responsibility for Southeast Asia; and at Schneider Electric,
the CEO and a third of the leadership team have moved to Hong Kong to be closer to
Asia. Such shifts in the flow of people promote greater understanding and integration.
It’s easier to attract talented executives when they don’t have to leave India to
grow. The CEO sleeps easy at night knowing there are people sensing problems and opportunities
that the system might take a long time to detect. This is part of the multinational
company’s evolution from the hub-and-spoke model to having a small headquarters and
multiple hubs with national and global missions.

The East India Company, established in 1600 AD, was the first modern multinational,
a pioneer of many governance systems and approaches. From a small headquarters building,
a tiny staff administered a sprawling global empire. A few thousand Englishmen with
a median age of thirty managed to rule a nation of 250 million people in India. Communications
were usually dispatches sent by horse and ship; a response to a question would take
a minimum of six months. Micromanagement, the way we know it, was impossible.

How did the company men do it?
⁶
The answer lies in trust-based governance and accountability. London refined a process
to hire prodigiously gifted, entrepreneurial, frequently aristocratic young men, ensured
they had a fine education at the company’s college in Haileybury, and sent them to
India with a sense of mission. The governor-general and district collectors were trusted
employees who enjoyed tremendous responsibility and freedom.

Modern multinationals would do well to emulate some (though not all) of the East India
Company’s practices. The crux is to move from control to trust with accountability.
Many companies make decisions of very modest consequence outside India. As several
country managers admitted to me, “We can’t buy even a pencil without HQ approval.
Pricing discounts, hiring three people, investing $10,000, leasing a building, negotiating
hotel tariffs … every decision requires the approval of someone outside India.” It’s
demotivating. In addition, every little decision involves marketing, wasting time,
and distracting people from serving customers and creating value. Holding leaders
accountable for performance becomes harder; after all, someone else made the decisions.
Performance suffers.

As countries grow in size and importance, decision rights are seldom recalibrated.
Regional headquarters continue to treat India like Vietnam. This is particularly true
if there is a large staff; the armies of bright people need work, so questioning even
modest decisions becomes part of the standard operating routine. A culture of distrust
also plays a role; if you don’t understand these markets and don’t have a leadership
team you trust, micromanagement will be necessary.

The more optimal way of balancing empowerment with good governance is to move from
control to accountability. You do that by appointing a country manager in India whose
ethics, judgment, and alignment you trust, as I described in
chapter 3
. Then you create a new empowerment framework from a clean sheet of paper by asking
not what decisions India can make, but rather what decisions India can’t unilaterally
make. The exception-based approach is important to unlock entrepreneurship. At McDonald’s,
which works with fiercely independent franchisees, the agreement covers just a few
areas where franchisees cannot unilaterally make decisions; they have total freedom
in everything else. That’s how McDonald’s unlocks entrepreneurship.

I vividly recollect my conversations with J. S. Shin, the president of Samsung Electronics
India. He struggled to comprehend the question about empowerment. Finally, he said:
“For some decisions, such as building a new factory, I must consult my colleagues
in South Korea. Otherwise, 99 percent of the decisions are taken in Delhi.” Samsung
is able to operate like that because Shin is a thirty-year company veteran who previously
headed global marketing for the digital appliances division. With Samsung growing
in India at over 50 percent a year on a base of $5 billion, it isn’t possible to micromanage
the business from Seoul. Similarly, no one manages GE India’s Flannery or his head
count; he doesn’t have to ask for permission if he needs to hire fifty salespeople.
He has a kitty of $250 million to invest in market opportunities at his discretion.

Even Walmart, a company associated with strong centralization in Bentonville, Arkansas,
has a principle of delegating authority closest to the customer to allow the greatest
flexibility and speed of response. It does this using an approach called Freedom within
a Box, which maximizes a country’s or a store’s decision-making authority and flexibility.
The idea is simply to maximize the number of decisions that the local team can make
and to have a framework to work out how the rest are decided. In fact, joint ventures
and listed subsidiaries are helpful in localizing a business because joint-venture
agreements require that its management team and board of directors make most of the
operating decisions locally.

One company that I grew to admire while writing this book is JCB, the plucky construction
equipment maker from England’s Midlands. Despite the deindustrialization of the United
Kingdom, the company is thriving, with a manufacturing base in the heart of the country.
It has decisively beaten Goliaths like Caterpillar and Komatsu in India and gained
global market share in its industry. On the face of it, the reasons are simple. The
controlling family member, Sir Anthony Bamford, took a long-term view of the market
and made early investments in getting the right product, localizing it, and establishing
a low-cost supply chain and a superb dealer network. When the market took off after
2005, JCB was ready to seize the opportunity, and business exploded. A long-term view
of the market was rewarded by good luck. Or was it really so simple?

Among other things, JCB’s corporate culture may have played a key role. To illustrate
this point, here are some snippets from my conversation with Sir Anthony Bamford.

Reflecting on JCB’s great success in India, Sir Anthony says:

Luck played a big role in our success. I liked India. I traveled through India as
a young man with long hair and just loved it. I always had a high opinion of Indian
managers and engineers. I decided we must be there even though my father (founder
JC Bamford) disagreed strongly. Obviously I had no idea that India would grow in this
way though … you couldn’t tell it was going to happen in that way.

On his basic philosophy:

I hated companies that would try to sell in India what they could no longer sell here
and send over their old tooling. I wanted India to always have the best of everything.
Not old products or old machines. My fondest desire is for the best products to come
out of our Indian factories with the best quality and cost … we very much believe
in running the business with Indians … we can’t run India from here, so we put in
place the best management team we could find. We have very few expats except where
technical expertise is critical. This helped us when India started to grow rapidly.

On the relationship between HQ and India:

I am very opposed to hierarchy and a class system … I think it is wrong. I don’t like
us versus them. I hated imperialism of any sort and took extra precautions to beat
it out. We work hard on the culture of how we at HQ work with India. I told our team
here (in HQ), “Put India in front not behind … we exist to help India be successful.”
If I see a manager who isn’t handling things very well (i.e., being unhelpful to India),
I will do something about it. I would do the same with any of our Indian managers
… I message down what is appropriate by demonstration and reinforcement. We have tried
to encourage a culture that is eager to share and hungry to learn and with large numbers
of people going back and forth.

On how JCB has benefited from its operations in India:

You give an idea to India and it comes back even better. We have learned more from
India than we have taught India. We have our best dealer body in the world in India
and it has forced us to evolve our franchise discipline, it has changed how we approach
dealers and we can apply this in other parts of the world. We ensured our Indian colleagues
understood how much we learn from them … it’s critical to make this learning a two-way
not one-way process. India is now a very significant part of our business so by right
they have a place at the top table … In all our groupwide communication I make sure
people understand how important India is to JCB. In the darkest time in 2009–2010,
I made no bones about the fact that India was paying our wages.

Finally, thoughts on the future of India:

Some of my colleagues from British industry still feel it’s risky going to India because
they had a bad experience twenty years ago … Look, we have had many problems on the
way but we always took a long-term view and things worked out very well. It was always
start-stop rather than any real problems. Honestly I can’t see anything that would
stop me from investing in India. India is a frustrating place, always five steps forward
and two or three steps back but always upwards.

Like proud parents, the chairman, CEO, and executive team at JCB are keen to see the
Indian company grow into a capable adult surpassing the parent. They see the role
of headquarters as supporting and assisting the team, they encourage collaboration
and learning, and they discourage talking down to the Indian subsidiary. Simplicity
and urgency are two key themes the family emphasizes. In addition to a consistent
long-term view of the business, there is humility and empathy.

Contrast this with the culture of many multinational companies. The task of building
leadership is usually delegated to the head of international sales. All countries
are treated the same, irrespective of opportunity, and senior leaders have little
understanding of India. There’s a clear us-versus-them mentality, with headquarters
staff either telling the subsidiaries what to do or sitting in judgment on them, but
seldom lending a helping hand. In particular, there are middle managers in functions
like finance, legal, taxation, real estate, heath, safety, and environment mandated
to avoid risk. They use their power to thwart rather than to facilitate business and
make things happen. Country managers in India have many stories to recount. Time to
transfer a real estate lease from one division to another? One year. Time to approve
the purchase of a piece of land after the global CEO has given permission to proceed?
One year. Time for headquarters to approve a contract after two CEOs have shaken hands
on a deal? Three months. Time to hire a director-level person? Three months, because
of the travel schedules of the people outside India who need to interview the candidate.
During one of our conversations, Walmart’s Scott Price remarked that companies that
were stovepipes—that is, they had strong silos and fiefs, had the largest headquarters,
the strongest staff functions, and were the most centralized and inward looking—and
faced the greatest challenge in markets different from their home country. I found
this to be empirically accurate.

Culture trumps strategy when it comes to globalization. Executives of multinational
companies must shape the cultures of their companies through personal example and
reinforcement of behaviors. In particular, they should promote significant flows of
people back and forth between headquarters and key geographies for projects and assignments
of less than a year. Those are easier to accomplish without being tangled up in global
levels, compensation, family-relocation policies, and so on. They must keep headquarters
lean and promote a culture of simplicity, with fewer of everything: fewer meetings,
metrics, reviews, PowerPoint slides, and executive visits.

The role of the corporate center must be reshaped, too. That doesn’t mean turning
over the keys of the kingdom to the local team. The role of the center, beyond governance,
lies in ensuring that the power of the global network is leveraged to win in every
market. It must help transfer global expertise, best practices, talent, and products
to India in support of a locally relevant plan. Conversely, it must leverage Indian
talent and expertise, locally developed products, and Indian suppliers to win in other
emerging markets.

• To succeed in dynamic markets with large opportunity, companies need to modify their
  operating models so that there is a better balance between local responsiveness and
  global standardization. The ability to respond quickly to customer opportunities,
  market shifts, and competitors’ moves is important.
  
• Four things enable speed in a sprawling company:
  
  1. Getting everyone—functions, product units, and customer segments—aligned and accountable
     for executing a multiyear plan for transformational growth in India. The responsibility
     lies largely between the country manager and the global CEO. Once such agreement exists,
     even bureaucratic companies can execute well.
     
  2. The governance model has to move from control to trust with accountability. It should
     be a conscious endeavor to maximize the number of decisions within the country and
     have explicit agreement on what few decisions need consultation or approval.
     
  3. Although it may be controversial, create an in-country organizational structure where
     everyone who is responsible for driving growth and market share reports into the country
     manager. Reporting locally to a senior manager with bottom-line accountability for
     the India business facilitates agility, ownership, and accountability.
     
  4. Culture plays an important role. Simplicity, humility, openness, a lean headquarters,
     and two-way flows of people are critical to building a culture that supports emerging
     markets.