Innovate, Restructure, Reorganize Essay

Innovate, restructure, and reorganize: challenges before India Inc

BY: MUKESH KUMAR SINGH RAKESH DALAL

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ARMY INSTITUTE OF MANAGEMENT KOLKATA Since independence India Inc has come a long way. There have been a lot of reforms along the way, for betterment of the industrial sector and the nation. Especially since the reforms of 1991, the industrial development of the country got the momentum. It continued to grow by leaps and bounds till the world was hit by recession in 2008. Although the impact in India was not as severe as the rest of the world, there were important lessons in it for India Inc.

One of the most important of these is innovation. Although, Indian companies have created breakthrough innovations in the past, for example ITC’s e-choupal, Mumbai’s dabbawallas’ supply chain revolution and Tata motors Rs. 1 lakh car, more needs to be done. Indian companies must overcome two important management obstacles in order to promote largescale

breakthrough

measurement

innovations.

systems

need

to

First, be

the

changed,

internal like

performance

hold

managers

accountable for learning rather than for results. Secondly, there exist thick walls between functions and business units. For a healthy innovative environment, there has to be a seamless collaboration across products, functions and business units. India’s true competency is her talent base. With the right mindset, Indian corporations can unleash this huge force.

The next challenge lies in the management of services differently from factories. The service-centric organisations need to restructure and invert the pyramid of the organisation. In traditional organisations, the CEO is at the top, followed by the vice-presidents, then the senior managers and soon. In services, business depends on the frontline employee. Therefore, the people in touch with the customers should form the topline and the rest of the organisation should work towards supporting them.

There is also a change required in the marketing-distribution aspect. As the balance of power shifts from the manufacturer to the retailer, a change in the attitude towards the retailer has become imperative. The retailer 2

should be treated as a customer and not as a problem. Today, the traditional methods of market segmentation may prove futile as the market will be segmented on the basis of retailer patronage. The marketing need to be more pull-oriented, in terms of branding, advertising, sales-promotion. Also the advent of organised retail needs to be given attention. FMCG companies will be forced to rethink core strategies. Now their buyers will be players who may be more powerful than the companies themselves. Also, new means of advertising will emerge, in the form of cell phones etc. companies will need to upgrade their abilities to meet the requirements of the new media.

The service providers will need to differentiate between the customer behaviour for services and products. In case of products, each purchase is a separate transaction and customer loyalties can waver. On the other hand with services, if a customer is satisfied the first time, he usually does not change the service provider. Marketers will need to pay attention to the first interaction itself. In the B2B world, the biggest challenge will be to give value in the face of tremendous price pressure. Firms will have to sell solutions instead of simply selling products. Selling solutions is about making the customer’s life easier by taking on a greater part of the process. By cross-selling products and services as an integrated process, manufacturers can expand the value-added market. A good service provider works with his customer to understand their problems and then provides customised solutions. Also the coming battle is for the 86% of world’s population who are citizens of countries with per capita GNP of under $10,000. Finding the right products and the right strategies to appeal to this emerging consuming class is the challenge. Companies will have to come up with products and services that leapfrog over the lack of basic amenities like water, electricity and hygiene, among others. To their advantage, Indian companies are already coming up with products that would suet such 3

markets. The advantage Indian companies have is that none of these problems is new and surprises them. They are used to dealing with them and dealing with diverse cultures. Then there is the much known but rarely practiced issue of quality. Indian companies need to make sure that quality becomes everybody’s business. The current trend is that the senior management in most companies tend to believe that quality is the responsibility of the people in the quality department. Although, there are several ISO – 9000 certified companies and companies that are practising six sigma, but in reality, it is just a small group in these companies that are actually conversant with the quality issue. Three steps can help make employees quality conscious. First, emphasise the need to listen to customers. Customers include not only the final consumers but also their colleagues and co-workers. Then comes enrichment and continuous improvement. Organizations should strive for continually improving the quality of their products and services. The third step is optimisation – do it right the first time. Companies should take time to develop products and processes but they should be perfect in the first go itself. Insufficient infrastructure has been a handicap for India Inc for a long time. Roads, ports and rail are the most important means of transportation. Poor quality and insufficient means of transportation infrastructure is the issue that requires urgent attention. Good quality infrastructure would ensure significantly reduced travel time, less pollution, more labour hours, etc. The government has already taken many measures. But these have to be strengthened further. The most important aspect is to have balanced development across the country. There is an immediate need to standardise the roads in the country. Government must ensure that projects are viable and attract private and foreign investment. Also, the current policy measures need to be addressed, which include availability of funds at cheaper interest rates, liberal fiscal and tax incentives. The government should continue to invest and deliver sustained transport investment, along with the private sector.

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The shipping industry is one of the oldest industries in the world. Development of this industry in India has not kept pace with that of the nation, which has resulted in a gap between the quality and quantity demanded and that supplied. Although budget 2009 was silent on the shipping sector, the government has encouraged the sector through building ports, ushering in privatisation and announcing substantial investments to the tune of

Rs.55,000 crore in various projects. The

government has also launched the National Maritime Development Programme with an investment of more than Rs.1 lakh crore to improve the traffic-handling capacity of all major ports. New ports through publicprivate partnerships like port Pipavav are also coming up fast. What will truly make ports efficient is the evacuation of cargo on land and, therefore, the infrastructure support on land. A port requires an efficient network of roads and railways in order to be successful. Ports, roads and railways have a symbiotic relationship. Without the last two, the first cannot survive. Also in order to take the pressure off the road and rail transport the government should take active measures to promote coastal shipping. Coastal shipping also has the advantage of being environment-friendly. Another major hurdle facing India Inc is power. Business and industry look for adequate, reliable and quality power at affordable cost. Today India’s power demand is about 1,07,000 MW, while the availability is 94,000 MW. That leaves a shortage of 12%. The demand is expected to rise further to 153000 MW by the end of the 11th plan. To meet this surge, the government has envisioned a capacity addition target of over 78,000 MW for the 11th plan of which 16000 MW has already been commissioned. We must also encourage competition in domestic equipment manufacturing. BHEL has been able to supply only about 5000 MW equipment a year. It is inadequate. We must find space for more players. More competition means lower prices, better delivery and quality. Coal will continue to be our mainstay for fuel owing to domestic availability. But coal alone will not be sufficient and viable in the long run. Therefore research for new and cleaner technologies and fuels must be undertaken simultaneously. Plus there has been entry of big private sector firms in the sector which gives hope that the future is promising. 5

India Inc has been haunted by red-tapism and bureaucracy since independence. Moreover even after more than two decades of economic liberalisation, India still does not have a ‘single-window’ clearance for businesses. Currently, no less than 11-13 approvals, eight from the centre alone, are required to start a business. Because of the multiplicity of approving authorities and absence of single-point ownership, often one has to traverse a labyrinth of documents and government corridors to get approvals. As a result, India now has sectoral variances: although there far more

opportunities

in

production,

manufacturing

and

construction,

investors find agriculture and the services sector easier to work with. Bureaucracy in India has simply not kept pace with the changes in technology, business practices and globalisation. Corruption has become the trademark of India. It adds one more layer to doing business in India. Business organisations have to pay bribes at every level in almost all government offices, which adds to their costs and hence the price of their products. To counter corruption a handful of public sector companies – including ONGC, SAIL, NTPC, BHEL are signing integrity pacts with their vendors. This document is signed in consultation with the central vigilance commission (CVC). Despite government initiatives corruption has not come down. The main reason for this is the cumbersome legal process that provides a cushion to the corrupt. One of the solutions can be to have a strict time limit of about six months within which any court should produce verdict in a corruption case. Also, the number of appeals in a case should also be limited to one. Another solution can be technology, for example, online railway bookings. Technology can help minimise corruption in the country. Government should take steps to automate as many government services as possible. Incentives should be given to encourage the citizens to not indulge in bribing the government officials and hence reinforcing corruption in the society. Stringent Labour laws have been a cause of unease for a long time. Human resources are currently India’s greatest asset, and form the 6

foundation of our rapid growth process. India’s labour laws must be geared towards unleashing the potential of its huge latent talent and providing each worker dignity of work, sufficient and rising income, and social security. According to the National Sample Survey Organisation (NSSO), total employment in both the organised and the unorganised sectors is 397 Mn, of which about 7% is in the organised sector. For the remaining workers, there were no social security or welfare legislations until the unorganised workers social security act of 2008. At present around 45 labour lows are applicable to the organised sector at the national level and 200 at the state level. The major concern of industrial enterprises regarding labour laws relates to inflexibility in retrenchment of workers and closure of enterprises with 100 workers or more under the industrial disputes act 1947. There are several consequences of such restrictive labour regulations in India. Primarily, they could be a key reason that organised sector employment has stagnated or declined over the years. Secondly, the model of economic growth in India may have altered due to labour

legislation.

While

most

economies

shifted

from

agricultural

dominance to mass manufacturing and then to service sector, India has attained a sectoral GDP break-up in which the services sector is predominant. Third, India has missed out on the mass manufacturing boom experienced by other developing countries such as Korea and china. Fourth, FDI is discouraged by the stringent labour laws. So simplification of labour laws is vital, as is streamlining of inspections and compliance. The direct tax policies of the government have been an issue for a long time. A stable, fair and equitable direct tax system is a fundamental requirement of India Inc. The government has now introduced the new direct tax code to bring about a structural change in our tax system. India Inc still has its wishlist; foremost in which is consistency in tax policies. Frequent changes in tax laws impact the business plans of several companies. As Indian businesses become more global, there arises a definite need for the tax system to get more integrated with global tax systems. The govt has taken several steps in this direction, such as the introduction of transfer pricing regulations. However, much needs to be done. A system that is stable, fair and equitable, has moderate rates,

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focuses on better compliance, stimulates growth and channellises investments into priority sectors is what should be put in place. Yet another hindrance facing India Inc is the deficiency of industry-ready workforce. The Unemployable graduate labour force is partly motivated by the employers’ concern of keeping the wage cost low so that they remain nationally competitive. In the short term, local and global sourcing attends to the problem of particular firms. Long-term solutions come through investments in institutions that map demand and supply of diverse skills and skill-sets in a region, assess gaps and overlaps in skill development, and provide directions to various private and public agencies that are engaged in techno-vocational educational and training activities. Despite growing investment in education, impressive increase in degreegranting colleges and increase in annual student intakes, the results have not been satisfactory owing to severe shortage of quality teaching staff. It tis high time that the industry comes forward to create institutions that train teachers. While the recently passed right to education bill is expected to improve the quality of skill sets in students, but focus should more on improving the quality of the teachers which will be more helpful in the long run. Another important challenge facing India Inc is excessive political interference in virtually every aspect of their working domain. The latest example of this being the pull out of Tatas from Singur. This caused heavy losses to the company as well as the development of the area and the state. If such incidents continue to happen, firms will be reluctant to expand their operations fearing wastage of time, capital and resources. This will inturn result in concentration of industries in particular regions and also raise income inequality in the nation. Such events not only have economic costs but social costs as well. The government must take steps to ensure that such events do not recur. In the end it can be safely concluded that India Inc has got what it takes to be the best, but with the ever changing dynamics of the business world,

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India inc needs to innovate, restructure, and reorganize with the times to compete more effectively and prove their mettle at the global level.

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REFERENCES

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Wikipedia.com

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Businessworld

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Google.com

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