Conquering the Chaos: Win in India, Win Everywhere (11 page)

Many executives believe that because there are profound cultural differences, managing
in India takes different skills and approaches. In my experience, there’s no distinctive
“India Way” that yields magical results. All it takes is focus, discipline, and a
long-term commitment to becoming a talent factory. Hold leaders accountable for growing
leaders, take big bets on young stars, invest strategically in developing important
capabilities, hire a courageous leader to be the HR partner to the business, and the
sputtering talent engine will roar to life. Anything short of that and the results
will be disappointing.

In “Why Globalization Will Revolutionize Talent Management,” Nitin Nohria, dean of
Harvard Business School, wrote:

Research shows that innovation is driven by problems that become very pressing. Japanese
manufacturing, for example, became efficient because it was driven by that nation’s
limited access to raw materials. The huge demand for talent in emerging markets is
a similar pressing problem that demands innovative solutions. As I watch developments
in India and China, I wonder whether these countries will drive the new best practices
for talent management much as Japan’s lean manufacturing system became the best practice
for manufacturing. The companies that succeed will not necessarily be Indian or Chinese;
they could well be American or European. The winners, as Darwin noted, will not be
the strongest firms today but those who are the most adaptive in the years ahead.
¹⁰

Thus, the challenges of growing talent in India are monumental, but precisely because
India is so challenging, like China, it may well be the petri dish for developing
next-generation leaders. Companies should approach the task in that spirit.

• A young, emerging economy, a decade of good growth, and a weak educational system
  have created shortages of every kind of talent, especially functional experts and
  leaders. Leaders must move from relying on professional hiring and anemic development
  efforts to a commitment to grow talent from within.
  
• What works is holding leaders accountable for developing young leaders, making significant
  investments in building critical people capabilities, creating a workplace with heart,
  and promoting a leader to head the HR function.
  
• The best developers of leaders do two things:
  
  1. They take big bets on promising leaders. They give them big jobs or big missions and
     use those as crucibles for strengthening leadership capability.
     
  2. They integrate strategy development and people development. Key strategic initiatives
     are led by next-generation leaders and staffed with young high-potential talent. Senior
     leaders are deeply involved with these initiatives and use this to evaluate and coach.
     
• Companies must approach building the critical capabilities to execute an ambitious
  strategy in India consciously and strategically. They cannot leave it to the team
  in India, however competent that team may be. While the process has to be collaborative,
  headquarters must take the lead, because building capabilities requires investments
  and a long-term view.
  

The old paradigm was think global, act local. At Hindustan Unilever, we’ve turned
it on its head. We think local—and act global.

—NITIN PARANJPE, CEO, HINDUSTAN UNILEVER

As the McDonald’s India example shows, India has become a wellspring of innovation.
A spate of articles and books asserts that Indian companies in particular have become
adept at coming up with products and services that are affordable without sacrificing
quality or functionality. Offering cars for $2,500, $20 cellphones, telephone calls
at a cent a minute, and open-heart surgery at $500, Indian innovators are poised to
take on Western companies in much the same way Japanese companies have done over the
last fifty years. Learn to excel at the game, executives are warned; ignore it at
your peril.
¹

The theory is simple and compelling. Even with rising prosperity, most products and
services from the developed world cater only to the top 10 percent of the developing
world—the super-premium and premium segments. Those goods and services are a stretch
for the aspiring middle class and are out of the reach of millions of poor people.
However, the big opportunity for companies Indian and Western isn’t the bottom of
the pyramid, but the rapidly growing middle market, which could be nearly $1 trillion
in size by 2020.
²
This segment is very demanding and driven by the desire for value for money. Middle-market
customers have limited disposable incomes but big aspirations; they will not accept
products that compromise quality or functionality. That’s true not just of cellphones,
fast foods, and shampoos but of trucks and tractors, too.

Competing for the middle market is hard. It requires developing a product or service
that typically provides 70 percent of the value at 30 percent of the price.
³
Companies can’t offer cheap, poor quality, or nearly obsolete products as they once
did; they have to design the offering to be state-of-the-art. Companies can achieve
that by value-engineering premium products or stripping away the bells and whistles,
but often success requires rethinking and innovating the offer, the business model,
and the distribution system.

Doing so requires a different mind-set and an intimate understanding of the customer.
Therefore, companies can’t develop it in New York or Paris, but in India; east for
east, as Honeywell calls it. Since such products have appeal beyond India, and even
in the developed world, the made-for-India products and capabilities that companies
develop often serve them well globally, as reverse innovation or innovation blowback.

While several products are better marketing stories than commercial successes, a small
number of successful innovations have been born in India. For instance, in 1999, Cummins
India saw demand for medium-sized and large generator sets flattening, but demand
for smaller diesel generator sets, between 10 and 125 kilovolt amps (kVA), was strong
and growing by 25 percent, driven by residential construction, growth of telecom networks,
and modern retail. As Cummins India’s CEO, I felt we had to become a leader in this
segment, even though the existing business model, our engines, and a service network
designed for selling more expensive sets of between 500 and 2,000 kVA, would not make
us competitive in that market.

In a separate division, with a dynamic twenty-five-year-old as the head, we created
a new business model. Since Cummins did not have competitive small engines, the team
took the heretical decision to source engines from Tata Motors and Simpson. The team
designed standardized generator sets that would plug and play. It assembled the sets
at high volumes in an ultra-low-cost facility in a tax-free zone, using a new distribution
and low-cost service model. The generators were branded Cummins and had lower noise
levels and better fuel efficiency and reliability. They revolutionized the price-performance
equation in the market, and by 2008, Cummins was assembling twenty-five thousand units
a year, had a 30 percent share of the segment, and was creating new capacity to export
those sets globally. India became Cummins’s hub for small generator sets, which has
allowed the company to become one of the leading players in the segment globally.

Similarly, Deere & Company realized by 2007 that it had a problem in the Indian tractor
market, the world’s largest, at three hundred thousand units a year. Small tractors
of less than forty horsepower made up half the market, and Deere didn’t have a product
in that segment. Meanwhile, market leader Mahindra & Mahindra (M&M) was leveraging
its 40 percent share in India to challenge Deere in many other parts of the world.
M&M’s website proudly stated that “Mahindra Tractors Is the World’s Largest Tractor
Company by Volume,” and its “Deere John” ads took Deere head-on.

Deere’s leadership realized that if the company couldn’t take on M&M in its home market,
it would face a major problem worldwide. They launched a priority mission to develop
a small tractor that could compete head-on with M&M’s products. The resulting thirty-five-horsepower
Deere 5000 series tractor, developed in India from a clean sheet of paper, has helped
the American giant wrest nearly 10 percent of the market share and is now successfully
exported to other markets.

In 2000, Hindustan Unilever initiated several entrepreneurial projects under an initiative
called Project Millennium. One targeted the nearly 2 billion people who lack access
to safe drinking water; unsafe water kills nearly a million Indians annually. Unilever
managers saw a global opportunity in providing safe and affordable drinking water
through a simple low-cost water-purification and storage device. Unilever had never
been in this business anywhere, and the company had never made a consumer durable
product. HUL’s Pureit water purifier, which starts at Rs. 1,000 ($20), delivers safe
drinking water that meets US Environmental Protection Agency standards. It is already
the local market leader, growing at 30 percent CAGR, and Unilever is on its way to
creating a sustainable business that will protect 500 million lives by 2020.
⁴

Despite the exceptions, there are few commercially successful innovations that multinational
companies have developed in India. Vijay Govindarajan and Chris Trimble explain why,
despite the hype, there are relatively few success stories.
⁵
The biggest hurdles aren’t the market, technology, or finances; they are managerial
and organizational, they argue. Most leaders haven’t bought into the importance of
innovating for India in India. They share several fears: product proliferation, cannibalization
of high-margin products with value for money offerings, fear of diluting the brand,
lowering margins—all that ensures that innovation continues to be centralized at headquarters.

Indeed, innovating for India requires a shift in the company’s mental model or “the
unifying logic of the company,” as C. K. Prahalad wrote in “How to Be a Truly Global
Company.”
⁶
One reason that companies like McDonald’s, Unilever, and Cummins have been successful
is that they have moved to a new unifying logic for a common purpose and a set of
core competencies in branding, procurement, distribution, and operations that yield
differentiation and a cost advantage. Country organizations are free to innovate around
this core.

For example, Hindustan Unilever’s managers saw its competencies as understanding consumer
needs, managing distribution, and creating and managing brands. They applied the competencies
to a new business—drinking water. Cummins saw its core capabilities as understanding
generator set applications, engineering, manufacturing, distribution, and service—not
just engines. That’s why it was able to buy engines from competitors and create a
new business. In the old model, decision makers sat at headquarters and tried to sell
more of the products they made in India. Now, decision makers sit in India, look at
new opportunities, and ask how they can go after them by using global assets and capabilities.

However, even when companies bravely attempt to innovate in India, their efforts often
result in a graveyard of fascinating ideas, failed pilots, crushed dreams, and truncated
careers. Many promising ideas never get a fair chance of success. Dreamed up by clever
people in an offshore R&D center, they don’t connect with the market, succumb to bureaucracy,
or get aborted by the organization. To innovate successfully for the Indian market,
I find that seven factors really matter.

1. A START-UP CULTURE.
Getting the innovation team set up for success, housed in the right place with the
right leadership, is often a major determinant of success. The more radical the innovation,
the more important it is to establish the team as a separate unit with end-to-end
accountability for success. The team must have the freedom to operate like a start-up,
without unnecessary bureaucracy and constraints.

Cummins India housed the small generator sets business, which I discussed earlier,
in a subsidiary company, so the culture, rules, and policies of the mature business
wouldn’t compromise it. Power Systems India, as it was then known, had its own HR
policies, could choose its vendors, and set up its own distribution network. We reintegrated
it with Cummins India only after it had reached a certain size. Unilever has taken
the same approach with its Pureit team, which until recently reported directly to
the CEO. Managers acknowledge that progress would have been much harder had the team
been part of the organization; they would have had to discuss and question every step,
distracting the team from its mission.

The leaders who drive such missions are extraordinary people. I spoke to Yuri Jain,
who has been part of the Pureit team from its inception in 2000 and has been leading
it for several years now. Pureit is not a job for Jain; it is a mission. It isn’t
a ticket to a bigger mission either; Pureit is pretty much the big job for Jain. He
focuses on creating a sustainable and profitable business that will protect 500 million
lives by 2020. Such leaders eschew traditional badges of success for job satisfaction.
“The leader has to be more self-referential, and less worried about his career, appreciation,
and recognition,” says Jain. Since such projects encounter a lot of difficulties and
uncertainty, it is critical to have leaders like Jain who are motivated by the mission
and can inspire others with it.

Not surprisingly, Jain focuses a lot on people and culture. “I hired people who were
motivated by being part of something much bigger; the mission of wanting to protect
lives. Many have stayed with the project for eight years, on average, working through
many challenges. They need to have passion and are lateral thinkers, approaching problem
solving with creativity. As the leader, I constantly question the status quo and give
new ideas the space to flourish. It is vital to provide the team with air cover in
difficult moments. It is important to celebrate success and learn from failure,” says
Jain, adding, “Give people bigger jobs and responsibility than their CVs might suggest
they are ready for. Exponential growth can only happen if people grow exponentially,
but that means they should have the space to grow.” The best and the brightest are
often drawn to such environments, suggesting that a company’s ability to attract talent
depends on its being able to set up innovation missions.

2. DEEP INSIGHTS, A KILLER VALUE PROPOSITION, AND A PROFITABLE BUSINESS MODEL.
The single most important driver of success is getting the value proposition right,
establishing the right price points, and figuring out how to make money at those price
points. To succeed, companies must immerse themselves in the local market, live in
the customer’s shoes, and sweat the details until they find a winning strategy, even
if it takes years. McDonald’s took nearly ten years to crack the code of success,
while Cummins’ small generator sets business took five years. After a decade, Unilever’s
Pureit does not yet appear to be profitable although the company says it is “on track.”

Consumer goods companies seem to be better at developing designs for emerging markets
than are industrial and high-tech companies because they take the trouble to understand
Indians. People often wonder why South Korean companies like Samsung excel in India.
J. S. Shin, the president of Samsung Electronics SW Asia, shared his calendar with
me, which shows the enormous amount of time he personally spends visiting consumers’
homes and small retailers. South Korean product planners and engineers spend months
in India visiting homes, seeing how products are used, and understanding consumer
preferences. That allows them to develop TVs with menus in Hindi and other local languages,
microwaves with one-touch buttons for Indian recipes, and refrigerators that withstand
voltage fluctuations, have large vegetable compartments, and small freezers, which
Indians prefer.

Godrej, the Indian consumer durables giant, recently introduced a refrigerator called
Chotukool
(The Little Cooler) for low-income Indian families, which has won awards, although
not sales. The Godrej team leader spoke about the fishbowl principle: you can’t understand
the life of a fish unless you dive into the water. He also described how, in the early
stages, the team spent enormous amounts of time in the field to gain deep insights
into the habits and lives of poor people in rural and urban India.

The Chotukool team realized that space is precious at the bottom of the pyramid; most
families live in dwellings that are only 150 square feet. Consumers purchase food
a day at a time, although they do want to store some milk, vegetables, and fruits.
For the tiny kiosklike shops that sell snacks, medicines, flowers, and soft drinks,
an inexpensive refrigerator would be an asset, since it would enhance shelf life and
reduce waste. Through immersion and observation, the team developed a 43-liter solid-state
cooler that uses no compressor or refrigerants, and since there is often no electricity,
it works on a battery or solar power. The fridge is light enough to move around the
house; keeps food fresh and cool; and at $60, costs less than half the cheapest conventional
model.

At Hindustan Unilever, consumer immersion has become a religion. It sees its future
in a small phone booth called Voices from the Street. An oddity in the company’s sprawling
campus in Mumbai, the glass booth has a telephone, a headset, a table, and a chair.
HUL’s 981 executives must each spend fifteen minutes in the booth every week, listening
to consumers rave, rant, request, and make suggestions.

Many consumer conversations lead to decisions. For example, HUL put usage instructions
on its Dove Facial Serum packaging based on a consumer’s suggestion to CEO Paranjpe.
Similar insights spurred HUL to come up with permeable packaging for soaps (Indians
like to sniff at soaps before buying them), and because water is scarce, detergents
that reduce water consumption and rinse times by 50 percent.

Innovation teams are increasingly turning to social scientists and ethnographers to
gain deeper consumer insights. In 2006, a team of researchers from Microsoft Research
in Bangalore spent several days in schools that teach poor children. They found only
four PCs in a classroom of forty children, so ten students crowded around each machine.
Within each group, the brightest, richest, or oldest child would take charge of controlling
the mouse. While other students pointed, gestured, and reached out, they had no control
of the PC and inevitably lost interest. The child with the mouse learned, while the
others didn’t.

Conventional wisdom suggests that the solution was for schools to buy more PCs, thereby
boosting the PC-to-student ratio (and increasing software sales). Many schools in
developing countries can’t afford more PCs, though, and traditional PCs don’t allow
for collaborative learning. Microsoft researchers therefore developed a creative solution.
Called Windows Multipoint, the software lets several users share a single PC with
multiple mouses or other devices, and to learn collaboration skills as well. The technology
helps shift students from passive to active learning, and the collaborative environment
adds a new layer of value to PCs in classrooms. Multipoint offers a more affordable
way to decrease student-to-PC ratios and provides a platform for Windows education
software developers to create collaborative learning applications. Building on its
insights about shared computing, Microsoft introduced Windows Multipoint Server in
2010. The server version enables multiple users to each run different applications
on their own stations, shrinking the cost of managing technology infrastructure. The
product, which is gaining traction in schools worldwide, started from an insight gained
in dusty classrooms in South India.

Traditional companies operate with a cost-plus mind-set that works only if you are
Apple. Successful innovators have a strong design-to-cost ethos. They work backward
from the price that will succeed in the segment, designing the product and the business
model so they hit the sweet spot of volumes and margins. In contrast to the successes
I mentioned earlier, consider one of our experiments at Microsoft India to promote
the adoption of PCs by bringing down the cost of software.

In 2005, we launched Windows Starter Edition for India targeting low-income, first-time
PC users. With an original equipment manufacturer (OEM) price of around $20, Starter
Edition had some useful features, such as detailed help menus, but came with restrictions
on the processor and a limit of three concurrent applications running, and so on.
It was an interesting experiment but failed to gather any traction. Our mistake was
to focus only on bringing down the price by defeaturing the product; Indian customers
expect value for money, not just a cheap price. Besides, a pirated copy of Windows
Enterprise edition with no restrictions was then available for less than $2.

There was a silver lining, though. In 2008, when global sales of Netbooks took off,
Linux threatened to grab share from Windows worldwide. By quickly adapting Windows
Starter Edition, Microsoft increased its share in the Netbooks market to over 90 percent.
Had Microsoft not gained some experience with the Starter Edition in places like India,
it would have been much more vulnerable to Linux.

3. ASPIRATIONAL GOALS, EXPERIMENTATION MIND-SET.
Most successful innovation attempts begin with ambitious and clearly articulated
missions. For instance, Ratan Tata came up with the mission to create a safe, affordable,
and dignified form of transportation for Indian families of four and five members,
who could only afford a scooter. That led to the Rs. 1 lakh ($2,000) Tata Nano. Dhirubhai
Ambani, the founder of Reliance Industries, is widely credited with ensuring that
phone calls became affordable. He articulated Reliance Communications’ mission as
making a phone call less expensive than buying a postage stamp. Hindustan Unilever’s
Pureit project started with a mission of “sustainably protecting 500 million lives
by providing access to clean drinking water as safe as boiled water.”

Market-driven mission statements, which describe the value to the customer rather
than financial goals, align everyone around what success will look like. The ridiculously
high aspirations they articulate force teams to abandon safe approaches and think
out of the box. The late C. K. Prahalad was fond of saying that the primary driver
of innovation is a mismatch between ambition and resources; you can either constrain
resources or increase ambitions. A senior Unilever executive expanded on this idea:

Take our drive to treble our rural distribution coverage. Over the years, we had been
adding a small number of outlets and patting ourselves on the back saying we were
ahead of our competitors. However, they were narrowing the gap. We discovered that
most people don’t achieve much when you give them a slightly higher target; they operate
out of a fear of failure. The trick is to think in terms of targets that put ambition
so much in excess of resources that you just eliminate the fear of failure. We came
up with an ambitious plan to add 500,000 more outlets in a year when we had been adding
15,000–20,000 outlets until then. In hindsight, it was an irrational decision, but
look at what we achieved. Every employee knew that if we added 400,000 instead of
500,000 outlets, we would still be heroes. But if we had asked people to get to 25,000
and they managed only 20,000, we would have thought that they had failed and they
would too.