Bracing MNC Competition through Innovative HRM practices:

The Way Ahead for Indian Firms

Ashok Som

Associate Professor
Strategy and Management Area
ESSEC Business School, Paris
Avenue Bernard Hirsch - B.P. 105
95021 Cergy-Pontoise Cedex
France

Tel: + 33 (0)1 34 43 30 73 / 3309 (O)

Fax: + 33 1 34 43 30 01
Mail: SOM@essec.fr

Topic: Human Resource Management

1
 Bracing MNC Competition through Innovative HRM practices:
The Way Ahead for Indian Firms

Abstract

With increasing globalization, firms are entering a dynamic world of international business

that is marked by liberalization of economic policies in a large number of emerging

economies like India. To face the challenge of increasing competition that has resulted from

liberalization, Indian organizations have initiated adoption of innovative human resource

management practices both critically and constructively to foster creativity and innovation

amongst employees. With the help of eleven in-depth case studies this article tries to

understand how innovative HRM practices are being adopted by Indian firms to brace

competition in the post liberalization scenario.

Key words: liberalization, competition, innovative HRM practices, India

2
 Bracing MNC Competition through Innovative HRM practices:
The Way for Indian Firms

Introduction

The decades of the 1980s and the 1990s witnessed an upheaval in economic thinking

and brought about major societal changes. Firms entered a more dynamic world of

international business with globalization of world markets, marked by the emergence of new

international business blocs and economic liberalization of most developed and emerging

economies. The dramatic surge in market reforms throughout the developing world meant that

more than seventy-five developing and post-socialist economies, with a combined population

of more than three billion people aimed at integrating themselves into the global market

system. Dozens of these economies in Asia, Latin America and central Europe have

succeeded in attracting large flows of capital, and, most strikingly, more than thirty countries

have succeeded in establishing stock markets capable of attracting international portfolio

investments. These changes have had profound implications for the entire world economy and

are leading to a reallocation of global savings and investment. These changes have propelled

the most dynamic of the reforming countries into unprecedented levels of sustained economic

growth and reshaped global capital markets by introducing new opportunities for both

portfolio and direct foreign investment. One of the most important emerging markets in the

world, India with a tremendous potential for sustained high rates of economic growth is

increasingly becoming a key player in the world economy.

The liberalization of the Indian economy created a dynamic business environment that

has resulted in hyper-competition. To face this hyper-competitive environment, organizational

adaptation and alternative adaptations of innovative practices have been put in place by firms

for survival and for sustainable corporate performance. This paper attempts to examine how

Indian firms have braced competition through creative and innovative human resource

3
management (HRM) strategies and practices in the aftermath of liberalization of the Indian

economy in 1991 and the HRM adaptations that have been relatively more effective in this

dynamic context. This article presents a theoretical framework of aligning effective

innovative HRM strategies and practices for effective corporate coping in a competitive

market. For the purpose of this article innovative HRM strategies and practices are defined as

“Any intentional introduction of HRM program, policy, practice or system designed to

influence or adapt employee attitudes and behaviors that is perceived to be new and

creates current capabilities and competencies" [1].

In this article HRM strategies and practices indicate a proactive process that has been

well accepted and recognized in the literature which are being used only recently by Indian

corporates as part of their overall business strategy [2]. The Indian context provides an

excellent illustration of the phenomenon of large-scale entry of multinational corporations

(MNCs) and the resultant changes in the competitive structure of the markets where more

creative, innovative HR practices keep employees motivated [3]. This article (see “About the

About the Research

This article is based on a case based research conducted over a period of 5 years (1998-2003) in

11 large Indian organisations in 9 industries. Each organisation, a leader in its respective

industry, has undergone extensive restructuring process to equip itself for the impending

competition that arose due to the phased deregulation, liberalisation and privatisation initiated by

the Indian government in 1991. A number of managers were interviewed from these companies,

primary, secondary and archival data were analysed. These organisations were also monitored to

record substantial changes in their business and HRM strategies during the last 5 years. From

this research case studies have been written on some of the organisations. The focus of the

research was to understand the innovative HRM practices that can help Indian corporates to

improve performance in a hyper-competitive environment [4].

4
Research”) presents evidence from eleven different in-depth case studies that have dealt with

the various facets of HRM practices. The findings reveal how Indian firms are adopting,

aligning and integrating their strategic initiatives with innovative HRM practices in order to

be competitive in a new, dynamic business environment.

The Indian Economy

India has been identified as one of the largest emerging markets with an immense

economic potential for sustained economic growth [5]. It has a billion customers and one of

the world’s largest pool of technical, scientific, managerial and entrepreneurial manpower. It

is one of the world’s leaders in the areas of research and development in information

technology, nuclear, space, and rocket technologies. It is among the first three countries in the

world that have built supercomputers, the fourth generation PARAM on its own, US and

Japan being the other two. India is among the six countries in the world that has launched its

own satellites. It has the largest set of remote sensing satellites, the INSAT. It is also one of

the world’s largest diamond cutting and polishing destinations. India is among the six largest

industrial economies and five largest agricultural economies. It has been growing for the past

20 years at an average growth rate of about 6% per annum, the rate exceeding 8% in 2003.

Yet it has a long way to go. The journey of India’s liberalisation of macroeconomic policies

started in earnest in 1991 to modernise the economy and actualise its economic potential. It

began moving away from a closed, regulated “licensed” economy to a dynamic market

economy.

Liberalisation of the Indian economy

The 1980s in India witnessed a rather limited deregulation in industries such as

cement. By contrast, the reforms of the 1990s in the industrial, trade, and financial areas,

among others, were much wider and deeper. The most significant steps in the liberalization

process were rationalization of taxes, selective and phased lowering of excise duties, setting

5
up of the national stock exchange with electronic operations, opening up of the insurance,

petroleum and the retail sector, reform of India's labor laws, de-reservation of small scale

industry products. All these changes have contributed significantly towards higher

productivity in the economy. Real GDP growth, which had dipped to 0.9 percent in 1991-92,

recovered to 5.1 percent during 1992-1993, representing one of the fastest recoveries from a

macro economic crisis. Growth rates have risen considerably since then. Foreign currency

reserves, which had fallen to almost US$ 1 billion in mid-1991 recovered swiftly and stood at

US$ 6.4 billion in March 1993, US$ 42 billion in March 2000 and US$ 104 billion at the end

of 2003. The proportion living below the poverty line has fallen from 36 per cent to 27 per

cent. These results and possibilities have generated considerable interest in the Indian

economy on the part of the international business community, international institutions and

scholars.

A decade of opening of the economy has produced new dynamism, most dramatically

in the information technology sector, as in others. The new technologies, especially

information technology and biotechnology, have provided fresh opportunities for economic

and social development. The current positive trend has been witnessed in most sectors of the

economy such as manufacturing sectors as automobile, auto-components, textiles, building-

materials, electronics, foods, cosmetics, the service sectors as IT software, business

processing, banking, insurance, consulting, merchandising, retailing and R&D intensive

sectors such as pharmaceuticals and software development. Demographic trends, especially a

slowing population growth rate and a rising share of people of working age are contributing to

the rising income. The world is waking up to India's crucial position as the largest democracy

and as a dynamic economy, if still a low-income one.

It is important to note that despite the global slowdown in 1997-98, the average

growth rate during 1994-1998 was 7%, significantly higher than the growth rate of 5%

6
achieved during 1980s. Moreover, the growth in the 1980s was not sustainable, as the lack of

export dynamism brought the infamous balance of payments crisis at the end of that decade.

Indian economy’s response to liberalisation

The Indian economy’s response to liberalisation appears, by and large, to be effective.

Critics of the liberalisation process were convinced that “by opening the economy before

giving it a chance to become competitive, was parallel to throwing the industry to the

wolves”. Results show quite the opposite of what sceptics believed. The success in exports, in

fields such as information technology in which competition is fierce and technological change

rapid and success in auto-components, pharmaceuticals shows that the industrial sector

overall has responded positively to the intensified competitive pressures. For example, in the

automobile industry, fifteen of the world’s major automobile manufacturers are now obtaining

components from Indian firms. In 2002, the value of exports of auto-components was US$

375 million. In 2003, it was close to US$ 1.5 billion. Estimates indicate they will reach US$

15 billion within the next 6-7 years. Hyundai Motors India (HMI) is about to become the

parent Hyundai Motors Corporation’s (HMC) global small car hub. In 2003, HMC sourced

25,000 Santros from HMI’s plant in India. By 2010 HMI is targeted to supply half a million

cars to HMC. It was only in 1999 that HMI got its first outsourcing contract and already, in

2003, 20 per cent of its sales worldwide from this outsourcing hub. It is exporting cars to

Indonesia, Algeria, Morocco, Columbia, Nepal, Sri Lanka and Bangladesh. Ford India got its

first outsourcing contract in 2000. Within 3 years outsourcing accounted for 35 per cent of its

sales. Ford India supplies to Mexico, Brazil and China. The parent Ford is sourcing close to

$40 million worth of components from India, and plans to increase this in the coming years.

Ford India is already the sole manufacturing and supply base for “Ikon” cars and components.

These are being exported to Mexico, China and to some African countries. Toyota Kirloskar

Motors chose India over competitive destinations like Philippines and China for setting up a

7
new project to source transmissions. Europe’s leading tractor maker, Renault, has chosen

International Tractors (ITL) as its sole global sourcing hub for 40 to 85 horsepower tractors.

In other industries such as retail, textile and chemicals, Wal- Mart sources US$ 1

billion worth of goods, that is, half of its apparel, from India. GAP sources US$ 500-600

million worth while Hilfiger sources US$ 100 million worth from India. Asian Paints has

production facilities in 22 countries spread across five continents. It has recently acquired

Berger International, which gives it access to 11 countries, and SCIB Chemical SAE in Egypt.

Asian Paints is the market leader in 11 out of the 22 countries in which it is present, including

India.

In the R&D sector, over 70 MNCs, including Delphi, Eli Lilly, General Electric,

Hewlett Packard, Heinz and Daimler Chrysler, have set up R&D facilities in India in the last

five years. In 1998, Intel had 10 persons working in India; today it has over 1,000. Eli Lilly’s

research facility at Gurgaon is its largest in Asia and the third largest in the world. GE’s John

F Welch Technology Center in Bangalore is the company’s largest outside the US. With an

investment of US$ 60 million, it employs 1,600 researchers. The Indian centre devotes 20 per

cent of its resources to fundamental research with a five to 10 year horizon in areas like

nanotechnology, hydrogen energy, photonics and advanced propulsion. GE Medical in

Bangalore has developed a high resolution-imaging machine for angiography to meet GE’s

entire global requirement. Two-thirds of GE Plastics’ 300-member research team in India is

involved in fundamental research on molecules. GE Plastics has contributed to the

development of a family of polycarbonates of engineering plastics that is being used in auto

headlamps and CDs. It has also developed heat resistant monomers for applications in aircraft

bodies and high-end medical equipment. GE Motors India has developed an almost noiseless

motor for GE’s most sophisticated washing machine lines in the US; it is also the sole

sourcing point for a million of these motors every year. Monsanto has been in India for over

8
50 years, it set up its first non-US research facility in Bangalore in 1998. This facility is

responsible for Monsanto’s R&D for Asia. The company is involved in research on

‘‘promoters’’ — accelerators that improve crop productivity. Whirlpool’s Pune Research Lab

develops refrigerators and air conditioners for Asia (including China) and Australia. Forty per

cent of this facility’s resources are devoted to global projects. The Daimler Chrysler Research

Centre in Bangalore is engaged in fundamental and applied research in avionics, simulation

and software development. HP Labs India has built a prototype that can scan hand written

mail through a small handheld device instead of a scanner. It has also built the prototype of a

computer for unsophisticated users.

As shown above, the vast opportunities thrown open by liberalisation has attracted

many MNCs to India. The entry of more and more MNCs to tap into the vast Indian market

has changed the dynamics of doing business in India. Consequently, the environment has

become hyper-competitive and turbulent for Indian organisations, which operated in a

protective environment before. India has slowly become a competitive battleground for more

than fifteen thousand MNCs. In order to face this competition, several Indian firms undertook

significant organisational changes during the late 1990s. They tried to adopt new strategies to

cope with the ever changing and turbulent environment. These firms were able to successfully

adapt to the dynamic corporate scenario because of their foresightedness, technical expertise

and marketing abilities [6]. For example, Hero Honda is the largest manufacturer of

motorcycles in the world—with an output of 1.7 million motorcycles a year. Hundred

thousand Indica cars of the Tata Motors are marketed in Europe by Rover, UK under Rover’s

brand name. Tata Indica has been designed, developed and produced ingeniously in India.

Bharat Forge has the world’s largest single-location forging facility. Its client list includes

Toyota, Honda, Volvo, Cummins, and Daimler Chrysler. It has been chosen as a supplier of

small forging parts for Toyota’s global transmission parts’ sourcing hub in Bangalore.

9
Hindustan Inks has the world’s largest single stream, fully integrated ink plant, of 100,000

tonnes per annum capacity, at Vapi, Gujarat. It has a manufacturing plant and a 100 per cent

subsidiary in the US. It has another 100 per cent subsidiary in Austria. For the past two years,

General Motors has awarded Sundaram Clayton its ‘Best Supplier Award’; the volume it

sources from India is growing every year. Essel Propack is the world’s largest laminated tube

manufacturer. It has a manufacturing presence in 11 countries including China, a global

manufacturing share of 25 per cent, and caters to all of P&G’s laminated tube requirements in

the US, and to 40 per cent of Unilever’s. Maruti has been the preferred supplier of small cars

under the Suzuki brand for Europe. Suzuki has now decided to make India its manufacturing,

export and research hub outside Japan. Tata Iron and Steel Company is today the lowest cost

producer of hot-rolled steel in the world. TVS Motor Company has been awarded the coveted

Deming Prize for Total Quality Management. India’s pharmaceutical industry has earned

worldwide reputation like the infotech industry. It is already worth $ 6.5 billion and has been

growing at 8-10 per cent a year. It is the fourth largest pharmaceutical industry in terms of

volume and 13th in terms of value. Its exports have crossed $2 billion, and have increased by

30 per cent in the last five years. India is among the top five manufacturers of bulk drugs.

India’s liberalisation has had one major implication for the corporate world, creation

of a hyper-competitive environment due to the lowering of barriers to entry and the opening

up of opportunities for growth through the removal of regulations. However, very little work

in general has been done on the response of Indian corporates to the liberalization process and

practically none on how they are bracing competition from MNCs through innovative HRM

practices. In the developed countries aligning and adopting HRM strategy for competitive

advantage is common [7] but not so in emerging countries such as India. In the light of the

progress made by India's reforms and the growing worldwide interest in India, this article tries

to bridge this gap with an analysis of eleven corporates (Table 1 summarizes the

10
demographics of the eleven firms) that are believed to be leaders in their business sectors. It is

envisaged that this article will go a long way for both managers and academicians towards

developing a deeper understanding of the recent developments in India and of the innovative

HRM strategies adopted by Indian firms for superior performance.

-------------------------------
Insert Table 1 here
--------------------------------
Theoretical Framework

For this study, a contingency-based theoretical framework was adopted which took

into account the contextual factors while measuring the impact of those. The core adaptations

to liberalisation by Indian corporates represent a strategic choice. The adaptations cover both

strategic and systemic organisational responses. Strategic responses relate to vision, mission,

goals, values and business strategy of the organisation. Systemic responses are those related

to structures, functions, cultures and processes. This study focuses on the main systemic

responses i.e., innovative HRM practices that Indian organisations have adopted to face

competition in the Indian market place. Figure 1 summarises the theoretical model. Further

details on the research design, methodology and data are provided in the Appendix.

-------------------------------
Insert Figure 1 here
--------------------------------
Discussion and Findings

The findings from the eleven case studies are discussed with reference to the

theoretical model.

Hypothesis 1: The more HRM practices synergise with changing business strategies the

more it will create social networks within the organization which will probably

necessitate the expansion of HR department’s role from administrative experts to

strategic partners, change agents and employee champions.

11
 As firms debate on the role of HRM as a change agent, a strategic partner, an

employee champion or an administrative expert it is clear that HR professionals must become

key players in the design, development and delivery of a company’s strategy [8].

Organisations still debate on the measurable worth of the HR department. They often treat

this function as secondary and on several occasions, redundant. Several companies while

trying to rationalise their work force do away with the HR department, on the premise of

outsourcing non-essential functions. In today's environment where the need for nurturing

human capital has been recognized as precious, this decision might be to the detriment of the

company in the long run. An example supporting this point is that of Maruti Udyog Ltd, a

leading company in the Indian automobile industry, which started as a joint venture with

Suzuki of Japan. Maruti revolutionised the automobile and components industry in India and

set high standards for its products and services. With the deregulation of the automobile

industry in India, Maruti, from being the undisputed leader, controlling about 84% of the

market till 1998, saw its market share reduce drastically with increasing competition from

both the local players like Telco, Hindustan Motors, Mahindra & Mahindra as well as the

foreign players like Daweoo, PAL, Toyota, Ford, Mitsubishi, GM. The industry structure

changed dramatically during 1998-2002. To face this intense competition, the company

launched new models that could cater to different market segments. Maruti also shifted its

business focus from a production oriented company to that of a customer caring, service

oriented company prioritising aggressive marketing. During the same time a change in

leadership took place. Prior to this change when there was negligible competition and Maruti

sold what it produced, HRM was considered as a “paper pusher” and a “time keeper”. It

played a marginal role, was given no targets and was not accountable to the top management.

HRM department was not involved in the strategic decisions and there were times when there

was no head for the HR Department. Managers considered a posting in the HR Department as

12
a punishment. A new Managing Director appointed in 1998, however, decided to

professionalize the HRM function and to link HRM strategies to the business strategy of the

whole organisation. As a result professional HR managers were hired. New initiatives in

performance appraisals, competency mapping and job rotations were undertaken. HRM was

made responsible for the clarity and transparency in communication within the organisation

and for negotiations with the Union. The role of the HR Department was reactivated and they

were held accountable for defining job profiles, simplifying procedures. The significant

improvements implemented by the HRM department, has led Maruti to develop excellent

teamwork and its compensation system was recognised as the best in the industry. Turnover,

employee morale, commitment, job satisfaction increased within the organisation.

Synergising distinctive HRM strategies help to create unique competencies that

differentiate products and services and, in turn, drive competitiveness [9]. Senior managers

remain aloof to the fact that HRM practices extend to nearly all the activities of an

organization and that it is not just restricted to one or few department(s). Well-organized

HRM practices are a prerequisite for a successful strategic change. HRM plays a pivotal role

in redefining new strategies so that they can suit the changing environment. At times HRM

not only complements the new strategy, but also becomes the deciding and defining factor in

pursuing a particular strategy. To keep abreast with the dynamic business conditions, Indian

firms have revamped their HRM strategies and now incorporate part-time work, outsourcing

and temporary workers. This represents a drastic shift from the traditional personnel

management polices. However, implementing such modern HRM strategies is not an easy

task for senior management since changing the mindset and motivating workers to agree to

the change process is an uphill task by itself. An interesting example of this case was

Mahindra and Mahindra Ltd., the flagship company of the Mahindra Group. The Mahindra

and Mahindra (M&M) Limited (Tractor Division) was suffering from manufacturing

13
inefficiencies, low productivity, over stretched production cycle and poor output. The primary

reason behind this inefficiency was the under productive and excessively unionized labor

force. The situation was further aggravated by the changes taking place in the external

environment due to the modifications in the business environment and government policies.

The company had to adopt a new strategy in order to survive. In 1995, the company

introduced Business Process Reengineering (BPR), focussing on a total overhaul of the style

in which the company was organized. Instead of improving or changing procedures, the

scheme focused on reformulating the way the company carried out its business. This initiated

several changes in the organization structure, which enabled the company to realign itself

with the BPR mechanism. The introduction of BPR was opposed by the labor union. Prior to

BPR, HRM department was not part of the strategy making process at M&M Ltd. BPR

adopted innovative HRM practices, such as group work, that used the “churning effect” to

change the traditional mindset of the employees and enforced concrete HRM policies and

practices. Firstly, from a multi-layered structure, the company adopted a flat structure, which

reduced the disparities existing in the different levels. It brought together people from

different departments that encouraged cross-functional teamwork. Regular meetings with

workers were encouraged to enhance the company's belief that “HR cannot function in

cabins”. Furthermore, the company repositioned existing people in key ranks and placed

emphasis on training programs. It followed a simple recruitment philosophy by refusing to

hire highly qualified people who had a history of leaving the organization for a competitor

MNC. Instead, it believed in hiring professional consultants to take care of advanced work

practices and simultaneously capitalized on its existing employee talent through intensive

retraining and redeployment strategies. The company also began outsourcing non-core

manufacturing activities. After eight years, in 2003 the results of implementing BPR in

synergy with new, innovative HRM practices within the organization were spectacular as it

14
allowed the company to maintain steady profits, reduce working capital levels, and rationalize

the manufacturing process. Redesigning innovative HRM strategies, expanding the HRM

practices became an effective method to reengineer the firm's plants. It created a social

network within the organization and led to the effective team building which was lacking

before.

Competency-based strategies are dependent on people and when people are regarded

as a key strategic resource, the creation of social networks within the organization is an

effective way of managing people. HRM policies differ depending on the rapport an

employee shares with the company and how this rapport is co-opted with other stakeholders

of the organization. Hiring of external consultants can play a key role in implementing

strategies decided by a company as it tries to strengthen the networks within the organization

by providing tools to adopt innovation. Tata Iron and Steel Company (TISCO), a Tata

flagship company, India's most cost effective steel plant provides an example. TISCO

undertook a management restructuring program with the objective of transforming TISCO

into a high performing and growth organization. The key strategic drivers to achieve this goal

were to focus on current growth, enhance the degree of profit and accountability, provide

exciting career opportunities and build a team of high-performing professionals. McKinsey &

Co. was appointed to assist the company in achieving these objectives. Mckinsey started with

an organizational restructuring program by creating a lean and a flat strategic business unit

structure with enriched jobs, greater accountability and autonomy. Accordingly unit teams

were formed comprising of unit leaders and facilitators. In the beginning, McKinsey provided

the facilitators who would coordinate a unit's performance. Each team had to set targets and to

work towards achieving them. Performance Ethic Program (PEP) was introduced to promote

young dynamic personnel to higher positions to replace the policy of seniority-based

promotions and to create new social vibrant networks. The PEP institutionalized and tailored

15
the management development programs for officers. A new Performance Management

System (PMS) was institutionalized to support the new innovative practices that McKinsey

implemented. The PMS included alignment of key result areas (KRAs) with business strategy

at all levels and clear career paths to enable the company to identify and reward the strong

performers and provide them with growth opportunities. The compensation and rewards were

linked to performance and pegged to the market. This program made performance and reward

systems transparent and fair within the organization, boosting the employees' initiative to

succeed.

Hypothesis 2: The more the organizations follow professionalized and innovative HR

practices (recruitment, selection, career development), the more is the development of a

pool of knowledge workforce and the more is the creation of - leaders for tomorrow -

within the organization.

With the demand for knowledge workers increasing in a competitive market,

enhancement of profitability depends on the recruitment, selection and retaining them in the

organisation. Until recently access to technology was considered as the prime area of focus

for many Indian firms. With increasing competition, knowledge workforce i.e. people have

become competitive differentiators [10]. The HR executives are under pressure to stretch their

capabilities and provide value-added services by professionalizing the HRM practices.

Organisations are recruiting and selecting professionals who can comprehend a complex

organisation structure and the requirements of a company in a dynamic business environment.

A remarkable example is that of an internationally renowned IT company, Infosys

Technology Limited. Infosys is one of the biggest Indian exporters of software and offers IT

consulting and software services to many of the Fortune 1000 companies. The determination

and the effective management skills of the Chairman, Mr. Narayan Murthy were the driving

force behind the success of the company. His strong belief that Indian professionals have the

16
capability to handle complex projects led the company to establish a name for itself in the

foreign markets. He implemented the best reward system in the industry to ensure that his

employees were taken care of. According to him, they represented the company's most

powerful wealth. He encouraged them to communicate with each other and to interact with

the management through meetings. He set up a Leadership Institute in Mysore to prepare the

Infosys' employees to face the challenges of a dynamic market scenario and to groom them to

be efficient leaders. The CEO's profound faith that human resource is the most valuable asset

of the company certainly motivated the employees to strive for excellence.

The rapid expansion of this software export and information technology company

from 42 in 1987 to 23,000 in 2003 called for redefining and innovating its recruitment,

selection and career development practices. For about 700 advertised positions in 2003 the

number of applicants exceeded 160,000. The sheer number of applicants requires a tough

recruitment process which is followed at Infosys Technologies Ltd. Infosys carries out a

rigorous interview process for selecting candidates, the primary selection criteria being -

capacity to learn. After minutely scanning the curricula vitae of the potential candidates,

Infosys selects a small number of applicants for further tests. These tests include a set of

puzzles and math algorithms in order to evaluate candidates “learnability”. The exact skills

required are not tested for during the screening process as Infosys trains employees to acquire

those. The candidates that pass the test stage have to further undergo an interview round

which determine their jobs at Infosys. Prospective candidates are tested primarily for

analytical, problem solving and communication skills to enhance a dynamic learning

environment, the key to success in an industry where technology changes rapidly. This strict

and thorough selection process ensures that the company manages to attract the most skilled

people available in the job market. The Chariman is confident that as long as the company

innovates, it will survive and succeed. In his words

17
 “the biggest challenge is to build a first class company in a third world country. To

become a global firm, we need not only the art of selling internationally but also the

art of recruitment, compensation, training and the art of teamwork across borders.

The quality of people is a survival imperative”

A similar philosophy was followed at Wipro Corporation, the other leading IT firm in

India. Wipro Corporation is a large diversified family owned business, with business interests

in many unrelated sectors. One of the most profitable of them is the Wipro Systems, a

company dedicated to computers, information technology and software developing. Wipro

believes in employing the best people and investing in their career development. Wipro prides

itself by being “People Business, Business People”. Wipro recruits from the leading Indian

educational institutes, such as the Indian Institutes of Technology (IITs) and the Indian

Institutes of Management (IIMs) through the campus placement programmes. For any new

business it enters into, the first chance for promotion is always given to its own employees. If

internal talent is not found, the company recruits the best from the competitive labour market.

Each employee is meticulously trained and groomed to respond effectively to the business'

requirements. In the words of the Chairman, Mr. Azim Premji,

“the key to success in all our efforts, as always, is our people”.

Wipro believes that they are in the business of leadership and the real worth of an

organisation is powered by people who work for it. Mr. Premji believes that

“in today’s dynamic environment the leaders that they nurture will lead them into the

future. The attitude to nurture the potential capabilities of employees, coupled with

sensitive and innovative people practices has resulted in a deep pool of talent in the

organisation. It is this depth of leadership that has fuelled Wipro’s sustained growth

and success”.

18
 Many Indian companies that perform well in the domestic market have not yet

expanded to the international arena. Several factors such as lack of confidence, technical

know how and resources inhibit leading Indian groups to expand their area of activities to

other parts of the world. Innovative HRM practices can play a crucial role in changing the

attitude of the companies and its employees in order to facilitate entry and presence in the

foreign markets. This is effectively illustrated by the case of the Indian pharmaceutical giant

Ranbaxy, which succeeded in expanding its business internationally due to the single-handed

determination of its past CEO, Dr. Parvinder Singh, and the manner in which he strived to

change the mindset of his employees. Ranbaxy found itself at the bottom of the

pharmaceutical curve [11] inspite of being active in the export market for 18 years. Foreign

markets had stringent quality requirements in terms of raw materials, packaging and physical

properties of pharmaceutical substances. This implied heavy costs in research and

development and careful organization of distribution and marketing activities. Despite

entering the foreign markets at the bottom rung of the value chain, Ranbaxy inched upwards

because the employees shared their CEO's beliefs and dreams that they were in a position to

harness their resources and capabilities to be successful in foreign markets. Together they

developed continual cross border learning programs to enrich their ways of working and

functioning. Their board attracted managers from different parts of the world. This step

enabled them to catalyze their globalization process. Moreover, the CEO led the company to

integrate backwards, to enter new markets and to develop novel drugs. This provided

Ranbaxy with the edge to succeed in the global marketplace.

In this age of intense competition, the examples of Infosys, Wipro and Ranbaxy show

that Indian companies realise that the differentiator for superior performance is people.

Intelligent and skilled employees are a prerequisite for companies that wish to climb the

ladder of success. As more companies acknowledge the worth of employees in India, the

19
competition for the limited and precious human resource will get fiercer. The challenge is not

just to attract human capital and enhance its skills and competencies to suit a company's

needs; but also retain it within the company. This is certainly not an easy task given the

increasing mobility and flexibility of the work force. As the battle to win and retain talented

and knowledge workforce intensifies, the HRM department has to step in to play an important

role in the conception, formulation and execution of a company's strategy.

Hypothesis 3: The more organizations practice proactive performance management

systems, the relatively easier it is to build, retain, retrain and redeploy talent.

Organisations need to incorporate country-specific, institutional factors that affects

patterns of organisational practices like HRM. National institutional embeddedness of firms

plays an important role in shaping HRM practices [12]. With competition, the responsibilities

and the domain of the personnel management need to expand to become proactive and

innovative HRM. The HR department not only has to develop new skills regarding

recruitment and selection procedures but also has to craft innovative compensation and

integration schemes for the employees in order to retain talent in the organisation. An

interesting example is that of Arvind Mills. Arvind Mills, which belongs to the Lalbhai Group

of companies, is a family owned business, producing textiles, ready to wear apparel, agro-

chemicals and dyestuff. In the late 1990s it was the third largest producer of denim in the

world. However, with the change in fashion trend from denim to gabardine and corduroy, the

company was adversely affected. The threat from powerlooms, the need to increase exports

and the growing demands of consumers led the company to introduce a new strategy. HRM

played a crucial role in this business plan. The company created a Manpower Planning and

Resource Group to take charge of the selection and recruitment procedure, to organize the job

structure and to define the task description of various employees. The group absorbed fresh

talent from top management and technical schools and established a compensation system

20
which matched the industry standards. Innovative new methods of recruiting were adopted

such as the Selection Information System (an online recruitment system) that provided

facilities from generating call letters, fixing interviews and to evaluate on-line interviews.

This program was linked to the Compensation Information System and the Training

Information System. A Management and Organizational Development Group was

incorporated to look into the training of the employees. It provided three kinds of training

programs: functional, behavioral and global. Another innovative concept (in the Indian

context) developed at Arvind Mills was the Management by Objectives (MBO) which

focused on producing results desired by the management in keeping with the satisfaction of

the employees. Arvind Mills succeeded in finding a harmonious balance between the top

management and the industry workers. Udaan, a kite flying competition between the

management team and the operations team is a perfect example of building healthy relations

between the two. In addition, programs such as Booboos (rock show) and Umang (forum)

were introduced to create synergies among workers. These were some of the ways that Arvind

Mills adopted to build and retain talent.

Most Indian companies still follow age-old practices and customs. Consequently their

HRM strategies are also based on the traditional "industrial model" which involves several

features like seniority based promotions, strong union influence and strict job classifications.

With the advent of a new wave of thinking, several firms have decided to break away from

the conservative model and adopt new and dynamic methods from their western counterparts

that were more in sync with the changing industry standards. Clariant (India) Ltd is one such

example. With the demerger of Sandoz (I) Ltd, a new autonomous company called Clariant

was born. Clariant develops, manufactures and markets dyes, pigments, chemicals for textiles,

leather, plastic, paints and inks. A new company meant that managers had new

responsibilities to handle. A special program called Clariant Participation to improve

21
Profitability through Performance and People (CLAP) was put into place to efficiently guide

the transition. The unique feature of this program was that managers who had handled

multidivisional responsibilities earlier were able to remarkably unlearn their experiences and

adapt their learnings to new situations. The program aspired to "change the mental process"

by introducing several changes in the company's way of functioning. The company moved

from "Top Down Close Communication" to "Up Down Open Communication", from "We

and They" to "Do it Together", from "Control" to "Leading and Managing". All these efforts

enhanced the communication process. Task forces and cross-functional teams increased

employee participation and involvement. Furthermore, the company introduced a "Goal

Setting" program that increased motivation among the employees. The Personnel Department

of Sandoz, which was mostly involved with administration activities, expanded its role as a

catalyzer, supplier of information, facilitator and developer thus trying to develop and retain

talent.

On the other hand, Infosys designed its performance management system to build,

retain, retrain and redeploy talent. Since employees are considered as the prime assets at

Infosys, the HRM practices arose from the belief that the employees stayed with Infosys

because the management was able to satisfy the three fold needs of the work force: learning

value added, financial value added and emotional value added services.

In the words of the Chairman, Mr. Narayan Murthy of Infosys,

“if there is one challenge that Indian software industry faces, it is how to recruit,

enable, empower and retain the best and the brightest professionals”.

On the learning aspect, Infosys provided its employees with an opportunity to accept

responsibilities at an early stage in the career. On the financial side, Infosys provided stock

options, low interest and zero interest loans to its employees. On the emotional angle, a

friendly, open and transparent atmosphere within the company kept the employees motivated

22
and involved. As a consequence, Infosys developed an ambience that fostered the overall

growth and well-being of its employees. Infosys built a campus which was a set of multi-

floored buildings constructed on a sprawling five acre land that provided banking facilities,

ATM, volleyball and basketball courts, shower rooms, bus facilities and housing if employees

needed to work overtime. Respect for people enabled the company to create a leading position

for itself in the Indian market and to gain esteem in the international arena.

Same is the story of Mr. Azim Premji, CEO of Wipro Corporation who managed to

exploit the talent of his employees. The biggest challenge faced by his company was holding

on to its skilled employees. For new local entrants and MNCs like IBM, Microsoft, Oracle,

Texas Instruments which wanted to recruit talented people from well managed Indian

companies, Wipro became a prime target. Azim Premji realised this problem and took

necessary steps to retain his skilled work force. Human resource managers considered

employees as "talent investors" and treated them as partners to be rewarded as other investors

are. Wipro, as Infosys was one of the first Indian companies to launch the employee stock

ownership called Wipro Equity Linked Reward Programme.

Hypothesis 4: Innovative HRM practices (in general and those affecting rightsizing, de-

layering, decentralizing in particular) are positively related to organizational

effectiveness and relatively superior performance

The new concept of HRM calls for segmenting the work force according to different

criteria like age, educational background and business background. Policies need to be tailor

made according to the needs of each group, in order to optimally utilize the resources offered

by each segment. In the wake of liberalization, the State Bank of India (SBI), India's largest

public sector bank decided to undertake an intensive restructuring program. With the entry of

foreign and private sector banks, SBI faced competition from both the Indian private as well

as foreign banks. It turned to business consultants, McKinsey & Co. for suggestions and

23
improvements. Accordingly the business was divided into eight major functions, Personnel

and HRM being one of the five most important divisions. HRM department was divided into

four branches in order to serve the varied needs of the organization. The four levels included,

Corporate Office, Local Head Office, Zonal Branch and Individual Branch. The Corporate

Office handled most of the HRM activities, each branch was delegated specific

responsibilities which made the management and decision making process in the bank,

simpler and effective. The HRM strategy placed special attention on the policies carved by

the top management which were subsequently implemented by the middle managers. Care

was taken to ensure that the new strategies that were designed for the middle managers

corresponded to their needs. But the implementation of the restructuring program had its share

of difficulties.

When a company is undergoing a restructuring phase, it is likely to uncover many

problematic areas that hinder its smooth functioning. At such times, innovative HRM

practices enable the company to improve its efficiency. This was the situation encountered by

the SBI, when it introduced the Voluntary Retirement Scheme or the 'Golden Handshake'

system. With the advent of new technologies like ATM and Internet banking, the dynamics of

banking had changed dramatically in the late nineties, SBI found itself faced with the problem

of redundant work force. The vast work force that was once regarded as one of SBI's strongest

assets became a liability following the computerization of the bank. In order to protect its

dealings and to remain profitable, SBI realised that it would have to undertake rigorous cost

cuttings and the VRS. The VRS deal proposed 60 days' salary for every year of service or the

salary to be drawn by the employee for the remaining period of service, whichever was less.

When the VRS was offered a large number of able employees accepted the offer and joined

competitor banks. SBI was in danger of losing most of its talented employees and be left with

less efficient employees. The introduction of this scheme lead to strong protests from the

24
unions which claimed that the bank had taken a hasty decision without undertaking correct

manpower planning measures. Unions and media strongly criticised SBI's VRS on the

grounds that it was arbitrary and discriminatory. At this crucial moment, SBI needed to

implement the right HRM practices in order to retain its talented workers and to do away with

the excess unskilled work force.

A similar story is that of Mehta Group and its innovative HRM practices. Mehta

Group is a leading conglomerate that houses two cement companies – Sidhee Cement and

Saurashtra Cement in Western India. Sidhee has been declared as a sick unit and is under the

Board of Industrial and Financial Reconstruction (BIFR) while Saurashtra is a loss-making

firm. The Group wanted to synergise operations of the two companies in order to reduce

competition and the declining market share. A strategy to develop 'synergy' between the two

companies was devised in which strong emphasis was laid on innovative HRM practices.

There was a complete redefinition of the organisation structure. Job roles and work

descriptions were revised, new positions were created and competency exercises for the

employees were effectuated. Instead of pursuing a retrenchment and recruitment philosophy,

the group followed a redeployment policy. It reorganised its employees into technical experts,

industry experts and market research personnel. By enhancing human resource development

within the company Mehta Group was able to record significant improvement in

performances and was able to optimally utilise its resources.

Liberalization forced domestic firms to adapt new changes to face foreign competition.

Innovation became paramount as it was the only way to satisfy the rising consumer needs and

requirements. Companies began reorganizing their organization structure and their business

model. HRM became an essential element in this restructuring phase in order to enable

companies to improve the recruitment procedures, hire skilled workers and enhance their

potential by devising distinct career paths. A striking example of this situation is the case of

25
Bharat Petroleum Corporation Limited. BPCL is a public sector organization which is one of

the leading companies in the Indian petroleum industry. BPCL had benefited immensely as

the petroleum sector was a monopolistic market enjoying administered prices fixed by the

government. In 2002 when the industry was deregulated, it led to a significant loss of market

share for both multi-national oil companies and Indian firms. The challenge faced by BPCL

was to retain its market share and to continue to be profitable. The company decided to

redesign the organization whereby HRM strategies were regarded as important support

services (along with Finance and Information Technology). Three kinds of services –

embedded support service, shared support service and corporate service – were developed and

each contributed to the successful turnaround of the company. BPCL used the HRM services

to cushion their main stream of business with respect to refining and retailing. Since BPCL is

a "public enterprise" it could not downsize the labor force. Instead, BPCL undertook a strong

retraining and redeployment program to efficiently use the excess manpower within the

organization. Consequently its sales force was increased by 50% without hiring any new

manpower. Competency mapping was introduced and new people were hired for only

specialized positions. The performance management system of the company was revamped

and made more customer oriented. Moreover, BPCL introduced a creative learning experience

program for its employees called the “Foundation of Learning Plan” that encouraged the

development of an employee's ability to work in high performing cross functional teams. The

introduction of this program led to a boost in the competencies of the employees and their

motivation to excel. The example of BPCL illustrates how innovative HRM strategies can not

only respond to traditional personnel problems but also improve and sustain superior

performance. Table 2 provides a summary of the strategic initiatives and the innovative HRM

practices of the eleven firms.

26
 -------------------------------
Insert Table 2 here
--------------------------------
Conclusion and Implications

This article focused on understanding some of the innovative HRM strategies and

practices that stem from functionally logical strategic initiatives in response to a hyper-

competitive, complex but opportunity-rich environment that had opened up due to the

economic liberalisation in India. These innovative HRM strategies and practices are not a

random collection but practices which may be considered “best” practices that has yielded

excellence in performance.

How universal are these innovative HRM practices? How are they important to

MNCs? The economic reforms have attracted foreign direct investment and MNCs which are

more interested in managing their investments through cost, quality or innovation. Indian

organisations face a number of challenges, the most important being - to make the best use of

their existing human resources and compete on the basis of innovative HRM practices. These

challenges have a direct implication for the HRM function. Literature on HRM suggests that

the practices or their close versions seem to have applicability both in developed countries as

well as in an emerging economy like India, and therefore may be relevant to most sectors and

industries anywhere in the world wherever there is a competitive market economy. Taken

together, the wealth of different HRM strategies incorporates much strength. The adoption of

different innovative HRM practices in some of the Indian companies has improved business

performance. This finds support from recent studies linking HRM activities and firm

performance. The study supports the decade-old argument that investments and adoption of

innovative HRM strategies are a potential source of competitive advantage. Nevertheless,

scholars have little understanding of the processes required to realise this potential, or the

specific conditions under which the potential is realised [14].

27
 This provides MNCs two important lessons. In constantly changing environments, first

mover advantage is critically important. But Indian corporates have been late movers but are

fast bracing to competitive pressures. MNCs must manage their organisation efficiently and

effectively to brace this renewed competitive challenge from Indian firms. Second, Indian

firms have now more resources to invest in developing innovative HRM strategies (see

reverse causality in Figure 1) which has accrued from cost reduction mechanisms, integration

of support functions such as information technology in their work process, boosting morale of

employees and by high retention of skilled employees. Though MNCs have deep pockets,

which is an important driver in the labour market, this study of eleven firms indicate that

Indian firms are relentlessly trying to reduce employee turnover by innovative HRM

strategies. For those MNCs, which understand this challenge of doing business in India, the

ultimate benefit is not to fall into the trap as their predecessors, but to leap towards an

integrated and innovative HRM strategy that can attract, develop, excite and retain key talent.

MNCs such as Castrol, Shell, Exxon (petroleum sector), Renault Tractor, Ford, Mitsubishi

(automobile sector), Lafarge, Italcementi (cement industry), Citibank, American Express

(banking sector), Levis, Pepe (textiles), IBM, Microsoft, HP-Compaq, Oracle (IT sector),

Bayer, Roche (pharmaceutical), Coke, KFC, McDonalds, Procter & Gamble, which have

learned or are trying to learn the hard way of doing business in India.

How generalizable are the implications and insights? The study of the eleven Indian

organisations, which are leaders in their field of expertise, may have insights regarding

similar processes occurring in other emerging markets such as Asia, Latin America and

Eastern Europe. In countries like Argentina, Brazil, China, Mexico, Hungary, Israel, Poland,

Slovenia numerous MNCs are investing and affecting local economies and changing the

dynamics of the business environment. While the MNCs contribute to the economic growth of

these countries they also pose a threat to local competitors. Local companies in similar

28
environments will have to adjust to the new rules of the game and practice innovative human

resource management (HRM) strategies.

The study has its limitations because of its small sample size, and is restricted to nine

industry sectors. However, within the limitations it contributes to the field of HRM in general

and specifically to academicians and practitioners who are interested in emerging country

environments.

This article might encourage academics to conduct future research exploring the

different modes of adaptations by local companies to environmental changes. Growing

importance of research has already been reported not only in international HRM but also in

comparative HRM studies. Researchers might want to look at the differences, if any, in the

adoption of innovative HRM strategies and practices from a developed and emerging market

perspectives.

Managerial Implications

In an increasingly globalizing economy, this study has five distinct implications for

managers worldwide. Although the sample is small and the definition of innovative HRM

strategies and practices broad, it may be worthwhile for managers to look into their own

organisations and ask whether there is a need to redefine, redesign and innovate their HRM

strategies and practices. There might be issues which may sound trivial at first sight but may

be a precursor to long-term competitive advantage and superior performance. Secondly,

managers may want to look at how top management teams oversee innovation efforts at the

workplace in general and the HRM issues in particular and strike a balance between guiding

and adopting atleast some of those efforts which transcend embedded interests. Thirdly, the

findings in this paper are consistent with the strategic choice perspective; understanding

business strategy is critical in understanding HRM strategies by emphasising either the

competence or the behavioural aspect. Thus, given the business strategy, innovative HRM

29
strategies can be chosen to fit the overall intent. Fourthly, the findings are pertinent to MNCs

(doing business in both emerging and developed economies) and expatriates working in those

companies as they can benchmark the differences in managing local businesses. The results of

this research highlight that local companies are fast catching up with MNCs by adopting

innovative practices rather than following a universal set of “HR best practices”. Finally,

understanding the wealth of different HRM strategies and practices is relatively easy,

managing and adopting them within the cultural heritage of the organisation is the difficult

part. Competitive advantage through people processes is difficult to achieve and even more

difficult to sustain, but once achieved, it is not easy to duplicate.

Acknowledgement

I would like to thank Professor Kazuhiro Asakawa, Keio Business School, Lalita

Saptagiri, Visiting Professor, ESSEC Business School for their comments and Sejal Gupta,

ESSEC MBA student who helped me in the second phase of this research.

30
Footnotes

1. For a detailed discussion see Kossek, E, Human Resources Management Innovation,

Human Resource Management, 26(1): 71-92 (1987); Som. A and Bouchikhi, H, What
drives the adoption of SHRM in Indian Companies? ESSEC Working Paper, DR-03009
(41 pages) (April 2003)
2. For a detailed review of the growing proactive nature of HRM function, see Lengnick-
Hall, C.A. and see Lengnick-Hall, M.L., Strategic Human Resource Management: A
review of literature and proposed typology, Academy of Management Review, 13: 454-470
(1988); Schuler. R and Jackson. S, Strategic Human Resource Management, London:
Blackwell (1999);
3. Although the field of strategic HRM has been discussed and debated in great details in
western literature, it seems from existing Indian HRM literature that there is a time-lag of
about 8-10 years regarding development of personnel functions. For example the shift
from personnel management (industrial relations, administrative role of personnel
function) to a more proactive strategic role of HRM function started in the west in the
mid-eighties while in India the debate started in the nineties with the adoption of the
concept of human resource development (HRD). Only as a response to the liberalisation
of the Indian economy, both academicians and practitioners started to notice the direct
implications of strategic HRM as a tool bring about large-scale structural changes in
organisations in order to cope with the challenges brought by the structural adjustments.
The difference between personnel management and HRM strategies and practices,
creation of creative and innovative HRM processes both in academic institutions and
industries and role of HRM in managing the change process have started been discussing
from mid-nineties. In Budhwar. P, Indian and British personnel specialists’ understanding
of the dynamics of their function: an empirical study, International Business Review, 9:
727-753 (2000), the author has reported that 70.80% respondents agreed that because of
liberalisation of the Indian economy there is increased competition and therefore there is a
need to make employees more creative, innovative and keep them motivated. Also
29.16% of the respondents that there is a gradual shift towards taking care of people and
emphasising on behavioural skills and group activities i.e., realisation of importance of
HRs (page 735). For more detailed discussion, see Budhwar. P and Sparrow. P,
Evaluating levels of strategic integration and development of human resource
management in India, The International Journal of Human Resource Management, 8(4):
476-494 (1997); Budhwar. P and Sparrow. P, Strategic HRM through the Cultural looking
glass: Mapping the cognition of British and Indian managers, 23(4): 599-638 (2002).
4. For a detailed discussion of liberalisation, redesigning and restructuring of organisations
see Som, A, Role of Human Resource Management in organisational redesign,
Unpublished Doctoral Thesis, Indian Institute of Management: Ahmedabad, India (2002);
Som, A. Building sustainable organisations through restructuring: Role of organisational
character in France and India, International Journal of Human Resource Development and
Management, 3(1): 2-16 (2003).; Som. A, Redesigning the Human Resource Function at
Lafarge, Human Resource Management, 42(3): 271-288 (2003); Som, A, Mahut Group: A
failed case of organisational restructuring, Asia Case Research Journal. (Forthcoming,
2004); Som, A, Strategic organisational response of an Indo-Japanese joint venture to
India's economic liberalisation, Keio Business Forum. (Forthcoming, 2004)
5. For a discussion, see C. K. Prahalad and K. Liberthal, The end of corporate imperialism,
Harvard Business Review 76: 68-79 (1998); C. K. Prahalad and S. L. Hart, The fortune at
the bottom of the pyramid, Strategy + Business, 26: 1-14.

31
6. For detailed discussion see Khandwalla, P, Effective organisational response by
corporates to India’s liberalisation and globalisation, Asia Pacific Journal of Management,
19: 423-448 (2002); Virmani, A, Potential Growth Stars of the 21st Century: India, China
and the Asian Century, Chintan Occasional Paper, (October, 1999). Varied business press
articles from Indian business journals such as Business Today, Business India, Business
World, India Today, Fortune India, Outlook and articles by Mr. Arun Shourie, Minister of
Divestment, Government of India.
7. See Randall S. S, Linking the People with the Strategic Needs of the Business,
Organisational Dynamics, 21(1): 18-32 (1992); Randall S. S. and James W. W, Human
Resource Strategy: Focusing on Issues and Actions". Organisational Dynamics, 19(1):5-
19 (1990); Pfeffer. J, Competitive advantage through people, California Management
Review (Winter): 9-28 (1994). Ulrich. D, Human Resource Champions: The next agenda
for adding value and delivering results. Boston Massachusetts: Harvard University School
Press (1997).
8. For a richer discussion see Ulrich. D, A new mandate for Human Resources. Harvard
Business Review, 124-134 (1998)
9. Cappelli, P and Crocker-Hefter. A. Distinctive Human Resources Are Firms’ Core
Competencies. Organisational Dynamics. 24(3): 7-22 (1996).
10. For example see Bartlett.C and Ghoshal. S, Building Competitive Advantage Through
People. MIT Sloan Management Review, 34-41 (2002).
11. For example see Bartlett, C.A and Ghoshal, S, Going Global: Lessons from Late Movers?
Harvard Business Review, 70(5): 132 – 142 (2000); and Khanna, T and Palepu, K, Why
Focused Strategies May be Wrong for Emerging Markets, Harvard Business Review,
July-August, 3-10. (1997).
12. Gooderham. P.N., Nordhaug. O, and Ringdal. K, Institutional and Rational Determinants
of Organisational Practices: Human Resource Management in European Firms,
Administrative Science Quarterly, 44(3): 507-532 (1999).
13. Yin, R. K, Case Study Research: Design and Methods. California: Sage Publications
(1994); Becker, E.B and Huselid, A.M, Overview: Strategic Human Resource
Management in five leading firms". Human Resource Management, 38(4): 287–
301(1999); Eisenhardt, K.M, Building theories from case study research, Academy of
Management Review, 14: 532 – 550, (1989).
14. For better understanding of the phenomena that “innovative HR best practices” have
“yielded performance excellence” scholars have debated and discussed in the last decade
to understand this causality. For further detailed discussions see Arthur, J. B., Effects of
human resource systems on manufacturing performance and turnover. Academy of
Management Journal, 37: 670-687 (1991); Cutcher-Gershenfeld, J., The impact on
economic performance of a transformation in industrial relations. Industrial and Labor
Relations Review, 44:241-260 (1991); Huselid, M. A., The impact of human resource
management practices on turnover, productivity, and corporate financial performance.
Academy of Management Journal, 38: 635-672 (1995); Delantey, John T., Huselid, Mark
A., The impact of human resource management practices on perceptions of organisational
performance, Academy of Management Journal, 39(4): 949-969 (1996); Huselid, Mark
A., Jackson, Susan E., Schuler, Randall S., Technical and strategic human resources
management effectiveness as determinants of firm performance, Academy of Management
Journal, 40(1): 171-188. (1997).

32
 Table 1. Demographics of the eleven firms

Company Industry Turnover No. of MNC competitors

Company Activity (Operating income in employees
mn Euro1)
1999 2003
Bharat Petroleum Petroleum: Refining, 3455 7851 5600 Shell, BP, Amoco,
Corporation Limited Retailing, LPG, Aviation TotalElfFina, Caltex
Fuel
Mahindra & Automobile/Tractor: 630 821 17000 Ford, Mitsubishi, Renault
Mahindra Ltd Manufacturing Jeep,
industrial engines
Maruti Udyog Ltd. Automobile: 1084 1344 3355 Ford, Mitsubishi,
Owned by Suzuki Utility-car segment Hundai, Daweoo, Honda
Motors Ltd., Japan manufacturer
Mehta Group Diversified, international - - 15000 Lafarge, Ciment Français
trade, sugar, packaging,
engineering, cement etc
State Bank of India Largest Government 30735 53840 200000 Citibank, ABN-Amro,
owned Bank with 20% ANZ Grindlays, HSBC,
market share Deutsch Bank
Arvind Mills Garments & Textiles: 171 269 11000 Levis, Wrangler,
Denim, cotton shirtings, Crocodile, Diesel, Arrow
blends and voiles, others
Clariant (I) Ltd. Chemicals: agro/textile 43 58 ~ 400 Varied in different
chemical, dyestuff segments
Wipro Corporation Diversified (medical 324 733 30000 R&D Sites in India of:
systems, vegetable ghee, IT Services: Microsoft, Oracle, IBM,
oils) and IT/Software 17600 Intel, Sun Micro Systems

Infosys Software development in 93 659 23000

form of services, turnkey
projects
Ranbaxy Pharmaceutical: 194 503 ~ 5000 Abott, SmithKline
Manufacturers of drugs, Beecham, Glaxo,
medicines, cosmetics and Novartis, Bayer, E-
chemical products Merck, Roche
TISCO Steel: Manufacturers of 1141 1781 46,000 Local competitors: Essar
rails, fish-plates, bars, Steel, Ispat, Jindal,
light & heavy structural, Kalyani Steel, SAIL,
galvanized sheets MNC: Sesa Goa, Ugine,

1
1 Euro = 55 Indian Rupees

33
Figure 1: Contingency model of adaptation of innovative HRM practices by Indian
corporates in response to India’s economic liberalisation

Liberalisation and Globalisation of Indian Economy

- Dynamic hyper-competitive, turbulent business environment
- Opportunities for growth due to deregulation of industries

Innovative HRM Practices

- HR synergising with
changing business
Reversed Causality
strategies, creating social
networks by playing the

Reverse causality
role of strategic partner,
change agent, employee
champion
- Professionalized
recruitment, selection,
career development
practices to prepare a
knowledge workforce
which develops, coaches
and harbor leaders for
tomorrow
- Proactive performance
management systems to
build, retain, retrain and
redeploy talent
- Rightsizing, de-layering,
decentralising for
increasing organisational
effectiveness

Relatively Superior Corporate Performance

34
 Table 2. Innovative HRM Practices Adopted By Indian Companies

Company Industry Strategic Initiatives Adoption of innovative HRM practices

Bharat Petroleum • Faced deregulation of • Redeployment and retraining of employees
Petroleum petroleum industry • HRM regarded as an important support service
Corporation • Retain customers • Revamped Performance Appraisal System
Limited • Maintain profitability
Mahindra & Automobile • Creation of productive labour • BPR scheme to reinvent business process
Mahindra Ltd Tractor force • Flat structure that encourages team work
• Rationalize manufacturing • Outsourcing workforce for advanced and non-
process core activities
Maruti Udyog Automobile • Launch new models for • Hire professional HR managers
Ltd. Utility-car diverse markets • Make HR responsible for internal
segment • Increase dealer network communication and relations with Union
• Reduce costs and increase • Creation of an excellent compensation policy.
operating efficiencies
Mehta Group Cement • Curtail competition between • Redefinition of organization structure
the two companies belonging • Redeployment policy to optimally utilize human
to the Group resources
• Develop 'synergy' in terms of
structure, manpower and
resources
State Bank of Bank • Competition from foreign and • Segmenting the HR department into SBUs with
India private banks specific duties
• Trim the size of its work force • Introduce VRS to cope with automation.
to rationalize costs
Arvind Mills Textiles • Recover from the change in • Implementation of innovative recruitment,
fashion in the apparel industry compensation, training procedures
• Increase exports • Development of synergies between top
management and workers
Clariant (I) Chemicals • Transition from Sandoz to • Introduction of the CLAP program
Ltd. Clariant • Change the mindset of the employees through
communication and goal setting
Wipro IT • Sustaining the wealth of their • Introducing employee stock option schemes
Corporation human capital • “Talent investors”, “people business”
Infosys IT • Accept the challenges of • Employee driven campus programs like "Infosys
globalisation Toastmasters Club" to provide support to the
• Powered by intellect and employees
driven by values • Construction of a Leadership Institute to foster
• Culture of ethics, the qualities of leadership within the employees
performance, meritocracy • Leadership through INSTEP program where 3-6
• Creation and sharing of wealth months internships are given to students from
across the globe
Ranbaxy Pharmaceuti • Climb up the curve of • CEOs belief and dream-cross border learning
cal globalisation programs
• Backward integration, new drugs invention
TISCO Steel • Focus on current growth and • Building cross functional teams of high-
profitability performing professionals with clear career paths
• Enhance accountability for individuals
• Cost reduction • Started PEP and revamped its PMS by aligning
KRAs with strategy at all levels
• Institutionalized tailored management
development program for officers

35
 Table 3. Semi-structured, open-ended questionnaire protocol

1. What are the recent changes in your organisation?

2. What are your main business challenges? What are the strategies did you adopt to face
these challenges?
3. Describe the structure and the role of HR? Is there a defined HR policy, values, goals
and philosophy?
4. Is the HR Strategy related to the overall business strategy? If yes, why and how, if not
why do you think it is not? How do you think you would achieve your strategy without
people being involved?
5. Tell me some milestones, current activities and new HR strategies and practices? How
were these activities operationalised and implemented?
6. Tell me the practices of the HR subsystems that you follow in your organisation: (a)
recruitment, selection, career planning (b) performance management system (c)
retraining & redeployment (d) retaining and rightsizing
7. These are some of the HR practices that organisations in the west adopt. Which of them
do you follow: (a) financial incentives for excellent performance (b) rigorous selection
and selectivity in recruiting (c) higher than average wages (d) Employee Stock Option
Scheme (ESOP) (e) external and internal communication (f) decentralisation of decision
making and empowerment (f) use of cross-functional teams (g) high investment in
training, skill development and implementing multiple jobs and job rotation (h)
comprehensive performance management system (i) a coherent view of employment
relation (j) long term perspective
8. Did changes in HR practices have an effect on: (a) commitment to organization,
customer and quality (b) opportunities to develop new skills (c) vision & values (d)
recognition for contribution (e) job security (f) job satisfaction (g) pressure to work and
working hours (h) team work (i) career opportunities (j) people’s morale (k) working
conditions.

36
Appendix: Research design, methodology and data collection

The aim of this paper was to examine the impact of liberalisation in the Indian
corporate sector and the focus was to understand innovative HRM strategies and practices
which helped Indian corporates to improve performance during a hyper-competitive
environment. The research questions were three fold:
1. What has been the impact of economic liberalisation on Indian corporates?
2. What were the innovative HRM strategies and practices that Indian organisations have
adopted to brace competition from MNCs?
3. Were they successful? If yes, how were they implemented? If not, what were the
difficulties?
This study was based on a sample of eleven Indian organisations which are leaders in their
respective nine sectors. These nine sectors represented the most dynamic business
environment where phased deregulation resulted in multi-sided competition and consequently
organisational restructuring. The eleven firms were chosen due to two specific reasons: (a)
access and willingness of the organisation to participate in the study and (b) all the firms were
leaders in their respective sectors and may show the way forward to other Indian firms.

Research Design
Given the primary objective of the present study to examine the relevance and
applicability of the contingency theory of organisations and an evolving nature of the main
linkages in the model, an exploratory research was conducted. Qualitative research is usually
recommended for studying process-related issues and also when the phenomenon being
studied is not to be de-linked from its context.
Qualitative research i.e. case studies gave a thorough grounding and a feel of the real
life situation especially where theory development and research are in early stages [13]. The
research setting involving linkage with innovative usage of HRM strategies and practices is
still at an early phase in the Indian context. To develop a clear understanding of the
innovative usage of HRM practices and strategies that were adopted for superior performance,
there was a need to look at varied data from multiple sources and study the phenomenon in its
own context. The case method permitted a holistic analysis of a wide range of variables,
open-ended and descriptive data, and multiple data sources and data collection techniques
within the research setting.

Methodology
The methodological approach in this study was to focus in-depth on a limited number
of organisations across varied industries and observe the innovative HR strategies and
practices that they were practising to compete, grow and perform sustainably in the aftermath
of economic liberalisation. Within the research setting a holistic approach and multiple case
design was used as it provided more scope for attempting generalisation. A deliberate choice
was made to focus on depth rather than breadth because it would have been unrealistic to try
to attempt both detailed, in-depth analyses of a large sample of organisations. The exploratory
methodology provided a means to study the process of HRM strategies and practices and their
linkages between context, process and outcome of the contextual variables. Becker and
Huselid (1999) orchestrated the study of five firms to provide insight into the “state of the
practice” by case study methodology describing HR strategies employed by firms known to
be leaders in the management of people.

37
Data collection and analysis
Data were collected to study how economic liberalisation in the Indian context
affected Indian corporates and how innovative HRM strategies and practices were adopted to
brace competition. Information was sought on the above issues over a period of time (1998-
2003), right from the beginning of necessity to change, the change process and the post
change results. Longitudinal data were necessary to capture changes in the context, to observe
the change process, the reinforcement, if any, of HRM strategies and practices and the time-
line of events with respect to major decisions taken and their actual implementation.
The data required during this study called for top-management involvement. This is
because the information needed was of strategic decisions taken by the organisation and only
the top management team was able to do justice to the information sought. The data required
were mostly post-hoc. To re-construct an accurate account of the strategies the informant was
also needed to have good knowledge of the events and also be either a participant in the
change process or should have observed it closely. This research necessitated a wide array of
informants from both HRM as well as other functional departments. Interviewing a range of
informants enabled cross-checking of the data and identified multiple perspectives and
differences of opinions within the organisation.
There were two primary data sources used in this case study research: interviews with
informants and archival data from organisations. Archival data were collected from different
databases, academic journals, published cases, business press, and news items. Company
documents, organisational records, circulars, appraisal forms, employee manuals, consultant
reports, press releases and other documents were collected to gather new insights for the
interviews and to cross-check the details during interviews. This gave a more holistic picture
of what was reported in the business press and academic journals about the organisations and
how it matched with the real data.
Constant effort was undertaken to increase the reliability and validity of the study.
Multiple respondents across functions and hierarchy together with HRM heads, professionals
and executives provided the required reliability and validity. They provided insights into the
evolution of the organisation during the economic liberalisation process and verified the
details in the subsequent interviews. The study undertook several measures in getting accurate
and actual information. First, complete anonymity was assured to the respondents giving the
information. Second, trust was built with some organisations and executives through multiple
visits and by keeping in constant touch during the course of the research project. Third,
information was sought informally outside the organisational premises where the respondents
were more comfortable talking sensitive issues. Fourth, a group of alumni from my school,
who are working for those companies, were contacted for further data. Finally, information
was sought through indirect ways rather than posing direct questions. It is my belief that the
data received using the above-mentioned ways reflects information as truthful as possible.
Ninety-one executives were interviewed in multiple rounds during the period. The
interviews with executives lasted between thirty minutes to three hours depending on the
availability and the willingness to share information. Wherever necessary follow-up
interviews were conducted. During the first round of interviews an overall pattern emerged of
the organisations. The open-ended nature of questions gave the informants leeway in giving
their responses. Before starting the fieldwork, an interview protocol was prepared which was
improved and revised after discussion with experienced academicians, redesign and HRM
professionals. This was followed by a historical count of the change process as documented
and informed by the respondents. The interview protocol was strictly followed at all times and
no constraints were imposed on the choice of responses. Table 3 above provides some of
important questions that were asked during the interview process.

38