W14748

NEW HOLLAND TRACTORS INDIA: COMMUNITY MANAGEMENT AND

EMPLOYEE RELATIONS

Subrat Kumar and Asha Bhandarker wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.

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Copyright © 2015, Richard Ivey School of Business Foundation Version: 2015-03-25

In June 2013, Shrikant Patil, New Holland Tractors (CNH) general manager of human resources (HR),
India, was getting ready to attend the weekly employee relations meeting, just as he had every week since
joining the company 13 years ago. A leading name in the Indian tractor industry, CNH was known for its
participative employee culture and for the fact that it operated without an employee union, a feat
generally unheard of in this industry in India. Patil’s thoughts went back to the discussion he had just
concluded with Ram Vishwas, an assistant line manager at CNH.

For the third time in as many months, an associate had complained about the behaviour of an assistant
line manager. In each of the three cases, the assistant line managers had suggested that the company’s
practice of providing associates with a high degree of workplace largesse had created an overt sense of
entitlement among this group of workers. The line managers felt that this policy was risky, and unless the
company took action, the situation would be out of control in a few years. As Patil left for the HR
meeting, he wondered how to approach this issue: Was there a need to revisit and change CNH’s
employee policies? Was this problem specific to Vishwas? Or were the complaints simply a coincidence
and not an indication of a larger problem?

Patil did not need to pull Vishwas’s personnel file to gain a better understanding of his history and
performance at CNH, Patil himself had been the hiring manager when Vishwas joined the company. An
engineer from NIT Thapar, Vishwas had worked for four years at Escorts India, where he had been a top
performer, earning two promotions in a very short time. Based on a recent appraisal meeting, it was clear
to Patil that Vishwas’s performance during the last 18 months at CNH had been excellent.

Vishwas’s words kept ringing in Patil’s mind:

I have nothing against any employee, but I personally feel that the way Mahesh Singh, the
associate in question, talked with me was unacceptable. Moreover, I feel that the way CNH has
been tolerating and even ignoring the irrational demands and behaviours of the associates is a
serious concern, and the sooner we address it, the better it will be for CNH’s future. Mr. Patil, I
will adhere to whatever you advise me, but I feel that this present practice of encouraging

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associates to [speak freely about all issues] is a balloon that will soon burst, with catastrophic
consequences for CNH.

BRIEF BACKGROUND OF THE COMPANY

CNH India was established in 1996 as a subsidiary of CNH Industrial N.V., headquartered at Baslidon,
Essex, in the United Kingdom. The company designed, produced and sold agricultural and construction
equipment. As one of the most highly awarded brands for groundbreaking and accessible technology that
improved farming efficiency and productivity, CNH India offered superior technology in its 32-
horsepower to 75-horsepower tractors, which were manufactured in its plant at Greater Noida and
commanded a 6 per cent share in the Indian tractor market.

Since its inception in 1997, CNH had believed in empowering its employees, right down to the lowest
level. Any decisions were always made collectively by the management and employees. As a result,
despite being located in Uttar Pradesh, which had a highly unionized work culture and where politicians
regularly stepped in to support the unions that made up their constituency, CNH never had a union nor
had it faced a demand for one. This unique workplace culture resulted in no lockdown days for the
company, and the number of cases of industrial relations disputes was the lowest in the entire region.
Thus, the company could focus on employee welfare rather than spending time and resources on
managing external stakeholders. The supportive attitude of the associates facilitated periodic technology
upgrades for the company, thereby supporting growth.

In 2013, the Indian tractor industry constituted an INR0.525 million unit-strong market, with Mahindra
and Mahindra and Tractors and Farm Equipment Limited standing out as the market leaders. But CNH
also had aggressive growth plans for the future, with significant market presence in product and
technology leadership anticipated in the next three years. To this end, the company was also planning to
set up a plant in Pune and had thus brought a lot of new blood into the organization. In order to achieve
this aggressive growth objective, the company needed to maintain its excellent relationship with its
employees. Moreover, recent incidents of industrial violence in the nearby towns of Gurgaon and
Ghaziabad had once again brought industrial relations to the forefront of company discussions.

FORMATIVE YEARS OF THE COMPANY

In India, the land required for setting up factories was generally acquired from villages. The displaced
villagers were compensated monetarily, and menial jobs were offered to one member of each family. The
companies generally tried to acquire land through brokers and through certain influential people in the
region, who in turn helped with the process of fixing the compensation to be paid out. CNH India decided
to take a different approach, working directly with the villagers while managing any political
interventions that emerged and bypassing the brokers completely. Additionally, CNH India convinced the
villagers to upgrade their skill set and agreed to bear the entire cost of the process. This alternate approach
to conducting business resulted in the villagers taking on more meaningful positions in the company, and
it provided potential for future personal growth.

Rajnish Bawa, CNH’s HR director, commented, “Instead of the then-prevalent wisdom of not including
the local population, we were clear about involving them in our growth story, and we would not promise
anything we could not fulfil afterwards.” Thus, while the plant became operational in 1999, the seeds for
its growth had been sown back in 1997.

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Employee Relations – Initial Years

Pankaj Gupta, a maintenance associate in CNH’s machine shop, was one of the 20 associates who joined
the company in the first recruitment round on November 7, 1997. This group contained a mix of
representation from Haryana, Uttar Pradesh, Uttarakhand, Madhya Pradesh, Bihar and Punjab but no one
from the local district. Gupta shared with pride that, out of the 20 from his group, 10 were still associated
with the company, while four or five of the others had moved to good positions outside of the country.

Gupta confided, “The guiding light of the HR practices was our then-leadership team, including Rajnish
Bawa, the current director of HR. We might not have been very clear about what we wanted to do, but we
were certainly clear about what we did not want to do.” From the start, the company elucidated its
employee relations’ vision about not differentiating between employees on any basis, specifically along
white-collar versus blue-collar lines. Since those early days, CNH India has remained clear about its focus
on developing employee connections within the company.

The company was acutely aware of the various issues that had arisen in other organizations due to the
divide between employees and managers. In such companies, this divide had resulted in the formation of
employee unions and an increase in external interference from politicians. As a result of such issues, time
and resources had to be spent on the process of managing these stakeholders instead of using these
resources to ensure more productive output for the company.

CNH India made some concerted efforts to avoid following this path. Employees were treated equally and
were granted certain status within the company. They were not referred to as “workers” but as
“associates,” and they had the opportunity to invite their family and loved ones to company events. Gupta
shared his sentiments about CNH’s investment in the well-being of its employees:

From the first day itself, we were treated equally. What further cemented our faith in the company
was that, one day, while going down the road to catch a bus in the evening, some of the locals
threatened us, as they felt we were taking away their jobs. We shared [this news] with the
management, and the very next day, the company started a bus service on campus to help the
employees avoid clashes with locals. Since then, there was no looking back for us, and the
company never let us down.

HR POLICIES IN GROWTH YEARS

Recruitment

Recruitment at CNH involved four key steps:

 A written exam to shortlist applicants,

 A technical interview with the function head,
 An HR manager assessing the person’s fit with the organization, and
 A meeting with the director of HR.

In 2013, with 1,750 blue-collar employees, CNH India had 750 full-time employees. The other 1,000
employees were either apprentices or contract staff.

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CNH was the first company in Uttar Pradesh to reach out to state authorities for hiring apprentices under a
government-approved scheme and signed a Memorandum of Understanding for the same. Even when
hiring contract labour, CNH signed up with the government, with the support of the local administration.
Bawa commented on this leg of the process: “This step had its share of initial hiccups, and was a
relatively long-drawn process, but once stabilized, it saved us a lot of legal hassle afterwards. We also
ensured that the contract employees were treated the same as any other employees and provided them
with opportunities to be absorbed as full-time employees.”

On the question of pressures and influences from various interest groups, including politicians, Ramesh
Sharma, the company’s senior HR manager, offered the following information: “Yes, they existed as in
any manufacturing set-up in the country, and we considered the referrals from our employees and local
opinion leaders too. But, over the period, everyone realized that CNH India stood for quality and didn’t
compromise on the quality of its employees.” For this reason, it came as no surprise that CNH, which had
rolled out just two tractors a day at the start of its operations, was now manufacturing about 200 tractors
daily, with no lockdown days and with full co-operation from its associates.

Recruitment interviews for white-collar employees involved a three-step process, with the HR director
conducting the final interview. During the entire process, along with judging the technical prowess of the
applicant, the recruitment focused on whether the individual would gel with the company’s philosophy
and culture. At times, this process resulted in some great individual performers being turned down since
team players were preferred.

Training

Training made up a part of the CNH culture, and programs were offered for every level at various times
of the year. CNH India’s associate-training focus had always been twofold: (1) to ensure the utmost
technical competence and (2) to develop and groom employees with strong “soft skills.” Examples of the
technical training programs included acquainting workers with Combined Harvester (an agricultural tool)
and 5-S. Examples of soft-skills training included regular communication skills workshops and also the
OUT-BOUND trainings, which focused on experiential learning as a training tool. Some of the more
seasoned employees instigated the lowering of training days during induction, from 90 days to 30 days.
This reduction in number of training days led some employees to think that CNH India no longer felt
strongly about their welfare and growth or that the company was now taking a casual approach.

For the newly hired managers, training consisted mostly of on-the-job experience. The new recruits were
guided by company veterans, who helped them to understand the salient features of the company culture.
These trainings concentrated mainly on soft skills and the human resource side of doing business since the
company believed that all managers should devote 80 per cent of their time to HR issues and only 20 per
cent to technical challenges. A focus on HR processes ensured that the company culture and legacy,
carefully built over decades, maintained their intensity and sheen.

Career Planning

For any employee to remain motivated, a career plan was a must, since these plans reflected the person’s
future professional path. At CNH, all associates were provided with a clearly defined career plan (e.g.,
Associate › Senior Associate › Group Champion › Assistant Engineers), which was mapped out in
accordance with their performance.

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Outlining a career path for employees was very uncommon in the Indian manufacturing industry, and
thus, the process represented another unique commitment that CNH made to its employees. All blue-
collar employees began their careers as associates. After four years, an associate was eligible for
promotion to senior associate; after eight years, they could become a group champion. It took 11 years for
a blue-collar employee to transition into a white-collar position. Transitions were based on merit and
successful completion of a written exam and interviews. This process for career development, although
seemingly extended, was very effective in securing employee satisfaction. For employees who were
unable to move forward on their career development path or for those who simply chose not to, the
company granted a one-time promotion from associate to senior associate at the 12-year mark.

CNH also offered its employees the opportunity to obtain a diploma from Jamia Milia University. Amit
Mahajan, an associate in supply-chain management, commented: “The Company encouraged us to go to
school part-time to earn a diploma from Jamia Milia University, which I was pursuing. This also meant
certain flexibility as far as my work shift was concerned, but I did not have any problems. Eight to 10 of
my colleagues had already completed their diplomas and were promoted, while eight to nine are presently
pursing the same.”

For white-collar employees, in order to maintain the flat structure as initially envisaged, the company had
only four levels. However, this approach resulted in titles that did not effectively reflect seniority, which
caused dissatisfaction among managers. This feedback was subsequently addressed by the company, and
the number of management designations was increased to 11, even though this practice differed from the
norms at the CNH headquarters.

As a result of this change, employee satisfaction at the managerial level increased, and promotion among
white-collar employees was decided solely on the basis of merit and vacancies in senior positions.

Compensation

For blue-collar employees, salary benchmarking took place at the regional level. For example, in India,
blue-collar employees compared and contrasted their compensation packages with other companies in the
region, whereas the CNH head office in the United Kingdom used a different benchmarking method.

Rajshree Raman, CNH’s general manager of corporate HR, shared the following, “We always added a
premium to the industry benchmark to ensure that our blue-collar employees got the best in industry
salary structure. On the face of it, it might have appeared like largesse by the company, but this was a
small price to pay for maintaining harmony in industrial relations, and it ensured that our blue-collar
employees remained sufficiently motivated.”

For the white-collar employees, CNH India strictly followed global industry benchmarks. Raman added,
“What our white-collar employees generally didn’t consider was the bonus that was given out at a global
level every year. In recent times, the [white-collar] bonus payout had been as high as 150 per cent, and
this amount was calculated on fixed salary and not on basic salary alone, as was the norm within Indian
industry.”

Raman further indicated that after adding in the bonus component, the net payout for white-collar
employees exceeded the industry average. Furthermore, she shared that, in recent times, this subject had
become a focus in communications with white-collar employees. CNH India was also sensitive to Indian

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employees’ expectations for an annual salary raise. This situation differed from the norms at CNH’s U.K.
head office.

Communication

CNH used many different ways to sustain communication between managers and employees, including:

 Weekly employee relations meetings (every Thursday) with select employees at the departmental level,
 Half-yearly employee relations meetings with all employees at the departmental level,
 A New-Year address by the managing director and a subsequent open house session, and
 Periodic invitations to employees’ families for plant visits.

Interaction between Management and Employees

To ensure that the employees’ connections with the company remained strong, CNH India continued to
organize various events throughout the year, such as:

 Holi and Diwali celebrations,

 Yearly department-level get-togethers,
 Biennial Family Day celebrations,
 Yearly family tours for top performers, and
 Mandatory participation by managers in marriage ceremonies and funerals for their subordinates.

The extent of managerial involvement could be understood by one simple statistic: On average, one
manager would attend 30 family events of his/her subordinates every year, and that number was much
higher for HR managers. CNH India understood that, in India, the line between families and colleagues
was blurred, so the company maintained a relationship with its individual employees and with their
families as well. This situation differed from norms at CNH’s U.K. head office.

Joint Decision-Making

Since its inception, CNH had no union of its own, largely due to the level of empowerment the company
offered its employees. HR Director Bawa commented: “We’ve had an internal Right to Information
system in the company since 2000, wherein every employee is entitled to all company information.
Initially, there was apprehension among managers, but we were firm. Over time, they also realized the
benefit this system brought to the company.”

Even the contentious assignments like compensation revision and insubordination were discussed by an
empowered joint committee, which consisted of representatives from all departments and levels. This
arrangement in turn resulted in a positive association for the employees. A team champion summed it up
neatly: “When people ask us why there is no union, we say that we don’t want to get into futile activities.
When the company itself cares so much for us, then what would we get out of a union?”

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Managing External Forces

CNH management regularly interacted with many different stakeholders, including village leaders, police,
local government officials and members of the legislative assembly, who met with company officials at
least 10 to 15 times per year. Meetings during traditional festivals such as Holi and Diwali were required
to keep the relationship strong, although meetings also occurred at other times during the year. This level
of community engagement was important for the company and its constituents because it not only
anchored CNH’s reputation and foothold in the area, but it also had a moderating effect on the social
behaviours of the locals.

CNH’s senior HR manager, Sushil Sharma, shared the following story:

There has been a 360-degree change in the behaviour among villagers. In our first meeting, while
we had invited 70 villagers, more than 175 turned up. Also, for lunch, they started with sweet
dish, and within five minutes, all 250 Gulab Jamuns [an Indian sweet] disappeared. We
immediately arranged for another 1,200 Gulab Jamuns which also were nowhere to be seen after
20 minutes. In recent times, when we invited [the villagers] to visit our plant, their behaviour was
markedly different, and they behaved and ate in a much more sophisticated manner.

This initiative to connect with the villagers led to a significant goodwill, in-turn they alerted the company
of any issues before they exploded. The villagers were not gullible to the tricks played by local politicians
to entice them against CNH management.

LATEST INCIDENT

Ram Vishwas’s View

Coming out of Patil’s office, Vishwas bumped into his co-worker, Deepak Bansal, assistant manager of a
body shop. It was 15 minutes before their bus was set to depart, so the two men went to the cafeteria to
have a cup of coffee together. Bansal was aware of Singh’s complaint against Vishwas, so the
conversation naturally turned to the meeting with Patil. Bansal commented, “I presume the top
management thinks that it is the associates who run the show, and we are just the fillers. And as a result,
they just give in to whatever these associates demand, without even getting into the merits and details.”

Vishwas was caustic. “The bigger problem is that in order to keep associates happy, it is we, the
managers, who have to face the brunt on all fronts, including salary as well.”

Vishwas felt that CNH placed too much focus on engagement and connection initiatives for its blue-collar
team members. At times, such initiatives exceeded those put in place for the company’s white-collar
population. Vishwas further elaborated on how the top management was still caught up in a time warp
and not taking sufficient steps as per the changing times, while the number of employees had increased
greatly. The number of associates working under any assistant line manager had increased from 35 to 40,
and as such, it had become practically impossible for the managers to maintain personal relations with all
of the employees. It was expected of them however, it was difficult to spend lots of time engaging with
blue-collar employees outside of office hours too. In addition to the emotional connections, the managers
were responsible for their own professional performances. Also, most of the assistant line managers now
followed a modern school of thought, wherein they considered their role to be more transactional.

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“Perhaps the company wants to go its own historical way and be a laggard in growth, or I sincerely feel
that the day is not far when the managers of the company will be forming their union against the bias
shown by the company toward the associates,” Vishwas concluded, as he and his colleague rushed toward
the bus stop.

ASSOCIATE’S VIEW

Meanwhile, Singh thought to himself (the associate who had complained about Vishwas):

It has been 12 years since I joined CNH, but this kind of behaviour was almost non-existent. We
all used to live together in harmony, and line managers also used to understand us and behave in a
humane way. Now, it almost seems that we are working with machines only, and the only thing
that matters to these new line managers is the output, with no individual consideration. What is
affecting things even more is the aggressive growth target the company has set in the current
year. Perhaps the primary focus of the company is now sales and turnover, and all the good old
practices have lost their place in present times. Perhaps it is time for me to talk to my fellow
associates to see whether they feel the same, and then perhaps we need to prepare ourselves for a
change.

On the way to the meeting, Patil met with Bawa, the HR director. “Rajnish, I would like to meet you
sometime soon,” said Patil.

“You look slightly anxious, Shrikant,” said Bawa, as he made his way to the next room. “We can meet
tomorrow at 3:30 p.m. in my office.”

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