Knowledge Center: Strategic Leadership Development: The New Frontier For Indian Firms

Friday, September 30, 2011

Strategic Leadership Development: The New Frontier For Indian Firms

The need for effective business leaders in India is as intense as it is in most countries. But the path that Indian firms take to develop effective leaders is considerably different than the path followed by American or Canadian firms. After reading this article, organizations hoping to deliver leadership development programs to Indian managers will understand the differences and the approach that they need to take to win business from Indian firms.

In today's world, executive education basically means leadership training, as leadership is broadly integrated into all forms of executive education. But does leadership training ensure success at the top management team level, and therefore, successful organizations?

No one is willing to argue that leadership does not matter; that would be short-sighted indeed. However, leadership has become a catch-all term whose pervasiveness has robbed it of its true meaning; this is especially true in today's fast-moving emerging markets. In conversations with CEOs and heads of HR at over 50 of India's largest and most innovative firms, it is quite apparent that the Indian CXO¹ community defines leadership in ways that push the bounds of traditional definitions offered by researchers and professionals in organizational behaviour or applied behavioural sciences. Indian senior executives cannot afford to invest in programs that take such a one-sided, individual-focused view on leadership; they are under pressure to make money today, tomorrow, the next day and next year! When the GDP is growing at a rate of almost 10 percent year over year, and firms stop to train their top managers, this training has to be multifaceted and practical enough to improve the manager's ability to lead the firm in its quest to capture value in an increasingly competitive environment.

Top managers in leading Indian firms don't speak about their leadership development needs in the way most universities, consulting firms or training organizations do. The leadership development needs for top managers are much more specific and linked to the firm's bottom line. If India's top firms are going to depend on executive development organizations to help shape their future leaders, these outfits will have to be at the forefront of research and teaching in six key areas of strategic leadership: (1) managing growth, (2) developing a global mindset, (3) developing and retaining talent, (4) developing strong fiscal management, (5) institutionalizing creativity, and (6) leading across an enterprise.

(1) Leading to manage growth

In the last five years, India's GDP has been growing at a rate of 10 percent annually. As well, exports from Indian firms have doubled over the last five years. The forecasts are equally positive, with GDP, private consumption, investment growth and domestic demand all expected to grow a by slightly less than10 percent per year for the next 5 years. This explosive growth scenario generates two different views of leadership at the firm level. Some Indian executives actively take on a short horizon view: "Why do we have to worry about leadership when any mistakes or weaknesses are easily remedied by the growth in demand; if we take our critical leadership cadre away from the business of the day – the opportunity costs are unfathomable". The longer horizon view is: "What if the economists are wrong and the growth scenario doesn't pan out? What if the number of foreign entrants into the Indian market space creates a level of competitiveness that begins to counterbalance the benefits of growth?"

CEOs at India's biggest firms take the second view. What happens when the economic boom begins to wind down? Will companies have leadership teams in place that know how to create growth opportunities in a leaner environment? Will Indian managers be able to effectively and efficiently compete against competitors to capture more of the markets in which they do business? In today's high-growth environments, creating and capturing growth is a key leadership skill that many Indian leaders simply have not had the opportunity to develop. Leaders with this set of skills will be crucial to Indian corporations' long-term success.

(2) Developing a global mindset is crucial to being a successful leader

For a little less than a decade, FDI inflows to India have been on a positive upswing. The biggest sources of FDI into India include Mauritius, Singapore, the U.S., the UK and the Netherlands. Indian managers are constantly being confronted by the challenge of working with partners who are much more globally experienced. Expatriates working in multinationals and Indian firms have almost always lived in multiple countries, have been able to speak more than a few languages, and have education bases that span the globe. These global managers often hold pivotal positions in their firms, and Indian CEOs realize that they depend on their advanced global mindset to drive growth not only in India but also outside India. In fact, in countries as far away as the U.S. and Canada, it is now becoming impossible to reach the senior management level without having lived and worked abroad for at least 3 years. The bar for leadership is going up – leaders must be global. To ensure that Indian companies have Indian managers with a global mindset, the companies will need to provide top managers with the training that enables them to think across country boundaries and cultures, to work in multi-cultural environments, to learn how to coexist with business realities that are often very different from the ones at home, and to understand organizational structures such as joint ventures and acquisitions, both very common in the global business scenario.

(3) Developing and retaining talent

The dark side of growth and globalization for Indian companies is retaining high-quality people at reasonable salary levels. Indian managers often blame GDP, foreign firms willing to pay higher salaries, booming sectors such as education and real estate, growing costs of MBA programs, and the repatriation of droves of NRIs (non-resident Indians) making India home once again. Rarely do managers turn the mirror around and blame themselves – managers are unwilling to admit that most managers are not very good at creating a work environment or designing systems that effectively develop and retain people. In the Indian scenario, attrition rates can range from 15 percent to 50 percent per year, depending on the sector and the management level. Employees usually state better compensation or opportunities for career growth as the main reasons for leaving one job for another. However, more recently, Indian employees are becoming concerned about developing a reputation for being a 'serial' employee – one that jumps from one employer to the other. Between these two realities is an opportunity for top managers to lead in a way that develops and retains talent. This means that managers will have to hone their skills in fostering employee engagement, become strong communicators with exceptional interpersonal skills, inspire commitment, and participate in coaching and mentoring employees for growth.

(4) Developing strong fiscal management

In India, a successful leader must understand the financial markets. In the last few years, the number of companies accessing debt has increased, as have the number of IPOs, the funds raised by these IPOs and the relative success rate of the IPOs. Understanding the intersection between financial management and leadership is crucial to success, especially in light of the forecasted business growth in India. In order to lead, top managers must understand key questions such as: How does the relationship between debt and equity in my firm affect my ability to grow? How does cash management influence decision making and the company's ability to take advantage of opportunities inside and outside the firm? How do the numbers influence the value I can create and offer to customers? Managers at multiple levels and across different functions of the organization have to have this level of understanding. In high-growth environments it is not enough to look to the CFO to provide the answers. Without understanding the fundamental financial implications of every decision, leaders will simply not be prepared to lead their companies to success in the new Indian economy.

(5) Institutionalizing creativity

Indian business is a hotbed of innovation. The number of patents filed each year for the last 5 years has been increasing by almost 11 percent annually. In 2004, the number of patents granted was slightly more than 10 percent of the number filed; today that number has increased to almost 50 percent. Indians are becoming more astute innovators; however they are being outpaced on every front by the Chinese. In order to lead successfully, the top manger will have to understand how to foster innovative ideas and thinking at the individual level, how to create an organizational culture that supports innovation, and how to ensure that the right structures are in place that enable innovations to rise up in the organization. Managers will have to understand and be able to leverage the innovation value chain in their own companies.

(6) Cross-enterprise strategy formulation and implementation

To make good on the pressures to lead such as managing growth, keeping the best people in the job, developing and acting with a more global perspective, or thinking in a way that is more bottom-line oriented, leaders have to change the way they think. Most leaders prefer to stay within their own functional areas of expertise; this is usually also the function or department of the organization they understand best and the one in which they don't have to share too much power in decision making. However, this kind of territorial leadership behaviour will hurt today's Indian organization. Tomorrow's leaders will have to focus on developing the leadership skills that enable them to look beyond the walls and silos in the organizational chart and approach issues from a perspective that spans the entire organization. They will need to have an advanced understanding of the ramifications of their decisions and actions across the organization, allowing them to capitalize on the opportunities and synergies that result from seeing the big picture. They will need to develop advanced competencies such as being able to (1) quickly and effectively understand the business, i.e. how it configures it resources to create value for customers, (2) manage complexity and ambiguity by being good at developing a set of strategic options that allow the firm to create and capture value, (3) design micro and macro structures within the organization to enable execution of complex strategies, and (4) inspire commitment and excitement from the people who execute the firm's strategy.

What do the six dimensions of leadership development described above say to the traditional leadership development approaches that tend to focus on 360's, personality dimensions and how they enable and disable leadership, or even newer approaches that focus on more fashionable dimensions of personality such as emotional intelligence and its link to leadership effectiveness? Being an effective leader at the individual and interpersonal levels is still crucial. However, in today's business environment, leaders without the strategic skill sets outlined above are simply out-dated and unprepared to drive bottom line results. Leaders without a honed ability to drive organizational excellence are like parents without the ability to discipline or guide their children. Both enable disastrous consequences.