Are Indian Business Leaders Different?Published: November 01, 2007 in India Knowledge@Wharton
For some time now, the world has watched as Indian companies -- once relatively unknown outside the country -- have grown by leaps and bounds to become world-class competitors in many industries. It was high time that someone asked the obvious questions: Do Indian CEOs and business leaders operate in a way that is markedly different from those in other parts of the world? What is the source of their competitive advantage? Can other managers learn from their experiences?
Four Wharton professors set out to answer these questions in a new study titled, "The DNA of Indian Leadership: The Governance, Management and Leadership of Leading Indian Firms," co-sponsored by India's National Human Resources Development Network. Based on interviews with 100 chief executives of leading Indian companies, the researchers --management professorsPeter Cappelli, Harbir Singh, Jitendra Singh (now dean of the Nanyang business school in Singapore) and Michael Useem -- concluded that while top Indian leaders do share several attributes with their U.S. counterparts, they also have distinctive characteristics.
In contrast to U.S. business leaders, Indian CEOs tend to be more preoccupied with internal management, long-term strategic vision and organizational culture. Financial matters, on the other hand, are not at the top of their agendas. In addition, the research showed that Indian leaders seem to care a good deal more about motivating employees and setting an example than about currying favor with shareholders or the markets.
In defining the scope of their research, the professors describe their objective as follows: "Our ultimate goal for the project is to see whether the practices and priorities of the [Indian] CEOs in our study suggest something like a different or distinctive model for leading and managing business enterprises. Since World War II, the study of business and especially of leadership has been dominated by models from the U.S. This reflected in large part the dominance of U.S. multinational companies. In the 1980s, the strong performance of the Japanese economy, particularly in international markets, led to greater interest in, and teaching about, a 'Japanese' model of management that was distinctive in its management of employees. The rise of the Indian economy, and especially the international competitiveness of Indian businesses now, raises the question as to whether there is a distinctive Indian model and, if so, what that model might be."
Each CEO in the study was asked a set of questions about leadership competencies, competitive advantage and governance. When asked what they thought were the competencies most important to their success in the past five years, the Indian executives felt that shared values and vision, as well as building the top team, were some of the most important capacities.
For example, B. Muthuraman, managing director of Tata Steel -- a company that has become widely known after its acquisition of Britain's Corus Steel last year -- talked about "being a visionary" as an important capacity: "By being visionary," he said, "I mean somebody who is able to make people envision their future [as well as] energize, enthuse and empower them." Such answers revealed a common interest in strategic thinking and talent management. The respondents also noted that leading from the front and leading by example were important personal characteristics.
In this respect, leaders like Muthuraman are like U.S. CEOs, who also emphasize the importance of vision to leadership. According to the report, "This is consistent with the views of their Western counterparts, such as IBM CEO Lou Gerstner and GE CEO Jack Welch, who placed great emphasis on company culture. A number of the Indian business leaders also stressed that their vision for the company should be rooted in its underlying values, and that the vision in turn should energize and excite the company's employees."
The researchers also asked how Indian leaders might be different from their Western counterparts. The CEOs responded that Indian business executives were marked by flexibility, being in a family ownership structure and entrepreneurship/risk-taking. The leaders noted that the strict regulatory climate and challenging infrastructure environment in India necessitated a capacity to be resilient, adapt and move forward in the face of adversity.
Subhash Chandra, chairman of Zee Entertainment Enterprises, believes that Indian leaders are "more flexible" than those in the U.S. "We can bring our level of thinking down and meet with a truck driver and deal with him at his level, and at the same time we can also bring ourselves up to the level of the head of the state if required and then deal with him at that level," he told the researchers. (Of course, this trait is not unique among Indian CEOs; U.S. business leaders, such as Herb Kelleher of Southwest Airlines or Jon Huntsman, founder of Huntsman Industries, demonstrate the same ability in their dealings with people around them.)
Anu Aga, former chairperson of Thermax India, an energy and environment management firm, pointed to the many obstacles Indian companies have to deal with, such as "roads in terrible conditions" and "ports in terrible conditions." Family ownership stakes sometimes helped leaders have a more long-term approach to strategy, reported the respondents. In addition, they noted that being entrepreneurial was important in order to get large companies to act nimbly and take advantage of the changing marketplace.
The CEOs believed that their firms' competitive advantage lay in their high-performance culture, customer focus, innovation and entrepreneurship, and low cost. Even when asked how their roles are changing, they overwhelmingly noted that they spend more time these days setting strategy and dealing with customers rather than worrying about shareholders.
Look Inside to Get Ahead?
Perhaps the most telling responses were the CEOs' ranking of their management priorities. They chose "Chief input for business strategy," "Keeper of organizational culture" and "Guide or teacher for employees" as the top three. "Unlike CEOs in America, Indian leaders tend to focus much more on internal issues -- on people management, motivating employees and so forth," says Cappelli. "U.S. CEOs spend a lot more of their time on shareholder issues."
Rajesh Hukku, founder of i-flex Solutions, a financial services software firm that was later acquired by Oracle, emphasized two key differences in his interview with the researchers. He said: "First, Indian leaders do not ascribe to the 'hire and fire policy' which is prevalent in the U.S. Indian leaders look at their people as long-term assets, and company behaviors and policies have evolved accordingly. Broadly, it is about taking a longer-term view versus a quarter-by-quarter view. Second, Indian leaders are finally becoming more confident, but they still tend to operate in safe waters." According to the report, Hukku cited the example of Larry Ellison, who founded Oracle. "Hukku wondered why Indian businesses were not striving to produce the next Microsoft or Oracle. In his words, 'We don't want to go to uncharted waters -- whether we look at business or at Hindi movies that have had the same story for the last 30 years. We are formula-based.'" The report adds, however that Hukku "perceives a major shift that has occurred in the last four or five years typified by Tata Steel buying Corus Steel and Reliance launching its retail initiative despite Wal-Mart's planned India foray."
Harbir Singh explains that the reason why Indian CEOs tend to focus more on internal issues involving people is that India, unlike the U.S., has no safety net -- such as unemployment benefits or social security -- for employees once a company lets them go. "In the U.S., CEOs often see shareholders or the board as their primary constituency. In India, CEOs need to focus on employees because of the safety net factor. Now the Indian economy is booming, and there is a shortage of talent, so investing in employees is the right thing to do. In fact, it is the right thing to do even in the U.S."
Cappelli agrees, and points out that the American model may be the exception. "What we see in Indian leaders is a lot of what we say all CEOs should be doing -- they are pretty much following the best practices of management and leadership," he says. "In some ways, the puzzle is actually why we see U.S. CEOs more focused on shareholder concerns. It could have something to do with the governance system and with the way they are compensated. In any case, the U.S. is in some way the outlier in this."
Cappelli notes that the best way to be successful as a manager is not to focus solely on short-term profits and to reward or punish leaders based on such performance: "If you're a manager, it's hard to motivate employees when the big goal is to increase quarterly profits by a half-percentage point. Not enough pay is at risk for that to be sufficient motivation. Imagine a conversation where a U.S. CEO is motivating an employee -- and a similar conversation between an Indian CEO and his employee. In India, the leader is saying, 'We're asking you to work hard to demonstrate that the Indian economy can be part of the leadership of the world, that we can pull parts of our community out of poverty.' The U.S. CEO has to explain to the employee why it's important to improve quarterly profitability. Which one will work better?"
Some of the differences between Indian and U.S. CEOs that emerged in the study did not necessarily paint the Indians in a positive light. According to the report, some of the Indian CEOs pointed out that they tended to be hierarchical, which they viewed as a negative trait. For example, Subodh Bhargava, CEO of telecommunications firm VSNL, told the researchers that, "In India we tend to be hierarchical, not just in administrative and management structure hierarchy but we are very conscious of personal hierarchy in our position. In fact, many companies have fallen by the wayside ... because they couldn't shed their hierarchical mindsets. Second, in India we are over-emotional, and a lot of big decisions tend to be emotional. The attachment or other softer dimensions emerge, whether it's an acquisition or an investment or while evaluating people or opportunities. I think emotions play a greater role than I find among my peers in Europe or America. Finally, I think that in India, one of our biggest weaknesses is that we are unable to use scientific, reasonable assessment of white-collar productivity. [When] it comes to judging people and their capabilities and expectations, we tend to be poor judges."
Cappelli notes that while the darlings of the U.S. business press -- Southwest Airlines and similar companies -- are touted for doing business more like the Indian CEOs, the investor community tends to favor the opposite -- firms like Wal-Mart that are focused on financial gain and shareholder interests.
Are Indian CEOs simply better at internalizing best practices that they have read in the management textbooks? "Of course, they have seen a lot of how U.S. CEOs operate," says Cappelli. "They know that U.S. leaders are more concerned with shareholders; they have been exposed to U.S. models and best practices. But then why did they take it up, and not the American CEOs? I think it's more organic than that." Cappelli notes that many U.S. employers were exposed to Japanese models of management for some time. "But right when the Japanese model was hot -- that's when U.S. employers were abandoning it," he notes. "It's just not the way they saw themselves, and they didn't adopt it."
Time-Tested or Flash in the Pan?
It is tempting to think that Indian CEOs can afford to indulge in their inward preoccupation simply because the country's economy and markets haven't developed quite as much as they have in the U.S. But the study indicates otherwise, says Cappelli: "It doesn't appear that convergence is going to occur as far as leadership focus. Maybe certain aspects of corporate governance may become similar to their U.S. counterparts, but that's it." Even though Indian companies are competing with U.S. and other Western firms, the CEOs don't report that they are subject to the same investor pressures.
"While the Indian CEOs certainly engaged in some self-criticism -- they admitted that some aspects of management could be more professionalized, their staff could have more competences or deeper expertise -- they didn't feel that the financial aspects needed more attention," says Cappelli. "It was quite remarkable in that there was no significant dissent on this. When asked about their legacy, they talked about their firm's performance, about growth, influence and reputation -- not about share prices increasing."