Strategic HR business

PERSPECTIVES

Strategic global human resource management: case study of an

emerging Indian multinational

Mohan Thite*

Department of Employment Relations & Human Resources, Griffith University, 170 Kessels Road, Nathan QLD 4111, Australia

(Received 25 August 2011; final version received 4 October 2011)

With the growing importance of emerging economies, researchers call for the need to pay attention to non-Western management models with a view to developing an integrated approach. Using a case study of an Indian multinational firm in the IT industry, this article highlights the key ingredients of its success in managing a global workforce, such as diffused and empowered leadership, metrics and value driven performance and reward management and strategic mindset of the human resource (HR) function. It recommends an adaptive approach to global HR practice that facilitates cross-transfer of best practices.

Keywords: emerging multinationals; India; international HRM strategies; information technology services industry

Introduction

Thanks to the knowledge economy, today Strategic Human Resource Management (SHRM) is seen to be a key competitive advantage and taken seriously in strategic decision making. However, most of the best practice literature on SHRM is grounded predominantly in a Western context, particularly with regard to the multinational companies (MNCs), ignoring the fundamental changes underway in the global economy (Ferner 2009). For example, the growth rate of the number of MNCs from developing countries and transition economies, referred to variously as the ‘new, infant, third world or emerging multinationals’, over the past 15 years has exceeded that of MNCs from developed countries (UNCTAD 2008). Reflecting the growing importance of Asia, the Asian MNCs dominate the list of 100 largest developing country MNCs (UNCTAD 2006). China and India are two of the most attractive inward as well as outward foreign direct investment (FDI) destination countries (UNCTAD 2007).

In terms of Indian multinationals, 7 of them featured in Global Fortune 500 and 20 in Boston Consulting Group’s BCG 100 new Global Challengers (Sirkin, Hemerling, and Bhattacharya 2008). In contrast to China, Indian multinationals are largely private owned and cover a wide range of sectors in energy-related areas, information technology (IT) services, pharmaceuticals, engineering goods and

*Email: [email protected]

Human Resource Development International

Vol. 15, No. 2, April 2012, 239–247

ISSN 1367-8868 print/ISSN 1469-8374 online

� 2012 Taylor & Francis http://dx.doi.org/10.1080/13678868.2011.646896

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natural-resource-based manufacturing firm (Ramamurti and Singh 2009). In 2006, the share of service sector in Indian FDI stock stood at 38%, mainly in IT, communication and software followed by media, broadcasting and publishing. The competitive advantages of Indian multinationals today are more broad based and include technology, skills, management expertise, quality and scale of production (Pradhan 2005; Thite and Dasgupta 2011). According to Jonsson (2008, 6), the Indian multinationals ‘represent a new breed of multinationals that build their competitive advantage in novel ways; multinational corporations that derive their advantage from service rather than technological innovations and manufacturing MNCs that straddle a low-cost and medium technology position’.

The key driver of internationalization for Indian MNCs is market-related factors, i.e. ‘the need to pursue customers for niche products – for example, in IT services – and the lack of international linkages’ (UNCTAD 2006, 25). In terms of global excellence, the Indian IT firms stand apart as a stellar example of Indian ingenuity and entrepreneurship. They are seen to be at the fore front in acquiring the highest number of quality certifications and accreditations pertaining to IT services sector. The top Indian IT firms have also pioneered end-to-end business service model with development and delivery centres situated in a combination of on-shore, near-shore and off-shore models (NASSCOM 2009).

The case study in this article pertains to one such Indian IT multinational enterprise, Alpha Computers (name changed to maintain confidentiality). It explains why and how Alpha has been able to become a world class IT firm by keeping its intellectual capital at the core of its business philosophy and strategy. The article begins with a brief theoretical overview of SHRM best practice literature. It then describes the key elements of the corporate human resource (HR) philosophy, policies and practices of the case study organization in order to explore whether and how they mirror the best practices in the strategic global HRM literature. The article concludes with a discussion on the implications of the case study findings for international HR theory and practice.

Strategic global HRM – a theoretical perspective

There is growing evidence that HR practices influence organizational performance and competitive advantage and those organizations, which deploy good people management practices, reap the benefits. After reviewing the literature on strategic human resource management (SHRM), Thite (2004) concludes that successful organizations follow certain common high performance/ high involvement work practices:

. The HR function in these organizations establishes business partnership with line managers who have direct interest and involvement in delivering HR. The HR functionaries become an integral part of the strategic business units (SBUs) and customize HR solutions to provide fast and efficient service. It is their attitude to internal and external customer service that distinguishes their work from traditional HR delivery.

. They identify, operationalize and implement the competencies and characters that they believe are at the core of their organizational culture.

. They leverage intellectual capital in and around the organization by institutionalizing a life long learning culture.

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. They aim to recruit the best talent available in the market by carefully cultivating the image of a preferred employer.

. Their remuneration system is timely, performance-based and profit sharing. It rewards and reinforces the competencies and characters valued by organiza- tional members.

. Their commitment to employees is demonstrated in several ways, such as continuous training and opportunity to work on challenging tasks.

. They develop organizational structures that revolve around autonomy, self leadership and team-based learning and problem solving.

In identifying HR best practices, the strategic HRM literature cautions that in a global economy, such practices are not universally applicable or relevant. Their success is contingent upon national and organizational culture, size, industry type, occupational category, etc. Further, these practices need to be considered in total, not in isolation. They are interrelated elements in an internally consistent human resource ‘bundle’ or system. An organization that follows a coercive approach to one part of HRM system cannot succeed in adopting collaborative approach to another part. Strategic HRM becomes even more critical in a global context and focuses on ‘optimising, value-driven, reciprocal global leadership as a core competency of a global organization facing environmental discontinuities (Harvey, Buckley, and Novicevic 2000).

Case study

Methodology

The case study organization was part of a larger research project on Indian multinational firms. It adopts an ‘exploratory case study approach’ involving in- depth interviews with the business and HR leaders of the organization at its Indian headquarters and subsidiaries in both the developed market (namely, USA) and a developing market (namely, China). A total of 15 interviews were conducted between the period 2008–2009 with the senior managers across the global network of the organization, involving eight business and seven HR leaders. All the interviews were tape recorded and later transcribed verbatim. Even though the interviews covered a wide range of topics, such as the company’s history and internationalization process, its business strategies in developed and developing market subsidiaries, management control and coordination between headquarters and subsidiaries and the evolution, philosophy, global practices and role of HR, this article presents only the findings related to HR processes, policies and practices of the organization.

An ‘inductive’ data analysis method was employed by extracting research findings from the dominant themes that emerged from raw data. It involved three steps: data reduction, data display and reaching conclusion via verification (Miles and Huberman 1994). The research design employed adds value to international HRM research by giving ‘equal weight to both the subsidiary level and to corporate headquarters within a firm’ (Ferner 2009) as well as covering sectoral variables (Colling and Clark 2002) by looking at different industry segments that the organization operates in globally.

Please note that some sections of the data presented below are reproduced or adapted from Thite, Wilkinson and Shah (forthcoming).

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Overview of Alpha

Alpha was established as a private limited company in India in 1987 but today is a publicly listed company both in India and New York Stock Exchange (NYSE). In 2010, Alpha was one of the top five Indian consulting and IT services companies with a turnover of about US$ 2.5 billion from its operations in over 44 countries that employ around 45,000 professionals. Alpha’s operations cover three business segments, namely, IT services, business process outsourcing (BPO), and software products, catering to a wide range of industry segments. It aims to be one of the most valued global integrated IT services companies.

It derives its overseas revenue from the North America (59%), Europe (21%) and the Asia Pacific region (20%). The company has been aggressively diversifying to other regions as well to spread its geographical diversification. It has its software development and delivery centres in India, North America, UK, Brazil, Hungary, Egypt, UAE, China Malaysia, Singapore and Australia.

The breadth and depth of Alpha’s world class organizational, technological and people management excellence are demonstrated by a number of international awards, accolades and quality certifications that include SEI CMM Level 5 Certification, ISO9001:2000, several national and international awards, such as Best Employer and training excellence award from the American Society for Training and Development (ASTD).

HR philosophy

In line with Alpha’s policy of decentralization, distributed leadership, employee empowerment and non-hierarchical work environment, every employee in the organization is known as an ‘associate’. Its leadership motto is ‘every Alphaite is a leader’. Everything that the organization does is underpinned by its philosophy of enabling leadership which has come to life around the core concepts of ‘full life cycle business’ (FLCB) and ‘full life cycle leaders’ (FLCL). Alpha encourages employees to ‘think like CEOs’ and accordingly they are expected to run their ‘business’ as any CEO would do to achieve a reasonable return on investment in time, efforts and money. As a consequence, the same performance metrics apply to every employee and position, as explained later.

Collectively, it is known as the ‘AlphaWay’ of doing business. The AlphaWay is more than a handbook that is distributed to every new employee. It is embedded in the corporate DNA of the organization and is the common currency that circulates across the length and breadth of the organization in its day-to-day life. Recognizing that the greatest motivation for people comes not from monetary rewards but from a sense of achievement, Alpha believes that by empowering every employee to be and act like the CEO of their own world of work, it can retain people and engage them to their full potential.

The Alpha School of Leadership brings this vision to fruition through continuous learning programmes at its sprawling corporate training centre in India as well as at its units throughout the world. Its mission is to develop 80% of the leadership requirements from within. In the words of the Head of Leadership Development, ‘at Alpha, the reward for a good job is a bigger job’, reflecting the organization’s desire to enable and encourage employees to achieve their full potential. Alpha believes that it is the ordinary people of the company who are capable of doing extraordinary

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things provided their talent is recognized, nurtured and rewarded. It uses star performers to act as role models and spread best practices so that their collective wisdom is distilled, institutionalized, automated and then spread across the corporate DNA.

Metrics – the lifeblood of Alpha

The most potent symbol of AlphaWay is the incorporation of performance metrics. According to the Global Head of HR, ‘metrics is the most common communication tool at Alpha’. Designed in line with a similar system at General Electric (GE), Alpha’s key business partner, the metrics are built around five outcome measures (5 R’s) and six built measures (6 P’s).

The outcome measures ask the questions: ‘is your business doing

. Better (aiming for zero defects),

. Larger (that results in repeat business),

. Faster (reduced turn-around-time),

. Cheaper (reduced resource cost) and

. Steadier (adherence service standards).

In order to produce these outcomes, the built measures ask the questions about

. People (do you have the right technical skills?),

. Process (how process oriented is your job in demystifying knowledge?),

. Product (how much of your work processes are automated?),

. Proliferation (are you aware of and benchmarking against best practices, inside and outside the organization?),

. Patent (how innovative are you in cost management?) and

. Promotion (do you motivate people by appreciating and celebrating team achievements?)

These measures apply to every employee irrespective of their position, task and location. The achievements are highlighted by different colours: shining is green, bright is blue, visible is orange, twilight is brown and invisible is red (in the descending order). The weightage for each measure differ for different jobs – triple platinum, platinum and gold. The targets are stretched to the extent where they are challenging enough against global benchmarks for comparable jobs. Those who fall behind targets are placed under a performance improvement plan (PIP).

The measures take into account both hard and soft aspects of the job. For example, when it comes to resolving employee grievances, both the response time and resolution time are taken into account as it is not enough just responding quickly but it is equally important to resolve it satisfactorily which may take time and involve other people.

As with many organizations that use team-based organizational structures, most teams at Alpha are cross-functional which can be challenging for performance measurement. Alpha uses a ‘collaboration index’ to account for the degree of collaboration between members and teams. The idea is to promote the culture of ‘competing to collaborate’. This forces employees to shed their silo mentality and

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look beyond the boundaries of their tasks and departments in the interests of the overall organization.

Flexibility is built into the metrics system to ensure that it is not rigidly implemented irrespective of the situation. Employees have a say in what measures apply to their position, why and how. The collaboration meetings take place across different levels, and functions to achieve consensus before performance targets are agreed upon both in terms of soft and hard deliverables.

Alpha is taking its metrics driven business approach beyond organizational boundaries by involving customers and suppliers as part of its eco-system. The customers are given access to the live performance monitoring database for all of their projects. Similarly, suppliers are trained in how the same metrics can be applied by them to improve their performance.

HR as a strategic business partner

One of the most distinguishing features that demonstrate how HR is strongly embedded at the strategic level in Alpha is the fact that today, most of the critical HR functions at the corporate level are staffed by managers who have come from business background. Even at lower levels, technical personnel are being inducted into HR roles and responsibilities. It is the result of a conscious decision by the top management because as in any technology company, people are the most important assets and can make or break its future.

Another equally notable feature that illustrates the strategic nature of HR function at Alpha is the incorporation of the ‘full life cycle leadership’ (FLCL) and ‘full life cycle business’ (FLCB) into HR policy making and practice. For example, the recruitment function is a regarded as a ‘business’ in its own right. Within that business, campus recruitment and lateral recruitment (of experienced people) are separate business lines. Within campus recruitment, business colleges and technical colleges are again treated as sub-businesses. The managers in charge of all these business lines are the full life-cycle leaders subject to the same 11 performance metrics as discussed above. The leader in charge of campus recruitment is assessed every month on relevant critical measures, such as how many top educational institutes have been signed up for recruitment, how many offers have been released and how many joined and so on.

Similarly, any manager in charge of people management will be assessed on ‘associate delight index’, that is, how fast and how effectively employee concerns have been addressed in a given period and whether there is a gradual improvement over time. This exercise of feeling the employee pulse is qualitatively different than the annual ritual of conducting employee survey because it is done more frequently and monitored more closely. According to the Head of Global Delivery and Leadership Development, ‘Alpha is a listening organization’.

Global staffing

Alpha believes that with over 45,000 employees spread over 40 countries, it is poised to reach the next level in becoming a truly global company with firm local roots. The statement from Alpha’s Head of HR in China that ‘Alpha wants to be a Chinese company in China but provide the same global experience to clients, no matter where the operations are carried out’ reflects this ambition. At lower levels, Alpha is

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committed to localize the workforce in its overseas offices to the extent possible but this effort is somewhat hampered by many reasons, such as the need for cost effectiveness in an offshored business model necessitating the bulk of project execution in India, the diminishing attractiveness of IT as a career in the developed world with fewer people opting to study IT courses and in some countries, the poor perception of Indian companies as employers of choice.

As a policy, Alpha strives to staff locally at least 20% of all positions in all of its overseas operations, 50% of entry level positions and 90% in its non-English speaking geographies, such as China, where possible. With regards to lateral recruitment (of experienced people), Alpha prefers local managers for their knowledge of the local market and environment.

Global HR policies and practices

One of the critical challenges for any multinational enterprise (MNE) relates to the control and coordination between the headquarters and subsidiaries. The MNE is faced with the constant need to balance between ‘push for control from headquarters’ and ‘pull for autonomy from subsidiaries’. The headquarters may assert its control over its subsidiaries by a variety of means, such as sending expatriates from corporate office to staff key positions in subsidiaries, formulating and implementing organization wide management policies and controlling finances and other output measures.

With regard to the standardization of HR policies and practices, where local laws and conditions permit, uniform policies are rolled out across all the units of the organization. For instance, in terms of remuneration and reward management, 80% of compensation-related policies at Alpha are common across the world. Similarly, every Alphaite is offered a fixed and variable pay, the latter being tied to performance at individual, team, unit and organizational levels. The proportion of variable pay increases at higher levels. So performance pay is a common practice throughout the organization whereas the fixed pay is subject to local laws and conditions. The two basic principles that determine compensation policies at Alpha are comparability in the local market and affordability as an employer. While Alpha strives to maintain a cohesive organizational culture throughout its global network, some of the managers at its overseas subsidiaries believe that there is too much centralization of power in the corporate office and decisions are more often India- centric than global.

Discussion

As can be seen from above, Alpha is well on its way to become a truly globalized MNC with best in class organizational capabilities in its corporate strategy, leadership vision, organizational structure and HR policies and practices. Alpha’s process driven performance and reward management systems, global mindset and strategic positioning of HR auger well in its evolution. Despite the liabilities of foreignness, country of origin, newness and smallness that firms from emerging economies face (Thite, Wilkinson, and Shah forthcoming), Alpha’s internationaliza- tion process shows an ‘adaptive or polycentric approach’ in learning from and embedding the best practices from its subsidiaries in global markets, particularly in advanced countries.

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Recent research on Indian firms shows that one of their distinguishing characteristics is that they take a long term view of their businesses, invest heavily in HRM practices and empower their employees in decision making (Cappelli et al. 2010; Khavul, Benson, and Datta 2010). As demonstrated by several studies, the Indian IT companies are known for their progressive and world class people management strategies and practices (Hamm 2007; Gurjar 2009). However, several studies also point out the HR challenges, such as lack of trainability and employability of the Indian workforce, high employee turnover and escalating wages in the Indian IT and IT-enabled services sector (ITES) (Wallace 2009; Thite 2010).

One of the limitations of the case study in this article is that while it captures the strategic intent of the organization at the senior management level, the ‘employee voice’ which is the true reflection of the effectiveness of the HR function is missing. After the data collection ended, a senior leader of Alpha was embroiled in financial irregularities which severely dented the image of the organization and even though the company bounced back later to regain its standing in the market place under new management, it illustrates how shaky the foundations of a firm can be but at the same time, it attests to Alpha’s resilience to emerge relatively unscathed from unexpected shocks. Despite the above limitations, the case study illustrates that the managers in the emerging economy firms are ‘mixing and matching’ progressive HR policies and practices in a multi-polar world that only stands to benefit from cross- integration of emerging business and people management models.

Acknowledgements

This study was funded by a grant from the SHRM Foundation, USA. However, the interpretations, conclusions and recommendations are those of the author and do not necessarily represent the views of the SHRM Foundation. The author would also like to thank Alexandre Ardichvili for her helpful comments in the revision of this article.

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