This article expands the argument and details the shortcomings in Indian management practices. The authors propose how the generation of business leaders who have powered India’s growth these last 20 years or so can ensure the development of the next generation of leaders.
Talent at the top
Though the leadership deficit in Indian business is widely recognized, few companies have successfully addressed it. That’s because the requisite solutions, including the development of a strong leadership pipeline, require immediate and focused efforts by Indian companies.
This challenge manifests itself on three levels. First, there is a quantity deficit: Many Indian companies simply find it difficult to fill all their available positions with qualified applicants. Second, an experience deficit exacerbates the problem: Today’s senior and middle managers have not had sufficiently broad or well-developed careers. Finally, the talent war adds complexity: Competition over high-quality executive talent is intensifying, and companies are willing to pay top dollar for the right people. Conversations with our clients suggest that these three gaps pose the most significant challenges to the future growth of their companies.
The quantity deficit
Employers’ difficulty with filling vacancies is sector agnostic. In the 2012 Manpower Talent Shortage Survey, a global survey of employers, 48 percent of the respondents based in India reported difficulty finding qualified candidates for their managerial positions. Nearly 17 percent reported a lack of any candidates for these positions, qualified or not.
Although talent shortages are seen among all skilled workers, the gaps at the middle and senior management levels relate to both the number of candidates and the skills they offer. Given the current state of leadership development at Indian companies, and with continued economic growth in mind, our estimates suggest that the top management deficit may range between 10 and 18 percent over the next five to 10 years. This gap leads to delays in readying growth opportunities, and can also put existing business operations at risk.
Because of the lack of qualified successors, senior leaders are not retiring when they should. Instead of developing and executing a clear succession plan, executives have become more comfortable extending their tenure, lacking confidence that the next level of management is up to the task of leading. But executives cannot stay in their roles forever, as much as they might think they need to do so. Even as boards continue to prolong their tenure, many chief executives are aging past the point at which they can postpone retirement. Without a forward-looking plan, companies may find themselves foundering.
“People have been so focused on growth that they have not invested in developing the next rung [of the leadership ladder],” said one senior human resources (HR) manager from a large private-sector conglomerate. “There is a strong circle of top leadership in our businesses, but no tag team.”
Until now, businesses that are closely aligned with the public sector have been less affected by this problem; the large workforce, grown through the ranks, has so far shielded state-run companies. But as a public-sector bank CEO noted, “The pressure is beginning to mount.” He added that this was a serious problem for the company: “More than 30 percent of our senior and middle managers will retire in the next three years. This will leave a large numerical and capabilities gap.”
The experience deficit
The experience deficit plays out differently across different sectors of the economy and at different levels of leadership. In the rapidly growing New Economy industries in particular, such as those driven by digitization, too few people have been working long enough for them to have developed a leader’s perspective. For example, the telecom boom over the past decade has resulted in a flurry of flourishing mobile phone brands in the country. But each of these firms has had to draw upon its existing pool of players to build its senior team. The growth of that talent pool has not kept pace with the growth of the brands. Moreover, most Indian companies today lack an effective in-house leadership development program. Although they rely on young leaders to take on senior positions, they fail to provide those leaders with on-the-job guidance and mentoring, which is necessary to prepare them for greater responsibility.
Thus, many young, inexperienced managers have found themselves launched into senior positions without having had enough training in the complexities of strategy or managing people. As one regional sales head for a mobile handset company put it: “Eight to 10 years ago, there were only three to four handset brands in the country. Today, there are over 60. Relatively younger managers have had to step up to take on top roles in these companies.”
Old Economy industries are also affected by this challenge. Although there may be highly experienced leaders at the top, they are struggling to find experienced middle managers, let alone senior managers, to take their place once they retire.
As one chief human resources officer for a large private-sector conglomerate put it, “We have many technical [or] functional experts but have not invested in helping them make the transition to top positions.” Without that investment, and the development of a strong leadership pipeline that produces new batches of top talent, Indian companies are vulnerable to the next major challenge: the talent war.
The talent war
As they struggle with the quantity and experience deficits, human resources departments have had to rely on external hiring to build their teams. The demand for capable leaders continues to rise, and the competition for them has intensified. This has led to an accelerating talent war among companies. Those companies that invest in a leadership pipeline are aware that a rival company could hire the senior managers they cultivate at any time. “We have gone the ‘buy’ route [hiring seasoned senior leaders from outside],” said a senior HR manager at a major Indian conglomerate. “We have infused external talent to support our growth.”
The professionalization of family-run businesses, the continued entry of global corporations into India, and the emergence of new sectors are further fueling this race for talent. “We have been hiring aggressively at entry levels to build our talent pipeline,” said the chief operating officer of a public-sector bank. “However, we see an attrition [rate] of around 25 to 30 percent among these new hires. Once trained, they are picked up by private-sector banks at significantly higher salaries.”
But there are other ways to develop and nurture top talent—ways that breed loyalty and provide incentives to young leaders not to jump at the first outside offer they receive. Determining what is causing the leadership deficit will go a long way toward not only retaining more versatile employees, but also decreasing the need to rely on them in the first place.
Understanding the root causes
The leadership challenges that Indian companies face have three underlying causes. The first two—Indian demographics and the booming Indian economy—are well known. The third, India’s prevailing technological mind-set, is less obvious to many people, but may provide more leverage for change. Each of the three is worth a brief explanation.
It is no secret that India is a young nation. The country’s relative youth—its median age is 26—is one of the driving forces behind its growth, and an oft-cited reason for its emergence as an economic superpower. Given that around 65 percent of India’s 1.2 billion people are between 15 and 64 years old, and that 30 percent of the population is younger than 15, India will continue to be a young nation for several more decades. The opportunities presented to Indian companies by that young demographic, as both a consumer class and a workforce, are immense. But there is also a massive downside. India’s workforce remains overwhelmingly in need of more skills to match the growing workplace requirements. The conundrum presents itself as follows: As Indian companies continue to expand, they must rely on less-experienced leaders who require more development and training, which is often not a current priority.
2. The booming economy
The country’s unique demographics—coupled with the economic reforms of 1991 and an overall surge in globalization—have produced a remarkable decade for corporate India, one of rapid expansion and exponential growth. The pace of that growth has, as discussed, placed significant demand on the short supply of talent across junior, middle, and senior levels. “The economy is growing at a faster pace than the rate [at] which our leadership is aging,” said the CEO of one large private-sector financial-services company. Without robust internal leadership development programs, many companies will be left to costly external recruitment.
3. A technological mind-set
The first two underlying causes—India’s young demographics and booming economy—are obvious contributors to the current leadership deficit. Perhaps that’s why few Indian companies have systematically addressed this challenge; they perceive that they have no power over the root causes, and they wouldn’t want to change them even if they could. But the more subtle third cause – the technological mindset — also signals where executives can exert the most power.
Historically, Indian business leaders have focused on developing technology rather than people. In the same way that the country’s demographic and economic strengths offered Indian companies great advantages in expansion but led to gaps in the leadership pipeline, those companies’ emphasis on technical excellence and rapid growth came at the expense of employee development. As a senior manager at a large Indian conglomerate put it, “We have quality technical experts, but can’t convert them into business leaders.
Building leaders from the bottom up
Building from the bottom up means making talent management—identifying, nurturing, and elevating high-potential employees—a key component of HR strategy. This involves five main steps:
1. Invest in senior management effectiveness
Creating an effective senior team begins with setting clear objectives, selecting the right people, defining clear roles for team members, and promoting productive interaction and dialogue among members. The stronger the team at the top, the more confident the rest of the company, customers, and stakeholders can be of its strategy.
How to make top management more effective:
- Encourage collective decision making at the top to mitigate the risks of overlooking certain issues and to ensure that a well-informed choice is made.
- Create forums for discussion in order to align the overall strategy among top management.
- Define the big-picture responsibilities of top managers, in addition to their segment duties.
- Assign executive coaches who have business experience and an appreciation for the company’s specific context to work closely with top managers and provide advice on issues related to their individual leadership style, development, and performance.
2. Set up feeder roles and successor pools among the next tier of leaders under the top team
Multiple feeder roles for each key position in an organization must be identified. Feeder roles are the next line of roles in the same division as a critical role; these can be set up to ensure employees develop the required competencies. Management must then identify potential successors from across these feeder roles and create a pool of ideal candidates. Potential successors should have the opportunity to take on a variety of feeder roles to prepare them to embrace broader responsibilities at the next level, resulting in a well-rounded next generation of upper management.
How to develop feeder roles and successor pools:
- Set up feeder roles to undergird critical positions wherein the departure of an incumbent can cause business disruption. This may mostly involve senior leadership positions, but can also include critical middle management positions.
- Identify at least two successors for each critical role, selected from those occupying feeder roles or with relevant job experience.
- Select successors based on consistent performance, future potential, long-term cultural fit, and commitment to the organization.
- Provide members of the successor pools with individual development plans, close involvement by a top leader through mentoring or coaching, and short-term leadership roles, building readiness for leadership within a 12-to-36-month timeframe.
3. Manage the technical ladder
Although it is important to develop business leaders, it is equally vital to develop technical leaders. Companies should adopt parallel leadership tracks that allow high-potential technical staff members to rise to a level of leadership in their chosen technical field without being forced to take on significant people responsibilities.
How to develop a technical leadership pipeline:
- Identify key technical positions on the basis of their importance to business continuity and how they add value.
- Establish a separate technical leadership pipeline for these positions.
- Define technical career ladders separate from those of general management. Allow these highly skilled specialists to flourish in aspirational career paths that do not require them to take managerial positions with people-oriented responsibilities.
- Look for candidates on the technical career ladder with managerial potential. Provide them with short-term job rotations—perhaps supplemented with external training—so they may gain the basic skills that are mandatory for senior roles.
4. Identify and promote high-potential employees
As we’ve said, the lack of a leadership pipeline is not a uniquely Indian phenomenon. But it is a uniquely Indian problem to have so much raw talent available, with such a huge proportion of it undeveloped.
Talent management systems need to be redesigned to focus on potential as much as on performance. Objective measures must be put in place to gauge leadership potential. Top performers must be identified as “high potential” only if they also have great managerial or technical leadership potential.
How to develop high-potential employees:
- Identify employees who have the potential to take on roles that are two to three levels above their current role—not just the next higher role.
- Don’t mistake performance as a proxy for potential; performance ratings reflect an individual’s ability to deliver on expectations from their current role and not the potential to take on greater responsibilities.
- Rate high-potential employees on the basis of whether they display the ability, mobility, engagement, and aspiration needed to take on more senior roles.
5. Build quality cadres at the junior level
The cadre level is an ocean from which future leaders will emerge, so special attention needs to be given to it. First, the organization must determine the optimal mix of cadres recruited directly from universities and entry-level hires from the job market. Within the former, the organization must carefully select which undergraduate and postgraduate schools it plans to hire from and the initiatives taken at those schools to promote the company.
How to develop a quality cadre pool:
- Select technical and management institutes in line with the company’s skill expectations and compensation levels.
- Ensure that there are sufficient on-campus initiatives to promote the organization as a desirable recruiter.
- Evaluate the success of campus recruiting over a few years in terms of attrition rate and quality of employees; add and drop recruitment campuses according to the results.
- Institutionalize a standout summer internship program as a default route to full-time hires; many companies make the mistake of not taking summer internships seriously enough, and interns do not get the right kind of assignments and oversight. As a result, companies lose the important opportunity to conduct an extended “interview process” to evaluate candidates.
In this article, we’ve presented the talent shortfall as corporate India’s greatest challenge—more difficult to master than growth, expansion, technological advancement, or business strategy. But talent is also the country’s greatest opportunity. As more Indian companies compete on a global scale, as their external ambition grows, senior executives will be drawn to think more effectively about people. India has one distinctive cultural asset in this regard: It has a tradition of taking the long view. People need time and discipline if they are to develop, and if Indian companies are willing to apply that long-term outlook, they may be able to leap past other nations’ companies in their approach to human capital.
Before the country’s top business leaders retire, they should devote their full attention on the care and development of people coming up behind them. That will allow them to retire with confidence, knowing that they are leaving their business in good hands not just immediately, but long into the future. By building the right, integrated capabilities, and instituting a holistic leadership development program, they can ensure strong leadership for generations to come.