February 24, 2009

Diversity in Hiring? - By Sanjay Anandaram

One of the things that intrigued me when I visited a startup recently was the amazing conformity and homogeneity on display. Most of the team members were from a particular community, from a particular part of the country, had studied in the same set of colleges and had worked in similar roles in similar companies prior to this startup. Only two of the more than 15 members I met did not conform to the profile of the majority. The CEO subsequently mentioned that one of them had resigned and was on his way out soon while they were looking for a replacement for the other.

The above may not be a very typical case but it is also not atypical. Companies are started by people who share a certain set of common bonds and vision. These common bonds are a function of backgrounds, gender, age, education and prior experiences. In addition to these bonds, there are other bonds e.g. of community. The bonds of community are generally perceived to provide something that the other bonds don’t. Namely, that of trust and loyalty. There’s an implicit assumption that people of the same community can be trusted with confidential information about the affairs of a company. There’s a self-policing and self-supporting mechanism at play that has history, family and social forces behind it. It is therefore not unusual to see strong representation of members of a community in businesses where these values are prized above all others. For example, the Jain community in the diamond trade, the Reddy community in real estate, the Marwari community in jute. Even where there are professionals employed by the business, the reigns of the company are in the hands of members of the community. Several Parsi founded businesses are a case in point here. The former Satyam board and executive leadership too were heavily biased towards Andhra members.

However, there’s a difference between loyalty and competence. Between a professional attitude that keeps the company’s interests in mind and respects all and clannish attitudes that tend to favour those from a particular group. Diversity is an important element in hiring. There’s strong empirical evidence that suggests that a diverse workforce is more innovative and productive. Silicon Valley in particular and the US in general are great examples of the success of diversity. Meritocracy has no skin-colour or community. Having homogeneity and conformance mindsets is not very conducive to innovation but more suited for say, ordered production and shop floor environments. Less diverse workforces in say Germany and Japan therefore are far less innovative than the US. Look at the top leadership of US companies and the top leadership elsewhere for another view of the role of diversity in workforces. One of the big challenges for our IT services companies is create and manage a diverse workforce as the world they inhabit becomes increasingly global. Equal employment opportunity and wanting to hire the best for a role are complementary.

India is fundamentally a very diverse country and therefore as our country, minds and attitudes grow, the workforces in our companies will increasingly reflect this. Startups too should keep this issue of diversity in mind especially if they’re to innovate. Hiring should be for the job as opposed to fitting a person into a job. For example, there’s a tendency for some youth oriented businesses to hire young people for various jobs under the assumption that they would appreciate the customer and company better. These companies tend to confuse youth with youthfulness. Most of the great youth oriented businesses like MTV, Disney, Virgin Mobile are in fact run by “boring” old people who are youthful!

As Mitch Kapor, founder of Lotus, says: One must be careful not to create mirrortocracies in place of meritocracies. Mirrortocracies are companies where people tend to hire people like themselves as opposed to hiring the best people for the job. The company will inevitably suffer as a result. Hiring and sustaining a diverse workforce requires an open company culture, transparency in decision making and equitable governance. We need to take steps fast in that direction.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

February 19, 2009

Attracting and Retaining Talent - By Sanjay Anandaram

When I was asked to write an article on the broad topic of attracting and retaining talent for the Journal of the National HRD Network I became anxious and nervous (of course I displayed nonchalance!). What could a layperson like me write about on the topic that the experts already didn’t know? It would be presumptuous of me to suggest tools and techniques to those who practiced the difficult and thankless jobs of “HR”. So I decided to write about the issue straight from the heart and head on because I believe it needs to be said. So here goes.

“I want to join this company. I believe it is an exciting opportunity for me, I’ve researched the space the company is in and its value proposition resonates with me. I’m not looking for short term gains; in fact, I’m willing to take a significant pay cut to join the company and to make money only through stock if the company does well. I think this is a great chance for me and I just have to work for this company.”

The above is not out of any comfortable dream of the average harried HR professional in today’s India but words actually spoken by a MBA with 8+ yrs experience gainfully employed by a well known MNC bank who I was interviewing for a no-name startup that I was on the board of. A company with 6 people, no revenues, and little money. In fact, the candidate being interviewed had found out about the no-name startup and had written seeking employment.

Well, what it drove home to me was the importance of an exciting vision for the company, a chance to make a difference, a meaningful contribution, the freedom of being able to operate without bureaucracy, to be part of the potentially explosive growth of this company right from the get-go to attract talent.

The reason this is important is because we are dealing with “people”. Not neutral, emotionless, bland things called “talent” or “human resources”. People have dreams, passion, aspirations, energy, drive, knowledge and the ability to learn and unlearn. And in my humble opinion, it is critical to realise this and then design the work-place and the work itself to cater to these emotions and abilities.

The current problems of lack of “talent”, “India’s skills famine” and the consequent “war for talent” are well known and are being dealt with by various experts in various ways e.g. training, poaching, and the like. But I believe these issues will continue to plague us unless we deal with basic realizations.

I’m not making the above statement for shock value. Well, OK, a little, but there’s a serious under-current to the statement that is relevant, going forward, to the whole business of managing people in organizations.

Today, in times of need, how many employees look upon the HR department as the place they would turn to for help, assistance, and counseling? HR is still largely seen as a department that is the hatchet arm for implementing organizational policies. HR managers are the favourite whipping boys for the rest of the organization. This is unfortunate as they have to function in the 21st century within a “HR” structure that originated in the 19th!

A new approach is needed. Let me explain.

Management of people and businesses as a practice really began around the beginning of the 20th Century - thanks to the changes brought about by the Industrial Revolution. The organization of labour, the creation of factories, the setting up of assembly lines and the like required the “creation” of tools and practices to efficiently manage labour as a critical factor of production. Given the wrenching social changes caused by the Industrial Revolution and the socio-economic situation of the times, it is fair to state that labour was perceived as another resource or input to production that had to be “efficiently managed”. The early studies in so-called “scientific” management that lead to the assembly line (essentially breaking down a job into its smallest components each of which would be worked on by a set of separate workers as the job moved from one end of the line to another) provided an intellectual context to this need for labour management. Learning curves of workers, the efficiency and productivity of labour was measured to enable its management. Different theories of organizational behaviour regarding the managing of workers emerged and the so-called Theory X (“carrot & stick” style) and Theory Y (“empathetic”) styles of managing workers became popular.

In fact, terms such as Personnel Management or Industrial Relations or Labour Relations permeated the lexicon not just of “industrial” organizations but also of premier educational institutes that taught students the intricacies of managing “labour”. The theories, structures and management styles originating from academia - that used early industrial units as their research labs- worked for over a 100 years by managing the natural tension between capital (or, its surrogate, management) and labour for the success of the enterprise. They worked in large part because the management styles reflected the social structures of the day. Europe and America were emerging from feudal societies. Agrarian economies were morphing into industrial ones. Wealth creation was happening on an unprecedented scale. Classes were clearly structured and segregated. The management styles – paternalistic and patronizing - and hierarchical structures reflected the socio-economic fabric from within which the modern industrial businesses were being created. It was not out of the ordinary to find this hierarchy and class segregation manifest itself by way of separate toilets, separate eating areas, and working ambience with very distinct and differentiated experiences.

I remember a time when I had made a suggestion (this was part of a Suggestion Box Scheme ostensibly to generate employee involvement and the like) regarding the training of secretaries in PC based database and spreadsheet packages apart from the regular word-processing software so that they could contribute more to the businesses they were supporting while upgrading their own skills. The message I received back was illuminating in its cold bureaucratese:“Secretaries are not supposed to think”.

Societies have made remarkable progress over the past century or so as have organizations over the same period. Visible class differentiation based on the notions of management and labour of a bygone industrial era has, at least in the more evolved organizations, been erased. In some organizations, every one is called by their first name. Everyone eats, works and gets refreshed at common facilities. While these changes are good indicators, they still don’t reflect the changed nature of the dynamic equilibrium between management and labour in the knowledge economy. Here, the management mantra of meritocracy contends with historical aristocracy and organizations are found wanting. Yet organizations still remain stuck with the management lexicon, styles and structures reflective of the industrial age instead of confining them to the dustbins of history.

• “Human Resources”. Lets first start with this clinical and cold label.

The very term “Human Resources” is reflective of this Industrial economy thinking. It is reflective of the era where a human being was just another “resource”, a factor of production. Nothing more, nothing else. Rather like another input item of raw material. Just as the Materials function had the charter of sourcing material of acceptable quality at the lowest cost with minimum disruption to the assembly line, the “Human Resources” or HR department of “Industrial” businesses (“Industrial” in mindset terms) had the charter of procuring the minimum acceptable levels of labour quality at the lowest cost. In the knowledge economy of tomorrow (today?), the management of these “resources” has to be different from that of say, inanimate raw material! While some would argue that our BPOs and IT services produce output in an assembly line like environment of an industrial era business, it is also true that the high levels of attrition can be largely attributed to the drudgery and monotony of the assembly line approach.

• “People are our greatest assets”. Really? This well known rallying cry at several businesses needs scrutiny. Lets take a closer look.

An asset is say, a piece of machinery that is acquired for the purposes of creating output. It has a useful life of say, 5 years after it is assumed that the asset would have outlived its utility. The business therefore sets off a certain amount of money every year as depreciation charges as the cost of maintaining this machine. At the end of its useful life, the asset is valued at zero in the books of the company. Businesses therefore want to squeeze the most out of their assets in the minimum time before the assets become “worthless”. By claiming that people are the greatest assets, there’s an implicit clubbing of people along with the rest of the (non-human) assets in a company. This assumption leads businesses to squeeze the maximum out of their people in the shortest time at the least cost lest the employees too become “worthless” like in the case of any other asset. The implicit assertion therefore being: “We are powerless to prevent the descent of employees into a state of worthlessness!” But this treatment does not recognize the fact that people in a company are the only “assets” that don’t depreciate unless they are made to!

Of course, employees don’t just rust away or become obsolete like machinery. They leave their jobs or just attain a level of incompetence. But employee attrition and attainment of incompetence can be both reversed or dramatically slowed down unlike in the case of machines.

People are the only assets that become more valuable over time as they gain more knowledge, gains more exposure and awareness, skills and experiences. People are the only asset that follow the Law of Increasing Returns, i,e. the more they are invested in, they more they produce. But this reality is never recognized.

Since this reality is not recognized, the poor “HR” department spends all its waking hours and more in recruiting, salary benchmarking, competitive surveys of HR practices, and the like. Instead of focusing on these administrative jobs and roles, which should be handed over to general administration function, “HR” should be focused on making the investments that enhance the value of the employee. Training in soft skills (e.g. counseling, coaching, negotiation), domain capabilities (e.g. technology, specific industry verticals, cross-functional subjects), and exposure to new methods, practices, cultures, geographies. Providing opportunities for self-advancement, encouraging innovation, risk taking, devolving funds management and the like are other examples. Empowered and enlightened decision making cannot occur in hierarchy conscious organizations.

Every person who manages another or a group is a “HR” manager and should be responsible for making the investments and generating measurable output increases. The CEO is the # 1 HR manager of any company; After all, that’s the main job of the CEO: drive productivity and profitability with a happy set of employees. The “HR” function should be transformed into a department of coaches, mentors, counselors, trainers and the like who operate as team members of the line employees.

By renaming “Human Resources” to “People Function” or “Human Capital” will remain tokenisms unless the underlying structural issues are addressed. India has the world’s largest number of young people – the 2nd Midnight’s Children (aka those born on or after 1991) will become a majority of the workforce in the not too distant future. They will not be restrained by hierarchical structures, notions of class, or remain satisfied by paternalistic and patronizing management styles. They have choices and opportunities that are global in nature. They want to be empowered and are not the type to be eternally grateful to the organization for providing them a job. They view the relationship as a largely contractual – getting paid a market value for delivering certain value to the organization. This impending social change, in and as of itself, is a good enough reason to re-think and re-tool “HR” in order to continue to attract and retain people.

A new set of measures need to be evolved for determining the success of any new model. For example, on the input side, we can look at:
- Ratio of coaches, mentors, counselors (not administration oriented “HR”) to total employees
- Involvement of these coaches and mentors in project teams: this will give coaches an insight
into how teams actually work together; Individual contributions can be gauged; Team output
can be positively impacted
- Number of days of training in various areas conducted

On the output side:
- Number of new and innovative initiatives launched
- Employee perception of their superiors and company management style
- An employee “happiness” index? Would they recommend their workplace to others? How many recommendations have come in?
- Do employees feel empowered?
- Is attrition reducing? Is productivity increasing?
- Are employees receiving training in the areas that need improvement? Have employee competencies increased?

To enable this, people in the “HR” function must themselves need to be first made aware, trained, and exposed to a different number and variety of experiences. They must understand the business and the intertwined dynamics across functions. “HR” should be necessarily involved in all decisions and activities involving employees but as coaches, counselors, and trainers. “HR” should move away from being perceived as a “necessary evil” to a critical resource for ensuring employee satisfaction and improved contributions. The board downwards must start focusing on employee development and productivity and must therefore back the new improved version of “HR”.

Organizations need to bring out the “human” (ability) from their resources and focus on the “people” part of their greatest assets. We need to therefore disband organizational behaviours that are implicit in the usage of the term “HR”.
The above formed the gist of a talk delivered by Sanjay Anandaram at February 3rd event in Bangalore on “HR Branding” organized by the National HRD Network and ICFAI Business School.

The above formed the gist of a talk delivered by Sanjay Anandaram at February 3rd event in Bangalore on “HR Branding” organized by the National HRD Network and ICFAI Business School.

February 09, 2009

Investments or Expenses? - By Sanjay Anandaram

In the tough economic times such as the one we’re currently facing, the pervasive and prudent mantra is to conserve cash, hunker down, reduce expenses and somehow survive till better times arrive. But then what expenses should one cut? Where should the costs be reduced? Should investments be stopped?

I’ve received mails from entrepreneurs asking the above questions. In order to answer these questions, it is important to understand the differences between the terms. Semantics aside, understanding of the terms will also help decide where to save and where not to. Lets take a simple example.

Your company decides to participate in a day long event for which 500 samples of your product are procured for Rs 5L. However, only 400 samples were handed out, since only 400 customers showed up, leaving 100 samples that could be used for another event next month. The costs incurred by your company is therefore Rs 5L while Rs 4L were the expenses for the event and the 100 unused samples worth Rs 1L are assets. Expenses therefore mean a cost that has been incurred while undertaking revenue generating activities. A cost may or may not be an expense, for example, in the case of land that your company acquires since the land does not get used up and depreciated. Computers purchased by your company will initially be recorded as assets on the balance sheet while their costs each year become depreciation expenses in the profit & loss statement as they get used in generating revenues.

Should technology costs be treated as an asset (capitalized) or should they be expenses as costs are incurred? Investments and assets are those costs that are expected to result in revenues over a future time period. This depends on the nature of the company’s business and how critical the technology development is for future revenues. For a software company building software IP, the technology can be largely capitalized. Sales costs for example are generally treated as expenses since the revenue impact is felt within the financial year. However, marketing costs are more difficult to segregate between an investment and an expense. Again, the nature of the business plays a role. For example, if the company is in the business of developing and creating brands, then a significant portion of marketing costs can be treated as investments while for other companies, they can be treated as expenses since results may be expected within the year. In a management consulting company, the biggest cost is the people cost. However, their intellectual property (patents, knowhow, processes) are their assets and management needs to decide how much they’ll invest in growing their IP based on their assessment of its revenue generating ability over a period of time.

So in these troubled times, what should a startup do? Since the first goal is to conserve cash it is important to only incur those costs that can be expensed against revenues. If there are existing assets, it is time to dust those assets and make those assets sweat to generate revenues. Many companies talk of their people being their greatest assets, so it should not be a surprise if making these assets work harder, longer and smarter to generate more revenues is one way of making “assets sweat!” In spite of their best efforts, if there’s no visibility of revenues in the foreseeable future companies shed their assets. Shedding assets could mean selling physical assets (buildings and land) to generate cash or letting go of people assets as companies cannot afford to keep incurring costs if these cannot be expensed against revenues.

As is obvious, serious consideration and judgement is required in reaching conclusions about whether to look at costs as investments or expenses and in estimating how and when revenues can be realized. Misrepresentation or erroneous classification can lead to inaccurate financial statements and to other very serious problems as the recent Satyam case has highlighted.

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.