Leading Change in the "New Normal"

20 Jan. 2012 | Comments (0)

This post is part of the HBR Insight Center, The Next Generation of Global Leaders.

As we watch business leaders struggling to adjust to the "new normal" of the global economy, we can't help thinking of the economic transition India began almost 20 years ago. The changes that India struggled to cope with, such as slowing domestic growth, increasing globalization, and an uncertain political and regulatory environment, describe global markets today. No one has a perfect model for managing this level of uncertainty. However, we believe that India's (incomplete) journey offers valuable lessons about managing growth and change.

India began morphing from a highly protected economy to a liberalizing one in the 1990s, following a balance of payments crisis. Indian business leaders had to cope with rapid changes on all these fronts at the same time:

a) Competitors: Multinational companies quickly entered the domestic market and few local players were prepared to compete with them. Even large domestic firms were far behind their global counterparts in funding, innovation, and access to markets.

b) Regulations: The regulatory environment, particularly for the banking and financial sectors, went through major changes. The currency fluctuated, exchange controls were loosened, and many tariff structures were modified.

c) Consumers: Companies initially focused on satisfying the pent-up consumer demand of a growing Indian middle and upper class. Today, companies are also focused on reaching the poor at the "bottom of the pyramid," and expanding distribution to the mythical "last mile".

The rapid pace and impact of these changes did not allow the luxury of time and resources to endlessly research or build consensus around an idea or course of action. The very survival of many firms was at stake. Decisive leadership characterized all the firms that emerged as winners. There were specific behaviors common to the businesses that coped well with change:

Leave incrementalism behind. Perhaps the biggest benefit of deep and rapid change is that everything needs to be reexamined. When survival is at stake, all the "crazy" ideas that were dismissed earlier resurface for serious discussion. The idea of "go big or go home" is a requirement in India. Meeting the challenges of scale, distribution and affordability forced fresh thinking. The results also challenge previous notions about what was possible: for example, 70% of the Indian population today has a mobile phone.

Invest in People. One common trait amongst the Indian organizations that have emerged as winners was a concerted investment in people — from employees to channel partners. The arrival of multinationals meant that India had to build talent and fight hard to retain it as new opportunities opened up. The winning companies have invested in strong HR systems and continued learning and development. The IT companies were the leaders in this process, as much of their growth depended on work from outside India, but other well known groups such as the Tatas maintained their strong performance in large measure because of HR policies. Among the family-owned businesses that emerged stronger, such as the Aditya Birla Group, there was a concerted effort to professionalize management. The hallmark of many of these companies has been creating a tough but meritocratic system (such as the Infosys entrance exam), and investing in world-class facilities.

Increase Stakeholder Engagement. Many of the companies that are now India's most admired put significant effort into engaging their stakeholders (employees, customers, partners) for a wide variety of things: explaining the policies and beliefs of the company, communicating strategy and milestones, and often involving them in seeking solutions and new ideas. As companies sought capital in the public markets and listings on international exchanges, they had to communicate their vision for not just the company — but the country as well. Companies making forays overseas had to work at winning the trust of customers and partners doing business with India for the first time. This process demanded strong corporate cultures.

There are two predictable reactions to change — opposition and adaptation. India has demonstrated plenty of both. (Recent events certainly show that the political system is still not up to the pace that business would like.) It is clear that some of the original fears about change were misplaced. Globalization did not wipe out domestic industries — in many cases, they became stronger and more innovative. The economy grew at its highest rates since Independence. A less bureaucratic process has given rise to entrepreneurship — even outside the big cities.

All segments of Indian society have shown a remarkable capacity for change — from adopting new technology to fostering innovation. Having faith in oneself, and others, is part of any successful change process. As a result of engagement with India, terms like jugaad, Gandhian engineering, and the bottom of the pyramid have entered the global business lexicon. The Indian case shows the challenges of change — despite gains for large numbers of people, no reforms can be thought of as "irreversible." But it also highlights the fact that a willingness to embrace change and decisive leadership can make the "new normal" better than the old one.

This blog first appeared on Harvard Business Review on 1/17/2012.

  • About the Author: Deepa Prahalad

    Deepa Prahalad Deepa Prahalad is a strategy consultant and co-author (with Ravi Sawhney) of Predictable Magic: Unleash the Power of Design Strategy to Transform Your Business.

    Full Bio | More from Deepa Prahalad

  • About the Author: Kumaar Bagrodia

    Kumaar Bagrodia Kumaar Bagrodia is an executive coach and strategist. He is the CEO of LeapVault, an Indian knowledge media platform.

    Full Bio | More from Kumaar Bagrodia

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