Bracing MNC Competition through Innovative HRM practices:

The Way Ahead for Indian Firms

Ashok Som
Associate Professor
Strategy and Management Area
ESSEC Business School, Paris
Avenue Bernard Hirsch - B.P. 105
95021 Cergy-Pontoise Cedex
France
Tel: + 33 (0)1 34 43 30 73 / 3309 (O)
Fax: + 33 1 34 43 30 01
Mail: SOM@essec.fr

Topic: Human Resource Management

Bracing MNC Competition through Innovative HRM practices:

The Way Ahead for Indian Firms

Abstract
With increasing globalization, firms are entering a dynamic world of international business
that is marked by liberalization of economic policies in a large number of emerging
economies like India. To face the challenge of increasing competition that has resulted from
liberalization, Indian organizations have initiated adoption of innovative human resource
management practices both critically and constructively to foster creativity and innovation
amongst employees. With the help of eleven in-depth case studies this article tries to
understand how innovative HRM practices are being adopted by Indian firms to brace
competition in the post liberalization scenario.

Key words: liberalization, competition, innovative HRM practices, India

Bracing MNC Competition through Innovative HRM practices:

The Way for Indian Firms

Introduction
The decades of the 1980s and the 1990s witnessed an upheaval in economic thinking
and brought about major societal changes. Firms entered a more dynamic world of
international business with globalization of world markets, marked by the emergence of new
international business blocs and economic liberalization of most developed and emerging
economies. The dramatic surge in market reforms throughout the developing world meant that
more than seventy-five developing and post-socialist economies, with a combined population
of more than three billion people aimed at integrating themselves into the global market
system. Dozens of these economies in Asia, Latin America and central Europe have
succeeded in attracting large flows of capital, and, most strikingly, more than thirty countries
have succeeded in establishing stock markets capable of attracting international portfolio
investments. These changes have had profound implications for the entire world economy and
are leading to a reallocation of global savings and investment. These changes have propelled
the most dynamic of the reforming countries into unprecedented levels of sustained economic
growth and reshaped global capital markets by introducing new opportunities for both
portfolio and direct foreign investment. One of the most important emerging markets in the
world, India with a tremendous potential for sustained high rates of economic growth is
increasingly becoming a key player in the world economy.
The liberalization of the Indian economy created a dynamic business environment that
has resulted in hyper-competition. To face this hyper-competitive environment, organizational
adaptation and alternative adaptations of innovative practices have been put in place by firms
for survival and for sustainable corporate performance. This paper attempts to examine how
Indian firms have braced competition through creative and innovative human resource

management (HRM) strategies and practices in the aftermath of liberalization of the Indian
economy in 1991 and the HRM adaptations that have been relatively more effective in this
dynamic context. This article presents a theoretical framework of aligning effective
innovative HRM strategies and practices for effective corporate coping in a competitive
market. For the purpose of this article innovative HRM strategies and practices are defined as
Any intentional introduction of HRM program, policy, practice or system designed to
influence or adapt employee attitudes and behaviors that is perceived to be new and
creates current capabilities and competencies" [1].
In this article HRM strategies and practices indicate a proactive process that has been
well accepted and recognized in the literature which are being used only recently by Indian
corporates as part of their overall business strategy [2]. The Indian context provides an
excellent illustration of the phenomenon of large-scale entry of multinational corporations
(MNCs) and the resultant changes in the competitive structure of the markets where more
creative, innovative HR practices keep employees motivated [3]. This article (see About the

About the Research

This article is based on a case based research conducted over a period of 5 years (1998-2003) in
11 large Indian organisations in 9 industries. Each organisation, a leader in its respective
industry, has undergone extensive restructuring process to equip itself for the impending
competition that arose due to the phased deregulation, liberalisation and privatisation initiated by
the Indian government in 1991. A number of managers were interviewed from these companies,
primary, secondary and archival data were analysed. These organisations were also monitored to
record substantial changes in their business and HRM strategies during the last 5 years. From
this research case studies have been written on some of the organisations. The focus of the
research was to understand the innovative HRM practices that can help Indian corporates to
improve performance in a hyper-competitive environment [4].

Research) presents evidence from eleven different in-depth case studies that have dealt with
the various facets of HRM practices. The findings reveal how Indian firms are adopting,
aligning and integrating their strategic initiatives with innovative HRM practices in order to
be competitive in a new, dynamic business environment.

The Indian Economy

India has been identified as one of the largest emerging markets with an immense
economic potential for sustained economic growth [5]. It has a billion customers and one of
the worlds largest pool of technical, scientific, managerial and entrepreneurial manpower. It
is one of the worlds leaders in the areas of research and development in information
technology, nuclear, space, and rocket technologies. It is among the first three countries in the
world that have built supercomputers, the fourth generation PARAM on its own, US and
Japan being the other two. India is among the six countries in the world that has launched its
own satellites. It has the largest set of remote sensing satellites, the INSAT. It is also one of
the worlds largest diamond cutting and polishing destinations. India is among the six largest
industrial economies and five largest agricultural economies. It has been growing for the past
20 years at an average growth rate of about 6% per annum, the rate exceeding 8% in 2003.
Yet it has a long way to go. The journey of Indias liberalisation of macroeconomic policies
started in earnest in 1991 to modernise the economy and actualise its economic potential. It
began moving away from a closed, regulated licensed economy to a dynamic market
economy.
Liberalisation of the Indian economy
The 1980s in India witnessed a rather limited deregulation in industries such as
cement. By contrast, the reforms of the 1990s in the industrial, trade, and financial areas,
among others, were much wider and deeper. The most significant steps in the liberalization
process were rationalization of taxes, selective and phased lowering of excise duties, setting

up of the national stock exchange with electronic operations, opening up of the insurance,
petroleum and the retail sector, reform of India's labor laws, de-reservation of small scale
industry products. All these changes have contributed significantly towards higher
productivity in the economy. Real GDP growth, which had dipped to 0.9 percent in 1991-92,
recovered to 5.1 percent during 1992-1993, representing one of the fastest recoveries from a
macro economic crisis. Growth rates have risen considerably since then. Foreign currency
reserves, which had fallen to almost US$ 1 billion in mid-1991 recovered swiftly and stood at
US$ 6.4 billion in March 1993, US$ 42 billion in March 2000 and US$ 104 billion at the end
of 2003. The proportion living below the poverty line has fallen from 36 per cent to 27 per
cent. These results and possibilities have generated considerable interest in the Indian
economy on the part of the international business community, international institutions and
scholars.
A decade of opening of the economy has produced new dynamism, most dramatically
in the information technology sector, as in others. The new technologies, especially
information technology and biotechnology, have provided fresh opportunities for economic
and social development. The current positive trend has been witnessed in most sectors of the
economy such as manufacturing sectors as automobile, auto-components, textiles, buildingmaterials, electronics, foods, cosmetics, the service sectors as IT software, business
processing, banking, insurance, consulting, merchandising, retailing and R&D intensive
sectors such as pharmaceuticals and software development. Demographic trends, especially a
slowing population growth rate and a rising share of people of working age are contributing to
the rising income. The world is waking up to India's crucial position as the largest democracy
and as a dynamic economy, if still a low-income one.
It is important to note that despite the global slowdown in 1997-98, the average
growth rate during 1994-1998 was 7%, significantly higher than the growth rate of 5%

achieved during 1980s. Moreover, the growth in the 1980s was not sustainable, as the lack of
export dynamism brought the infamous balance of payments crisis at the end of that decade.
Indian economys response to liberalisation
The Indian economys response to liberalisation appears, by and large, to be effective.
Critics of the liberalisation process were convinced that by opening the economy before
giving it a chance to become competitive, was parallel to throwing the industry to the
wolves. Results show quite the opposite of what sceptics believed. The success in exports, in
fields such as information technology in which competition is fierce and technological change
rapid and success in auto-components, pharmaceuticals shows that the industrial sector
overall has responded positively to the intensified competitive pressures. For example, in the
automobile industry, fifteen of the worlds major automobile manufacturers are now obtaining
components from Indian firms. In 2002, the value of exports of auto-components was US$
375 million. In 2003, it was close to US$ 1.5 billion. Estimates indicate they will reach US$
15 billion within the next 6-7 years. Hyundai Motors India (HMI) is about to become the
parent Hyundai Motors Corporations (HMC) global small car hub. In 2003, HMC sourced
25,000 Santros from HMIs plant in India. By 2010 HMI is targeted to supply half a million
cars to HMC. It was only in 1999 that HMI got its first outsourcing contract and already, in
2003, 20 per cent of its sales worldwide from this outsourcing hub. It is exporting cars to
Indonesia, Algeria, Morocco, Columbia, Nepal, Sri Lanka and Bangladesh. Ford India got its
first outsourcing contract in 2000. Within 3 years outsourcing accounted for 35 per cent of its
sales. Ford India supplies to Mexico, Brazil and China. The parent Ford is sourcing close to
$40 million worth of components from India, and plans to increase this in the coming years.
Ford India is already the sole manufacturing and supply base for Ikon cars and components.
These are being exported to Mexico, China and to some African countries. Toyota Kirloskar
Motors chose India over competitive destinations like Philippines and China for setting up a

new project to source transmissions. Europes leading tractor maker, Renault, has chosen
International Tractors (ITL) as its sole global sourcing hub for 40 to 85 horsepower tractors.
In other industries such as retail, textile and chemicals, Wal- Mart sources US$ 1
billion worth of goods, that is, half of its apparel, from India. GAP sources US$ 500-600
million worth while Hilfiger sources US$ 100 million worth from India. Asian Paints has
production facilities in 22 countries spread across five continents. It has recently acquired
Berger International, which gives it access to 11 countries, and SCIB Chemical SAE in Egypt.
Asian Paints is the market leader in 11 out of the 22 countries in which it is present, including
India.
In the R&D sector, over 70 MNCs, including Delphi, Eli Lilly, General Electric,
Hewlett Packard, Heinz and Daimler Chrysler, have set up R&D facilities in India in the last
five years. In 1998, Intel had 10 persons working in India; today it has over 1,000. Eli Lillys
research facility at Gurgaon is its largest in Asia and the third largest in the world. GEs John
F Welch Technology Center in Bangalore is the companys largest outside the US. With an
investment of US$ 60 million, it employs 1,600 researchers. The Indian centre devotes 20 per
cent of its resources to fundamental research with a five to 10 year horizon in areas like
nanotechnology, hydrogen energy, photonics and advanced propulsion. GE Medical in
Bangalore has developed a high resolution-imaging machine for angiography to meet GEs
entire global requirement. Two-thirds of GE Plastics 300-member research team in India is
involved in fundamental research on molecules. GE Plastics has contributed to the
development of a family of polycarbonates of engineering plastics that is being used in auto
headlamps and CDs. It has also developed heat resistant monomers for applications in aircraft
bodies and high-end medical equipment. GE Motors India has developed an almost noiseless
motor for GEs most sophisticated washing machine lines in the US; it is also the sole
sourcing point for a million of these motors every year. Monsanto has been in India for over

50 years, it set up its first non-US research facility in Bangalore in 1998. This facility is
responsible for Monsantos R&D for Asia. The company is involved in research on
promoters accelerators that improve crop productivity. Whirlpools Pune Research Lab
develops refrigerators and air conditioners for Asia (including China) and Australia. Forty per
cent of this facilitys resources are devoted to global projects. The Daimler Chrysler Research
Centre in Bangalore is engaged in fundamental and applied research in avionics, simulation
and software development. HP Labs India has built a prototype that can scan hand written
mail through a small handheld device instead of a scanner. It has also built the prototype of a
computer for unsophisticated users.
As shown above, the vast opportunities thrown open by liberalisation has attracted
many MNCs to India. The entry of more and more MNCs to tap into the vast Indian market
has changed the dynamics of doing business in India. Consequently, the environment has
become hyper-competitive and turbulent for Indian organisations, which operated in a
protective environment before. India has slowly become a competitive battleground for more
than fifteen thousand MNCs. In order to face this competition, several Indian firms undertook
significant organisational changes during the late 1990s. They tried to adopt new strategies to
cope with the ever changing and turbulent environment. These firms were able to successfully
adapt to the dynamic corporate scenario because of their foresightedness, technical expertise
and marketing abilities [6]. For example, Hero Honda is the largest manufacturer of
motorcycles in the worldwith an output of 1.7 million motorcycles a year. Hundred
thousand Indica cars of the Tata Motors are marketed in Europe by Rover, UK under Rovers
brand name. Tata Indica has been designed, developed and produced ingeniously in India.
Bharat Forge has the worlds largest single-location forging facility. Its client list includes
Toyota, Honda, Volvo, Cummins, and Daimler Chrysler. It has been chosen as a supplier of
small forging parts for Toyotas global transmission parts sourcing hub in Bangalore.

Hindustan Inks has the worlds largest single stream, fully integrated ink plant, of 100,000
tonnes per annum capacity, at Vapi, Gujarat. It has a manufacturing plant and a 100 per cent
subsidiary in the US. It has another 100 per cent subsidiary in Austria. For the past two years,
General Motors has awarded Sundaram Clayton its Best Supplier Award; the volume it
sources from India is growing every year. Essel Propack is the worlds largest laminated tube
manufacturer. It has a manufacturing presence in 11 countries including China, a global
manufacturing share of 25 per cent, and caters to all of P&Gs laminated tube requirements in
the US, and to 40 per cent of Unilevers. Maruti has been the preferred supplier of small cars
under the Suzuki brand for Europe. Suzuki has now decided to make India its manufacturing,
export and research hub outside Japan. Tata Iron and Steel Company is today the lowest cost
producer of hot-rolled steel in the world. TVS Motor Company has been awarded the coveted
Deming Prize for Total Quality Management. Indias pharmaceutical industry has earned
worldwide reputation like the infotech industry. It is already worth $ 6.5 billion and has been
growing at 8-10 per cent a year. It is the fourth largest pharmaceutical industry in terms of
volume and 13th in terms of value. Its exports have crossed $2 billion, and have increased by
30 per cent in the last five years. India is among the top five manufacturers of bulk drugs.
Indias liberalisation has had one major implication for the corporate world, creation
of a hyper-competitive environment due to the lowering of barriers to entry and the opening
up of opportunities for growth through the removal of regulations. However, very little work
in general has been done on the response of Indian corporates to the liberalization process and
practically none on how they are bracing competition from MNCs through innovative HRM
practices. In the developed countries aligning and adopting HRM strategy for competitive
advantage is common [7] but not so in emerging countries such as India. In the light of the
progress made by India's reforms and the growing worldwide interest in India, this article tries
to bridge this gap with an analysis of eleven corporates (Table 1 summarizes the

10

demographics of the eleven firms) that are believed to be leaders in their business sectors. It is
envisaged that this article will go a long way for both managers and academicians towards
developing a deeper understanding of the recent developments in India and of the innovative
HRM strategies adopted by Indian firms for superior performance.
------------------------------Insert Table 1 here
-------------------------------Theoretical Framework
For this study, a contingency-based theoretical framework was adopted which took
into account the contextual factors while measuring the impact of those. The core adaptations
to liberalisation by Indian corporates represent a strategic choice. The adaptations cover both
strategic and systemic organisational responses. Strategic responses relate to vision, mission,
goals, values and business strategy of the organisation. Systemic responses are those related
to structures, functions, cultures and processes. This study focuses on the main systemic
responses i.e., innovative HRM practices that Indian organisations have adopted to face
competition in the Indian market place. Figure 1 summarises the theoretical model. Further
details on the research design, methodology and data are provided in the Appendix.
------------------------------Insert Figure 1 here
-------------------------------Discussion and Findings
The findings from the eleven case studies are discussed with reference to the
theoretical model.
Hypothesis 1: The more HRM practices synergise with changing business strategies the
more it will create social networks within the organization which will probably
necessitate the expansion of HR departments role from administrative experts to
strategic partners, change agents and employee champions.

11

As firms debate on the role of HRM as a change agent, a strategic partner, an

employee champion or an administrative expert it is clear that HR professionals must become
key players in the design, development and delivery of a companys strategy [8].
Organisations still debate on the measurable worth of the HR department. They often treat
this function as secondary and on several occasions, redundant. Several companies while
trying to rationalise their work force do away with the HR department, on the premise of
outsourcing non-essential functions. In today's environment where the need for nurturing
human capital has been recognized as precious, this decision might be to the detriment of the
company in the long run. An example supporting this point is that of Maruti Udyog Ltd, a
leading company in the Indian automobile industry, which started as a joint venture with
Suzuki of Japan. Maruti revolutionised the automobile and components industry in India and
set high standards for its products and services. With the deregulation of the automobile
industry in India, Maruti, from being the undisputed leader, controlling about 84% of the
market till 1998, saw its market share reduce drastically with increasing competition from
both the local players like Telco, Hindustan Motors, Mahindra & Mahindra as well as the
foreign players like Daweoo, PAL, Toyota, Ford, Mitsubishi, GM. The industry structure
changed dramatically during 1998-2002. To face this intense competition, the company
launched new models that could cater to different market segments. Maruti also shifted its
business focus from a production oriented company to that of a customer caring, service
oriented company prioritising aggressive marketing. During the same time a change in
leadership took place. Prior to this change when there was negligible competition and Maruti
sold what it produced, HRM was considered as a paper pusher and a time keeper. It
played a marginal role, was given no targets and was not accountable to the top management.
HRM department was not involved in the strategic decisions and there were times when there
was no head for the HR Department. Managers considered a posting in the HR Department as

12

a punishment. A new Managing Director appointed in 1998, however, decided to

professionalize the HRM function and to link HRM strategies to the business strategy of the
whole organisation. As a result professional HR managers were hired. New initiatives in
performance appraisals, competency mapping and job rotations were undertaken. HRM was
made responsible for the clarity and transparency in communication within the organisation
and for negotiations with the Union. The role of the HR Department was reactivated and they
were held accountable for defining job profiles, simplifying procedures. The significant
improvements implemented by the HRM department, has led Maruti to develop excellent
teamwork and its compensation system was recognised as the best in the industry. Turnover,
employee morale, commitment, job satisfaction increased within the organisation.
Synergising distinctive HRM strategies help to create unique competencies that
differentiate products and services and, in turn, drive competitiveness [9]. Senior managers
remain aloof to the fact that HRM practices extend to nearly all the activities of an
organization and that it is not just restricted to one or few department(s). Well-organized
HRM practices are a prerequisite for a successful strategic change. HRM plays a pivotal role
in redefining new strategies so that they can suit the changing environment. At times HRM
not only complements the new strategy, but also becomes the deciding and defining factor in
pursuing a particular strategy. To keep abreast with the dynamic business conditions, Indian
firms have revamped their HRM strategies and now incorporate part-time work, outsourcing
and temporary workers. This represents a drastic shift from the traditional personnel
management polices. However, implementing such modern HRM strategies is not an easy
task for senior management since changing the mindset and motivating workers to agree to
the change process is an uphill task by itself. An interesting example of this case was
Mahindra and Mahindra Ltd., the flagship company of the Mahindra Group. The Mahindra
and Mahindra (M&M) Limited (Tractor Division) was suffering from manufacturing

13

inefficiencies, low productivity, over stretched production cycle and poor output. The primary
reason behind this inefficiency was the under productive and excessively unionized labor
force. The situation was further aggravated by the changes taking place in the external
environment due to the modifications in the business environment and government policies.
The company had to adopt a new strategy in order to survive. In 1995, the company
introduced Business Process Reengineering (BPR), focussing on a total overhaul of the style
in which the company was organized. Instead of improving or changing procedures, the
scheme focused on reformulating the way the company carried out its business. This initiated
several changes in the organization structure, which enabled the company to realign itself
with the BPR mechanism. The introduction of BPR was opposed by the labor union. Prior to
BPR, HRM department was not part of the strategy making process at M&M Ltd. BPR
adopted innovative HRM practices, such as group work, that used the churning effect to
change the traditional mindset of the employees and enforced concrete HRM policies and
practices. Firstly, from a multi-layered structure, the company adopted a flat structure, which
reduced the disparities existing in the different levels. It brought together people from
different departments that encouraged cross-functional teamwork. Regular meetings with
workers were encouraged to enhance the company's belief that HR cannot function in
cabins. Furthermore, the company repositioned existing people in key ranks and placed
emphasis on training programs. It followed a simple recruitment philosophy by refusing to
hire highly qualified people who had a history of leaving the organization for a competitor
MNC. Instead, it believed in hiring professional consultants to take care of advanced work
practices and simultaneously capitalized on its existing employee talent through intensive
retraining and redeployment strategies. The company also began outsourcing non-core
manufacturing activities. After eight years, in 2003 the results of implementing BPR in
synergy with new, innovative HRM practices within the organization were spectacular as it

14

allowed the company to maintain steady profits, reduce working capital levels, and rationalize
the manufacturing process. Redesigning innovative HRM strategies, expanding the HRM
practices became an effective method to reengineer the firm's plants. It created a social
network within the organization and led to the effective team building which was lacking
before.
Competency-based strategies are dependent on people and when people are regarded
as a key strategic resource, the creation of social networks within the organization is an
effective way of managing people. HRM policies differ depending on the rapport an
employee shares with the company and how this rapport is co-opted with other stakeholders
of the organization. Hiring of external consultants can play a key role in implementing
strategies decided by a company as it tries to strengthen the networks within the organization
by providing tools to adopt innovation. Tata Iron and Steel Company (TISCO), a Tata
flagship company, India's most cost effective steel plant provides an example. TISCO
undertook a management restructuring program with the objective of transforming TISCO
into a high performing and growth organization. The key strategic drivers to achieve this goal
were to focus on current growth, enhance the degree of profit and accountability, provide
exciting career opportunities and build a team of high-performing professionals. McKinsey &
Co. was appointed to assist the company in achieving these objectives. Mckinsey started with
an organizational restructuring program by creating a lean and a flat strategic business unit
structure with enriched jobs, greater accountability and autonomy. Accordingly unit teams
were formed comprising of unit leaders and facilitators. In the beginning, McKinsey provided
the facilitators who would coordinate a unit's performance. Each team had to set targets and to
work towards achieving them. Performance Ethic Program (PEP) was introduced to promote
young dynamic personnel to higher positions to replace the policy of seniority-based
promotions and to create new social vibrant networks. The PEP institutionalized and tailored

15

the management development programs for officers. A new Performance Management

System (PMS) was institutionalized to support the new innovative practices that McKinsey
implemented. The PMS included alignment of key result areas (KRAs) with business strategy
at all levels and clear career paths to enable the company to identify and reward the strong
performers and provide them with growth opportunities. The compensation and rewards were
linked to performance and pegged to the market. This program made performance and reward
systems transparent and fair within the organization, boosting the employees' initiative to
succeed.
Hypothesis 2: The more the organizations follow professionalized and innovative HR
practices (recruitment, selection, career development), the more is the development of a
pool of knowledge workforce and the more is the creation of - leaders for tomorrow within the organization.
With the demand for knowledge workers increasing in a competitive market,
enhancement of profitability depends on the recruitment, selection and retaining them in the
organisation. Until recently access to technology was considered as the prime area of focus
for many Indian firms. With increasing competition, knowledge workforce i.e. people have
become competitive differentiators [10]. The HR executives are under pressure to stretch their
capabilities and provide value-added services by professionalizing the HRM practices.
Organisations are recruiting and selecting professionals who can comprehend a complex
organisation structure and the requirements of a company in a dynamic business environment.
A remarkable example is that of an internationally renowned IT company, Infosys
Technology Limited. Infosys is one of the biggest Indian exporters of software and offers IT
consulting and software services to many of the Fortune 1000 companies. The determination
and the effective management skills of the Chairman, Mr. Narayan Murthy were the driving
force behind the success of the company. His strong belief that Indian professionals have the

16

capability to handle complex projects led the company to establish a name for itself in the
foreign markets. He implemented the best reward system in the industry to ensure that his
employees were taken care of. According to him, they represented the company's most
powerful wealth. He encouraged them to communicate with each other and to interact with
the management through meetings. He set up a Leadership Institute in Mysore to prepare the
Infosys' employees to face the challenges of a dynamic market scenario and to groom them to
be efficient leaders. The CEO's profound faith that human resource is the most valuable asset
of the company certainly motivated the employees to strive for excellence.
The rapid expansion of this software export and information technology company
from 42 in 1987 to 23,000 in 2003 called for redefining and innovating its recruitment,
selection and career development practices. For about 700 advertised positions in 2003 the
number of applicants exceeded 160,000. The sheer number of applicants requires a tough
recruitment process which is followed at Infosys Technologies Ltd. Infosys carries out a
rigorous interview process for selecting candidates, the primary selection criteria being capacity to learn. After minutely scanning the curricula vitae of the potential candidates,
Infosys selects a small number of applicants for further tests. These tests include a set of
puzzles and math algorithms in order to evaluate candidates learnability. The exact skills
required are not tested for during the screening process as Infosys trains employees to acquire
those. The candidates that pass the test stage have to further undergo an interview round
which determine their jobs at Infosys. Prospective candidates are tested primarily for
analytical, problem solving and communication skills to enhance a dynamic learning
environment, the key to success in an industry where technology changes rapidly. This strict
and thorough selection process ensures that the company manages to attract the most skilled
people available in the job market. The Chariman is confident that as long as the company
innovates, it will survive and succeed. In his words

17

the biggest challenge is to build a first class company in a third world country. To
become a global firm, we need not only the art of selling internationally but also the
art of recruitment, compensation, training and the art of teamwork across borders.
The quality of people is a survival imperative
A similar philosophy was followed at Wipro Corporation, the other leading IT firm in
India. Wipro Corporation is a large diversified family owned business, with business interests
in many unrelated sectors. One of the most profitable of them is the Wipro Systems, a
company dedicated to computers, information technology and software developing. Wipro
believes in employing the best people and investing in their career development. Wipro prides
itself by being People Business, Business People. Wipro recruits from the leading Indian
educational institutes, such as the Indian Institutes of Technology (IITs) and the Indian
Institutes of Management (IIMs) through the campus placement programmes. For any new
business it enters into, the first chance for promotion is always given to its own employees. If
internal talent is not found, the company recruits the best from the competitive labour market.
Each employee is meticulously trained and groomed to respond effectively to the business'
requirements. In the words of the Chairman, Mr. Azim Premji,
the key to success in all our efforts, as always, is our people.
Wipro believes that they are in the business of leadership and the real worth of an
organisation is powered by people who work for it. Mr. Premji believes that
in todays dynamic environment the leaders that they nurture will lead them into the
future. The attitude to nurture the potential capabilities of employees, coupled with
sensitive and innovative people practices has resulted in a deep pool of talent in the
organisation. It is this depth of leadership that has fuelled Wipros sustained growth
and success.

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Many Indian companies that perform well in the domestic market have not yet
expanded to the international arena. Several factors such as lack of confidence, technical
know how and resources inhibit leading Indian groups to expand their area of activities to
other parts of the world. Innovative HRM practices can play a crucial role in changing the
attitude of the companies and its employees in order to facilitate entry and presence in the
foreign markets. This is effectively illustrated by the case of the Indian pharmaceutical giant
Ranbaxy, which succeeded in expanding its business internationally due to the single-handed
determination of its past CEO, Dr. Parvinder Singh, and the manner in which he strived to
change the mindset of his employees. Ranbaxy found itself at the bottom of the
pharmaceutical curve [11] inspite of being active in the export market for 18 years. Foreign
markets had stringent quality requirements in terms of raw materials, packaging and physical
properties of pharmaceutical substances. This implied heavy costs in research and
development and careful organization of distribution and marketing activities. Despite
entering the foreign markets at the bottom rung of the value chain, Ranbaxy inched upwards
because the employees shared their CEO's beliefs and dreams that they were in a position to
harness their resources and capabilities to be successful in foreign markets. Together they
developed continual cross border learning programs to enrich their ways of working and
functioning. Their board attracted managers from different parts of the world. This step
enabled them to catalyze their globalization process. Moreover, the CEO led the company to
integrate backwards, to enter new markets and to develop novel drugs. This provided
Ranbaxy with the edge to succeed in the global marketplace.
In this age of intense competition, the examples of Infosys, Wipro and Ranbaxy show
that Indian companies realise that the differentiator for superior performance is people.
Intelligent and skilled employees are a prerequisite for companies that wish to climb the
ladder of success. As more companies acknowledge the worth of employees in India, the

19

competition for the limited and precious human resource will get fiercer. The challenge is not
just to attract human capital and enhance its skills and competencies to suit a company's
needs; but also retain it within the company. This is certainly not an easy task given the
increasing mobility and flexibility of the work force. As the battle to win and retain talented
and knowledge workforce intensifies, the HRM department has to step in to play an important
role in the conception, formulation and execution of a company's strategy.
Hypothesis 3: The more organizations practice proactive performance management
systems, the relatively easier it is to build, retain, retrain and redeploy talent.
Organisations need to incorporate country-specific, institutional factors that affects
patterns of organisational practices like HRM. National institutional embeddedness of firms
plays an important role in shaping HRM practices [12]. With competition, the responsibilities
and the domain of the personnel management need to expand to become proactive and
innovative HRM. The HR department not only has to develop new skills regarding
recruitment and selection procedures but also has to craft innovative compensation and
integration schemes for the employees in order to retain talent in the organisation. An
interesting example is that of Arvind Mills. Arvind Mills, which belongs to the Lalbhai Group
of companies, is a family owned business, producing textiles, ready to wear apparel, agrochemicals and dyestuff. In the late 1990s it was the third largest producer of denim in the
world. However, with the change in fashion trend from denim to gabardine and corduroy, the
company was adversely affected. The threat from powerlooms, the need to increase exports
and the growing demands of consumers led the company to introduce a new strategy. HRM
played a crucial role in this business plan. The company created a Manpower Planning and
Resource Group to take charge of the selection and recruitment procedure, to organize the job
structure and to define the task description of various employees. The group absorbed fresh
talent from top management and technical schools and established a compensation system

20

which matched the industry standards. Innovative new methods of recruiting were adopted
such as the Selection Information System (an online recruitment system) that provided
facilities from generating call letters, fixing interviews and to evaluate on-line interviews.
This program was linked to the Compensation Information System and the Training
Information System. A Management and Organizational Development Group was
incorporated to look into the training of the employees. It provided three kinds of training
programs: functional, behavioral and global. Another innovative concept (in the Indian
context) developed at Arvind Mills was the Management by Objectives (MBO) which
focused on producing results desired by the management in keeping with the satisfaction of
the employees. Arvind Mills succeeded in finding a harmonious balance between the top
management and the industry workers. Udaan, a kite flying competition between the
management team and the operations team is a perfect example of building healthy relations
between the two. In addition, programs such as Booboos (rock show) and Umang (forum)
were introduced to create synergies among workers. These were some of the ways that Arvind
Mills adopted to build and retain talent.
Most Indian companies still follow age-old practices and customs. Consequently their
HRM strategies are also based on the traditional "industrial model" which involves several
features like seniority based promotions, strong union influence and strict job classifications.
With the advent of a new wave of thinking, several firms have decided to break away from
the conservative model and adopt new and dynamic methods from their western counterparts
that were more in sync with the changing industry standards. Clariant (India) Ltd is one such
example. With the demerger of Sandoz (I) Ltd, a new autonomous company called Clariant
was born. Clariant develops, manufactures and markets dyes, pigments, chemicals for textiles,
leather, plastic, paints and inks. A new company meant that managers had new
responsibilities to handle. A special program called Clariant Participation to improve

21

Profitability through Performance and People (CLAP) was put into place to efficiently guide
the transition. The unique feature of this program was that managers who had handled
multidivisional responsibilities earlier were able to remarkably unlearn their experiences and
adapt their learnings to new situations. The program aspired to "change the mental process"
by introducing several changes in the company's way of functioning. The company moved
from "Top Down Close Communication" to "Up Down Open Communication", from "We
and They" to "Do it Together", from "Control" to "Leading and Managing". All these efforts
enhanced the communication process. Task forces and cross-functional teams increased
employee participation and involvement. Furthermore, the company introduced a "Goal
Setting" program that increased motivation among the employees. The Personnel Department
of Sandoz, which was mostly involved with administration activities, expanded its role as a
catalyzer, supplier of information, facilitator and developer thus trying to develop and retain
talent.
On the other hand, Infosys designed its performance management system to build,
retain, retrain and redeploy talent. Since employees are considered as the prime assets at
Infosys, the HRM practices arose from the belief that the employees stayed with Infosys
because the management was able to satisfy the three fold needs of the work force: learning
value added, financial value added and emotional value added services.
In the words of the Chairman, Mr. Narayan Murthy of Infosys,
if there is one challenge that Indian software industry faces, it is how to recruit,
enable, empower and retain the best and the brightest professionals.
On the learning aspect, Infosys provided its employees with an opportunity to accept
responsibilities at an early stage in the career. On the financial side, Infosys provided stock
options, low interest and zero interest loans to its employees. On the emotional angle, a
friendly, open and transparent atmosphere within the company kept the employees motivated

22

and involved. As a consequence, Infosys developed an ambience that fostered the overall
growth and well-being of its employees. Infosys built a campus which was a set of multifloored buildings constructed on a sprawling five acre land that provided banking facilities,
ATM, volleyball and basketball courts, shower rooms, bus facilities and housing if employees
needed to work overtime. Respect for people enabled the company to create a leading position
for itself in the Indian market and to gain esteem in the international arena.
Same is the story of Mr. Azim Premji, CEO of Wipro Corporation who managed to
exploit the talent of his employees. The biggest challenge faced by his company was holding
on to its skilled employees. For new local entrants and MNCs like IBM, Microsoft, Oracle,
Texas Instruments which wanted to recruit talented people from well managed Indian
companies, Wipro became a prime target. Azim Premji realised this problem and took
necessary steps to retain his skilled work force. Human resource managers considered
employees as "talent investors" and treated them as partners to be rewarded as other investors
are. Wipro, as Infosys was one of the first Indian companies to launch the employee stock
ownership called Wipro Equity Linked Reward Programme.
Hypothesis 4: Innovative HRM practices (in general and those affecting rightsizing, delayering, decentralizing in particular) are positively related to organizational
effectiveness and relatively superior performance
The new concept of HRM calls for segmenting the work force according to different
criteria like age, educational background and business background. Policies need to be tailor
made according to the needs of each group, in order to optimally utilize the resources offered
by each segment. In the wake of liberalization, the State Bank of India (SBI), India's largest
public sector bank decided to undertake an intensive restructuring program. With the entry of
foreign and private sector banks, SBI faced competition from both the Indian private as well
as foreign banks. It turned to business consultants, McKinsey & Co. for suggestions and

23

improvements. Accordingly the business was divided into eight major functions, Personnel
and HRM being one of the five most important divisions. HRM department was divided into
four branches in order to serve the varied needs of the organization. The four levels included,
Corporate Office, Local Head Office, Zonal Branch and Individual Branch. The Corporate
Office handled most of the HRM activities, each branch was delegated specific
responsibilities which made the management and decision making process in the bank,
simpler and effective. The HRM strategy placed special attention on the policies carved by
the top management which were subsequently implemented by the middle managers. Care
was taken to ensure that the new strategies that were designed for the middle managers
corresponded to their needs. But the implementation of the restructuring program had its share
of difficulties.
When a company is undergoing a restructuring phase, it is likely to uncover many
problematic areas that hinder its smooth functioning. At such times, innovative HRM
practices enable the company to improve its efficiency. This was the situation encountered by
the SBI, when it introduced the Voluntary Retirement Scheme or the 'Golden Handshake'
system. With the advent of new technologies like ATM and Internet banking, the dynamics of
banking had changed dramatically in the late nineties, SBI found itself faced with the problem
of redundant work force. The vast work force that was once regarded as one of SBI's strongest
assets became a liability following the computerization of the bank. In order to protect its
dealings and to remain profitable, SBI realised that it would have to undertake rigorous cost
cuttings and the VRS. The VRS deal proposed 60 days' salary for every year of service or the
salary to be drawn by the employee for the remaining period of service, whichever was less.
When the VRS was offered a large number of able employees accepted the offer and joined
competitor banks. SBI was in danger of losing most of its talented employees and be left with
less efficient employees. The introduction of this scheme lead to strong protests from the

24

unions which claimed that the bank had taken a hasty decision without undertaking correct
manpower planning measures. Unions and media strongly criticised SBI's VRS on the
grounds that it was arbitrary and discriminatory. At this crucial moment, SBI needed to
implement the right HRM practices in order to retain its talented workers and to do away with
the excess unskilled work force.
A similar story is that of Mehta Group and its innovative HRM practices. Mehta
Group is a leading conglomerate that houses two cement companies Sidhee Cement and
Saurashtra Cement in Western India. Sidhee has been declared as a sick unit and is under the
Board of Industrial and Financial Reconstruction (BIFR) while Saurashtra is a loss-making
firm. The Group wanted to synergise operations of the two companies in order to reduce
competition and the declining market share. A strategy to develop 'synergy' between the two
companies was devised in which strong emphasis was laid on innovative HRM practices.
There was a complete redefinition of the organisation structure. Job roles and work
descriptions were revised, new positions were created and competency exercises for the
employees were effectuated. Instead of pursuing a retrenchment and recruitment philosophy,
the group followed a redeployment policy. It reorganised its employees into technical experts,
industry experts and market research personnel. By enhancing human resource development
within the company Mehta Group was able to record significant improvement in
performances and was able to optimally utilise its resources.
Liberalization forced domestic firms to adapt new changes to face foreign competition.
Innovation became paramount as it was the only way to satisfy the rising consumer needs and
requirements. Companies began reorganizing their organization structure and their business
model. HRM became an essential element in this restructuring phase in order to enable
companies to improve the recruitment procedures, hire skilled workers and enhance their
potential by devising distinct career paths. A striking example of this situation is the case of

25

Bharat Petroleum Corporation Limited. BPCL is a public sector organization which is one of
the leading companies in the Indian petroleum industry. BPCL had benefited immensely as
the petroleum sector was a monopolistic market enjoying administered prices fixed by the
government. In 2002 when the industry was deregulated, it led to a significant loss of market
share for both multi-national oil companies and Indian firms. The challenge faced by BPCL
was to retain its market share and to continue to be profitable. The company decided to
redesign the organization whereby HRM strategies were regarded as important support
services (along with Finance and Information Technology). Three kinds of services
embedded support service, shared support service and corporate service were developed and
each contributed to the successful turnaround of the company. BPCL used the HRM services
to cushion their main stream of business with respect to refining and retailing. Since BPCL is
a "public enterprise" it could not downsize the labor force. Instead, BPCL undertook a strong
retraining and redeployment program to efficiently use the excess manpower within the
organization. Consequently its sales force was increased by 50% without hiring any new
manpower. Competency mapping was introduced and new people were hired for only
specialized positions. The performance management system of the company was revamped
and made more customer oriented. Moreover, BPCL introduced a creative learning experience
program for its employees called the Foundation of Learning Plan that encouraged the
development of an employee's ability to work in high performing cross functional teams. The
introduction of this program led to a boost in the competencies of the employees and their
motivation to excel. The example of BPCL illustrates how innovative HRM strategies can not
only respond to traditional personnel problems but also improve and sustain superior
performance. Table 2 provides a summary of the strategic initiatives and the innovative HRM
practices of the eleven firms.

26

------------------------------Insert Table 2 here

-------------------------------Conclusion and Implications
This article focused on understanding some of the innovative HRM strategies and
practices that stem from functionally logical strategic initiatives in response to a hypercompetitive, complex but opportunity-rich environment that had opened up due to the
economic liberalisation in India. These innovative HRM strategies and practices are not a
random collection but practices which may be considered best practices that has yielded
excellence in performance.
How universal are these innovative HRM practices? How are they important to
MNCs? The economic reforms have attracted foreign direct investment and MNCs which are
more interested in managing their investments through cost, quality or innovation. Indian
organisations face a number of challenges, the most important being - to make the best use of
their existing human resources and compete on the basis of innovative HRM practices. These
challenges have a direct implication for the HRM function. Literature on HRM suggests that
the practices or their close versions seem to have applicability both in developed countries as
well as in an emerging economy like India, and therefore may be relevant to most sectors and
industries anywhere in the world wherever there is a competitive market economy. Taken
together, the wealth of different HRM strategies incorporates much strength. The adoption of
different innovative HRM practices in some of the Indian companies has improved business
performance. This finds support from recent studies linking HRM activities and firm
performance. The study supports the decade-old argument that investments and adoption of
innovative HRM strategies are a potential source of competitive advantage. Nevertheless,
scholars have little understanding of the processes required to realise this potential, or the
specific conditions under which the potential is realised [14].

27

This provides MNCs two important lessons. In constantly changing environments, first
mover advantage is critically important. But Indian corporates have been late movers but are
fast bracing to competitive pressures. MNCs must manage their organisation efficiently and
effectively to brace this renewed competitive challenge from Indian firms. Second, Indian
firms have now more resources to invest in developing innovative HRM strategies (see
reverse causality in Figure 1) which has accrued from cost reduction mechanisms, integration
of support functions such as information technology in their work process, boosting morale of
employees and by high retention of skilled employees. Though MNCs have deep pockets,
which is an important driver in the labour market, this study of eleven firms indicate that
Indian firms are relentlessly trying to reduce employee turnover by innovative HRM
strategies. For those MNCs, which understand this challenge of doing business in India, the
ultimate benefit is not to fall into the trap as their predecessors, but to leap towards an
integrated and innovative HRM strategy that can attract, develop, excite and retain key talent.
MNCs such as Castrol, Shell, Exxon (petroleum sector), Renault Tractor, Ford, Mitsubishi
(automobile sector), Lafarge, Italcementi (cement industry), Citibank, American Express
(banking sector), Levis, Pepe (textiles), IBM, Microsoft, HP-Compaq, Oracle (IT sector),
Bayer, Roche (pharmaceutical), Coke, KFC, McDonalds, Procter & Gamble, which have
learned or are trying to learn the hard way of doing business in India.
How generalizable are the implications and insights? The study of the eleven Indian
organisations, which are leaders in their field of expertise, may have insights regarding
similar processes occurring in other emerging markets such as Asia, Latin America and
Eastern Europe. In countries like Argentina, Brazil, China, Mexico, Hungary, Israel, Poland,
Slovenia numerous MNCs are investing and affecting local economies and changing the
dynamics of the business environment. While the MNCs contribute to the economic growth of
these countries they also pose a threat to local competitors. Local companies in similar

28

environments will have to adjust to the new rules of the game and practice innovative human
resource management (HRM) strategies.
The study has its limitations because of its small sample size, and is restricted to nine
industry sectors. However, within the limitations it contributes to the field of HRM in general
and specifically to academicians and practitioners who are interested in emerging country
environments.
This article might encourage academics to conduct future research exploring the
different modes of adaptations by local companies to environmental changes. Growing
importance of research has already been reported not only in international HRM but also in
comparative HRM studies. Researchers might want to look at the differences, if any, in the
adoption of innovative HRM strategies and practices from a developed and emerging market
perspectives.
Managerial Implications
In an increasingly globalizing economy, this study has five distinct implications for
managers worldwide. Although the sample is small and the definition of innovative HRM
strategies and practices broad, it may be worthwhile for managers to look into their own
organisations and ask whether there is a need to redefine, redesign and innovate their HRM
strategies and practices. There might be issues which may sound trivial at first sight but may
be a precursor to long-term competitive advantage and superior performance. Secondly,
managers may want to look at how top management teams oversee innovation efforts at the
workplace in general and the HRM issues in particular and strike a balance between guiding
and adopting atleast some of those efforts which transcend embedded interests. Thirdly, the
findings in this paper are consistent with the strategic choice perspective; understanding
business strategy is critical in understanding HRM strategies by emphasising either the
competence or the behavioural aspect. Thus, given the business strategy, innovative HRM

29

strategies can be chosen to fit the overall intent. Fourthly, the findings are pertinent to MNCs
(doing business in both emerging and developed economies) and expatriates working in those
companies as they can benchmark the differences in managing local businesses. The results of
this research highlight that local companies are fast catching up with MNCs by adopting
innovative practices rather than following a universal set of HR best practices. Finally,
understanding the wealth of different HRM strategies and practices is relatively easy,
managing and adopting them within the cultural heritage of the organisation is the difficult
part. Competitive advantage through people processes is difficult to achieve and even more
difficult to sustain, but once achieved, it is not easy to duplicate.
Acknowledgement
I would like to thank Professor Kazuhiro Asakawa, Keio Business School, Lalita
Saptagiri, Visiting Professor, ESSEC Business School for their comments and Sejal Gupta,
ESSEC MBA student who helped me in the second phase of this research.

30

Footnotes
1. For a detailed discussion see Kossek, E, Human Resources Management Innovation,
Human Resource Management, 26(1): 71-92 (1987); Som. A and Bouchikhi, H, What
drives the adoption of SHRM in Indian Companies? ESSEC Working Paper, DR-03009
(41 pages) (April 2003)
2. For a detailed review of the growing proactive nature of HRM function, see LengnickHall, C.A. and see Lengnick-Hall, M.L., Strategic Human Resource Management: A
review of literature and proposed typology, Academy of Management Review, 13: 454-470
(1988); Schuler. R and Jackson. S, Strategic Human Resource Management, London:
Blackwell (1999);
3. Although the field of strategic HRM has been discussed and debated in great details in
western literature, it seems from existing Indian HRM literature that there is a time-lag of
about 8-10 years regarding development of personnel functions. For example the shift
from personnel management (industrial relations, administrative role of personnel
function) to a more proactive strategic role of HRM function started in the west in the
mid-eighties while in India the debate started in the nineties with the adoption of the
concept of human resource development (HRD). Only as a response to the liberalisation
of the Indian economy, both academicians and practitioners started to notice the direct
implications of strategic HRM as a tool bring about large-scale structural changes in
organisations in order to cope with the challenges brought by the structural adjustments.
The difference between personnel management and HRM strategies and practices,
creation of creative and innovative HRM processes both in academic institutions and
industries and role of HRM in managing the change process have started been discussing
from mid-nineties. In Budhwar. P, Indian and British personnel specialists understanding
of the dynamics of their function: an empirical study, International Business Review, 9:
727-753 (2000), the author has reported that 70.80% respondents agreed that because of
liberalisation of the Indian economy there is increased competition and therefore there is a
need to make employees more creative, innovative and keep them motivated. Also
29.16% of the respondents that there is a gradual shift towards taking care of people and
emphasising on behavioural skills and group activities i.e., realisation of importance of
HRs (page 735). For more detailed discussion, see Budhwar. P and Sparrow. P,
Evaluating levels of strategic integration and development of human resource
management in India, The International Journal of Human Resource Management, 8(4):
476-494 (1997); Budhwar. P and Sparrow. P, Strategic HRM through the Cultural looking
glass: Mapping the cognition of British and Indian managers, 23(4): 599-638 (2002).
4. For a detailed discussion of liberalisation, redesigning and restructuring of organisations
see Som, A, Role of Human Resource Management in organisational redesign,
Unpublished Doctoral Thesis, Indian Institute of Management: Ahmedabad, India (2002);
Som, A. Building sustainable organisations through restructuring: Role of organisational
character in France and India, International Journal of Human Resource Development and
Management, 3(1): 2-16 (2003).; Som. A, Redesigning the Human Resource Function at
Lafarge, Human Resource Management, 42(3): 271-288 (2003); Som, A, Mahut Group: A
failed case of organisational restructuring, Asia Case Research Journal. (Forthcoming,
2004); Som, A, Strategic organisational response of an Indo-Japanese joint venture to
India's economic liberalisation, Keio Business Forum. (Forthcoming, 2004)
5. For a discussion, see C. K. Prahalad and K. Liberthal, The end of corporate imperialism,
Harvard Business Review 76: 68-79 (1998); C. K. Prahalad and S. L. Hart, The fortune at
the bottom of the pyramid, Strategy + Business, 26: 1-14.

31

6. For detailed discussion see Khandwalla, P, Effective organisational response by

corporates to Indias liberalisation and globalisation, Asia Pacific Journal of Management,
19: 423-448 (2002); Virmani, A, Potential Growth Stars of the 21st Century: India, China
and the Asian Century, Chintan Occasional Paper, (October, 1999). Varied business press
articles from Indian business journals such as Business Today, Business India, Business
World, India Today, Fortune India, Outlook and articles by Mr. Arun Shourie, Minister of
Divestment, Government of India.
7. See Randall S. S, Linking the People with the Strategic Needs of the Business,
Organisational Dynamics, 21(1): 18-32 (1992); Randall S. S. and James W. W, Human
Resource Strategy: Focusing on Issues and Actions". Organisational Dynamics, 19(1):519 (1990); Pfeffer. J, Competitive advantage through people, California Management
Review (Winter): 9-28 (1994). Ulrich. D, Human Resource Champions: The next agenda
for adding value and delivering results. Boston Massachusetts: Harvard University School
Press (1997).
8. For a richer discussion see Ulrich. D, A new mandate for Human Resources. Harvard
Business Review, 124-134 (1998)
9. Cappelli, P and Crocker-Hefter. A. Distinctive Human Resources Are Firms Core
Competencies. Organisational Dynamics. 24(3): 7-22 (1996).
10. For example see Bartlett.C and Ghoshal. S, Building Competitive Advantage Through
People. MIT Sloan Management Review, 34-41 (2002).
11. For example see Bartlett, C.A and Ghoshal, S, Going Global: Lessons from Late Movers?
Harvard Business Review, 70(5): 132 142 (2000); and Khanna, T and Palepu, K, Why
Focused Strategies May be Wrong for Emerging Markets, Harvard Business Review,
July-August, 3-10. (1997).
12. Gooderham. P.N., Nordhaug. O, and Ringdal. K, Institutional and Rational Determinants
of Organisational Practices: Human Resource Management in European Firms,
Administrative Science Quarterly, 44(3): 507-532 (1999).
13. Yin, R. K, Case Study Research: Design and Methods. California: Sage Publications
(1994); Becker, E.B and Huselid, A.M, Overview: Strategic Human Resource
Management in five leading firms". Human Resource Management, 38(4): 287
301(1999); Eisenhardt, K.M, Building theories from case study research, Academy of
Management Review, 14: 532 550, (1989).
14. For better understanding of the phenomena that innovative HR best practices have
yielded performance excellence scholars have debated and discussed in the last decade
to understand this causality. For further detailed discussions see Arthur, J. B., Effects of
human resource systems on manufacturing performance and turnover. Academy of
Management Journal, 37: 670-687 (1991); Cutcher-Gershenfeld, J., The impact on
economic performance of a transformation in industrial relations. Industrial and Labor
Relations Review, 44:241-260 (1991); Huselid, M. A., The impact of human resource
management practices on turnover, productivity, and corporate financial performance.
Academy of Management Journal, 38: 635-672 (1995); Delantey, John T., Huselid, Mark
A., The impact of human resource management practices on perceptions of organisational
performance, Academy of Management Journal, 39(4): 949-969 (1996); Huselid, Mark
A., Jackson, Susan E., Schuler, Randall S., Technical and strategic human resources
management effectiveness as determinants of firm performance, Academy of Management
Journal, 40(1): 171-188. (1997).

32

Table 1. Demographics of the eleven firms

Company

Industry
Company Activity

Bharat Petroleum
Petroleum: Refining,
Corporation Limited Retailing, LPG, Aviation
Fuel
Mahindra &
Automobile/Tractor:
Mahindra Ltd
Manufacturing Jeep,
industrial engines
Maruti Udyog Ltd. Automobile:
Owned by Suzuki
Utility-car segment
Motors Ltd., Japan manufacturer
Mehta Group
Diversified, international
trade, sugar, packaging,
engineering, cement etc
State Bank of India Largest Government
owned Bank with 20%
market share
Arvind Mills
Garments & Textiles:
Denim, cotton shirtings,
blends and voiles, others
Clariant (I) Ltd.
Chemicals: agro/textile
chemical, dyestuff
Wipro Corporation Diversified (medical
systems, vegetable ghee,
oils) and IT/Software
Infosys

Ranbaxy

TISCO

Software development in
form of services, turnkey
projects
Pharmaceutical:
Manufacturers of drugs,
medicines, cosmetics and
chemical products
Steel: Manufacturers of
rails, fish-plates, bars,
light & heavy structural,
galvanized sheets

No. of
MNC competitors
Turnover
(Operating income in employees
mn Euro1)
1999
2003
3455
7851
5600
Shell, BP, Amoco,
TotalElfFina, Caltex
630

821

17000

Ford, Mitsubishi, Renault

1084

1344

3355

Ford, Mitsubishi,
Hundai, Daweoo, Honda

15000

Lafarge, Ciment Franais

30735

53840

200000

171

269

11000

Citibank, ABN-Amro,
ANZ Grindlays, HSBC,
Deutsch Bank
Levis, Wrangler,
Crocodile, Diesel, Arrow

43

58

~ 400

324

733

93

659

23000

194

503

~ 5000

1141

1781

46,000

1 Euro = 55 Indian Rupees

33

Varied in different
segments
30000
R&D Sites in India of:
IT Services: Microsoft, Oracle, IBM,
17600
Intel, Sun Micro Systems

Abott, SmithKline
Beecham, Glaxo,
Novartis, Bayer, EMerck, Roche
Local competitors: Essar
Steel, Ispat, Jindal,
Kalyani Steel, SAIL,
MNC: Sesa Goa, Ugine,

Figure 1: Contingency model of adaptation of innovative HRM practices by Indian

corporates in response to Indias economic liberalisation

Liberalisation and Globalisation of Indian Economy

Dynamic hyper-competitive, turbulent business environment
- Opportunities for growth due to deregulation of industries

Relatively Superior Corporate Performance

34

Reverse causality

Innovative HRM Practices

- HR synergising with
changing business
Reversed Causality
strategies, creating social
networks by playing the
role of strategic partner,
change agent, employee
champion
- Professionalized
recruitment, selection,
career development
practices to prepare a
knowledge workforce
which develops, coaches
and harbor leaders for
tomorrow
- Proactive performance
management systems to
build, retain, retrain and
redeploy talent
- Rightsizing, de-layering,
decentralising for
increasing organisational
effectiveness

Table 2. Innovative HRM Practices Adopted By Indian Companies

Company
Bharat
Petroleum
Corporation
Limited
Mahindra &
Mahindra Ltd

Industry
Petroleum

Automobile
Tractor

Maruti Udyog
Ltd.

Mehta Group

Automobile
Utility-car
segment

Cement

State Bank of
India

Bank

Arvind Mills

Textiles

Strategic Initiatives
Faced deregulation of
petroleum industry
Retain customers
Maintain profitability
Creation of productive labour
force
Rationalize manufacturing
process
Launch new models for
diverse markets
Increase dealer network
Reduce costs and increase
operating efficiencies
Curtail competition between
the two companies belonging
to the Group
Develop 'synergy' in terms of
structure, manpower and
resources
Competition from foreign and
private banks
Trim the size of its work force
to rationalize costs
Recover from the change in
fashion in the apparel industry
Increase exports

Redefinition of organization structure

Redeployment policy to optimally utilize human
resources

Segmenting the HR department into SBUs with

specific duties
Introduce VRS to cope with automation.

Chemicals

Transition from Sandoz to

Clariant

Wipro
Corporation
Infosys

IT

IT

Sustaining the wealth of their

human capital
Accept the challenges of
globalisation
Powered by intellect and
driven by values
Culture of ethics,
performance, meritocracy
Creation and sharing of wealth

Ranbaxy

TISCO

Pharmaceuti
cal
Steel

Climb up the curve of

globalisation
Focus on current growth and
profitability
Enhance accountability
Cost reduction

35

BPR scheme to reinvent business process

Flat structure that encourages team work
Outsourcing workforce for advanced and noncore activities
Hire professional HR managers
Make HR responsible for internal
communication and relations with Union
Creation of an excellent compensation policy.

Clariant (I)
Ltd.

Adoption of innovative HRM practices

Redeployment and retraining of employees
HRM regarded as an important support service
Revamped Performance Appraisal System

Implementation of innovative recruitment,

compensation, training procedures
Development of synergies between top
management and workers
Introduction of the CLAP program
Change the mindset of the employees through
communication and goal setting
Introducing employee stock option schemes
Talent investors, people business
Employee driven campus programs like "Infosys
Toastmasters Club" to provide support to the
employees
Construction of a Leadership Institute to foster
the qualities of leadership within the employees
Leadership through INSTEP program where 3-6
months internships are given to students from
across the globe
CEOs belief and dream-cross border learning
programs
Backward integration, new drugs invention
Building cross functional teams of highperforming professionals with clear career paths
for individuals
Started PEP and revamped its PMS by aligning
KRAs with strategy at all levels
Institutionalized tailored management
development program for officers

Table 3. Semi-structured, open-ended questionnaire protocol

1. What are the recent changes in your organisation?
2. What are your main business challenges? What are the strategies did you adopt to face
these challenges?
3. Describe the structure and the role of HR? Is there a defined HR policy, values, goals
and philosophy?
4. Is the HR Strategy related to the overall business strategy? If yes, why and how, if not
why do you think it is not? How do you think you would achieve your strategy without
people being involved?
5. Tell me some milestones, current activities and new HR strategies and practices? How
were these activities operationalised and implemented?
6. Tell me the practices of the HR subsystems that you follow in your organisation: (a)
recruitment, selection, career planning (b) performance management system (c)
retraining & redeployment (d) retaining and rightsizing
7. These are some of the HR practices that organisations in the west adopt. Which of them
do you follow: (a) financial incentives for excellent performance (b) rigorous selection
and selectivity in recruiting (c) higher than average wages (d) Employee Stock Option
Scheme (ESOP) (e) external and internal communication (f) decentralisation of decision
making and empowerment (f) use of cross-functional teams (g) high investment in
training, skill development and implementing multiple jobs and job rotation (h)
comprehensive performance management system (i) a coherent view of employment
relation (j) long term perspective
8. Did changes in HR practices have an effect on: (a) commitment to organization,
customer and quality (b) opportunities to develop new skills (c) vision & values (d)
recognition for contribution (e) job security (f) job satisfaction (g) pressure to work and
working hours (h) team work (i) career opportunities (j) peoples morale (k) working
conditions.

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Appendix: Research design, methodology and data collection

The aim of this paper was to examine the impact of liberalisation in the Indian
corporate sector and the focus was to understand innovative HRM strategies and practices
which helped Indian corporates to improve performance during a hyper-competitive
environment. The research questions were three fold:
1. What has been the impact of economic liberalisation on Indian corporates?
2. What were the innovative HRM strategies and practices that Indian organisations have
adopted to brace competition from MNCs?
3. Were they successful? If yes, how were they implemented? If not, what were the
difficulties?
This study was based on a sample of eleven Indian organisations which are leaders in their
respective nine sectors. These nine sectors represented the most dynamic business
environment where phased deregulation resulted in multi-sided competition and consequently
organisational restructuring. The eleven firms were chosen due to two specific reasons: (a)
access and willingness of the organisation to participate in the study and (b) all the firms were
leaders in their respective sectors and may show the way forward to other Indian firms.
Research Design
Given the primary objective of the present study to examine the relevance and
applicability of the contingency theory of organisations and an evolving nature of the main
linkages in the model, an exploratory research was conducted. Qualitative research is usually
recommended for studying process-related issues and also when the phenomenon being
studied is not to be de-linked from its context.
Qualitative research i.e. case studies gave a thorough grounding and a feel of the real
life situation especially where theory development and research are in early stages [13]. The
research setting involving linkage with innovative usage of HRM strategies and practices is
still at an early phase in the Indian context. To develop a clear understanding of the
innovative usage of HRM practices and strategies that were adopted for superior performance,
there was a need to look at varied data from multiple sources and study the phenomenon in its
own context. The case method permitted a holistic analysis of a wide range of variables,
open-ended and descriptive data, and multiple data sources and data collection techniques
within the research setting.
Methodology
The methodological approach in this study was to focus in-depth on a limited number
of organisations across varied industries and observe the innovative HR strategies and
practices that they were practising to compete, grow and perform sustainably in the aftermath
of economic liberalisation. Within the research setting a holistic approach and multiple case
design was used as it provided more scope for attempting generalisation. A deliberate choice
was made to focus on depth rather than breadth because it would have been unrealistic to try
to attempt both detailed, in-depth analyses of a large sample of organisations. The exploratory
methodology provided a means to study the process of HRM strategies and practices and their
linkages between context, process and outcome of the contextual variables. Becker and
Huselid (1999) orchestrated the study of five firms to provide insight into the state of the
practice by case study methodology describing HR strategies employed by firms known to
be leaders in the management of people.

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Data collection and analysis

Data were collected to study how economic liberalisation in the Indian context
affected Indian corporates and how innovative HRM strategies and practices were adopted to
brace competition. Information was sought on the above issues over a period of time (19982003), right from the beginning of necessity to change, the change process and the post
change results. Longitudinal data were necessary to capture changes in the context, to observe
the change process, the reinforcement, if any, of HRM strategies and practices and the timeline of events with respect to major decisions taken and their actual implementation.
The data required during this study called for top-management involvement. This is
because the information needed was of strategic decisions taken by the organisation and only
the top management team was able to do justice to the information sought. The data required
were mostly post-hoc. To re-construct an accurate account of the strategies the informant was
also needed to have good knowledge of the events and also be either a participant in the
change process or should have observed it closely. This research necessitated a wide array of
informants from both HRM as well as other functional departments. Interviewing a range of
informants enabled cross-checking of the data and identified multiple perspectives and
differences of opinions within the organisation.
There were two primary data sources used in this case study research: interviews with
informants and archival data from organisations. Archival data were collected from different
databases, academic journals, published cases, business press, and news items. Company
documents, organisational records, circulars, appraisal forms, employee manuals, consultant
reports, press releases and other documents were collected to gather new insights for the
interviews and to cross-check the details during interviews. This gave a more holistic picture
of what was reported in the business press and academic journals about the organisations and
how it matched with the real data.
Constant effort was undertaken to increase the reliability and validity of the study.
Multiple respondents across functions and hierarchy together with HRM heads, professionals
and executives provided the required reliability and validity. They provided insights into the
evolution of the organisation during the economic liberalisation process and verified the
details in the subsequent interviews. The study undertook several measures in getting accurate
and actual information. First, complete anonymity was assured to the respondents giving the
information. Second, trust was built with some organisations and executives through multiple
visits and by keeping in constant touch during the course of the research project. Third,
information was sought informally outside the organisational premises where the respondents
were more comfortable talking sensitive issues. Fourth, a group of alumni from my school,
who are working for those companies, were contacted for further data. Finally, information
was sought through indirect ways rather than posing direct questions. It is my belief that the
data received using the above-mentioned ways reflects information as truthful as possible.
Ninety-one executives were interviewed in multiple rounds during the period. The
interviews with executives lasted between thirty minutes to three hours depending on the
availability and the willingness to share information. Wherever necessary follow-up
interviews were conducted. During the first round of interviews an overall pattern emerged of
the organisations. The open-ended nature of questions gave the informants leeway in giving
their responses. Before starting the fieldwork, an interview protocol was prepared which was
improved and revised after discussion with experienced academicians, redesign and HRM
professionals. This was followed by a historical count of the change process as documented
and informed by the respondents. The interview protocol was strictly followed at all times and
no constraints were imposed on the choice of responses. Table 3 above provides some of
important questions that were asked during the interview process.

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