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McKinsey finds fault with India performance ethic

India has the world's second largest market by population, ranks among the top five nation's by size of its scientific talent pool -- and yet there's not a single Indian company with a global presence.

Why?

International management consultants McKinsey and Co claim to have identified at least part of the reason.

Indian companies need to improve their "performance ethic" to become global powers, McKinsey said on Monday while releasing results of a survey on the issue.

"While many Indian companies perform well on strategy, they are lagging on execution," it said in releasing results of a survey covering over 35 major companies and interviews with over 600 executives.

The Indian study follows similar surveys carried out by McKinsey in other countries aimed at identifying why some companies consistently achieve superior results.

McKinsey believes what distinguishes top performing companies the world over from average or mediocre ones is essentially the ability to execute a strategy well.

"We found there are companies which year in, year out, outperform their industry peers," said Richard Elder, a co-leader of McKinsey's global performance ethic research project.

Companies such as General Electric, Sony Corp and Singapore Airline's recipe for sustained success stems from practices, which instill throughout their workforces a superior ability to achieve goals and targets.

And that ultimately is reflected both in their bottomlines and share prices.

"There's a very strong correlation between performance ethic and financial results," said Rajat Gupta, a partner in McKinsey's India office.

"Of the companies surveyed, those with the weakest performance ethic have a ROCE (return on capital employed) of 3.4 per cent below industry averages, compared with a ROCE of 4.2 per cent above industry averages for those with the strongest performance ethic," McKinsey said in a statement.

FIVE "MUST DO'S"

McKinsey said there are five things which all top performing companies do.

They convey to workers a compelling mission or aspiration; set clear targets and goals; create smaller organisational units to allow for greater accountability; rank and publicise performance results; and reward top performers and act decisively toward underperformers.

Elder said outstanding companies tended to pay high salaries, with a tremendous pay spread among employees.

"If an average employee is paid X, a top performer is paid three, four or five times X," said Elder.

The world's most competitive companies are true meritocracies, which promote and compensate employees according to results -- and don't hesitate to fire slackers, he also said.

"In fact, we were told by these companies that they liked turnover at the top because it creates opportunities."

World beaters also benchmark themselves not against the best companies in their industry or country, but the best in the world.

HOW INDIAN COMPANIES SCORED

The survey found Indian companies, even the top performers, are weak at tracking employee performance and pursuing what McKinsey refers to as "consequence management."

"Indian companies rely on values rather than incentives and opportunities to motivate people," said Gautam Kumra, a principal in McKinsey's India office. "The values are moral in nature and not grounded in business objectives." McKinsey identified three barriers to pursuing the sort of performance ethic it advocates -- leadership mindset, cultural conditioning and failure to recognise people as an asset.

On the first two counts, Kumra said even top Indian executives "are too accustomed to incremental thinking because before you weren't allowed to engage in big-picture thinking."

Regarding incentives, Indian companies often said they could not offer big financial inducements because they couldn't afford to, or doing so would breed dissent within the workforce.

While recognising that cultural differences affects how companies operate, McKinsey preaches that new practices can be introduced with the right approach.

"Some Asian companies have shown how we can overcome cultural obstacles and still be active against underperformers -- for instance, by 'parking' poor performers, moving them to less critical jobs or retiring them prematurely."

Ultimately, McKinsey indicated Indian companies may not be able to resist the action it advocates.

"The winds of change are blowing strongly in Asia: liberalisation and privatisation, globalisation, entry into the World Trade Organisation (in China's and India's case), and e-commerce are transforming every aspect of doing business in the region."

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