Post on 01-Jan-2017
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HumanAssetStrategiesinManufacturingSector
DiscussionPaper
XIIFiveYearPlan- Manufacturing
March2013
Theobservationscontainedhereinarebasedonarangeofinterviewswithindustryparticipantsincludingleadershipatselectmanufacturingenterprises,employees,tradeunions,governmentofficialsandrelevantexperts;andon secondaryanalysis offinancialinformationavailablewithorprovidedtoBain&Company.Bain&CompanyhasnotindependentlyverifiedallsuchinformationprovidedoravailabletoBainandmakesnorepresentationorwarranty,expressedorimpliedthatsuchinformationisaccurateorcomplete.Anyprojectedscenarios,caseexamples,marketandfinancialdatainformation,analysesandconclusionscontainedhereinarebasedontheinformationdescribedaboveandonBain&Company'sjudgment,andshouldnotbeconstruedasdefinitiveforecastsorguaranteesoffutureperformanceorresults.Casestudiesrepresentedherearewiththeapprovalofrelevantauthorityatsuchcompanies.Theinformationandanalysishereindoesnotconstituteadviceofanykind,isnotintendedtobe usedforinvestmentorotherpurposes,andneitherBain&Companynoranyofitssubsidiariesortheirrespectiveofficers,directors,shareholders,employeesoragentsacceptanyresponsibilityorliabilitywithrespecttotheuseoforrelianceonanyinformationoranalysiscontainedinthisdocument.ThisworkiscopyrightBain&Companyandmaynotbepublished,transmitted,broadcast,copied,reproducedorreprintedinwholeorinpartwithouttheexplicitwrittenpermissionofBain&Company.
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Foreword
Indianeedstosignificantlyenhanceitsmanufacturingsector’scompetitiveness ifweare tocreate thelargenumberofjobsneededtoreapthebenefitsofourdemographicdividend,leverageopportunityintheglobaltradablemarketandreduce ourimportsinkeyareas.Sustainablecompetitivenessinthemanufacturing sector (orrather,ofindividualenterpriseswithinthesector)may bedefinedastheabilitytodomorecomplexactivitiesmoreefficientlyovertime.This processofcontinuousimprovementthroughlearningandapplyingnewknowledge,technologiesandactivitiescanonlybedrivenbyaskilledandmotivatedworkforce. Infact,asthisreportexploresindepth,humanresourcesaretheonly‘appreciatingresource’inanenterprise, the onlyelementofthebusinesswhichincreasesinvalueundersuitableconditions;allotherresourcesdepreciatewithtime.Thebestenterprises– andcompetitivenations– thereforeconsiderpeopleastheirprimeassetandsourceofcompetitiveadvantage.
Suchanapproachcanpossiblyhelpreframethecontentiousdebatesoverhumanresourcesmanagement– thatof ‘labour’versus‘capital’inenterprises,fairnessforlabourversusflexibilityforemployers,theincreasingskillsgap,andthestateofindustrialrelations.IfthechallengeIndiafacesaroundhumanresourceisrestatedintermsoftheneedtodevelophumanassetstobuildcompetitivebusinesses,ratherthanmerelymanagethe costsoflabour,westandahigherchanceofengagingallstakeholdersinacollaborativeprocesstoachieve consensuson thewayforward.Andcollaboration isessentialifwewanttoseepositiveactionfromallstakeholders-employers,employees,tradeunions andgovernmentorganizations– ratherthanrelyingontheimpositionofpoliciesandregulations.
ThePlanningCommissionhasidentifiedhumanresourcesdevelopmentasakeycross-sectoralthemeinthemanufacturingsectorplan,whichhasbeenincorporatedinthe12th FiveYearPlan. Writtenwith theassistanceofBain&Company,this reportaimstoenhanceunderstandingoftheimpactthatapproachinghumanresourcesasanappreciatingassetcanhave,notjustontheissuesofworkforcemanagement,employeeandunionrelationships,andskillsdevelopment,butalsoonthelongtermcompetitivenessandgrowthofmanufacturingenterprises.
Throughthestudyofselectmanufacturingenterprises,thisreportidentifiesvarioushumanassetstrategiesandpractices,factorsthatdriveadoptionofthesepractices,andtheimpactthesepracticeshaveoncompetitiveness. Wehopethisreportwill helpreframethedebateonlabourandclarifyissues,choicesandoutcomesforbothenterprises andregions.Policyactions,changesinlabourlaws,andmechanismsandprocessestocoordinatedifferentstakeholders,canthenbeidentifiedtofacilitateaconstructivepathforward.
Mr.ArunMairaMember,PlanningCommission
GovernmentofIndia
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Contents
BackgroundandContext......................................................................................................3
ExecutiveSummary................................................................................................................7
DetailedFindings.....................................................................................................................8
Germany’sexample ............................................................................................................. 26
WayForward.......................................................................................................................... 28
SelectCaseStudies............................................................................................................... 29
Appendix .................................................................................................................................. 35
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HumanAssetStrategiesintheManufacturingSector
BackgroundandContext
ThemanufacturingsectorinIndiahasseenconsistentgrowthoverthelastfewdecades,employing 50- 60millionpeoplein20081.Thereissubstantialroomforfurthergrowthandemploymentgeneration.IntermsofbothsectoralcontributiontoGDP(around15%)andpercentageofworkforceengagedinmanufacturing(12%),India’smanufacturing sectorranks amongst thelowestof developingeconomies,particularlycomparedtopowerhousessuchasChinaandThailand2. Moreover, India’sdemographicswillresultinsignificantgrowthintheavailableworkforceover thecomingdecade.Manufacturingsectorgrowthwillbeimportant inprovidingsustainedemploymentopportunitiesfortheexistingandemergingworkforce.
However,thereareindicationsofstresswithinthelabourecosysteminIndiathatcouldhavesignificantimplicationsforthecompetitivenessofthemanufacturingsector inthemediumandlongterm.Theseindicatorsarewell-documentedandinclude:
Increaseduseofnon-permanentlabourandrelativelyhighdisparityintheirremunerationcomparedtopermanentworkforce:Manycompaniesinthemanufacturingsector– acrossregion,size and industry– arerelyingmoreonnon-permanentlabour, fortheadvantagesitbringsinbothflexibilityandcost.Non-permanentworkerstypicallyreceive significantlylowerremunerationcomparedtopermanentlabour.Reportsindicate thatthissituationiscompoundedbyinstancesofnon-paymentofstatutorybenefitsandrelativelypoorworkingconditions insomecompaniesandbusinesses, inthecontextofrelativelyloosegovernance /oversightofthecontractlabourecosystem.
Existingandemergingskillgapsacrosskeyareas:TheNationalSkillDevelopmentCorporation (NSDC) estimatesthatthealreadyhighskillgapofaround 55millionskilledlabourersin2012willballoontoaround 90millioninthenext10years.Byfarthelargestgapwillbeinthetextilesindustry(around 50million), withfoodprocessingandautocomponentsfacinggapsof8-10millionskilledlabourers3.Thisgapis drivenbytherelativelylowattractivenessofmanufacturingjobs,decreasing availabilityofmigrantlabour,andlimitedresourcesfor,andpoorqualityof,skilldevelopmentandtraininginfrastructureandfacilities.
1PlanningCommission“TheManufacturingPlan;StrategiesforAcceleratingGrowthofManufacturinginIndiainthe12thFiveYearPlanandBeyond.”DraftReport2 PlanningCommission,“SkillDevelopmentinManufacturing:StrategicRecommendationsforthe12thFiveYearPlan”,Sep20113 NSDCsectorskillreports– www.nsdc.org
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Ongoingsignsofdiscontentacrossworkforce:Therehavebeen recentincidencesofindustrialunrest thathavegarnered significantheadlinesinthepast12months.
Whilestakeholdersacrossthelabourecosystemhaveengagedextensivelyontacklingtheseissues,oneofthekeyroadblockstoprogressoralignmentonsolutionshasbeentheconflict betweenemployers’requirementsforhigherflexibility andtheneedformoreequitable remunerationforbothpermanentandnon-permanentlabour.Ithasnotyetbeenpossibletoevolveconsensusthrough a top-down, policy-ledapproach.Clearly,adifferentstrategy isneededtoresolvethese competingpriorities.
Better humanasset(HA)managementhasbeenidentifiedasoneofkeyenablersofmanufacturingsectorcompetitivenessandgrowthinthePlanningCommission’s draftreportonTheManufacturingPlan, aspartofIndia’s12th FiveYearplan. Asthereportacknowledges,“Humanresourcesareofcriticalimportanceforthegrowthofknowledgeandtechnology,valueaddition,andimprovementofcompetitivenessinmanufacturingthroughprocessesofcontinuousimprovement.Thehumanresourceistheonly‘appreciatingresource’ inamanufacturingsystem- itistheonlyresourcethathasthemotivationandabilitytoincreaseitsvalueifsuitableconditionsareprovided,whereasallotherresources—machines,building,materials,etc.—depreciateinvaluewithtime.Thebestenterprisesviewtheirpeopleastheirprimeassetandthesourceoftheircompetitiveadvantage.”4
When humanresource managementisapproachedfromthisperspective,primacyisgiventogoodindustrialrelations,skilldevelopmentandretentionoftalent,withanemphasison driving productivityratherthanonreducingthe costoflabour.LookingatIndia’s workforce challengesintermsof developing humanassets mayhelp toengageallrelevantstakeholdersinamorecollaborativeprocessanddriveconsensus ontheissuesandtrade-offsidentifiedabove.
Totakethisviewforward,itisimportanttoassesswhethercompaniesthatviewhumanresourcesasasignificantappreciatingasset– andadoptHAstrategiesandpracticesbasedonthisapproach– realizebetteroutcomes.MoreimportantstillistoevaluatewhetherthesebetteroutcomesincludenotjustHR-relatedareassuchas moreequitablecompensationforemployees,employee-managementindustrialrelations(ofbothpermanentandnon-permanentstaff),andskillsdevelopment,butalsoextendtosustainedenterprisecompetitiveness inawidersense.ItisalsoimportanttoassesstheinfluenceofexternalfactorsintheadoptionofvaryingHAstrategies,throughcomparingenterprisesthat operateinasimilarregulatory,socialandmacro-economicenvironment.
Withtheaboveobjectives,thePlanningCommission, togetherwith Bain&Company,assessedissues,choicesandoutcomesonhumanassets attheenterpriselevel.Theaimswereto:
4 PlanningCommission“TheManufacturingPlan;StrategiesforAccelerating GrowthofManufacturinginIndiainthe12thFiveYearPlanandBeyond.”DraftReport
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Identifyselect enterprisesthat viewhumanresourcesasanappreciatingasset,andunderstandtheirHAmanagementstrategiesandpractices;
Assessoutcomes onkeyhumanresourceissuesofworkforcemanagement,skilldevelopment andemployee-employerrelationships;
Understand the regulatory,macro-economic,industry,regionalandenterprise-leveldriversofHApracticesandoutcomes,andinterrelationshipsacrossthem;
Assesstheimpactofhumanassetstrategy onenterprisecompetitiveness.
Thefindingsinthisreportaredrawnfrom over60interviewsandmeetingswithkeystakeholderswithinthemanufacturingsectorinIndia(seniorexecutives,employees,contractorsandunionleadersatmorethan20enterprises,aswellas subjectmatterexpertsandgovernmentofficials).Thisprimaryresearchwassupplemented by adetailedreviewofavailablesecondarymaterialandanalysisofdatabothfrompubliclyavailablesourcesandthat sharedbyenterprisesreviewed.
Thisstudyaims to identifyHAstrategiesandpracticesusedbycompanieswithexcellentHAoutcomesthat could serveasexamplesforotherenterprises.Assuch,theobservationsandfindingsofthisreportpertainonlytothecompaniessurveyed.Thisreport focuses upon whatleadingenterprisesdoandwhy,ratherthantakingabroaderlookat thecurrentstatusofhumanresource management acrossalltypesofenterprises.Inaddition, research wasrestrictedtoformalemployers,whomaynonethelessalsoserveasexamplesto informalemployers.Giventhese objectivesandapproach,this studydoesnotattempttoaddress policyprescriptionsorchangesinlabourlawsrequired.
Theteam lookedat four industrialzonesacrossthecountry: Gurgaon & Faridabad,Pune(Pimpri,ChinchwadandChakan),ChennaiandLudhiana.Theseindustrialzoneswereselectedtocoverkeygeographiesandindustries.For example,Ludhianawasspecificallychosentoincludetextileenterpriseswhicharerelativelymorelabourintensive.Theteam then,withinputsfromthePlanningCommissionandCII,selectedcertain enterprisesthatareacknowledgedand/orperceivedtohavebetterHApractices.The companiesselectedrepresent differentindustries,includingautomotiveOEMs (OriginalEquipmentManufacturers),automotivecomponents,textilesandengineering.Mostoftheselectedenterpriseshaveover1,000employees, thoughtherevenuesoftheseenterprisesfallinawiderrange.
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Anoverviewofselectedenterprisesintermsofindustrialzones,sectors,revenueandemployeebaseisprovidedinExhibit1below:
Exhibit1:Profileofstudyparticipants
Bain&Company isgratefultoallparticipantsinthisstudyforsharingtheirtime,expertiseanddataoverthecourseofthepastfewmonths.TheteamisveryappreciativeoftheCIIfortirelesslyfacilitatingtheseinteractionsandprovidinginputandguidanceoverthecourseofthisstudy.
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>60STAKEHOLDERINTERVIEWS
COVERING23COMPANIESACROSSSECTORS&INDUSTRIALZONES
4industrialzones,multiplestakeholders,sectorsandprofiles
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ExecutiveSummary
Five keyfindingsemerged fromourstudyofHApracticesandthecontextinwhichtheyareadopted.Thesearesummarizedbelow,anddescribedindetailonthefollowingpages:
1. Enterprises can be classified across five tiers based upon their HA approach, strategy and practices, with varying outcomes on key issues of non-permanent labour management, union/employee relations and investment in skill development. Enterprises with better HA practices (tiers 3, 4, and 5) typically see better outcomes in all three areas.
2. Tier 3 and 4 companies are typically more competitive than lower-tier companies.At minimum, they are as competitive as measured by financial metrics on sustained profitability and return on capital.
3. Three key factors drive a company’s HA and industrial relation practices: leadership mindset; the focus on quality/value addition in their manufacturing and competitive strategy and practices; and external factors such as industrial relations in region. Enterprises can move to higher tiers of HA practices and outcomes (while remaining in the same regulatory, social and macro-economic environment) based upon choices made in these key areas and in collaboration with other stakeholders in the industry and region.
4. Providingmoreequitablecompensationandbenefitstonon-permanentlabourhasarelativelylownegativeimpactonprofitability (i.e.<0.5%)andreturnoncapital(i.e.<1.5%)metrics acrossmostsectors,withsomeexceptions.Importantly,manycompanies surveyed believepotentiallysignificantbenefitsintermsoflabourproductivity,betterindustrialrelations,quality improvementandtechnologyabsorptionwillresultfrombetterHApractices.
5. Without a significant and widespread improvement in HA strategies and practices, potential scenarios for the future of India’s manufacturing sector include increasedincidences of industrial unrest and / or an inability to realize its full potential.
Overall,thisstudy showsthatwhencompanies– andotherstakeholders– treathumanresourcesasanassetandfocus collaborativelyuponoutcomesofmoreequitablecompensationforlabour,continuousskilldevelopment,goodindustrialrelationsandflexibilityforemployers,enhancedcompetitivenessresultsforboth individualenterprisesandforthesector.ThetransitiontowardssuchHApracticesandoutcomeswillrequireacollaborativeprocessandinstitutionsthatalign stakeholdersonthisviewofhumanresources,andcoordinateandincentivize theiractionsandchoices.
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DetailedFindings
Finding1:EnterprisescanbeclassifiedacrossfivetiersbasedupontheirHAapproach,strategyandpractices,withvaryingoutcomesonkeyissuesofnon-permanentlabourmanagement,union/employeerelationsandinvestmentinskilldevelopment.EnterpriseswithbetterHApractices(tiers3,4,and5)typicallyseebetteroutcomesinallthreeareas.
Basedondiscussionswithselectedenterprises,theteamobservedmuchvariationinapproachestoHAmanagement,practicesandpoliciesacrossenterprises andsignificantlydifferentoutcomesinregardstothethree keyissuesaffectingenterprises:permanentandnon-permanentlabourmanagement,investmentinskills,andemployee/union/employerrelations. Whilesomesectorsandindustrialzonesplacegreateremphasisonhumanassetmanagementthanothers,variationcouldbeobservedevenbetweencompanieswithinthesamesectorandregion.
ThisreportgroupsprevalentHApracticesandpoliciesintothefollowingsix areas:
i. Remunerationandbenefitsforpermanentlabourii. Non-permanentlabourmanagementiii. Performancemanagementpracticesiv. Trainingandskilldevelopmentv. Engagementwithunionsvi. Employeeengagementandretention
Observationsoneachoftheseareas,lookingacrossselectedenterprises,industrialzonesandsectors,are givenbelow.
Practicesandpoliciesaroundremunerationandbenefitsforpermanentlabour are,toalargeextent,drivenbyindustryandregionalbenchmarks,anddemonstratetheleastdegreeofvariationacrosscompaniesoperatingwithinasimilarcontext.Ingeneral,companiesinlow-skillindustries– whicharefrequently locatedinlower-costlocations– haverelativelylowerabsoluteremunerationlevels; whilecompaniesinrelativelyhigh-skillindustriessuchasengineeringandautoOEMhave relativelyhigherremunerationforpermanentlabour.Variationsinremunerationlevelswithinasectorandindustrialzone aredrivenlargelybytenurelevelsoftheworkforce.
Theenterprisesexaminedshowedwidelydifferingmodelsfornon-permanentlabourmanagement.Whilesomecompaniesviewnon-permanentlabourprimarilyasaresourcetomanagecyclicalityandseasonality,othersviewitasadriveroflabourcost-savings.Thisdifferenceinstrategyisreflectedinvariationsinapproachandoutcomesobservedvis-à-visnon-permanentlabour.Somecompanies haveahighproportion(upwardsof70%,accordingtosomesurveyrespondents)ofnon-permanentlabour,whileothercompanieshavearelativelylowproportionofnon-permanentlabour. Onlyafewenterprisesexplicitlystatedthattheydonotusenon-permanentlabourfor coreordirectactivities.
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Apartfromtheextentandtypeofuseofnon-permanentlabour,thereissignificantdisparityinremunerationlevelsbetweenpermanentandnon-permanentlabouracrosscompanies. Textilescompaniesdemonstratetheleastdegreeofdisparity,asremunerationlevelsacrossalltypesoflabour areuniformlylowerthanothersectorsandclosetominimumwages.Insomeotherenterprises,thedisparityofnon-permanentlabourcompensationwiththatofpermanentlabourisdrivenbythefactthat,inmanysuchcompanies,permanentlabourhashadsignificanttenureandthereforerelativelyhighremuneration.
Thereissimilarvariationinpracticesforperformancemanagementandtrainingandskilldevelopment.Practicesinboththeseareasaretypicallylinked,withdifferinglevelsoffocusandinvestmentacrosscompanies.Ononeendofthespectrum,companieswithlowskillrequirementshavebasicperformancemanagementsystemsandlimitedfocusontraining.Ontheotherhand,some engineering,constructionequipmentandautoOEMcompanieshaveinstitutedrobustperformancemanagementandtrainingpractices, withclearlyestablishedcareerpathsforemployees,continuousskillbuilding, anddefinedprocesses thatallow shop-flooremployeestotransitiontosupervisoryandofficerroles.SomecompaniesalsoinvestinbuildingskillsacrossthebroaderecosystemthroughdirecttrainingprogramsandadoptionofITIs.
Companiesalsoadoptverydifferentapproachesfor employeeengagementandretentionandunion management.Employeeengagementmodelsrangefromad-hocactivitiestoformalmodelsunderpinnedbysurveys,targetedinitiativesandcommunicationsstrategies.Most,butnotall,companieshavesomeformofunionizationforpermanentlabour;inafewcases, thisisdrivenbyactiveencouragementandsupportfrommanagement.Theresearchalsorevealed amixofbothinternalandexternalunionswithdifferentdegreesofparticipationandengagementwithmanagement.Whileeveryunionparticipatesinwagesettlements,someareactivelyconsultedondiscussionsrelatedtoworkingconditionsand occasionallyon keycompanydecisions.Thestrengthoftherelationshipbetweenmanagement,unionsandemployeesobviouslyvariesbasedupontheapproachadopted.
Based onobservationsof HAstrategiesandpracticesadoptedbytheseselectedcompanies– andthedifferentoutcomesachievedonkeyHAissues– theteamhasdefined5tiersofhumanassetstrategy,eachwithadistinctapproachandsetofpracticesonhumanassetmanagement.Ascompaniesmoveuptiers,theydisplayanincreasedfocusondevelopinghumanresourcesasassets,withanaccompanyingchangeinpracticesandoutcomes.WhilecompaniesinTiers1and2focusonensuringtheavailabilityoflow-costlabourandmaximizingproductivityfromexistingskillswithintheirworkforce,thoseinTiers3and4investinenhancingtheiremployees’skillset,aswellasinextensiveemployeeengagementtorealizethefullpotentialoftheseassets.Inadditiontothesefirstfourtiers,thestudyalsoled theteamtodefineanaspirationalTier5,inwhichcompaniesengagewiththewidercommunityandundertakeindustry-wideskill-buildingactivities. Exhibit2givesanoverviewofthisframework;Exhibits3and4outlinekeyoutcomesandHApracticesforeachofthesetiers.
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5tiersofHumanAssetstrategies,practicesandoutcomes
Exhibit2:Tiersofhumanassetstrategiesandoutcomes
CompaniesinhighertierstypicallyseebetteroutcomesonkeyHAissuesofnon-permanentlabourmanagement(forexample,theextenttowhichtheyrelyonnon-permanentlabour,disparityinremunerationwithpermanentlabour,andabsorptionofnon-permanentlabour),aswellasininvestmentinskillbuildingandemployer/employee/unionrelations.CompaniesinTiers1and2usenon-permanentlabourextensively,andmaydosoindirectorcoreactivitiesaswell.Theyalsohavehighdisparityinremunerationlevelsbetweenpermanentandnon-permanentlabourandextendrelativelyfewbenefitstonon-permanentlabour.Suchcompanies havelimitedinvestmentintrainingandskilldevelopmentandlowlevelsof engagementwithemployeesandunions.
Ontheotherhand,companiesinTiers3and4haverelativelylowuseofnon-permanentlabourincoreordirectactivities.Theyalsohaverelativelymoreequitableremunerationfornon-permanentlabourand,insomeinstances,havedefinedprocessesforabsorptionintopermanentlabour.Suchcompanieshavestructuredinductionandtrainingprogrammes,developtechnicalandcognitiveskillsandengagemore
IncreasedfocusonHumanAssetmanagement
Ensuring basic availability of
low cost labour
Driving productivity of
existing workforce
Building a skilled
workforce
Maximizing workforce potential
Holistic view to building labour
ecosystem
Tier1 Tier2 Tier4Tier3 Tier5
Improved
outcomesforstakeholdersinhighertiers…
Remuneration and benefits for permanent
labour
Non-permanentlabourmanagement
Performancemanagement
Trainingandskilldevelopment
UnionmanagementEmployeeengagement &
retention
…drivenby
distinctpracticesacross6key
dimensions
Extensivenon-permanentlabouruseandremunerationclosetominimumwagesforallemployees
Basicperformancemanagementsystemsandproductionincentivesforpermanentlabour
Structuredinduction,trainingand skilldevelopmentinitiativesfocusedontechnicalskillsandprocessmanagement
Extensiveformalengagementandculture-buildingprograms(engagementsurveys,communicationstrategyetc.)
Contributiontoindustry-wideskill-buildingandemployabilityinitiatives(adoptionofITIs,trainingprogramsetc.)
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extensivelywithemployeesandunions, leadingtomoreharmoniousandproductiverelationships.
Aswouldbeexpected,outcomesonthesethree HAissuesareinterrelatedandthereforedevelop inunison.Forexample,investmentinskillbuildingandmoreequitabletreatmentacrosstheworkforceareinformedby,andhaveadirectbearingon,thequalityofrelationsbetweenemployers,employeesandunions.TypicaloutcomesacrosstiersareoutlinedinExhibit3below.
Exhibit3:Typicaloutcomesacrosstiers
Astheteamobserved,companiesacrosstiershavedifferingpracticesintheareasofwagesandbenefitsforpermanentlabour,non-permanentlabourmanagement,performancemanagement,trainingandskilldevelopment,unionengagement, andworkplaceculture.Ingeneral,whilepermanentlabourwagesandbenefitlevelsarethresholdrequirements– withmostcompaniesremuneratingtheirpermanentlabourcompetitively– companiesmoveuptiersbyfocusingtoalargerextentontrainingandskillbuilding,holisticengagementwithunionsandworkforce,andnon-permanentlabourmanagement.TypicalcharacteristicsandpracticesofcompaniesindifferenttiersareoutlinedinExhibit4.
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Significantdifferencesinoutcomesatfirmlevel
Tier1 Tier2 Tier4Tier3 Tier5
Extensiveuseofnon-permanent
labour
Limiteduseofnon-permanentlabourincore
Definedabsorptionprocess
Limitedtraining
Structuredinduction;job
rotation
Customized,leadershiptrainingetc.
Minimumwages
Extensionofsomebenefits
Relativelylowerwagedisparity
Unionrecognition
policy
Participationonworking
conditionsetc.
Extensiveconsultation
Eco-systemengaged
Equitablepay
Permanent&non-
permanentlabour
management
Investmentinskills
Employee,union&employerrelations
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Exhibit4:RepresentativeHAmanagementpracticesandcharacteristicsbytier
AdetailedchecklistofHApracticesandpolicies,providedintheappendix,issuggestedasaself-evaluationtoolforcompanies.
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HAPracticesbyTieracross6dimensions
Remuneration&benefitsforpermanentlabour
•Minimumwages
• Statutorybenefits
•Competitivewages
•Additionalbenefits(canteen,transport,medicaletc.)
•Wagesandbenefitsonpar/indexedwithindustryleaders
Non-permanentlabour
management
•Extensiveuse,includingincore
•Minimumwages
•Extensiveuse,includingpossiblyincore
•Productionincentivesprovidedtosomenon-permanentlabour
•Rigidpolicyonnon-usageincoreactivities
•Rigidselectioncriteriaforcontractors
•Periodicinternalauditofcontractordisbursals
•Paymentaboveminimumwages
•Additionalbenefits(e.g.canteen,uniforms)
• Lowergapinpaybetweennon-permanent&entry-levelpermanentlabour
•Clearlydefinedabsorptioncriteriaandprocess
•Rigourousprocessofcontractoroversight
• 3rd partycontractoraudits
•Benefitssimilartopermanentlabour
•Equalpayforequalwork
•Voluntarycaponproportionofnon-permanentlabour
Performancemanagement
•Basicpracticeswithtenure-basedpromotion
•Productionincentives
•RobustPMSwithskill-linkedpromotion
•Clearlydefinedcareerpathfromshop-floor
Training and skilldevelopment
•Basicjob-specifictraining
• Structuredinduction,training&skilldevelopmentinitiativesfocusedonskill-buildingandprocessmanagement
• Jobrotationandmulti-skilling
•Holistictrainingincorporatingtechnicalskill,leadership,processmanagement,cognitiveskillsetc.
•Customizedtrainingplans
•Reimbursementoffurthereducationexpenses
•Contributiontoindustry-wideskill-building&employability(adoptionofITIS,trainingprogramsetc.)
Unionmanagement
•Unionrecognitionpolicy
• Fair&transparentunionleaderelectionprocess
• Functioningunionengagementprocessesforindustrialdisputesandwageagreements
•Comprehensiveunionengagementmodel
•Unionparticipationindiscussionsonworkingconditionsetc.
•Unionleadertraining
• Labourunionconsultedonallkeystrategicandoperationaldecisions
Employeeengagementand
retention
•Basicemployeeengagementactivities(clubs,eventsetc.)
• Functional&effectiveWorksCommittee
•Well-definedemployeeengagementmodel(ESS,HRhelpdesketc.)
•Targetedculturebuilding
• FormalCSRprogramandagenda
•Extensiveengagementwithecosystem(families,communityetc.)
Tier1 Tier3 Tier4 Tier5
Keyareasofinflectionacrosstiers
Tier2
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Finding2:Tier3and4companiesaretypicallymorecompetitivethanlower-tiercompanies.At minimum,theyareascompetitiveasmeasuredbyfinancialmetricsonsustainedprofitabilityandreturnoncapital.
Tounderstandtheimpactofhigher-tierHAstrategy,practicesandoutcomesonenterprisecompetitiveness,theteamconductedacompetitivenessbenchmarkinganalysisoftheseselectedenterprisesinrelationtotheirindustrypeers.CompanieswereassignedatierbaseduponourHAframework,groupedbyindustrysegmentandbenchmarkedagainstpeerswithintheirsegment(asdefinedbyCapital IQ)onaverageEBITDAandROEfrom2004-12.
OuranalysisindicatesthatTier3and4companiesaretypicallyascompetitive– ifnotmoreso– thantheirindustrypeersontheabovemeasures ofhigher-than-industryaverageEBITDAandROE.Exhibit5showsselectedcompanies’performancebytierrelativetotheindustryaverageoftheirpeers.
Exhibit5:Relativeprofitabilityandreturnsoncapitalofcompaniesacrosstiers
Moreover,mostenterprisesinthestudyhaveseensignificant revenuegrowthoverthelasteight years(2004to2012),withhighertiercompaniesseeingslightlyfastergrowth,(onaverage19%CAGR)duringthisperiodthantier1and2companies (16%aggregateCAGR). Suchrevenuegrowth– by2012,companiesintiers3&4were3.5-3.75 timeslargerthan in 2004– islikelytohavegeneratedsignificantemploymentgrowthoverthesameperiod.
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Atleastascompetitiveifnot,generally,moreso
Note:Industryavg.isanaverageoftoprepresentativecompaniesfor2004-12intheconcernedcompany’ssector.SectorsrepresentedareAutoOEM(2&4wheelers),Autocomponents,Textiles,HeavyEngg.,ConstructionEqpmt.,Electricals,Glass,ConsumerElectronics&CyclesSource:ReportedfinancialsfromAccord,CapitalIQ&Prowess
Tier4
Tier3
Tier2
Tier1
ROECompany:IndustryAvg.(2004-12)
EBITDA Company:IndustryAvg.(2004-12)
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FindingThree:Threekeyfactorsdriveacompany’sHAandindustrialrelationpractices:leadershipmindset;thefocusonquality/valueadditionintheirmanufacturingandcompetitivestrategyandpractices;andexternalfactorssuchasindustrialrelationsinregion.EnterprisescanmovetohighertiersofHApracticesandoutcomes(whileremaininginthesameregulatory,socialandmacro-economicenvironment)baseduponchoicesmadeinthesekeyareasandincollaborationwithotherstakeholdersintheindustryandregion.
HavingestablishedthatenterpriseswithhighertierHA practicesachievebetteroutcomesonkeyHAissues,withapossiblelinkto sustainedenterprisecompetitiveness,theteamthenassessedwhatinfluencesadoptionofthesefactors.Threetypesof driversandbarriers emerged:i. regulatoryfactors;ii. macroeconomicandindustry- andregion-levelfactors;iii. enterprise-levelfactorsandchoices.
AllthesedrivekeyHAoutcomesonlabourmanagement,skilldevelopmentandinvestment,andemployee/union/employerrelations.Understandingthedriversthatdifferentiatehigher-tiercompaniesfromlower-tiercompaniesthuspointsto ‘whatneedstochange’inorderforacompanytotransitiontoahighertierofHApracticesandoutcomes. Thissectionofthereportexaminesthese threetypesofdriversandbarriersindepth.
The study foundthatregulatoryfactorshavetheleastinfluenceorbearingondifferencesbetween HAoutcomes.Thiswastobeexpected,giventhewidelydifferingHApracticesadoptedbycompanieswithinindustriesorregionalzones.Thesecondtypeofdriver,macroeconomic,industryandregional/industrialzonefactors,haveonlymoderateinfluenceonchoiceofHAstrategy.Regionalfactors inparticular(forexample,thehistoryofindustrialrelationswithinazone)exertaninfluenceonthetwooutcomeareasofemployer/employee/unionrelationsandworkforce(especiallynon-permanentlabour)management.
Whatthisstudypointstois that themostinfluentialfactorsaretobeseenattheenterpriselevel.Morespecifically,HAoutcomesareshapedbyleadershipattitudestowardshumanresources andbytheextenttowhichcompanystrategyfocusesonqualityandvalueadditionversuslabourcostreduction.Thelatterchoiceisinfluenced,toanextent,byindustry-levelfactorssuchasprevailingandfuturebasisofcompetition.Eventhen,ourresearchshowedsignificantvariationbetweenHAstrategyandpracticesamongcompaniesinthesameindustry.
Acrosssectors,leadershiporientationemergesasthesinglemostimportantfactorindeterminingHApracticesandoutcomes.Companyleaderswhoviewtheiremployeesasacriticalorappreciatingassetdrivedifferentchoicesattheenterpriselevelonmanagementofnon-permanentlabour,investmentinskilldevelopmentandrelationswithemployeesandunions. Thesechoicesandactionsaredoneincollaborationamongststakeholders,addressingconcernsofkeystakeholdersincludingemployers,employeesandunionsasrelevant.
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Multipleinter-relateddriversforenterprise-levelHApracticesandimpactonHAoutcomes
• Useofnon-permanentlabouranddisparityinremunerationandbenefitsbetweenpermanentandnon-permanentlabour
• Strengthofrelationswithemployeesandlabourunions
• Degreeofinvestmentinskillbuilding
• Leadershipmindsetandorientationtowardshumanassets
• Choiceofcompetitiveandmanufacturingstrategyandpractices(labourcostreductionvs.valueandqualityfocused)
• Modelsforengagementwithemployeesandunions
• Degreeandtypeofglobalandlocalcompetition
• Cyclicality,seasonalityorvolatilityofdemand
• Nature,historyofindustrialrelationsinindustrialzone
• Differencesinlabourremunerationacrossfirmsinindustrialzone
• Macroeconomicgrowthtrends
• Shiftinworkforcedemographics
• Quality,availabilityanddegreeof localcompetitionfor skilledlabour
• Enforcementofregulationsgoverninguseofandremunerationfornon-permanentlabour
• Processandregulationsaroundlabourretrenchmentandplantclosure
• Restrictionsonuseofwomen,apprenticesandmigrantlabour
• Fundingandoversightofvocationaltraining
Exhibit6:FactorsimpactingHAoutcomesandenterprisechoices
Akeytakeaway fromaboveassessment isthatwhile externalfactors,especiallythoseataregionallevel, playanimportant part, themostimportantdriversofimproved HApracticesarelargelywithinanenterprise’scontrolorinfluence. Aleadershipmindsetwhichmovestowards toviewinghumanresourcesasasourceofcompetitive
ENTERPRISE
ENVIRONMENT& CHOICES
REGULATORY ENVIRONMENT
INDUSTRY/ CONTEXTUAL
ENVIRONMENT
HA OUTCOMES
1 2 3
1 2 3
Hig
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So
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infl
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Les
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advantage,coupledwithashifttowardsqualityand value-addition-basedcompetitivestrategy,canthusmoveacompanytoahighertierofHAstrategy,practicesandoutcomes.Alignmentwithotherstakeholdersonsuchanapproachtohumanresourcesiscritical,astheircollaborationwillbenecessaryforthistransition.Toeffectanysuchtransition,stakeholderswillhavetoengageinadialoguetoaddressconcernsincludingthoseofemployersaroundflexibility andthepolicyenvironment.
Inordertoexaminethispointingreaterdepth,thisreportwilltakeadetailedassessmentofthethreelevelsofinfluencingfactorsuponHAstrategyapproaches:regulatory level, macro-economic level andindustry-level.
Regulatoryfactors:Legislationandpolicy,forexample localornationalregulationsoncontractlabourorpublicfundingfor vocationaltraining, helptoshapethecontoursofany locallabourecosystemandsupplydynamics.WhilesuchfactorshavelimitedimpactonHAoutcomes,theystillaffectacompany’sHRpolicies anddevelopments.Thesefactorsinclude:
Regulationconcerningnon-permanentlabour:TheContractLabour(RegulationandAbolition)Actof1970hasbroadguidelinesonhowcoreactivitiesaretobedefined.Whileitallowsstategovernmentstoabolishcontractlabourinanestablishmentsubjecttocertainconditions (suchaswhetherornottheroleisincidentaltoproduction)theapplicationofthislegislationtakesplaceonacase-by-casebasisandisseenasopentosubjectivity.
The processforemployeeretrenchmentandplantclosure,which iswidelyperceivedbybusinesses tobeinefficientandcumbersome.Withgrowthinemployment,boththesefactorshaveledtoanincreaseduseofnon-permanentlabour acrossabroadscopeofactivities.
The requirement(outsideoftheMinimumWagesAct) thatnon-permanentlabourperformingthesame kindofworkasapermanentemployeeshallberemuneratedatthesamerate.Onceagain,thespiritofthisrequirementisnotappliedorenforceduniformly andmany companiesusenon-permanentlabourasacost-savingmechanism,creating significantwageandbenefitdisparitybetweennon-permanentandpermanentlabour.
Guidelines oncontractorregistrationandresponsibilities which,whiledefined,arenotenforced.CompoundingthisisthefactthatthecontractorecosysteminIndiaistypicallylocalorregionalanddominatedbysmallplayers.Thismakes itchallengingtooverseedisbursalofpaymentsandbenefitstonon-permanentemployees.
Government-fundedandadministeredsystemsforskill-buildingandvocationaltraining(primarilyITIs),whicharenotproducingemployablegraduatesinkeepingwithdemand.This contributestoanongoingshortageofskilledlabour.TheMahatmaGandhiNationalRuralEmploymentGuaranteeAct
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(MGNREGA),localemploymentmandatesonavailabilityofmigrantlabour, andrestrictionsontheuseofapprenticesandwomen alsocontributetothisshortage.Theonusisthusonemployerstobuildrequisiteskillswithinandoutsidetheirorganizations.
Macro-economic,industry-levelandregionalfactors:Broad-picturefactors haveamoderateimpactonHAoutcomesacrosstiers,althoughtheycannotfullyexplaindifferencesbetweencompaniesinthesameindustrialandregionalzones.Thesefactorsincludenationaleconomicgrowth,globalcompetition,businesscyclicality,inflation,workforcedemographics,laboursupplyecosystemandregionalindustrialrelations.Forexample:
Eachindustryhasitsownpatternof cyclicalityand/orseasonality,whichdeterminestoalargeextenttheneedforlabourflexibilityacrossyears.This inturndrivestheneedfornon-permanentlabourusage.Textileenterprises,totakeacaseinpoint, have significantseasonalityindemandandproduction andthustypicallyuseahighproportionofnon-permanentlabour.
Bothinflation and shiftingworkforcedemographicsplayaroleininfluencingemployeedemands.Whileconsistentinflationhasincreaseddemandsforconcurrentwageincreases,thedemographicshifttoayoungerworkforcehasbroughtaboutincreaseddemandsforgreatervariationinwork(fewermonotonousrepetitiveactivities),aswellasamoreshort-termapproachtoemploymentfocusedonimmediatebenefits.
Politicalinfluencein unionsforpermanentemployees isanacknowledgedrealityacrossseveralindustriesandindustrialzones,andhasbeenidentifiedasoneofthekeydrivers impactingindustrialrelations.Whilenon-permanentlabour aretypicallynotorganizedintounions, thereareindicationsthatthissegmentoftheworkforceisseeingsignsofincreasingunionization.
Themacroeconomicslowdown andincreasedglobalcompetition havepromptedcompaniestoincreaselevelsofautomation,aswellasotherchoicesdrivenbythepressuretoremaincompetitiveinthemarketplace.SuchchoiceshaveadirectimpactonHAstrategy.
Regionaldynamics,mostnotablywagedisparitiesbetween firmswithinoneregionandcomparedto otherregions,haveamoredirectbearingonoutcomes.AnillustrationofthisistheupwardpressurethatallcompaniesacrosssectorsarefacingintheNCRregionfollowingremunerationincreasesbyautoOEMsintheregion.Similarly,Punjabisfacingattritionandlabourshortagesinseveralkeyareasasthehighminimum-wagedifferentialwithNCRispromptinglabourto moveoutoftheregion.Thehistoryofindustrialrelationswithina region isalsoimportant.Severalinterviewedstakeholderswereoftheviewthatlabourandunionsinzonesthatdonothavealongandentrenchedhistoryofindustrial
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unrestaretypicallymoreopentoforgingcollaborativerelationshipswithemployers.
Enterprise-levelchoicesaroundstrategyandattitudestowardsHAmanagement: Asourresearchidentifies,whiletheexternalenvironmentplayssomerole,itisthechoicesthatitsmanagementmakesthat havethemostdirectbearingonHApracticesandoutcomes.
Leadershipmindset iscriticalinshapingHAstrategy.Aleadership’sattitudestowardshumanassetsare shapedbymany tangibleandintangiblefactors,includingexperiences,philosophiesandlegaciesonanindividualandcorporatelevel. Theseattitudeshaveadirectbearingon howtheenterpriseinvestsintrainingandengagingtheirworkforce, andininstillingacultureofequitability.Leadershipin companiesacrosshighertierstypicallyhasaclearlyandconsistentlyarticulatedbeliefthathumanassetsareavitalresource,whichtranslatesintotheculture,strategyandpracticesoftheirorganizations.
Choiceofmanufacturingstrategyandpractices playsakeyroleinshapingHAoutcomes.Whencompanieschoosetocompeteonqualityandvalueaddition,asopposedtolabourcostreduction,theytendtohavemanufacturingstrategiesandprocessesthatrequireamoreskilledandflexibleworkforce.Inaddition,theyoftenadoptsystemssuchasTotalQualityManagement(TQM) acrosstheiroperations.Inanenvironmentofskilledlabourscarcity,thisfocusdictatesgreaterinvestmentinskilldevelopment,strongerengagementandretentionefforts,andbettertreatmentandjudicioususeofnon-permanentlabour.
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Finding4: Providingmoreequitablecompensationandbenefitstonon-permanentlabourhasarelativelylownegativeimpactonprofitability(i.e.<0.5%)andreturnoncapital(i.e.< 1.5%)metricsacrossmostsectors,withsomeexceptions.Importantly,manycompaniessurveyedbelievepotentiallysignificantbenefitsintermsoflabourproductivity,betterindustrialrelations,qualityimprovementandtechnologyabsorptionwillresultfrombetterHApractices.
Asignificant,andoftenvoiced,concernaroundachangeinHApractices– particularlyontheuseofnon-permanentlabouranditswagedisparitywithpermanentlabour– istheadditionalcostthatmoreequitablecompensationfornon-permanentlabourentailsandthenegativeimpactonprofitabilityandcostcompetitiveness. Ananalysisofthiscostacrossmultiplesectorsandscenariosindicatesthatinmostcases,providingmoreequitablecompensationtonon-permanentlabourwillhavelimitednegativeimpactonkeyprofitabilityandreturnmetrics.Moreover,thebenefitsofbetterindustrialrelations,improvedincentivesforskilldevelopment,higherlabourproductivity,improvedqualityandimprovedtechnologyabsorption,ascitedbyselectedenterprises,needtobeconsideredinevaluatingsuchchangesinHApractices.
Forthepurposeofthisanalysis,wechosefourindustrieswithvaryingemployeecostsandcomposition:autoOEM,autocomponents,engineeringandtextiles.After buildingbase-caseincomestatementsandemployeecostmodelsforthesesectorsusingpubliclyavailableandcompany-provideddata,wecreated4optionsintermsofbetterremunerationfornon-permanentlabour,andmodeledtheimpactofthoseoptionsonemployeecosts,PATandROE.Theoptionsaredescribedbelow.
Option1:Non-permanentlabourincore-relatedjobsgetsamewagesaspermanententrylevellabourinsimilarroles;andnon-corenon-permanentlabourgetcurrentminimumwages+25%.
Option2: Non-permanentlabourincore-relatedjobsgetsamewages,benefitsandtrainingaspermanentlabouratentry-levelforsimilarroles; andnon-corecontractlabourgetscurrentminimumwages+50%.
Option3:Non-permanentlabourincore-relatedjobsget75%ofpermanentemployeewagesinsimilarrolesatcorrespondingtenurelevel;andnon-permanentlabourinnon-corejobsgetcurrentminimumwages+50%.
Option4:Non-permanentlabourincore-relatedrolesgetthesamewages,benefits andtrainingaspermanentlabourinsimilarroleswiththesametenure(equalpayforequalwork); andnon-permanentlabourinnon-corejobsgetcurrentstateminimumwages+50%
Theanalysisindicatesthatacrossmostsectorsandscenarios,thenegativeimpactonPATis<0.5%andonROEis<1.5%,asshowninExhibit7.Thisresultisdrivenbytherelativelylowproportionoflabourcosttototalrevenue(typicallybetween5%and8%ofrevenue)andthecorrespondinglylownegativeimpactofanincreaseinthesecosts
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onprofitabilityandreturns. Theautocomponentssectorisan exception,seeingPATdropfrom3%to1.8%forashifttomoreequitablecompensationfornon-permanentlabour.Thismaybeduetotherelativehighemployeecosts(8%ofrevenue),highuseofnon-permanentlabour,andhighwagedisparitybetweenpermanentlabour(typicallyasmallnumberwithsignificanttenure)andnon-permanentlabour andneedstobeexaminedfurther.
Exhibit7:Estimatedfinancialimpactofincreasingremunerationandbenefits fornon-permanentlabour
Manystakeholdersinterviewed forthisreport outlinedtangiblebenefitsthattheyhaveseen– orexpecttosee– forimprovedcompensationfornon-permanent labour,higherinvestmentinskilldevelopmentandotherhighertierHA practices.Twosuchkeybenefitsaredescribedbelow:
Mitigatedman-dayslostduetounrest:Improvedcompensationfornon-permanent labour addressesakeyareaofmisalignmentamongststakeholdersandhasthepotentialtoimproveindustrialrelations.Assuch,thereispotentialtoreducethenumberofdayslost,ifany, todisputesaroundmoreequitablecompensationfornon-permanent labour
Increaseinlabourproductivity:Bytakingmeasures toengage,trainandretaintheirworkforce,companies interviewed statedthattheyexpecttoseeimprovedproductivity.SeveralcompanieshavereportedincreasedoverallproductivitythroughmeasuressuchasTPMandTQM.Themagnitudeofimprovementvaries,withsomecompaniesestimatingproductivityimprovementsofupto30%.
5NDL
MINIMALIMPACT– AUTOOEM MINIMALIMPACT- ENGINEERING
SIGNIFICANTIMPACT– AUTOCOMP MINIMALIMPACT- TEXTILES
Relativelylowfinancialimpact– acrossmostsectors
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Inaddition,thereareseveralotherpotentialbenefitstosuchpracticesidentifiedbythoseinterviewed,including improvedquality,fastertechnologyabsorptionandhigherflexibilityinthemanufacturingprocess.
Severalcompaniesspokentobytheteamacknowledgedthatprovidingmoreequitablecompensationtonon-permanentlabourwouldlikelyhavearelativelysmallnegativeimpactonPAT.Manyfeltthisnegativeimpactwouldbeoutweighedbythe benefitstobeaccruedfromsuchashift inthelongrun. However,theycautionedthatinatougheconomicscenario,gettingapprovalfor theadditionalcostsentailedin moreequitablecompensationfornon-permanentlabourwouldrequirebuildingastrongbusinesscasethatrobustlyquantifiesthebenefitsinthenearandlong-term.Additionally,thereareseveralotherchallengesentailedinimplementing such a large-scalechangeinitiative. Itwouldbenecessary foracompanydoingso toworkwithotherplayersandstakeholdersintheindustryandregion, assuchactionswillhaveadirectimpactonthemaswell. Asthecompaniesstated,acollaborativeandengagedstanceisrequiredfromotherstakeholderssothatconcernsofemployersaroundflexibilityandpolicyenvironmentareaddressedsimultaneously.
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Finding5:WithoutasignificantandwidespreadimprovementinHAstrategiesandpractices,potentialscenariosforthefutureofIndia’smanufacturingsectorincludeincreasedincidencesofindustrialunrestand/oraninabilitytorealizeitsfullpotential.
TherearemanyinterrelatedforcesanddriversatplaythatinfluencethefuturestateofHAoutcomes acrossIndia’smanufacturingsector.Therearealsomany uncertainties,includingthesupplyevolutionoflowcostnon-permanentlabour,thefutureavailabilityofskilledlabour,and representation orunionizationlevelsofnon-permanentlabour.Exhibit8 liststheseinfull.Ofthislisttherearetwocriticaluncertaintiesthatwebelievewillfundamentallyshape HAoutcomes.Thesearethefuturedriversofcompetitivenessformanufacturingsector,andtheextenttowhichformalsectoremployers– incollaborationwithotherstakeholders– take actiontoimprovelabourconditions.
Exhibit8:Keyuncertaintiesimpactingfuturestateofmanufacturinglabourecosystem
Ourresearchidentifiesfourplausiblescenarios forHAmanagementinthemanufacturingsector. Whichoneplaysoutwilldependuponwhetherornotemployersandotherstakeholderstakewidespreadcollectiveandvoluntaryaction toimprovenon-permanentandpermanentlabourmanagement,skillsdevelopment,andemployer/employee/unionrelations. Thefuturewillalsobeaffectedbywhetherornotthecompetitiveadvantageofmanufacturingshiftstowardsvalue-additionandquality,asopposedtolabourcostreduction.
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Exhibit9 outlinesthesefourscenarios:
Exhibit9:Scenariosforfuturelabour relationsacrossthemanufacturingsector
Asthescenariossuggest,intheabsenceofsignificantactionfromemployersandotherstakeholderstoimproveHAmanagementpracticesandoutcomes,wemaywellseemoreincidentsofindustrialunrest.Attheveryleast,India’smanufacturingsectorwillbeunabletorealizeitsfullpotentialinthe yearsahead(asdepictedinthe“Mayday”and“ParadiseLost”scenarios).Inthe“ModernTimes”scenario,whilesomeHAoutcomesonmoreequitabletreatmentoflabourandindustrialrelationsmayimprove,themanufacturingsectorislikelytoremaincharacterizedbyinternaltensionsandlowskilllevelsoflabour,withcompetitiondrivenbylowlabourcosts.Itisonlyinthe“HarmoniousSociety”scenario,whereemployersandotherstakeholdersundertakesignificantmeasurestoimproveallrelevantHAoutcomes– skilldevelopment,industrialrelationsandmoreequitabletreatmentoflabour– thatthemanufacturingsectorisabletoenhanceitscompetitivenessandrealizeitsfullpotential.
Throughoutourresearch,theteam collectedsuggestionsfromvariousstakeholdersforregulatory,policyandindustryinterventions.Thesesuggestionsarenotcomprehensiveandmaybetaken asthestartingpoint foradialogueamongststakeholders.Someofthesesuggestions, asstatedbythestakeholdersinterviewed, areoutlinedbelow:
Creatingacentralizedcontractlabourmanagementframeworkwithskill-basedwagebands:Thelabour-contractorecosystemiscurrentlyfragmentedandinformal,withlimitedfocusonskillbuilding.Onesuggestionistobuildanecosystemoflarge,regulated,contractoragenciesthatprovidelabourtothe
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manufacturingsector.Thesecouldberegisteredwith andregulatedbyagovernmentagency.Labourratescould besetatvariousbandsbaseduponcertifiedskillandexperiencelevelsofemployees.Government/regulatorscould ensureprovisionoftrainingandprovidecertificationofskilllevels,whilealsoensuringtoadherenceofsafetynorms,disbursalofpaymentsandsoforth.Thiswouldprovideanincentiveforcontractorstofocusoncontinuousupskillingandallowcontractlabourtoleverageopportunitieswhenregularemploymentarises.
Mandatingcheckpayments/banktransferstocontractlabour: Asysteminwhichcheckpaymentsorbanktransfersweretheonlylegalmeansof payingcontractlabourwouldhelpwiththeauditandoversightofdisbursalofpaymentandbenefitstonon-permanentlabour, inboththeformalandinformalsector.Financialinclusionmeasureswouldberequiredtoenabletheenactmentofsuchapolicy,whichwouldgreatlyreduceinstancesoffraudandabuse. ThisprogramhasbeensuccessfullypilotedinThane,Maharashtraandisintheprocessofbeingevaluatedforadoptioninotherstates.
Recognizinganewecosystem ofserviceproviders: Asthereisincreaseduseofprofessionalserviceprovidersrelatingtoprovisionofsupportservicessuchascanteenandmaintenance,somecompaniesaretakingtheviewthattheseentitiesshouldberecognizedasprincipalemployers.Engagementofcontractlabourbythemshouldthereforebeonaprincipal-to-principalbasis.Thiswouldmeanthattheirtermsandconditionswouldbecomparedtoothersimilarestablishmentsandnottheprincipalemployer,whosecorebusinessis verydifferent. Theimplicationsofanysuchchangeneedtobeevaluatedcarefully,especiallyforemployeesandotherstakeholders.
Establishingasocialsafetynet:Intheabsenceofacomprehensive,government-administeredsocialsecurityframework,stakeholderssuggestedthatindustrycouldtakevoluntaryactiontocreateasocialsafetynetforemployees.Anannuity-basedsystemofpaymenttoretrenchedemployees foruptoayearpost-retrenchmentwouldhaveapositiveimpactacrosssectors.
Incentiveframework: Severalstakeholderssuggestedthatinadditiontopunitivemeasuresfornon-compliance,thegovernmentshouldinitiate measurestoincentivizegoodpractice.Anexampleofthiscouldbeanincentiveframeworkwhich rewardscompaniesthatmeetcertainnormsintermsofremunerationandbenefitprovisionsfortheiremployees.
Investmentinvocationaltrainingandskillbuilding:Measurescouldbetakentoimprovethequantityandqualityofvocationalandskillstrainingforthemanufacturingsector.Integratingvocationaltrainingwiththestandardeducationalcurriculumcanhelptoachievethisobjective:forexample, integratingvocationaltrainingwithstateeducationalboards orcreatingaBachelorsofVocationaldegreeatacollege level. Industrycanacceleratethisobjectivethroughsuchinitiativesasknowledgeprovision or adoptionofITIs.
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Simplification,clarificationandenhancedenforcementofexistingregulatoryframework: Severalstakeholderscommentedontheneedforsimplification,standardizationandclarificationofexistinglabourlawsandregulations.Theperceptionisthatlawspasseddecadesago withoutsunsetclauses, suchastheIndustrialDisputesActortheApprenticeshipAct,needtobesimplifiedandtheirexemptionsclearlyoutlinediftheyaretobeuniversallyunderstoodandapplied.Additionally,existingprovisionsinlaws– suchasthat requiringworkersperformingthesamekindofworktobepaidatthe samerate,whethertheyareemployedbycontractorsordirectlyemployedbyaprincipalemployer- shouldbeenforceddiligentlyandresponsibly.
These4scenariosaremeanttorepresentplausible picturesofthefutureratherthanbepredictiveinnature.Assuch,they areaimedatprovidingacontextforthemulti-stakeholderengagementandcollaborativeprocessrequiredtodrivebetterHAoutcomes.Weresuchacollaborativeprocesstooccur,thisinturnwouldbeacriticalelementforimprovingthemanufacturingsector’scompetitiveness.
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Germany’sexample
Germanyprovidesseverallessonsonsystemicandenterprise-levelmeasuresthatcanbetakentoimprovethestateofhumanassetmanagementinthemanufacturingsector.
TheGermanlabourmodelhasbeenwidelyacknowledgedasasourceofbestpractice.GermanyfollowsanActiveLabourMarketPolicy(ALMP)asoutlinedinExhibit10.From2002-05,Germanywitnessedaslewoflabourreforms, includingcutsinunemploymentbenefits,intensificationofjobsearch,monitoring&placementefforts,qualitativeprofilingtoclassifyjobseekers,deregulationoftemporaryemploymentandnewself-employmentopportunities.
Exhibit10:Germany’sActiveLabourMarketPolicy
Germanregulatorshaveintroducedseveralchangesintheframeworkaroundthe useoftemporarylabourinordertomaximizeflexibilityforemployers.TheHartzreformscreatedTempWorkAgencies(TWA)– large,regulatedsuppliersoftemporarylabourtoindustrythattakeontheresponsibilityofmatchingdemandwithsupplyandbuildingrequisiteskillsinthetemporaryworkforce.Theyaresupplementedbyastrongecosystemoflarge,professionalprivatetemporarystaffingagenciesthatperformasimilarrole.Themaximumlegalcontract periodhasbeenraisedconsistently,fromthreemonthsto24monthsnoacrossseveralsectors. Wagedisparitybetweencontractlabour and permanentlabourhasreduceddramaticallywhereworkersareperformingthesameworkwithsimilarqualifications.Finally,underaschemeknownasKurzarbeit,thestatenowcompensatesupto67%ofanemployee’snetsalaryifanemployerhastocutbackonwagesorworkinghoursduringaneconomicslowdown.
9NDL
EmploymentPromotionAct(1996)
• Introduceunemploymentinsurance
• Outsourcingofemploymentservices (e.g.training&employmentprogramstoexternalproviders)
• IntroductionofTempWorkAgencies (TWA)thatcanemployjobseekersproposedbyLEA(LaborEmploymentAgency)astemps
• Unemploymentinsurance(sharedequallybyemployer&employee)tobeusedforincomesupportduringunemployment&provisionofemploymentservices
• ExtensiveelectronicinformationsystemrunbyLEAforcounseling&jobplacementservices
• Improvedlabormarkettraining (largest%ofALMPexpenditure)programsin5categories- shorttraining,basicvocationaltraining,furthervocationaltraining,retraining&Germanlanguagecourses
• Subsidizedemployment in2forms- tempwagesubsidies&employmentprograms
• Directwagesubsidies tocompaniestoemploypeoplewithlowerproductivity• Jobrotationsupport- SubsidytocompensatefulltrainingcourseofFTE&reducedproductivityofsubstituteemployeeduringrotation
• ShortTimeWork(STW) - STWemployeesworklessthancontractuallyagreedhoursduringeconomicslowdownsandarecompensatedforreducedlabourincomebyFederalEmploymentAgency
• EmploymentPrograms&JobCreationSchemes(ABM)- 30-100%SalariesofABMemployeessubsidized
• Workincentives,notablyforlow-incomeworkers,wereincreasedasHartzIVreducedthebenefitreplacementrate,thusloweringreservationwages
• Matchingefficiency duringemploymentincreased.• Reformslimitingearlyretirementoptionsincreasedemploymentamongolderworkers
• Eliminategenderdiscrimination
Job-AQTIV(2002)
• Intensificationofjobsearch,monitoringandplacementefforts
• Introductionofqualitativeprofilingtoclassifyjobseekers
• Changesinreasonabilityofjoboffers
HartzI/II(2003)
• Deregulationoftemporaryemployment
• Cutinunemploymentassistance
• Newopportunitiesthroughself-employment
HartzIII(2004)
• ReorganizationofFederalLaborAgency
HartzIV(2005)
• Combinationofunemployment&socialassistanceintonewmeans-testedunemploymentbenefitsystem
GermanyhasfollowedanActiveLaborMarketPolicy(ALMP)since1990
ACTS OBJECTIVES KEYREFORMMEASURES
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Similarstridesarebeingmadebyemployersandunionstodriveparitybetweenpermanentandtemporarylabour. Volkswagenhasimplementedpoliciesthatincludeequalpayforequalwork,widespreadtrainingprovision,andasemi-mandatorycapontherecruitmentoftemporaryworkers.AndinSeptember2010nationalmetallabourersunionIGMetallachievedacollectivebargainingbreakthroughwhen equalpayfortemporarylabour inthesteelindustrywaslaiddowninanindustry-wideagreement.
AnotherfeatureoftheGermanlaboursystemistheaggregatednatureofitscollectivebargaining. Insteadofmultipleunionsandindividualagreementsbetweenanemployerandtheirrepresentativeemployeeunions,oneofeightindustryunionsandasinglecollectivegroup ofemployersfromthatindustryagreeonwagesettlements.Thisstreamliningensuresthatwagelevelsareconsistentacrosscompetitorswithinanindustry(withallowancesforregionalvariations)andcompetitionisonthebasisofnon-labour-cost-related factors, suchasproductivityandquality.
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WayForward
Thisreporthasidentifiedcompaniesthatviewtheiremployeesasanappreciatingassetandasaresultofbetterhumanresourcemanagementpractices,enjoybetterindustrialrelations,haveamore skilledworkforce andproviderelativelymoreequitablecompensationtonon-permanentlabour.Byfocusingonhumanassetdevelopmentratherthan onthe management oflabourcosts,suchcompanies– incollaborationwiththeirstakeholders– havelaidthefoundationforsustainedgrowthandcompetitivenessascomparedtoothersinthesameindustry,regionandregulatoryenvironment.Thekeydriversobservedinthesecompaniesareleadershiporientationandafocusonqualityandvalueadditionintheenterprise’scompetitiveandmanufacturingstrategy,inadditiontoenablingregional-levelfactors. Suchoutcomesonhumanassetsandcompetitivenesshavenotledtolowerflexibilityorhighercost.Asthestudyshows,atransitiontohighertiersofHApracticesandoutcomes,possibleonlyincollaborationwithallstakeholders, islikelytohaverelativelylowernegative impactonprofitabilityandreturnoncapitalthanexpected.Moreimportantly,asstatedbymanycompanies,significantbenefitssuchashigherlabourproductivity,qualityimprovementandfasterabsorptionofnewtechnologycanbeexpected.
Suchexampleshelptoreframe– orprovideanewdimensionto– thecurrentcontentiousdebateonhumanresources,awayfromthecurrentframingof‘labourversuscapital’and‘flexibilityversusfairness’. Aligningdifferentstakeholdersandsupportingthemto workaspartnersonthechallengeofdevelopinghumanresourcesandsustaining goodindustrialrelationswill leadtoamoreengagedandcollaborativeprocess.Nodoubtpolicyactionswillberequiredto facilitateandincentivizechangesinhumanassetstrategiesandpracticesattheenterpriseandregionallevels.Determiningthenatureof such policyactionsandlegislativechangesmustbeanoutcomeofdialoguesamongstthestakeholders.Thehopeisthatthisreportwillbeaninstrumenttostimulateanewdialogue,onewhichisurgentlyrequiredinorderto improve thecompetitivenessandgrowthofIndia’smanufacturingsector, andofitsenterprises.
Amovementofchange,whichwill buildinstitutionalisedprocessesforcollaborationamongststakeholdersatalllevels – from shopfloortoboardroomtoindustryandregional institutions– isrequiredinordertosolve thesesystemicissues systematically.Theseinstitutionalisedprocesseswouldbesimilartothose observedforTQMinJapan,andforsystematicstakeholderparticipationinGermany. TheproposedIndiaBackboneImplementationNetwork(IBIN)isawayforwardtosimilarlystrengthencapabilitiesinIndiatosolvetheseissuesinacollaborativeandsystematicmanner.
|HumanAssetStrategiesinManufacturing Sector|29
SelectCaseStudies
Inthestudy,theteamcameacrossseveralcompaniesthatviewtheirhumanassetsasanappreciatingresourceandhaveadoptedmeasurestoengageanddeveloptheirworkforce.Thisreportconcludeswith representativecasestudiesofinterviewedcompanies,outliningtheirHAstrategy,approachandpractices.Inadditiontothesecompanies,manyother companiesparticipating inthisstudydemonstratesimilarlyprogressiveapproachestohumanassetmanagement.
Theteamisgratefultothesecompaniesforsharing theirpracticesforthebenefitofallstakeholders.
|HumanAssetStrategiesinManufacturing Sector|30
TheautomotivebusinessoftheMahindraGroupisamongtheleadingcommercialandpassengervehiclemanufacturingcompaniesinIndiatoday.TheChakanplanthasbeenoperationalsince2010,andisthelargestofseven plantsintermsofsize,capacity,productionandemployeestrength.Itproducesawiderangeofcommercialandpassengervehicles,withanemployeestrengthofaround3900
BackgroundandContext TheChakanplantisanewfacilitythathasbeenoperationalsince2010.Producingawiderangeofcommercialand
passengervehicles,itisthelargestofsevenplants.DevelopingthisfacilityfromscratchaffordedMahindraGrouptheopportunitytobuildasetofcustomizedHRandIRpoliciesandpracticesthat,whilekeepingwithgroupguidelines,wereupdatedandcustomizedtomeettheirneeds.
KeydifferentiatingHRpractices Recruitment
o TheyhaveawiderecruitmentpoolthatincludesassociatehiresfromITIs(70%)aswellas10thpassstudents(30%).Thereisaconcertedefforttoprovideregionaldiversitytotheintake,andtheyareplanningfortheirfirstintakeoffemaleassociatesfromITI.
o Theyhaveacomprehensivecompetency-basedselectionprocessincorporatingapsychometricassessment,simulatedproductionexercise,behavioralinterviews,medicalscreeningandverification.
Training&skilldevelopmento Theyhaveacomprehensiveinductionprogramthatincorporatestrainingandcertificationthatisbothgeneric
acrosstheintakeandcustomizedwithintheshop,coupledwithongoingtrainingandrecertification.o Individualtrainingneedsareassessedaspartoftheperformancemanagementsystemandaddressed
accordingly.o Theyalsoofferreimbursementforrelatedhigher-educationcoursesthattheiremployeesmaychoosetotake.
Talentmanagemento Theyhaveastructuredandtransparenttalentmanagementprocessfortheshopfloor withclearlydefinedrole
expectationsandsemi-annualreviews.o Theyhaveestablishedclearcareerpathsfortheiremployeeswithadefinedprocesstotransitionfromshop-floor
associatetoofficerroles. Employeeengagement
o Theyrunanannualengagementsurveyforallpermanentemployeeswithclearactionplanstoaddress areasofconcern;aformalcommunicationprogramacrosslevelshasbeeninstitutedandincludesabiannualCEOpresentationtoallemployees.
o TheyhaveundertakensignificantCSReffortswithinlocalcommunityandmadeconcertedeffortstoengageemployee familiesbyencouragingparticipationincompanyevents.
o Theyhaveinstitutedastructuredrecognitionandrewardprogramforshopflooremployees(ideagenerationreward,employeeofmonthetc.).Additionally,theycreatedsmallteamswhichcometogether andideateforinnovationsontheshopfloor,creatingasenseofcollaboration andteamspiritintheorganization.
Non-permanentlabouro Theyarekeyparticipantsinindustrydiscussionsaroundvoluntaryactiontoregulateemploymentofnon-
permanentlabour.o Theyadoptastrictinterpretationof“core”activitiesforuseofcontractlabouro Theyhavearobustsystemofcontractorauditsatbothplantandgrouplevels
Mahindra’sChakanplanthasbeenrecognizedbothwithinandoutsidethegroupasasourceofbestpracticewithregardstohumanassetstrategyandmanagement.
|HumanAssetStrategiesinManufacturing Sector|31
CumminsIndiaisagroupofcomplementarybusinessesthatdesign,manufacture,distribute&serviceengines,generators&relatedtechnologies.Startinglifeasajointventure withKirloskarin1962,CumminstodayisoneofthelargestIndianplayersinindustrialmachinerywitha$2bnturnoverandapp.14000regularemployees.Itis51%ownedbyUS-basedCumminsInc., while40%ofitsequityispubliclytraded.
BackgroundandContext In2010,CumminsdevelopedanddocumentedaformalIndustrialRelationsstrategyforthenextdecadeinthe
backdropofsomeindustrialunrestinthecompanyandregion.WhilebaseduponCummins’globalguidelinesandbenchmarks,thisisacountryspecificstrategycoveringrewardsforperformance,talentacquisition,skilldevelopment,collaborationandteamwork,flexibilityandagility,supervision,andcommunicationandculture.
KeydifferentiatingHRpractices Talentacquisition
o Theyactivelyseek,andmanagetowards,diversityintheirworkforce.40%oftheirintakeisfromITIs,30%isDiplomaEngineers,and30%areBA/BSc/BComgraduates.Theyhaveasizeableproportionofwomenontheshop-floor,withagoaltoemploy25%women.Cumminshasmodifieditsshop-floorprocesses&layouttoaccommodatesuchdiversity.
o Theyhavemadeseveralinvestmentsinbuildingskillsacrossthebroaderecosystem.OutsideofestablishingandrunningtheCumminsCollegeofEngineeringforWomen,theyhaveadoptedanITIinPhaltan– thevenuefortheirnewmanufacturingsite– tohelpbuildsuitableskillsinaregionthathasnottraditionallybeenamanufacturinghub.
Performancemanagemento Cumminshasinstitutedarigorousperformancemanagement systemwithatransparentskillmatrixand
individualskillmaps.Remunerationisvariablebaseduponperformanceandskillinadditiontotenure.o Thereareclearlydefinedcareerpathsforallemployeesthatallowformovesfromassociatetosupervisoryroles
contingentonacquisitionoftherequisiteskillsandqualification. Continuousskilldevelopment
o Cumminshasastrongfocusoncontinuousskilldevelopmentfortheiremployees.Startingwitha1monthinductionprogramforemployeesandparents,shop-flooremployeeshaveaccesstoongoingEnglishandsoftskillsclasses,Kaizenandprocessmanagementtraining,andleadershipdevelopmentclassesinadditiontorole-relatedtrainingprograms.
o Additionally,theyreimburseemployeesforrelevantthird-partytrainingordegreeprogramsthattheychoosetoobtain.
o Cumminsalsohasaformalizedjob-rotationprogramwherebyshop-flooremployeesarerotatedthroughvariouslines/machinestoensuremulti-skilling.
Employeeengagemento CumminsactivelymeasuresandmanagesemployeeengagementthroughtheuseofEmployeeSatisfaction
Surveys,aregularcommunicationcadenceacrosslevels,regularrecognitionandrewardsandextensiveCommunityInvolvementProgrammes
ContractLabouro Cumminstriestomaintaina30%caponcontractlabour(CL),withCLusedonlyfornon-corejobsandas“rings-
of-defense”incyclicalityrelateddownturns,andisanactiveparticipantinvoluntary,industry-widediscussionsonformulatingrelativelymoreequitableCLpolicies.Theyalsomaintainstrictcontractoroversightwithcarefulselectionprocessesandmonthlyaudits.
CumminsiswidelyacknowledgedfortheirHAmanagementpracticesandemployeeengagementlevels.Thisisreflectedintheirattritionrate,whichiscurrentlyat9%formanageriallevelsand1%forshop-floor.
|HumanAssetStrategiesinManufacturing Sector|32
Establishedin1965,VardhmanisoneoftheleadingplayersinthetextilespaceinIndiawith1millionspindlesandpresenceacrosstheentirevaluechainfrommaterialstoapparels.TheyarethelargestproducerandexporterofyarnsandgreyandprocessedwovenfabricsfromIndia,thelargestproducerofhandknittingyarnsandthesecondlargestproducerofsewingthreadsinIndia.Theyhaveover25000employeesacrosstheirbusinesses,andareheadquarteredinLudhiana
BackgroundandContext
Thetextileindustryemployslargelyunskilledlabourwithsignificantlylowerwageratesthanindustrieslikeautomobilesandengineering.MosttextilefirmsinPunjab– Vardhmanincluded – facesignificantlabourshortagesandattritionasotheralternativesarereducingnumberofmigrantlabourersandlocalworkforceisunwillingtoworkinthesectorinPunjab.
Vardhmanhadonesignificantincidentofindustrialunrestin1982followingwhich,itrevampeditsHRandIRpolicies. Inspiteofachallengingenvironment,Vardhman– throughitsfocusonhumanassetmanagement– has,toitscredit,
enjoyed peacefulandproductiverelationshipswithitsworkforce,withnoincidentsofindustrialunrestsince1982.
KeydifferentiatingHR practices Recruitment
o Vardhmanhas targetedrecruitmentofwomen– particularlywomenfromruralareas– throughaprogrammecalled“EmpoweringWomen.” Womenworkerscominginthroughthisprogrammeareprovidedtraining,accommodationinaseparatehostelandsubsidizedfood.Today,womenconstituteapp.40%oftheirworkforceinPunjaband30%inotherstates.
o Theyhaveanemployeereferralprogramme,wherebyemployeesarepaidforeachsuccessfulreferral.o TherecruitmentprocessinVardhmanisverytransparent,basedonaptitudeandabilityoftheworkerstocopewith
theworkrequirementandwithequalopportunitytooneandall. Talentmanagement
o They havetakenaconsciousdecisiontohireonlyunskilledemployeesandimpartnecessaryskillsin-house.WorkersaretrainedatManavVikasKendrasrunbyemployeesindifferentstatesaswellastrainingofknowledgeworkersandstaffattheVardhmanTrainingandDevelopmentCentreinLudhiana.
o Trainingprogrammesfocusprimarilyonsofterskillssuchastherightattitudetowardswork,discipline,communication,sharingandopennesswithworkersandmanagement.
o Frequentcounseling sessionsareconductedwiththoseworkersnotfollowinginlinewithspecifiedorganizationaldisciplineor meetingwiththeskilllevel.Gapsforthetraineesareidentifiedandintensivetrainingisprovidedtothosefoundlagging.
Employeeengagemento Thereareseveralopeninformalchannelsofcommunicationbetweenthemanagementandemployees,withthe
Chairman&FactoryHeadsdevotingsignificanttimetopersonalinteractionswithshopfloor employees.o Inaddition,theyadoptanopen-doorpolicywherebyeverymanagerdedicates1hourdailytoaddressemployee
grievances.o TheywerethefirstcompanyintheIndiantextileindustrytoadoptqualitycirclesin1985,wherebyvoluntary
groupsofemployeesdevelopsolutionstoprevalentchallengesandsuggestimprovements.Thishasincreasedcollaborationandemployeeengagementwiththebusiness.
TheVardhmanGroupbecameIndia'sfirsttextilecompanytobeawardedICO9002/ISO14002certification.Managementenjoysstrongrelationswiththeworkforce,andtheyhavehadnosignificantincidentsofindustrialunrestforthepast30years.
|HumanAssetStrategiesinManufacturing Sector|33
SonaKoyoSteeringSystemslimited(SKSSL)is theflagshipcompanyoftheSonaGroup.TheyarecurrentlythelargestmanufacturersofsteeringsystemsforpassengercarsandutilityvehiclesinIndia,withapp.Rs.1200Crturnover. Theyhaveemployeestrengthofapp. 1600permanentstaff andapp. 1945non-permanentstaff(whichincludesfacilitymanagement,security,horticultureetc.)attheirsix plantsinGurgaon,Dharuhera,ChennaiandSanand,withanin-houseunion.
KeydifferentiatingHRpractices Training&skilldevelopment
o Theyhaveawell-structuredsix-weekinductionprogramforMTs,GETsandDETswherenewhiresareintegratedintheworkenvironmentquickly,visitalldepartments,and,afterinduction,areassignedimprovementprojects.Newlyinductedtraineeshavetopresentlearningandfindingstotheseniormanagementofthecompany.
o Theyhaveacomprehensivethree-weekinductionprogramfornon-permanentworkers,thatissupplementedbyongoingtechnicaltrainingandskillbuildingprogramforexistingshopfloorworkers/operators intheirnewstateofartDoJo,or skill-basedtrainingcentre.
o Theyhaveencompassingtrainingforsenior&middlemanagementemployeesonTQM,TPMandBreakthroughManagement.
o Theyparticipateandsendtheirmiddle&seniormanagementemployeestotheCIIledVisionaryLeadersforManufacturingProgram(VLFM).
o Theyprovidetrainingtotheirsuppliersandtheiremployeesunderoneroofwheretheyfollow uniqueconceptslikeDoandDemonstrate,learnapplyandlearnontheshopfloorthroughVSME(VisionarySmallMediumEnterprises)Programme.
o TheycontributetobuildingskillsatthecommunitylevelthroughtheadoptionofanITIatNagina– whichalsoservesasasourceoftalentforthemandtheirsupplierbase.
Talentmanagemento Theyhavearobustprocessofrecruitmentwheretheyusecompetencybasedrecruitmentsprocess
(Technical/Behavioural),preparecustomizedindividualcompetencyreportandlookatjob-personcompatibilityusingpsychometrictools.
o Theyhaveastrongfocusonsuccessionandcareerplanning.Theyusedevelopmentcentresasatechniqueforidentificationofhighpotentialcandidatesandpreparetheirindividualdevelopmentplan.Thishelpstheorganizationinpreparehumanresourcesforthefuture.
o Theyhaveastrongprocessofassessingtheperformanceofallfunctionalareas.Thisprocessisdevelopedonthebasisof“HOSHINKANRI”.
o Theyrunaleadershipdevelopmentprogram-“DRIVERSOFTOMORROW”-foraselectgroupofhigh-potentialcandidateswherethesecandidatesgothroughExecutiveCoachingprogrammefor18months
Employeeengagemento Theystressrespecttoindividualsandequalityascoretenetsoftheirculture.Thisisreflectedintheirpractices,
withopenworkspacesandcommoncanteensanduniformsforallemployeesrangingfromnon-permanentworkforcetothetopmanagement,andarticulatedthroughthe“SONAPARIVAR”concept.
o Theyconduct“QUALITYVISITS”,inwhichMD,Dy.MDandCEOs visitaparticularfunctionalareaon ayearlyscheduleandthemembers ofthatfunction/departmentpresenttheperformance,highlightsandimprovementsandbreakthroughsachieved.
o Theyrunanannualengagementsurveyforallemployees– includingnon-permanentworkers-andhavetargetedactionplanstoaddresskeyareasoffocuscomingoutofthesurvey.
o Theyhaveaformalprogramtorecognizeandrewardemployees,suchastheSonaValueChampionAward.o TheirTQM,TPAandKaizenpracticesencouragegroupproblemsolvingandcollaboration.o Theyhaveseveralformalandinformal communicationchannelsacrosslevels,includingthe“Employee
Connect” initiative.The“SAMBODHAN”initiative,aprogrammeadministeredbytheMD,CEOandUnitHeadforallemployees,outlinesindustrytrends,businessperformanceandcompanystrategy.Thereisaweeklymeetingbetweenemployeesandsupervisorstodiscusstacticalissuesandgrievances.
o Theyrunaseriesofextra-curricularactivitiestokeepemployeesinvolvedandenthusiasticaboutwork,suchastheSonaSingingSensationCompetition,SonaPremierLeague(Cricket),TableTennisCompetitionsandmanymoresuchengagementinitiatives.
o Throughtheir FamilyConnectprogramme employeesreceivetrainingonparentingskillscareer
|HumanAssetStrategiesinManufacturing Sector|34
counselingforchildrenetc.o Theyextendbenefitssuchasloansforavarietyofreasons (forexamplefamilyfunctions or vehicle purchase)
andprovideaccidentcoveragetofamiliesofemployeesaswell.o Theycirculateamonthlynewslettertoallemployees,animportantpartoftheircommunicationstrategy,to
keepallemployeesaligned.o TheyhavestructuredmeetingswiththeunionrepresentativeswheretheCEO,UnitHeadandHRHeaddiscuss
concernandgrievances.o Theyhavesuccessfullyinitiatedaprogramme throughwhichoperatorsareencouragedtojointhesupervisory
grade.Manyoperatorshavestartedconvertingtothesupervisorygrade. ContractLabour
o Contractlabourwagesarehigherthantheindustryaverage,andaresupplementedbysignificantperformance-linkedincentivesandotherbenefitssuchasMediclaimcover,uniforms,canteensandshoes
o TheyhavewelldefinedpoliciesforContractorManagementandContractLabourmanagement,withclearguidelines ontheengagementprocessofoutsourcedmanpowerandhowtooptimizethelifecycleofcontractualemployees throughtransparentpoliciesandprocedures.
o Theyhaveastrongauditprocesswhichchecks adherencetothe aforementionedpolicies.o Theycategorizetheircontractlabourbaseduponskillandexperience,andhaveinitiatedaclearprocessfor
absorptionofnon-permanentlabourintopermanentroles.
SonaKoyoisrecognizedasaleadingemployerwithintheirindustryandregion,andhaslowerattritionlevelsthantheirpeers.TheyhavebeenwidelyrecognizedfortheirTQMpractices,includingbeingawardedtheprestigiousDemingPrize.Theyhavestrongrelationshipswiththeiremployeesandunion,andhavenotseenasinglecase oflabourunrestinthepast25years.
|HumanAssetStrategiesinManufacturing Sector|35
Appendix
Aself-evaluationtoolforassessinganorganization’shumanassetmanagementtier– asdescribedinthereport– isprovidedinthefollowingpages. Thistoolisbaseduponourinterviewswithmanufacturingenterprisesandidentifiesthepracticestypicallyprevalentatdifferenttiersaroundvariousaspectsofhumanassetmanagement.Organizationsmayselectresponsesthatmostcloselyresembletheircurrentstatus.
Note:Itispossiblethatresponsesforanorganizationlie beacrossdifferenttiers.Forexample,anorganizationmayrank intier4onperformancemanagementpracticesandin tier3inregardsto engagementwithlabourunions. Insuchcases,organizationsmaywishtoevaluatetheirorganisation oneachaspectseparatelyandusetheirjudgmentwhenitcomesto ascribing themselvesan overallrating.
Self-EvaluationToolforHumanAssetManagementTier
Tier1 Tier2 Tier3 Tier4 Tier5
Ensuringbasicavailabilityoflowcost
labour
Drivingproductivityofexistingworkforce
Buildingskilledworkforce
Maximizingworkforcepotential
HolisticHAapproach
Wagesandbenefitsforpermanentlabour
Howwouldyoudescribeyourwagelevelsforblue
collarpermanentemployees?
Wepaystate-prescribedminimumwages
Wepaycompetitivewagesforourregion
Wepaywagesonpar/indexedwithindustryleaders
Howwouldyoudescribethelevelofbenefits
(monetaryand otherwise)providedtoyourblue-
collarpermanentemployees?
WeprovideallstatutorybenefitslikeESI,PFetc.,asprescribedbylaw
Inadditiontostatutorybenefits,wealsoprovidesomeadditionalbenefitslikesubsidizedcanteenandtransport
Weprovideadditionalbenefitssuchashousingetc.onparwithindustryleaders
Non-permanentlabour
management
Howwouldyoudescribethenatureofusageofnon-permanentlabouratyour
workplace?
Weusenon-permanentlabourextensivelyontheshop-floor,onbothcore-relatedandnon-coreactivities
Weusenon-permanentlabourmostlyinnon-corejobsandfollowaveryrigidpolicyonuseincore-relatedjobsdrivenbycyclicaland/orseasonalneed
Wemaintainavoluntarycaponproportionofnon-permanentlabour,besidesarigidpolicyforuseonlyinnon-coreactivities
Howwouldyoudescribeyourwagelevelsfornon-permanent labourincore
activities?
Wepaystate-prescribedminimumwages
Wepayminimumwagesandperformance-linkedincentives
Wepaywagesindexedtoentry-levelpermanentlabourperformingsimilarroles
Thereisrelativeparityinwageswithpermanentworkersinsimilarrolesandofsimilartenure
Wefollow"equalpayforequalwork"
Howwouldyoudescribethelevelofbenefits
(monetary&otherwise)providedtonon-
permanentlabour?
WeprovideallstatutorybenefitslikeESI,PFetc.,asprescribedbylaw
Inadditiontostatutorybenefits,wealsoprovideadditional benefitslikesubsidizedcanteen,housing,transport,medicalcoveretc.
Weprovideallbenefitsandtrainingonparwiththoseprovidedtopermanentlabour
Whatareyourpoliciesforselectionofcontractors?
Wehaveaninformalecosystemoflocalcontractors
Wehavewell-definedandformalselectioncriteriaforcontractors
Whatlevelofoversightdoyouhaveonyourcontractors?
Werelyoncontractorstodisbursepaymentstotheirworkersengagedwithus
Weprovidesomeoversightoncontractors’disbursalofpaymentstotheirworkersengagedwithus
Weconductperiodicinternalauditofcontractordisbursalsofwages&benefits,inadditiontoensuringourpresenceatwagedisbursals
Wefollowarigorousprocessofcontractoroversightbyalsoconductingthird-partycomplianceauditsofourcontractors
Whatistheleveloftrainingandskill
developmentimpartedtonon-permanentworkers?
Notraining Weconductbasicneeds-
basedtrainingprograms
Weconductsomeongoingjob-specifictraining&inductionprogramsincore-relatedroles
Weconductstructured,mandatorytraining&skilldevelopmentprogramsincore-relatedroles,onparwithpermanentemployees
Tier1 Tier2 Tier3 Tier4 Tier5
Ensuringbasicavailabilityoflowcost
labour
Drivingproductivityofexistingworkforce
Buildingskilledworkforce
Maximizingworkforcepotential
HolisticHAapproach
Isthereapolicyforabsorptionofnon-
permanentlabourintopermanentroles?
Thereisnopolicytoabsorbnon-permanentlabour Non-permanentlabour
absorbedonanad-hocbasisdictatedbybusinessneed
Clearlydefinedandcommunicatedprocessandcriteriaforabsorptionofnon-permanentlabour
Howwouldyoudescribeyourmeansandchannelsforengagingwithnon-permanentlabour?
Noorlimiteddirectengagementefforts;engagementdriventhroughcontractor
Wehavedirectformalandinformallinesofcommunicationwithnon-permanentworkers
Weinvolveournon-permanentlabourinourongoingemployeeengagementefforts(surveys,activitiesetc.)
Talentacquisition
Whatarethekeyfeaturesofyourrecruitment
process?
Ourprocessisgearedprimarilytowardsensuringsteadyavailability
Weconductrelevantbackgroundchecks&abasicassessmentprocess
Wehaveasstructuredrecruitmentprocessandclearhiringcriteriaforeachrole
Wehavearigorousmulti-steprecruitmentprocess(interviews,testsetc.)thattestsfortechnicalqualification,aptitudeandskillsas definedforeachrole.Wealsoencourageemployeereferralschemesforhiringnewtalent
Doyouensurediversityinyourtalentacquisitionprogramandifyes,how?
Wedonothaveatargetedprogramtoensurediversityofworkforce(regional,gender,qualificationetc.)
Whilewehavesomegenderdiversitywithinourworkforce,itisnotpartofastructuredeffort
Weensurebasicgender&geographicdiversityandwehaveinnovativesourcesoftalentlikeBA,BCom,BScetc.gradsapartfromITIS,DETs& GETs
Inadditiontohiringpeoplewithabroadrangeofqualifications,wehaveclearlydefinedtargetsandprogramstoensurearoundadequaterepresentationforwomen,backwardclasses,differentlyabledetc.andhavebuiltsystemsandprocesstoattract,trainandretainthem
Performancemanagementpractices
HowwouldyoudescribeyourPerformance
ManagementSystem(promotions&other
incentives)?
WehavenoformalPMSinplace
WefollowabasicPMSwithtenurebasedpromotionandsomeproductionorperformancelinkedincentives
WehaveastructuredandformalPMSwithclearlydefinedcriteriaforeachrole,regularfeedbackandevaluationmechanismsandperformancelinkedincentives
WehavearobustPMSsystemthat,inadditiontoensuringtransparentandregularreviews,alsooutlinesclearly-definedcareerpathsfromentry-levelshop-floortosupervisoryandofficerroles.Incentivesandadvancementaretiedtoskillandperformanceinadditiontotenure
Training&skill
development
Howwouldyoudescribeyourjob-specific/coretrainingandinduction
programs?
Weconductverylittleformaltraining
Wehavebasicjob-specifictraining&inductionprograms
Wehavestructuredinduction,training&skilldevelopmentinitiativesfocusedonskill-buildingandprocessmanagement
Wehavejobrotation&multi-skillingprogramsforouremployees
Wehaveholistictrainingincorporatingtechnicalskill,leadership skills,processmanagement,andothercognitiveskills.
Inadditiontojobrotation&multi-skilling,wehavecustomizedtrainingplans&PDinitiativesforouremployees andreimburseforrelevantexternaltrainingandeducation
Inadditionaltostronginternaltraining,weareinvolvedinskillbuildingacrosstheecosystem(consulting forvendors,trainingdealersetc.) andweactivelycontributetoindustry-wideskill-building&employability(adoptionofITIS,trainingprogramsetc.)
Tier1 Tier2 Tier3 Tier4 Tier5
Ensuringbasicavailabilityoflowcost
labour
Drivingproductivityofexistingworkforce
Buildingskilledworkforce
Maximizingworkforcepotential
HolisticHAapproach
Engagementwithlabourunion(s)
Howwouldyoudescribeyourlevelofengagement
withlabourunions?
Weprefernottoworkwithunions
Wehaveaclearpolicy forrecognitionofunions
Wehaveawell-functioningunionwithaclearandtransparentelectionprocess
Wehave clearlydefinedandwell- functioningprocessesinplacetoengagewithunionsonwagesettlementsandgrievances
Wehaveaclearlydefinedandcomprehensiveengagementmodelwithunionsandongoingandfrequentcommunication
Unionsarealsoengagedindiscussionson workingconditions
Weprovideongoingtrainingforourunionleadersaroundtheirroleandrelevantregulations
Ourunionsaretruepartnersandareinvolvedintripartitediscussionsaroundallkeystrategicandlong-termdecisionsthatwemake
EmployeeEngagement
&workculture
Whatpracticesdoyouadopttodriveemployee
engagement?
Wehavenoformalemployeeengagementefforts
Weorganizebasic employeeengagementactivities(clubs,eventsetc.) focusedonpermanentlabour
WehavesometargetedCSRinitiatives
Wehaveawell-definedemployeeengagementmodeltomonitorandinflectemployeesatisfactionthroughsurveysandtargetedprograms
WehaveaformalCSRprogramandagenda
Ourengagementeffortsextendbeyondourpermanentworkforcetoincludenon-permanentworkers,employeefamilies andourlocalcommunities
OverallHRStrategy
HowalignedaredifferenttypesandlevelsofemployeesinyourorganizationtoyouroverallHAstrategy?
WedonothaveaformalHAstrategy
SeniorleadershipisclearaboutexpectationsfromHA,butitisnotdocumentedorcommunicatedtothebroaderorganization
ThereissomeformalHAstrategythatisdocumentedandunderstoodbyleadersacrosstheorganization
Thereisaclearlydefined,documentedandcommunicatedHAstrategythatisalignedtothevision,cultureandstrategyoftheorganization.Thisstrategyisunderstoodbyallmanagers
OurHAstrategyisunderstood– andcanbearticulatedby– everyoneintheorganization,andisreflectedintheobjectivesandKPIsofallemployees
OverallRating
Basedonyouranswerstothequestionsabove,whattierdoyoubelieveyourorganizationbelongsto?
Tier1 Tier2 Tier3 Tier4 Tier5
AboutBain&Company,Inc.
Bain&Company,foundedin1973inBoston,isaleadingbusinessconsultingfirmwithofficesaroundtheworld.Ithelpsmanagementteamsandboardsmakethe bigdecisions:onstrategy,operations,mergers&acquisitions,technologyandorganization.Bainconsultantshaveworkedwithover4,600majorfirmsacrosseverysectorglobally.Bainconsultantsmeasuretheirsuccessintermsoftheirclients'financial results,focusingon“results,notreports”.ItsclientshistoricallyhaveoutperformedtheStandard&Poor’s500industrialindexby4:1.
InIndia,Bainhasservedclientssince1995andformallyopeneditsconsultingofficein2006inGurgaonnearNew Delhiandin2009inMumbai.ItisoneofthefastestgrowingofficeswithintheBainsystemof48officesacross31countries.Bain’sconsultingpracticeinIndiahasworkedwithclientsincludinglargeIndiancorporates,MNCsandprivateequityfirms.Bainconsultantshaveworkedwithclientsinover30industriesincludinginfrastructure,technology,telecom,financialservices,healthcareandconsumerproducts.Theirprojectexperienceincludesgrowthstrategy,M&A/duediligence,post-mergerintegration,organizationalredesign,marketentryandperformanceimprovement.Bain’srobustanalytictoolkitandfact-basedapproachenablesittodeliverinnovativeandpragmaticstrategiesthatcreatevalue.
BainIndiaisalsohometotheBainCapabilityCenter(BCC)setupin2004inGurgaon.TheBCCsupportsBaincaseteamsacrosstheglobetodevelopresults-drivenstrategies,includingcriticalindustryanalysisandcompetitivebenchmarking.
Bainstronglybelievesinsupportingthewidercommunity.ThefirmformedBainPrayastoleadcommunityinitiatives,someofwhicharecollaboratingwithNGOssuchasPrathamandUmeedtopromotechildeducation,probonoconsultingservicestoNGOslikeCRYandprobonoworkwithDasra,astrategicphilanthropyfoundation.Bainhasalsopublishedwidely-readIndiaPhilanthropyreportsin2010,2011&2012.
Bainhasbeenrecentlyawardedthetitleof“Bestfirmtoworkfor”byConsultingmagazineforthe10thconsecutiveyear.
www.bain.com
Acknowledgments
ThisstudyhasbeenconductedbyajointteamofthePlanningCommissionandBain&Company.ThekeymembersoftheBainteamareSrivatsanRajan,PartnerandDirector;JoydeepBhattacharya,Partner;AlkaBhagat,CaseTeamLeader;MihirSampat,CaseTeamLeaderandPRakesh,AssociateConsultant.ThePlanningCommissionteammembersareArjunNohwar,AnandSeth,RahulGarg,ShrutiMehrotraandAbhinavPatwa.TheteamworkedundertheguidanceofMr.ArunMaira,MemberPlanningCommission,GovernmentofIndia.
WearegratefultoCIIwhichextensivelysupportedthisstudy,especiallyDr.SurinderKapur,ChairmanofCIINationalCommitteeonIndustrialRelations,whoenrichedthisstudywithhisdeepinsightsandperspective.WedeeplyappreciatetheeffortsofMs.IndraniKar,Mr.VineetBhardwajandtheirmanycolleaguesatCIIacrossthecountrywhowereinstrumentalinfacilitatingtheprimaryresearchforthestudy.
Theteamwouldliketothankallthecompanies,executives,employeesandunionmembersandthemanygovernmentofficials,andexpertswhogenerouslysharedtheirperspectivewithus. WewouldliketothankAxelSeemann,PartnerBain&Company,forhisexpertiseandinputsontheGermanycaseexample.
KeyContactsatBain&Company,India
SrivatsanRajan(PartnerandDirector,BainIndia):srivatsan.rajan@bain.com
JoydeepBhattacharya (Partner,BainIndia):joydeep.bhattacharya@bain.com
KamilZaheer(SeniorManager,Editorial&Marketing):kamil.zaheer@bain.com
NewDelhiOffice MumbaiOffice
5thFloor,Building8,TowerA TheCapital,13th FloorDLFCyberCity,PhaseII BWing,1301,PlotNo.C70,GBlockGurgaon,Haryana,122002 BandraKurlaComplex,Mumbai400051India IndiaTel:+911244541800 Tel:+912266289600Fax:+911244541805 Fax:+912266289699www.bain.com www.bain.com