America has an anti-free-trade populist in the White House. Without rethinking how its companies face the world, India will find it extraordinarily difficult to argue that it creates value, that it isn’t simply consigning the American middle class to penury while elevating its own masses from abject poverty. India can only do so by going from being the home of the back office of the world to being a leader in front office activities.
By doing so, it will also address a deeper problem. India has been at the forefront of, and benefitted significantly from, the digital revolution – and yet, it has been unable to seize an appropriate share of the benefits that could have accrued. In the language of strategy academics, India created value, but couldn’t capture value. This failure lies squarely at the feet of Indian executives, as does the power to fix the problem. But they have to work fast.
This is a “tough love” indictment of Indian executives. If they want to change, they must start with two major mindset changes.
The first mindset change that is long overdue is dropping the idea that India is bottom-of-the-pyramid and only worth doing business with because it’s cheap. When I was an executive, whenever I asked a salesperson from an Indian company why my company should give it our business, the kneejerk answer was: “Because we’re the cheapest”. Any effort I made to move the conversation to competence, creativity and brilliance, were met with quick references to CMM Level 5 or ISO certifications, before they moved the conversation back to the safe harbor of cost savings. Many Indian executives I meet still voice this perspective – even in 2016 – 20 years after India first started becoming the back office of the world! Absent a change in mindset, it is easy to use buzzwords about the benefits of outsourcing, but hard to deliver cogent arguments why it may make sense.
The same mindset has permeated other fields of business too. I shake my head ruefully every time Google feeds me the “Make in India” advertisements. They remind this jaded American of Indian origin of Oliver Twist begging, “Please sir, can I have some more? (Whatever you gave China?)” Question: Why don’t the advertisements say, “Design in India” … and yes, “make in India”? Are Indian companies not capable of doing the high-value-added tasks of conceptualization and design?
This mindset keeps India from truly understanding the world it has created: It’s not about outsourcing. Outsourcing is merely a side-effect of the actual change, which can be summarized in two short sentences.
First, digital technologies enable – and may even require – work to be distributed over time and across space. This fact allows different streams of intellectual property to be created and recombined in ways not possible before. Second, digital technologies enable – and may even require – work to be increasingly intellectual. This fact is capable of shifting power from one company to another. If these two insights were applied throughout the Indian IT industry, India could become a true front office of the world … not just in the limited sense of multinationals making major investments in India.
Here are two examples that illustrate the point.
1] In a previous life, as the founder and leader of a CXO-focused strategy consulting team at a major IT analyst company, I was advising the CEO of an American reverse supply chain company that supported the auto industry. I urged him to go beyond his contracts and focus on analyzing the data the reverse supply chain generated. I argued that he would find that his firm now had knowledge that his clients not only didn’t have, but in fact couldn’t have – unless they pulled in the entire reverse supply chain in-house. In relatively short order, his people found that they could predict failure rates of automobile components. He offered this knowledge to his customers for a price, opening up a new line of business. The American companies – before their reorganizations during the recession – demanded he hand over the knowledge for free. He refused: they did own the data, but not the knowledge. The Japanese companies instantly saw the value he was offering. His company became a trusted partner that created knowledge. His core product handling services couldn’t be put up for bid without immediate loss of access to this knowledge. A back office cost center became a front-office contributor to R&D.
2] A couple of years later, an Indian serial entrepreneur invited me to become an advisor to a new outsourcing company. It would handle a huge amount of data for its Western customers. I urged him to start building capabilities ground up so it could do what my US client had done. I wasn’t able to convince him, or any of his partners, that right from the start, the company needed to create a path out of, “You should work with us because we are cheaper” to “You need us because we can create great value”. They disinvited me from the advisory board before they even formalized their original offer.
A transformation of the way Indian execs perceive their country’s business role will be hard enough, but it won’t happen unless concomitantly, a second fundamental mindset change takes place. Even now, Indian companies are largely hierarchical; the importance of saying, “Sir” or “Madam” to a superior seems programmed into corporate cultures. This behavior is antithetical to the second observation above: in today’s world, knowledge work holds sway and digital technology is its midwife. When work becomes intellectual, it moves out of sight and effort becomes discretionary. If someone doesn’t contribute an idea, her manager wouldn’t even know that she had held back. Research shows that intellectual work gets done more effectively and well when communication paths are flat than when everyday behavior magnifies hierarchical differences.
Change can come to India, quickly. After all, in the social strata that has easy, continuous access to the world via the Internet, it would be hard to distinguish between a young American and a young Indian if we compared their attitudes, behaviors, and actions, rather than their looks or accents. The real question is whether senior executives who oversee India’s IT boom can lead the needed change: the unavoidable reality is that most of them – like most grey haired executives in America – aren’t Netizens themselves. I’m cautiously hopeful, but if they can’t, there’s still reason to pin hopes on the Netizens who will rise to power in short order. However, this latter hope would have to be augmented by one which is beyond India’s control: that the US doesn’t follow through with its anti-free trade rhetoric.
Amit Mukherjee is Professor of Leadership and Strategy at IMD business school in Singapore.