Human Asset Strategies in Manufacturing Sector

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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.

|HumanAssetStrategiesinManufacturing Sector|1

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


Contents

BackgroundandContext......................................................................................................3

ExecutiveSummary................................................................................................................7

DetailedFindings.....................................................................................................................8

Germany’sexample ............................................................................................................. 26

WayForward.......................................................................................................................... 28

SelectCaseStudies............................................................................................................... 29

Appendix .................................................................................................................................. 35


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


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


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.


Anoverviewofselectedenterprisesintermsofindustrialzones,sectors,revenueandemployeebaseisprovidedinExhibit1below:

Exhibit1:Profileofstudyparticipants

Bain&Company isgratefultoallparticipantsinthisstudyforsharingtheirtime,expertiseanddataoverthecourseofthepastfewmonths.TheteamisveryappreciativeoftheCIIfortirelesslyfacilitatingtheseinteractionsandprovidinginputandguidanceoverthecourseofthisstudy.

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>60STAKEHOLDERINTERVIEWS

COVERING23COMPANIESACROSSSECTORS&INDUSTRIALZONES

4industrialzones,multiplestakeholders,sectorsandprofiles


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.


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.


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.)


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


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


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)


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.


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

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1 2 3

Hig

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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


(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


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.


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


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


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.


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.


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


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.


Simplification,clarificationandenhancedenforcementofexistingregulatoryframework: Severalstakeholderscommentedontheneedforsimplification,standardizationandclarificationofexistinglabourlawsandregulations.Theperceptionisthatlawspasseddecadesago withoutsunsetclauses, suchastheIndustrialDisputesActortheApprenticeshipAct,needtobesimplifiedandtheirexemptionsclearlyoutlinediftheyaretobeuniversallyunderstoodandapplied.Additionally,existingprovisionsinlaws– suchasthat requiringworkersperformingthesamekindofworktobepaidatthe samerate,whethertheyareemployedbycontractorsordirectlyemployedbyaprincipalemployer- shouldbeenforceddiligentlyandresponsibly.

These4scenariosaremeanttorepresentplausible picturesofthefutureratherthanbepredictiveinnature.Assuch,they areaimedatprovidingacontextforthemulti-stakeholderengagementandcollaborativeprocessrequiredtodrivebetterHAoutcomes.Weresuchacollaborativeprocesstooccur,thisinturnwouldbeacriticalelementforimprovingthemanufacturingsector’scompetitiveness.


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


Similarstridesarebeingmadebyemployersandunionstodriveparitybetweenpermanentandtemporarylabour. Volkswagenhasimplementedpoliciesthatincludeequalpayforequalwork,widespreadtrainingprovision,andasemi-mandatorycapontherecruitmentoftemporaryworkers.AndinSeptember2010nationalmetallabourersunionIGMetallachievedacollectivebargainingbreakthroughwhen equalpayfortemporarylabour inthesteelindustrywaslaiddowninanindustry-wideagreement.

AnotherfeatureoftheGermanlaboursystemistheaggregatednatureofitscollectivebargaining. Insteadofmultipleunionsandindividualagreementsbetweenanemployerandtheirrepresentativeemployeeunions,oneofeightindustryunionsandasinglecollectivegroup ofemployersfromthatindustryagreeonwagesettlements.Thisstreamliningensuresthatwagelevelsareconsistentacrosscompetitorswithinanindustry(withallowancesforregionalvariations)andcompetitionisonthebasisofnon-labour-cost-related factors, suchasproductivityandquality.


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.


SelectCaseStudies

Inthestudy,theteamcameacrossseveralcompaniesthatviewtheirhumanassetsasanappreciatingresourceandhaveadoptedmeasurestoengageanddeveloptheirworkforce.Thisreportconcludeswith representativecasestudiesofinterviewedcompanies,outliningtheirHAstrategy,approachandpractices.Inadditiontothesecompanies,manyother companiesparticipating inthisstudydemonstratesimilarlyprogressiveapproachestohumanassetmanagement.

Theteamisgratefultothesecompaniesforsharing theirpracticesforthebenefitofallstakeholders.


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.


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.


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.


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


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.


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



labour




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.)



labour




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?


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):[email protected]

JoydeepBhattacharya (Partner,BainIndia):[email protected]

KamilZaheer(SeniorManager,Editorial&Marketing):[email protected]

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

Human Asset Strategies in Manufacturing Sector

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