"Every time I read Lester Thurow, I am reminded of the grim fate of manufacturing industries and the bright future of brainpower businesses. To survive in the knowledge economy of tomorrow, organisations have to feed on ideas. Ideas come from people in the organisation. But, unless you create a culture that can breed innovation, you cannot keep pace with change. I have not come across a single idea from my managers that has startled me. What they have suggested has, often, disturbed me. They are still influenced by the strategic paradigms of the past; they have no feel for the future. I have tried to stimulate minds by sending my senior managers to the best B-schools for short courses on strategic vision. They have come back refreshed, but they have not been able to galvanise the organisation. I wonder if I will be able to infuse my organisation with a new ethos if I set up a training-centre. My workers need to retool their skills, my middle managers need to handle people better, and my senior managers need to re-invent our business models. But my entrepreneurial mind is averse to investments during a recession where the pay-offs are not immediate" Neelkant Rao, the 55-year-old CEO of Sankalp Electricals, was in two minds even as he tried to create a new future for his organisation. Mastek's Ashank Desai and Arvind Mills' Ganesh Shermon debate the CEO's dilemma. A BT Case Study.

Excerpts from a self-review by N. Rao, CEO, Sankalp Electricals Ltd

October 7, 1997

Something interesting cropped up at our weekly Management Committee meeting this morning. It had, in fact, been added to our discussions at the behest of our President (HRD), S.L. Suryanarayanan. The issue was simple: should we set up a dedicated training-centre with state-of-the-art technology on our premises? Or should we continue to depend on external resources and facilities for our training-programmes? Most large companies in the country, I understand, are grappling with this dilemma. I have a personal interest in the matter because I have always valued training, and, consciously, assigned great weightage to the development of our human resources.

Our discussion was tentative and inconclusive. Understandably, Suryanarayanan was keen that SEL should establish its own training-centre. Our President (Finance), Santosh Khurana, played the role of a bean-counter, sounding the note of caution. He was keen on examining the financial implications in detail. There were arguments and counter-arguments; the cost of setting up such a centre and the pay-offs were hotly debated. While it is, of course, necessary to evaluate any proposal on the basis of its Return On Investment (ROI), I think that there is a need to adopt a holistic view about training, where the pay-offs are not tangible. But I have an open mind on the issue

October 8, 1997

How do you evaluate the benefits of a training-programme? I draw a blank with most of my fellow CEOs whenever I talk to them about it. There are, clearly, no tried-and-tested methods of evaluating the pay-offs from training. This is particularly true of development training-programmes, which our senior managers often attend for exposure to strategy. The impact is neither immediate nor measurable. But it is, indeed, possible to ascertain the benefits of a programme which is skill-based, function-specific, and, hence, sharply-focused. For instance, if a field salesman attends a course on merchandising, an improvement in the merchandising index for the territory he controls would be a yardstick to measure the benefits of that course. In fact, we have already done some work in this regard on dealer-training

October 9, 1997

Like most of its contemporaries, SEL began as a trader. We used to import electrical goods in 1965, and sell them through commission-agents at a profit of about 20-25 per cent. That phase, in fact, laid the foundation of a distribution network which, we believe, is our strength today. SEL boasts of a 4,000-strong dealer network--the second-largest in the electrical industry. In 1968, we set up a manufacturing facility in Mumbai for assembling ceiling-fans and low horse-power motors. By the early 1980s, SEL had 5 plants all over the country, making transformers, switchgears, lighting equipment, and electrical accessories. We continued to expand over the years, and, today, we have 8 plants in 6 locations in the country, manufacturing 30 generic products, which are both exported and sold locally.

We went in for a new business structure 3 years ago, when we regrouped all our divisions into 4 Strategic Business Units (SBUs): Power Systems (transformers, switchgears, and projects), Industrial Systems (motors, alternators, and signalling and transportation equipment), Digital Systems (industrial electronics and informatics), and Consumer Products (fans, lighting-accessories, and appliances). We have also decentralised hrd, R&D, and Finance to the SBU-levels; they are represented at the corporate office by the core teams, each of which is headed by a president

October 10, 1997

Suryanarayanan was giving me some statistics about what two of our competitors have done about training. The Rs 1,800-crore Thirtha Enterprises--which has the largest marketshare of 21 per cent in the electrical equipment industry--has set up a dedicated training-centre, with a Rs 10-crore investment in real estate, buildings, and related infrastructure. Located on a sprawling 12,000-square foot-plot near the company's corporate headquarters in Chennai, it has a modern auditorium, employs 9 full-time trainers, and has a regular visiting faculty. It has earmarked an annual budget of Rs 8 crore for training its 11,200 employees; it spends Rs 5 lakh on each new management trainee in his first year.

My other prime competitor, the Rs 1,100-crore Omkar Appliances, inaugurated its Rs 4-crore HRD Centre in Mumbai last year. Built on 3 acres of land near the company's plant at Thane, with beautifully-landscaped residences, it conducts residential training-programmes. It can house 56 guests, and has a well-equipped auditorium, a conference-room, a library, and a computer lab. It trained 1,300 people last year through as many as 16 programmes.

While Thirtha Enterprises ensures that each of its employees spends 2.50 per cent of his working-days every year on training, Omkar Appliances' 1,500 managers spend 5,500 man-days on training every year. Apparently, the company spends 1.50 per cent of its wage-bill on training, and aims to push it up to 5 per cent by 2000. We were looking at some of our own figures. Each of our 10,000 employees spends about 3 per cent of his time on training--which works out to 9 days per annum--and the aim is to take it to 5 per cent per annum by 2002. Our annual outgo on training is in the region of Rs 9 crore which, on a turnover of Rs 1,500 crore, works out to less than 1 per cent of our sales. My objective is to double the outlay in the next 2 years.

SEL has several different types of training-programmes. We even have induction-programmes for freshers. Targeted at about 50 engineering and management graduates, whom we recruit directly from the campuses every year, it lasts for over 10 months. In fact, this is the only full-fledged in-house programme we have. Then, we have supervisory-development programmes, where experienced engineers are trained in communication-skills and team-building. We also have management development programmes for the junior- and middle-management cadres in addition to core management programmes for our senior managers. And, finally, there is the much-coveted Business Leadership Programme, which is targeted at potential profit-centre heads. About 30 managers have attended this 18-month programme so far, and our aim is to build a critical mass of 200 business leaders by 2002. In addition, there are a number of programmes that cut across the hierarchy; some of them are conducted specially for each SBU. All this proves that training is as serious a business for us as it is for our rivals.

October 11, 1997

There are 2 other parameters which reinforce our commitment to training. We have already initiated Human Resources Accounting, which placed the value of our human resources at Rs 820 crore last year. Human resources constitute an important raw material for any strategy. We should, therefore, regularly monitor our people-skills so as to upgrade them whenever necessary. This cannot be done in a vacuum. You need a yardstick, and Human Resources Accounting provides one. Once you ascribe a value to your human resources, it gives you control over the situation. It helps you achieve continuous improvements in manpower-quality, and utilise your people better. Human Resources Accounting was actually a sequel to our attempts at benchmarking SEL's hrd practices with the market-leader, Thirtha Enterprises, which had used HRD as a vehicle for its turnaround years ago. Incidentally, it too provides the value of its human resources in every annual report to its shareholders.

Now, there are various ways of ascertaining the value of your human resources. Our approach has been tried-and-tested in several companies--including Thirtha Enterprises. Accordingly, we have defined their value as "the value of current wages payable to employees for the remaining years of their tenure with the company." That was the fundamental parameter. Of course, we excluded several categories from the exercise--trainees, apprentices, casual, and contractual labour--because they were not on our regular pay-roll.

We introduced a pilot mechanism to evaluate our training-programmes as well. Although it is confined to dealer-training, we will, hopefully, extend it across the organisation once we have fine-tuned the methodology. The programme emerged out of the realisation that a salesman's biggest fear is the closing of a transaction. So, we decided to train all the salesmen at our dealerships in the art of closing deals. We also decided to evaluate the benefits of training in strictly monetary terms. We used the conventional market research method of having a control group and a non-control group.

As part of the first evaluation exercise in February, 1994, we chose 40 salesmen for the control group based on our training-requirements. We tracked down their commissions over a 6-month period. We then chose, at random, 40 salesmen for the non-control group. We tracked down their commissions too for the same period. Post-training, we kept track of the commissions earned by both groups for 6 months. The trained group increased its earnings by an average of Rs 2 lakh per annum per salesman while the untrained group increased its earnings by Rs 75,000. On every investment of Rs 1 lakh for the training programme, SEL's sales had gone up by Rs 2.50 crore. We could now boast of an ROI of 250:1. Evidently, the programme had paid off. It is, of course, not possible to conduct such an evaluation for every kind of training. That is the biggest downside to investing in executive education.

October 12, 1997

I see my goals quite differently. I hate to subscribe to the conventional emphasis on top- and bottom-line growth. The CEO, as I underlined in my lecture at the Chennai Management Association last week, is the de facto Chief Personnel Officer of a company. Most organisations today, particularly in our business, are knowledge-intensive--not asset-intensive. To manage the intangible assets, you have to organise people well so that you can utilise them in any part of the organisation, and in any aspect of the strategy. There is a global war for professional and technical talent in the electrical equipment industry. Assets like financial capital, plant, and equipment are available in plenty; outstanding leadership-skills and managerial expertise are scarce. An organisation should be able to motivate, attract, and retain performers. You have to constantly aim at cornering a disproportionate share of the outstanding talent in your industry. That calls for a different type of organisation, which is both entrepreneurial and empowered. That is the kind of institution I want to build at SEL. I know I will face problems. I also know that training is crucial to achieving my goals.

October 13, 1997

Post-liberalisation, India has spawned an external training industry which, according to the estimates made by the Indian Society For Training & Development--a professional body of trainers--has a turnover of Rs 2,500 crore per annum. Companies are faced with an array of programmes spread over a variety of locations, durations, and prices. How do we choose what is best for our company? That is the crucial question. Even the best course will do no good unless it is tailored to our specific needs. We should choose only such training-programmes that fit with SEL's business strategy.

Our business goals should translate into annual plans, which generate project ideas; once you know who is going to work on those projects, their training-needs can be easily identified and fulfilled. It is essential to use training as part of a well thought-out programme. Do we want educational programmes that increase a person's general knowledge, such as courses on the business environment and the law? Do we want developmental courses that prepare people for future roles as leaders? Or do we desire courses that impart specific skills in inventory-control and financial management? Most courses do not come cheap; so, it is important to evaluate what an organisation needs. Here are 4 things we could do:

Identify where the organisation is going, and what skills it needs to get there. For example, if the company is moving into a high-growth phase, we would need people trained in risk-taking and change-management.

Look at what roles various individuals play in that process. Those identified as potential leaders, for instance, would benefit from leadership or general management programmes as well as courses that hone their skills in infotech and marketing.

Mesh them with individual training needs, which can be ascertained through appraisals or feedback. An individual's perception of what training he needs is, often, different from what an organisation thinks.

A cascading model of learning could be a big help. Whoever attends a course is required to conduct it subsequently for his subordinates. This way, the person directly internalises the learning, and it is also cost-effective. Suryanarayanan tells me that this is what Xerox Corp. does worldwide.

October 14, 1997

The issue of a training-centre came up again at our Management Committee meeting today. V.M. Jagannathan, our President (Works), argued that setting up a dedicated training-centre runs contrary to the spirit of outsourcing, which is part of our mission statement. It clearly says that we will focus only on value-added activities, and offload those that are not part of our core business to agencies which, in our view, have the required competence to do it for us. Which is why we have reduced a number of our activities in the last couple of years. Not only has this helped us get a grip on our core business, it has allowed us to reduce our operational costs by at least 10 per cent. And it has also enabled us to develop a set of reliable Tier-1 suppliers--2 for each material or service--in tune with the organisation's tqm philosophy.

Jagannathan had a valid point when he said that, in most companies, even support functions, like hrd, are outsourcing a number of their activities: security, canteen-facilities, recruitment, and compensation. Almost every human resources activity, he said, should be offloaded in a competitive environment. So, why should we buck the normal trend? Why should we add to our costs? Suryanarayanan replied that if cost-cutting was the criterion, there was everything to be said in favour of having our own training-centre.

An in-house centre is cost-effective because a large number of people can get the same exposure for the cost incurred on one individual. He said, for instance, that an individual residential programme at an Indian Institutes of Management (IIM) could cost Rs 25,000 a week while the same quality of training could be imparted to a larger number of people by inviting the faculty to lecture at our premises. While travel and accommodation-costs could add up to Rs 6,000 per day per head in the case of external training, the expenses could be minimised to Rs 500 per day at an in-house training-centre. Suryanarayanan referred, in particular, to the Business Leadership Programme, which was customised for SEL at a cost of Rs 8 lakh. A similar programme at an IIM campus would cost thrice that amount, he said. A valid point; I almost agreed to the idea of setting up our own training-centre.

October 15, 1997

There were some other points that were raised at the meeting yesterday. "We should conduct a management development programme, which talks of the company's vision," said Himanshu Roy, President (Power Systems). "Since the vision is unique to each company, it cannot be formulated elsewhere. The culture of the company and its values cannot be experienced by sending people to external programmes, where they deliberate on issues as part of a disparate group of individuals coming from different backgrounds." He also said that a dedicated training-centre allowed a company to tailor programmes to the needs of the company and of the individual rather than be straightjacketed by what is available. Roy suggested that we could regularly change the modules to suit our needs, and could develop customised programmes to suit each of our SBUs.

But Satyajit Chatterjee, President (Digital Systems), still felt that building a separate centre was not the right approach. "It makes you lose focus; you become inflexible since you have to work within the given infrastructure at the centre," he said. But the strongest argument against a dedicated training-centre came, surprisingly, from Vatsala Suraj, President (Consumer Products). She said that people tend to vest all the responsibility for training with a dedicated centre, and wash their hands off the obligation of training their subordinates, which is an integral part of their day-to-day roles. "Corporate values like delegation, mentoring, and empowerment will all take the back-seat at the individual level. And that is a serious risk," she said. I was again in two minds: should we or shouldn't we?

October 17, 1997

Suryanarayanan was saying yesterday that the training-centre could well be turned into a profit-centre. We could sub-let the facilities in order to ensure full occupancy, he said. I wondered whether HRD should run a business in its own right, or concentrate on its core function of developing people. That is the most important function of a training-centre. Ambience is also an important aspect of training. Unfortunately, none of my managers brought it up during our discussions. Employees should not only interact during training-sessions, but also after the programmes. We should take people away from their daily stress to an environment that rejuvenates them. When people are relaxed, they are in a better learning mode, more receptive, less distracted, closer to nature Finally, the centre should be a benchmark for training in the industry. That is the goal we must pursue single-mindedly if and when we decide to set up our own training-centre.

Should SEL set up its own training-centre? Should it have only in-house faculty? Or external teachers too? Should it be part of the corporate headquarters or located on the outskirts of the city? Should it be pursued as a profit-centre? Could commercial considerations dilute the focus of the training-school? When almost all HRD activities are being outsourced, why should training remain an in-house activity? Will the CEO, Neelkant Rao, be able to set a benchmark for training in the industry? Can he turn his company into a learning organisation where knowledge-gathering systems are institutionalised?

SOLUTION A    SOLUTION B

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