• IPC 2017

The Changing face of Entrepreneurship and Performance Management in India

By GovernanceToday
In Cover Story
July 26, 2017
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Entrepreneurship has since time immemorial been embedded in the Indian genius and is a part of its tradition and its society had the entrepreneurial skill but suppressed it for too long a time, but now it is thriving.  The entrepreneurial spirit is an ongoing characteristic of India’s history, particularly visible in a number of communities engaged primarily in trading.  Traditionally, the Entrepreneurship of such communities is facilitated principally by the successful use of informal ‘entrepreneurial ecosystems’ and interdependent business networks.  Further, there is also a rich tradition within the Indian Diaspora, spanning the past several hundred years, whose spirit of enterprise is legion.  Entrepreneurship in India occurs in ‘far more encompassing and far reaching ways than in developed countries’, and could therefore be far more complex, ‘for there is so much more that needs to be done’.

Experts today celebrate the ubiquitous Indian attitude of ‘Jugaad’ (a Hindi word roughly translated as ‘creative improvisation—a tool to somehow find a solution based on a refusal to accept defeat, and calling on initiative, quick thinking, cunning and resolve to quickly fulfill market demands at the lowest possible prices’ as an entrepreneurial trait that has been as much a part of everyday Indian living as its rich tradition of philosophy and speculation.  The salience of Entrepreneurship in India has intensified in recent times, particularly with the rise in knowledge-intensive services. New entrepreneurs who do not belong to traditional business communities have begun to emerge in large numbers. Entrepreneurship has grown rapidly, visibly so, creating wealth and generating employment, especially in the past twenty years. Crucial efforts initiated after economic liberalization — including systematic attempts to reduce the ‘licence raj’, greater efforts to make finance more easily accessible to entrepreneurs and other institutional support to ‘techno-preneurs’ — have helped improve the climate for Entrepreneurship.

Recent surveys, such as those undertaken by Goldman Sachs and Pricewaterhouse Coopers, have estimated that India has the potential to be among the world’s leading economies by 2050. Further, India’s economy can potentially gain significantly from the country’s characteristic features — a democratic open society, a strong technology base (with capacity for leapfrogging), unparalleled diversity, vibrant capital markets (including growing private equity and venture capital markets), an increasingly youthful population (50 percent of India is 25 years and younger), a sizeable market of a large number of customers with vast unmet needs as well as an environment of full and free competition in the private sector.

In this situation, India enjoys enormous potential for the creation of wealth through knowledge. Entrepreneurship, skill Upgradation and Innovation are the key drivers for generating wealth from knowledge, supported principally by the availability of skilled human resources, access to finance and the ability of the State to create an enabling environment.

 Indians have opened up to ‘Entrepreneurship’ taking it as a challenge

A sizeable portion of the Indian middle-class has moved beyond the sense of security of having a 9 to 5 job. Many a parent no longer discourage their child to experiment with a venture because they, themselves, have made the future a bit more financially secure for their children than their own parents could manage to in the 70s & 80s. Young Indians today means Millennial are confident of competing with the best.

The top performing FGCs have been from IT, Pharmaceuticals, Infrastructure, Real Estate, Power transmission & Agribusiness. Indian companies gained a foothold in the western market on the cusp of the 21 century.

But the power of entrepreneurship in India has been unleashed by the liberalization process and even if the pace of reforms is slow, entrepreneurs will find a way to move ahead. As experts list four key reasons for the increased influence of first generation companies in the post-liberalization era: Technology has substantially reduced the costs associated with niche marketing; stock markets have become more efficient and transparent and made it easier for entrepreneurs to access money; the costs of starting up an enterprise have fallen because of access to angel investors and venture capitalists; and Indians have opened up to entrepreneurship.

Pointing out that entrepreneurs are important in any economy because they create employment, generate new ideas and implement new techniques in management functions, Observers of the industries note: “Over time, entrepreneurs will increasingly contribute to India’s GDP and also have a greater impact on the socioeconomic fabric of the nation.”

Moreover, in India, the post-liberalization and globalization era has brought with it a growing middle class – roughly estimated to be 267 million in 2016.  According to NCAER, India’s middle class population would be further ahead, by 2025-26 the number of middle class households in India is likely to more than double from the 2015-16 levels to 113.8 million households or 547 million individuals and rising disposable incomes. This presents a huge potential, which if tapped can be a veritable gold mine. Entrepreneurs can make the best of this by catering to various demands of this segment. India, with its abundant supply of talent in IT, management, and R&D, has become the hot bed of outsourcing of services from all parts of the globe where companies can reduce their costs, but not their quality.

The charge of the Infrastructure, Real Estate & Power transmission FGCs

This is very much in line with the thrust areas of the Indian government over the last two decades. The government has pushed for the projects in infrastructure, be it roads, rail connectivity, setting up of SEZs, rural electrification, power transmission, rural industrialization etc. Migration into urban areas has enticed a slew of entrepreneurs into real estate. Increasing disposable incomes of the middle class have contributed to investments in real estate to a great extent. Entrepreneurs have been quick to seize these opportunities.

The differing ‘new economy’ entrepreneurs

Today’s ‘new economy ‘entrepreneurs and their ventures differ from the ‘old economy’ entrepreneurs and their businesses in several respects. If asset heavy manufacturing and conventional service businesses characterized by incremental improvements in technology defined the old economy, asset light, online based new service ventures characterized by rapidly changing technology represent the new economy. In place of family based management teams, the co-founders of the new ventures are ‘merit’ based, bringing in specific complimentary skills. Often, the founding team can be traced to the college dorm where you can assess both competence and compatibility. The skill set required for such ventures are domain   and execution-under-pressure, skills.
New generation entrepreneurs do not build ventures for life-long association.  They are reconciled to winding up when the funding dries up and to exiting from their own venture for business and personal reasons.  The worth of the conventional businesses was based on hard assets, the worth of new age ventures is based on intangible valuation which cannot be mortgaged but can be bartered for equity capital.
Till recently, business operated on the ‘cost plus margin’ business model. This suited manufacturing and trading companies with owned assets generating steady growth that is fundable by customer revenues and bank borrowings. Today’s ventures have innovative business models with radically different pricing strategies for products or services being offered. Business is funded by raising risk capital based on projections of ‘hockey stick’ product/service growth, while piling up huge losses. Such business model innovations aim to jack up volumes to a level that will ensure business viability at scale in the shortest time possible.

Need to build India’s Skill Development Ecosystem

The skill ecosystem today is struggling to make skill aspirational as vocational education carries a negative perception vis-a-vis formal education. To make skill aspirational, the Ministry of Skill Development and Entrepreneurship initiated Pradhan Mantri Kaushal Kendras in select districts in 2016. The Budget proposal this fiscal to extend this programme to more than 600 districts across the country would act as a catalyst in transforming India as the skill capital of the world through focus on competency based training, quality and sustainability.

The India International Skills Centres will serve as a medium for youth seeking global mobility including those from the demographically advantageous states of Bihar, UP, Jharkhand, Rajasthan etc. The availability of skill infrastructure plays a critical role in making available market relevant quality skill programme, enhancing institutional mechanisms for skill development and providing an increased access to quality training to the prospective workforce. The Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) at a cost of Rs. 4000 crores will provide industry relevant training to 3.5 crore youth and address the issue of shortage of skilled manpower for accelerated growth in the manufacturing sector. The Skill Strengthening for Industrial Value Enhancement (STRIVE) project to be launched in 2017-18 at a cost of Rs. 2,200 crores, as announced in the budget, will go a long way in improving the quality and market relevance of vocational training provided in ITIs and strengthening the apprenticeship programmes through the industry cluster approach. This would also be a step towards dual training system where the small industry would participate in the training programme.

The Sub-Group of Chief Ministers on Skill Development (2015), while recommending strengthening the skill ecosystem had also emphasised on skilling the vulnerable so that they too can participate in the growth process. The budget also emphasises on skilling rural youth and women who constitute a significant proportion of the total population. The allocations under Deendayal Antyodaya Yojana – National Rural Livelihood Mission for promotion of skill development and livelihood opportunities for people in rural areas has been increased  from Rs.3000 crores in RE 2016-17 to Rs.4,500 crores in 2017-18, an increase of 33 percent. Masonry training to 5 lakh persons in rural areas by 2022, with an immediate target of training at least 20,000 persons by 2017-18 will enable the rural youth to participate in rural infrastructure projects and empower them with a sense of ownership.  The provision  of credit linked subsidy will help qualified local entrepreneurs to set-up 1000 mini soil testing labs which will improve access of soil testing facility to farmers and thereby improve the yield and help achieve the broader objective of doubling the farmers income. The setting-up of Mahila Shakti Kendras in 14 lakh ICDS Anganwadi Centres with an allocation of Rs.500 crore to impart a holistic package covering skills, digital literacy, health, nutrition etc. will enhance the employability of rural women and improve the labour force participation rates.

As part of the digital literacy campaign, the proposed DigiGaon initiative wherein telemedicine, education and skills will be delivered through the digital platform in rural areas, will improve access to the skill programme and enhance the employability. The increased allocation for Bharatnet from Rs.6000 crore in RE 2016-17 to Rs.10000 crore in BE 2017-18 will improve the broadband connectivity in rural India through Optical Fibre Cable (OFC) and also  facilitate creation of  more jobs in rural areas.

To foster a conducive environment for doing business and enable higher productivity, the central labour laws will be simplified, rationalised and amalgamated into four Codes (i) wages; (ii) industrial relations; (iii) social security and welfare; (iv) safety and working conditions. This is a significant step in encouraging many small firms to come into the fold of the formal sector and to ensure enforcement of simplified labour laws. The enactment of the Model Shops and Establishment Bill 2016 that has been circulated to all States is bound to create more jobs in the retail sector. The amendment to Section 6 of the Payment of Wages Act, 1936, which provides for employers to pay the workers’ wages through cheques or deposit into their accounts would help to keep track of the wages and social security benefits paid to workers.

Special focus has been laid on the labour intensive sectors for generating employment opportunities. The scheme for creating employment in the leather and footwear industries along the lines of the Textile Sector will facilitate creation of job opportunities for youth and the unemployed. The launch of the Incredible India 2.0 Campaign across the world will promote tourism and employment. In the MSME sector, the income tax rate of small enterprises with an annual turnover upto Rs. 50 crore has been reduced to 25 percent. This will help in promoting small businesses and thereby generate more employment in these enterprises. The enhanced allocation for Modified Special Incentive Package Scheme (M-SIPS) and Electronics Development Fund (EDF) from Rs.50 crores in RE 2016-17 to Rs.745 crores in BE 2017-18 would not only make India a global hub for electronics manufacturing, but would also generate employment and make India self-sufficient in the electronics good production.  .

Importance of performance management system in startups

While in the initial years, startup companies mostly focus on their product, service, and finance; they tend to ignore the criticality of having a performance management system in place. The phase of defining goals in startup companies can be a flexible one, in the sense that employees may adjust in accordance with changes in organizational priorities and be comfortable in pursuing multi-tasking activities when the situation demands.

Performance management process is important in startups because a clearly marked appraisal and management process ensures that the small multi-tasking team keeps in line with the defined direction and provides increased focus for performance. Also, a well-documented performance data will be very useful for continual tracking of employee progress and to review the ongoing achievement.

As performance management identifies three categories that can measure innovation; product, financial and subjective measures, there is one missing, informal measures.

Organizations gain a competitive advantage through creativity that produces innovative products, services, or output. Customers don’t buy ideas; they buy a product. Flourishing creative ideas produce innovation. Informal measures, such as Organization Network Analysis, provide an objective, systems view of how and where employees share information. Specifically, it can identify who is naturally interacting regarding innovation.

Innovation across multiple locations

Include informal measures with the other three measures. Innovation can be measured based on the output, performance, and the competitive advantage of the organization. But employees work best when they can share ideas openly and not just work individually. Performance management traditionally measures individual performance. It ignores how others support them to be creative and productive. Identifying how people resources affect the overall financial health of the company will influence other measures such as retention, engagement and productivity. So there is a need to include how employee interaction and interdependencies affect financial measures. Subjective measures are inherent since performance feedback is usually provided by the manager and their view is included in the feedback.

For effective performance feedback: add informal measures to know where innovation is naturally occurring and create more opportunities for competitive advantages.

But now, the intelligence of computing machines is adequate to perform work that requires specialized knowledge or cognitive and judgement-based abilities — in short, things that “only human beings can do”.  As a new research examines the impact of 12 technologies (including the mobile internet, cloud computing, the automation of knowledge work, digital payments, verifiable digital identity and the Internet of Things) and concludes that, indeed, the application of these technologies will force millions of workers to acquire new skills, as the jobs they perform are rendered obsolete.

Yet, rapid advancements in the same technologies will create new opportunities for millions of workers, including many less-skilled ones, and help them raise their incomes.

Globally, the automation of knowledge work, or machine learning and intelligent applications, can generate a 40 to 50 percent productivity gain in work that involves processing data and information, interacting with customers or making decisions.

In India, it was estimated that automation and digitization across sectors could drive productivity improvements equivalent to the output of some 19 million to 29 million workers in 2025 (five to eight per cent of India’s non-farm labour force).

These workers cut across functions such as clerical and customer service, business process outsourcing and information technology, as well as those in manufacturing supply chains, the construction sector and workers engaged in retail trade and transportation.

The overall impact on net job creation could, however, be neutral to positive as technology opens new geographical markets and under-served segments of consumers. But the labour market will adjust to fill potential jobs only if workers are equipped to shift to the more value-added work.

Way Ahead

India has enjoyed a good year and the country could expect to continue with its positive growth, largely unaffected by the global economic slowdown, due to the continued influx of foreign direct investment under the government’s ‘Make in India’ campaign.

Manufacturing output has already increased, with new orders coming from overseas firms seeking to utilise India’s vast resources and labour pool. More foreign companies are also investing in India’s fast-expanding infrastructure and renewable energy sector. Thus the country could expect this investment to increase as electricity demand in the city rises and as the government prepares to streamline the country’s tax processes.

As the entrepreneurship has gained greater significance at global level under changing economic scenario, the global economy in general and Indian economy in particular is poised for accelerated growth driven by entrepreneurship. The environment of super mall culture in India, it finds plenty of scope for entrepreneurship in trading and manufacturing. The entrepreneurs need not to involve anything new from a global or even national perspective, but rather the adoption of new forms of business organizations, new technologies and new enterprises producing goods not previously available at a location.

This is why entrepreneurship is considered to be a prime mover in development and why nations, regions and communities that actively promote entrepreneurship development, demonstrate much higher growth rates and consequently higher levels of development than nations, regions and communities whose institutions, politics and culture hinder entrepreneurship. An entrepreneurial economy, whether on the national, regional or community level, differs significantly from a non-entrepreneurial economy in many respects, not only by its economic structure and its economic vigorousness, but also by the social vitality and quality of life which it offers with a consequent attractiveness to people.

The Organizations will face some of the trends such as—speed and uncertainty will prevail, technology is likely to continue to disrupt and enable, demographics will dictate much of what happens in business and work will be done anywhere, anytime  in the next decade as they flight to survive, grow and remain competitive.

 

 

 

 

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