Retrenching is Part of an HR Man’s Lot

For 12 years, Richard Payne has been consulting with firms in the
Asia-Pacific to establish competitive pay-practices, design compensation
policies and streamline compensation and administration. He is the author of
numerous articles and books such as "The Asian Expatriate: Strategies for
recruitment, training and re-entry". He spoke to DATAQUEST about the
current challenges faced by HR professionals in the IT industry. Excerpts:

Have the challenges that HR managers face changed due to the economic
downturn?

The challenges have not changed, but the context has. You have to control
costs aggressively while also at the same time deal with market pressures where
you have limited flexibility.

Now that ESOPs have lost their charm, what steps are companies taking?

The problem arises when there is a variance in the
market.Then one is forced to maintain one’s best people with whatever limited
money is available. Retrenching employees is a part of the job for a HR manager.

Would the approach taken by HR professionals in the US
towards retrenchment be different from their counterparts in Europe and Asia?

Yes. In Asia where by and large there are no safety nets, HR
professionals are more sensitive to the issue of retrenchment. You can retrench
someone in a country like Singapore where there though there is no safety net
you can more or less be sure that a particular individual will be able to find a
job soon.

So, is there a definite relationship between the
sensitivity of a HR manager and his geographical location?

That’s right. Besides geography, sensitivity also depends
upon the nature of the industry. Even in India, one would behave very
differently while dealing with software professionals and a person employed in
an old manufacturing firm.

You have been a consultant at firms in this region for
quite some time. Do you notice any paradigm shift in the firm’s needs in the
past few years?

Organizations have definitely become more sophisticated in
terms of what they are asking for. It’s also related to implementing more
modern systems. In the past, there were lot of issues like seniority-based pay
which has been replaced by variable pay which is more common these days.

What is your opinion of the Just-in-Time recruitment that
many firms especially in the IT sector have gone in for?

I think that’s a reflection of the current economic
situation. It seems that some companies expect students to be equipped to face
the job from day one. I kind of question the ability of B-schools to train
students to be on the job right away.

Has the 360-degree method of appraisal become common in
the Indian software industry?

Yes certainly. The way in which they have done it is to
enable individuals to do it in a very confidential manner and without suspicion
or worry about confidentiality. In India, they are much ahead of the game.

Does it make sense to import US-centric management and HR
principles to countries like India?

I would like to start off by disputing the value of importing
management principles from the US. A lot of the stuff developed in the US has
not been effective at all in other regions.

We have to recognize the fact that the US is perhaps the
world’s most unique market. The cultural variance in India is 10 times more
than that in the US. The US market is thus remarkably homogenous.

Then why do people apply US-centric models?

Because its easier and market size is bigger and one can
support a kind of market methodology for it, which would otherwise be different
if I went to a smaller market like France. One has to be careful as to whether
all US-centric concepts are applicable here.

Amit Sarkar in New Delhi

PROMOTERS’ BACKGROUND:
In the absence of a track record, this is the key area that a VC investor looks
at. The background should provide the educational and professional history of
the promoters. It should highlight the contribution and strength of the
promoters and their commitment to the venture.

BUSINESS PLAN:
The plan section should indicate projections of income for the next three to
five years, ratio analysis and the proposed investment plan. It should also
provide an industry analysis, the different participants, a study of theÂ
competitors and the proposed promotion and marketing strategy.

EXIT FOR THE VC:
The final aspect that VCs look at is how they can exit from the investment. The
exit section should highlight the possible exit options for the VC, whether it
can be through a strategic sale, or through an IPO.

Choosing the right VC

Once the
homework is done, the next stage is to identify a suitable VC investor to
fund the project. While deciding on the source of capital, remember that VCs
bring more than just funds to the table. This concept of bringing along a bundle
of capabilities along with funding is called ‘smart’ money. The VC can
contribute in any of the following areas:

MANAGEMENT CAPABILITIES:
VCs can bring in management expertise, which the technocrat entrepreneur may
lack. Angel investors and other VCs can play a prominent role in taking the
start-up from conception through operation till expansion in the market. VCs can
nominate senior people on the board to provide direction or they can themselves
be involved in day to day operations–an approach called hand-holding. They can
also help investee companies to identify proper people for key positions in the
organization. Therefore, depending on the expertise required, the entrepreneur
can look for angel investors, seed capital investors or institutional investors.

MARKET ACCESS:
VCs, by their extensive networks in the industry, can help start-ups get their
initial business. Providing such initial breakthroughs can be critical for the
start-up in its struggle to gain credibility and a foothold in the market.

A

DURING IPO OR SALE:

Before deciding on the VC
investor, the entrepreneur should also decide on the nature of funding required
for the venture, whether it is seed capital, start-up capital or later-stage
funding. Seed capital is the initial funding required to validate the idea and
finance the initial feasibility studies. Start-up funding is required for
product development and initial marketing. Later-stage funding is required for
working capital finance and business expansion. As different business stages
would demand different business capabilities, the nature of the VC investment
would depend on the type of funding sought. While seed capital and start-up
funding can be obtained from angel investors, incubators and start up venture
capital funds, later stage funding can be obtained from institutional venture
funds and mutual funds.

The future is now

Several new
initiatives have been started like the India Venture 2000 and the e-mahamillionaire
project of NIIT to nurture and guide prospective entrepreneurs to obtain VC
funding. Notwithstanding the recent developments, the VC industry is in a
nascent stage in India today. With the prospect of more growth in the IT
sector, a lot more activity can be expected in the VC industry with the
availability of more investible funds. Some of the recently launched technology
mutual funds have earmarked a portion of their funds in unlisted companies,
which make them more like VC funds. All this is happy news for the entrepreneur.
Venture funds have been an engine for economic growth for over a decade in
countries like USA, Israel and Taiwan. The situation is now ripe to be
replicated in India.

Dr Thillai Rajan