India's declining management capability and the need for urgent reform

India’s management deficit is one of the key reasons for the country’s inability to push its GDP growth rate closer to double digits.

By Rekha Sethi

The All India Management Association (AIMA) and KPMG in India have produced the 7th Management Capability Development Index (MCDI) for India, and the study has yielded some surprising revelations.

The management capability score of India has declined since the previous survey in 2022, despite the country being the fastest-growing large economy and Indians being the most optimistic people in the world. In fact, the score has dropped by 8.3% since 2011 to 69.7%.

The study measures India's management capability in diverse areas, including performance, financial and people leadership, organisational capacity, technology adoption, innovation, external engagement, etc. The latest MCDI reveals a significant deficit in India’s management capacity, even a regression from the previous levels. Although the candid acknowledgement of their shortcomings by India's management leaders indicates their willingness to improve.

While some of the drop in self-rating by India’s management leaders can be explained by rising aspirations, the admission of shortfalls in management capability across the board is a concern. At a consolidated score of 69.7 out of the ideal 100 across various criteria, Indian management needs deep introspection and fundamental reimagination.

India’s management deficit is one of the key reasons for the country’s inability to push its GDP growth rate closer to double digits. The Indian economy has reached a critical mass that allows it to grow at twice the global rate of economic growth, but India needs its economy to expand at twice the present rate to become a rich and refined country. While the availability of capital is no longer a constraint on India’s growth, the country requires much greater management efficiency and creativity to make the best use of the natural, financial, technological, and human resources available to it.

The MCDI reveals a self-assessment that is somewhat contrary to casual perception and even paradoxical in some ways. At a time of sweeping digital transformation in the country and growing excitement about tech-centric innovation, India’s management leaders are short of confidence in their innovation and adaptability capacity, whereas they are fairly satisfied with vision, strategic leadership, integrity, governance, and results focus in their organisations. The score for Indian management’s innovation and adaptability is now 10% below where it was in 2011.

Another surprising area where Indian management rates itself lower than before is financial leadership. In fact, this is the first time in a decade and a half that the score on financial leadership has fallen below 70%.

People leadership and organisational capability have been persistent pain points for India’s management leaders. Since 2011, the rating on people leadership is at its lowest point—66.4 out of a perfect 100. The organisational capability score has dipped to its 2016 level of 67.4.

While the MCDI report reveals the deficiencies in India’s management capacity, it offers helpful suggestions to fix the weaknesses of Indian management.

The report advises India’s management leaders to not just buy digital technologies but to invest in developing innovative applications. It stresses the integration of digital strategy with business strategy and the use of technology to not only become more efficient but also to become more trustworthy, responsible, and competitive. The report encourages Indian management leaders to allow and enable employees to experiment and create in their roles so that the organisational culture can evolve from one of following orders to initiating innovations.

To address the persistent people problem, the report suggests fostering a culture of treating people as assets and not just costs, and making emotional intelligence a requirement among the managers and leaders. It calls for future-proofing employees through continuous training and looking after their well-being to boost performance and loyalty.

The report warns that if Indian organisations do not keep up with the changing ways of work and redefine the talent value proposition, they will continue losing the best Indian talent to more appreciative and flexible global organisations. Offering a fulfilling experience at the workplace is needed to attract and retain top talent, the report points out.

To fix the financial leadership issues, the MCDI report advises aligning financial and organisational strategies. It calls for balancing financial and impact goals to grow responsibly and strengthening risk management to deal with uncertainty and disruptions.

The new MCDI report has come at a time of great turbulence in the business environment, and its revelations must make India’s leaders focus on building management competence and competitiveness that are fit for the times. The report is an emphatic reminder that India’s leaders must build capacity to harness disruptions for growth. The MCDI study’s message is quite blunt: holding on to previously effective approaches will fail leaders and organisations in the new environment, and past habits may even impede preparations for the future.

The ongoing churn in technology and trade has presented India with a once-in-an-era opportunity for extraordinary growth, but converting the potential into performance requires a major upgrade of Indian management. The self-ratings of 65%-75% on the key management capability metrics are more an indicator of a malaise than just a case of unusual modesty.

The MCDI report has once again shown the mirror to Indian management, and now it is up to the leaders to up their game and align better with the requirements of the opportunities and challenges of the present and the future. Having a vision is easy; having the capacity to make things happen counts.

(Rekha Sethi-Director general AIMA.)

Views are personal and do not represent the stand of this publication.