HR Matters | Global Study

The Asian Firms Balancing Act

by Dr ANDrEaS RaHarSO and SENTHIL SUKUmar
some of the highest EBITD margins, with an average figure of 26.5 percent. On top of these, according to Reuters data, they both enjoy five-year earnings-per-share growth rates of over 25 percent, an indication of strong investor confidence in their future performance. As such, both Tata and Samsung are well positioned for market success over the next few years. How do these forward looking firms achieve ambidexterity? By investing and rewarding their employees for both short and long term initiatives. 82 percent of the Best Companies for Leadership use rewards or reprimands that are based on rigorous measurements of performance against goals to drive exploitation. At the same time, they promote cultures that encourage innovation by stimulating and rewarding cross-functional collaborations that lead to new business lines. The Top 20 companies are also more likely to reward employees for innovative business ideas. Unfortunately the data shows that on average, Asian firms are not as ambidextrous as their American and European counterparts; fewer than 60 percent of companies in Asia grasped the importance of an organisational strategy that balances exploitation and exploration. The immediate benefit of improved cash flow and market share may disguise the longer-term implications of a strategy that is not as forward-thinking as it should be. For example, Chinese petrochemical giant Sinopecs exploitation score outweighs its exploration score, but the worlds fifth largest company by revenue has an EBITD margin of only 6 percent. On the flipside, Indian wind power market leader Suzlon Energy has an exploration score that outstrips its exploitation score, but its commitment to innovation did nothing to stave off net losses incurred in 2010 and 2011. These numbers suggest that embracing ambidexterity is an effective way for Asian firms to future-proof, while posting strong short-term results. The key takeaway from the BCL study is that it will be the ambidextrous Asian company simultaneously exploiting present business lines and exploring future innovative concepts that builds a sustainable future. Dr Andreas Raharso is Director of the Hay Group Global R&D Centre for Strategy Execution and is based in Singapore. Senthil Sukumar is a Research and Content Strategist at Hay Groups Global R&D Centre for Strategy Execution.
HR Matters October 2013

Which businesses can maintain a steady course towards profitability in a sea of rapidly increasing market complexity and volatility? Its not an easy question to answer, but management consulting firm, Hay Group, sought out these enigmatically successful companies through its 2013 Best Companies for Leadership (BCL) study. Now in its eighth year, the annual global study of over 2,200 organisations worldwide identifies which firms have the best leadership practices, and finds out what we can learn from them. This year, Procter & Gamble (P&G) reclaimed the number one spot it last held in 2005, and takes the top spot from General Electric (GE), the Best Company for five of the past seven years. It turns out that P&G, GE and other companies ranked highly, display one standout feature: a profound ability to maintain a balance between exploration, the ability to commit to innovation and new ventures, while simultaneously exploiting existing marketing strengths to achieve business excellence. This ability of firms management to both explore and exploit, a concept known as Ambidextrous Leadership, is crucial in ensuring the long-term sustainability of firms. To validate the level of ambidexterity of participating firms, their exploration and exploitation scores, derived from employee responses, were matched against the firms EBITD (Earnings Before Interest, Taxes and Depreciation) margin. The results showed that firms that best balanced exploitation and exploration have the highest EBITD margin, while organisations that gave little attention to exploration have much lower figures. These findings unearth a telling paradox: pursuing short-term financial performance actually results in reduced profitability. To ensure long-tem financial success, businesses need to invest in long-term sustainability. The Best Companies for Leadership recognise that many of the skills once required solely for senior leadership roles high levels of emotional intelligence, commitment to continuous learning, analytical thinking are now critical at every level of the organisation, says Ruth Malloy, global managing director of Hay Groups Leadership and Talent practice. To excel in todays highly complex and competitive business environment, the Best Companies are taking deliberate steps to develop and reward these competencies to enable their organisations to achieve operational excellence today, while driving innovation for tomorrow. Closer to home, Asian conglomerates Tata and Samsung have the best exploration and exploitation scores in the study. They also have

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