Employees Are Key in Emerging Markets

When I meet other executives here in Shanghai, both through work and socially, we talk about similar challenges. Most of us have moved here to set up operations for multinational companies or to help drive them into their next growth trajectory.
So what do they worry about?

Recruiting and retaining talent is high on the list, but mostly they fret about sustaining operations on “auto mode” so that they can focus on growth. I looked into this and found that these companies had made significant investments in rolling out proven systems and processes that should have helped standardize and stabilize operations. So how come companies that have a massive presence in other parts of the world and run very sophisticated business operations in those countries but end up struggling with relatively smaller projects in China?

The insight that I got from all my discussions is that the real problem stems from a fundamental issue. We call it the “Jim and Bob theory.” Jim is any employee that has spent over five years in your company – he has a better view of the larger organization, is well networked within the company, feels empowered to make decisions when faced with hurdles, and often is the kind of person who is responsible for continuous improvement. Let’s call everyone else “Bob.” If you look at the ratio of Jims in your home market they are likely to comprise up to 40 percent of the work force, assuming your company is headquartered in a developed economy. This ratio is more likely to be lower than 10 percent in emerging economies. Why? Operations in these countries have been around for fewer years compared to home markets and are growing at a higher growth rate. Higher churn reduces the tenure rate, thus resulting in a majority of employees who have been with your company for less than 5 years – that is, your Bobs.

Because the Jim ratio is low, a number of things that worked smoothly in our home market do not work nearly as well in the emerging market or stop working altogether. The explanation? Mentoring is not as effective; too few Jims are teaching the new hires; institutional knowledge has not yet become common sense; fewer people are available to effectively troubleshoot problems; systems that seem to work well elsewhere receive too many complaints; compliance is low and so on.

I feel that studying successful companies that originated in emerging economies can provide some useful tips on how your operating model has to change to factor in this shift in personnel makeup. They have always have had to deal with higher growth trajectories, relatively high attrition, and consequently lower Jim ratios. I think these companies would have intuitively developed systems and processes that allow them to operate and scale in a similar environment.