Doing business: The importance of culture

In the next three to five years, a study of actual investment trends will probably be the most reliable proof of how influential the Ease of Doing Business reforms have been

The much-awaited annual DIPP World Bank Ease of Doing Business rankings largely followed predictable trends from the previous two years, with some shuffling of places among the states. Andhra Pradesh and Telangana retained the first two spots, Haryana and Jharkhand improved their rankings by three spots each, finishing third and fourth respectively, in the process pushing Gujarat, Chhattisgarh and MP down two places each to fifth, sixth and seventh from third, fourth and fifth last time around.

What is more material however, is the hair’s breadth that separates them, with the top seven states all scoring above 97 per cent, and the top 18 above 80 per cent. By contrast, in 2015, only seven states had a score of above 50 per cent — and for a much more rudimentary set of reforms. Clearly, we have come a long way. 

The considerable effort in the last one year is bound to buttress India's ranking further, which last year improved 30 places to finish at 100th.  Notwithstanding the impressive strides made over the last three years, we still have miles to go. Systemic changes and single-window clearances are necessary but far from sufficient. Of the Brics nations, only Brazil is behind us — Russia at 35, China at 78 and South Africa at 82 are some distance ahead. Even Bhutan is 25 ranks ahead of India at 75! The next edition of the World Bank EoDB ranking in November will tell.

An interesting first this year, in methodology terms, was the feedback element. Of the 372 action points for which the states were evaluated, 294 were objective, data-driven, purely based on hard evidence of reform implementation. In evaluating the remaining 78, 50 per cent weight was given to feedback sought from five key sets of stakeholders — new businesses that had applied for pre-establishment and pre-operations licenses, existing businesses, architects who applied for building plan approvals or occupancy certificates, lawyers and electrical contractors who applied for electrical connections. The use of qualitative factors such as perceptions of the stakeholders in the evaluation methodology is a paradigm shift and provides the real proof of the pudding.

The final score was a combination of the scores for reform evidence and feedback, with the latter carrying roughly around 11 per cent weight. Even the 11 per cent is making an eye-popping difference. The overall top nine rankers are also among the top nine in feedback scores, but with much lower scores. West Bengal, which ranked 10th overall, has a reform evidence score of 99.46 per cent but a feedback score of 53.69 per cent. Odisha is more skewed at 97.83 per cent and 39.2 per cent respectively. Assam is even further along with a reform score of 92.41 per cent and feedback score of 17.21 per cent. Others have fared even worse. If the feedback scores are much lower than evidence scores, the reforms are not yet felt on the ground by the people for whom they are meant in the first place. 

In the last three years, the Union government’s strategy of attracting foreign investment has used EoDB as a major plank and has several impressive milestones to show for it too. However, corporate history is littered with tragic tales of those who paid little heed to Peter Drucker’s famous words, “Culture eats strategy for breakfast”. The example of New United Motor Manufacturing Inc, a much-studied, one-time JV between GM and Toyota, is among the most educative.

A severely underperforming GM plant was turned around in the1980s not by strategy interventions but through a fundamental organisational cultural shift brought in by Toyota — the same old workers changed the way they saw the company and their role in it. The direct fallout of the change in culture was higher productivity, better quality, and positive morale. In just a year, Fremont went from being GM’s worst plant to becoming its best. The big change this time was the working on culture followed by strategy, as strategy is downstream from culture. 

Single window as a concept is itself a manifestation of the feudal maai-baap mind-set that bureaucrats continue to hold on to — signifying a need for businesses to queue up outside. That the ease of doing business reforms which India currently is in the throes of, is a necessary but not sufficient condition is not lost on anyone — least of all on the most affected party,  industry. Even when frantically turning the wheels of change, governments tend to be inside-out in their approach. We rarely, if ever, actively seek out and listen to the stakeholders.

We will have to use modern-day tools such as sentiment analysis to gauge what industry feels and what needs to be fixed, and then work on changing our attitudes and work culture to become the service-provider that government was always meant to be. And for that we will need to change our way of behaving, feeling, thinking and believing. In the next three to five years, a study of actual investment trends will probably be the most reliable proof of how influential the EoDB reforms have been. 

  The writer is Principal Secretary, Government of Chhattisgarh. These views are his own