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CAPABILITY & COMPETENCE ADVANCEMENT AGENDA’ (C2A2)

2011-12-02T11:00:00.004+05:30

YES, THE STRUCTURAL CAPABILITIES ARCHITECTURE GIVES A GREAT METHOD TO SLOT YOUR CAPABILITIES; BUT AT THE SAME TIME, CAPABILITIES ARE USELESS IF NOT MANAGED WELL. AND FOR THAT, I PRESENT THE CONSEQUENT CAPABILITIES ARCHITECTURE. THERE’S A STATUTORY WARNING THOUGH: THIS STUFF IS NOT FOR KIDS!IN MY PREVIOUS EDITORIAL, I HAD commented on how modern day multinational and transnational corporations should have a structured capability & competence development process in place to achieve long-term success! I also went ahead to present the C2A2 theory (Capability and Competence Advancement Agenda) – a benchmark model that transnational organisations could and should implement offthe- rack for developing capabilities and competencies. In that very editorial, had mentioned details on how the capabilities and competencies of any corporation were of various kinds, but broadly could be divided into a few types of Structural Capabilities (see pictorial representation on the right side); namely, Doorway Capabilities, Elemental Capabilities, Enrichment Capabilities, Power Leadership Capabilities (For a better understanding, refer to my strategy book, CULT, which I’ve coauthored with Arindam Chaudhuri; a faster way would be to go to a--sandeep.blogspot.com and search for the term “C2A2”; yes, the term sounds so hackneyed, but you can’t miss it I guess).

Yes, the Structural Capabilities Architecture gives a great method to slot your capabilities and competencies; but at the same time, capabilities are useless if not managed well. But then, you can’t just stand up in a board meeting and scream at your Presidents to, uh, manage the competencies better; and not at all so in transnational organisations employing thousands. Then what structure exactly should one follow to organise the people to manage structural capabilities of any organisation? For that, I present the Consequent Capabilities Architecture. There’s a statutory warning though: this stuff is not for kids, and not the least for glam-struck management students – it’s meant purely for CEOs, and that too of very large organisations.

CONSEQUENT CAPABILITIES ARCHITECTURE
Consequent Capabilities are named such because the nature of their existence is consequent to the nature of the main structural capabilities. But the most important aspect of them all, as has been mentioned above, is the fact that Structural Capabilities exist and improve or get discraded only because of Consequent Capabilities. Structural Capabilities are the display & end result of the power and efforts of Consequent Capabilities. Different types of Consequent Capabilities identify the need for Structural Capabilities, refine their efficiencies and effectiveness, remodel their alignments with overall corporate structures and processes, and finally ensure that the organization becomes the most intelligent corporate animal that responds demandingly & profitably to all that the environment has to offer.

The existence of Consequent Capabilities runs parallel to the main operational line of structural capabilities. That is, while the continuum from Doorway capabilities to Power Leadership Capabilities focuses on competitive requirements (developing, improving, sustaining, or discarding competitive leadership), Consequent Capabilities focus on development perspectives (developing, improving, sustaining or discarding Structural Capabilities leadership). Consequent Capability Units (comprising of respective managers and team members) are of four types:

LEARNING CAPABILITY UNITS (LC UNITS)
These Units are made up of teams that are associated with all the Consequent Capability Units (Transformation, Fortification and Exnovation) at all levels and have two prime responsibilities:
1. Documenting processes, structures, organizational initiatives, goals, objectives at various discernible levels of the transnational organisation.
2. Developing a sharing network that enables all levels in the organization to learn best practices, structures and initiatives of various Capability Units by initiating Consequent Capability Architecture intervention programmes aimed at educating, teaching, disseminating knowledge, information and data throughout the organisation.

LC Units play the role of historians and professors. The LC Units are repositories of information. LC Units involve themselves in organizational intervention exercises (including, but not restricted to training & development workshops, conferences, seminars, sales sessions etc) at every level to make sure that Units all across the organization share in the learning experiences from across the organization.

EXNOVATION CAPABILITY UNITS (EC UNITS)
Exnovation is literally defined as the opposite of Innovation (I wrote about Exnovation in one of my previous editorials; it’s also there in the book that I mentioned a few paragraphs above, CULT: The ultimate CEO guide to calling the shots without getting shot). Exnovation Capability Units are meant to monitor anomalies in organizational functioning and rectify them. EC Units are dedicated capability units that ensure Exnovation of aberrations to the strategic architecture and initiatives being undertaken by the organization. The primary responsibility of EC Units is to ensure that best practices and benchmarked processes are followed throughout the organisation to the tee; and those employees/structures not adhering to the predecided processes, be either reassigned/retrainedor even retrenched in case retraining does not give progress.

Recent lessons in Corporate Non- Governance (Reliant, Dynergy, Enron, Andersen, Tyco...) have ensured the rising importance of EC Units in the corporate governance functions of organizations. Internal audit teams, for example, are EC Units attempting to ensure that standard financial processes (for example, SEC guidelines, Sarbanes Oxley Act etc) are not tampered with. Presence of Exnovation Capability Units is akin to presence of anti-bodies in human bodies in more ways than one. EC Units are dynamic in nature, both in size and their project requirements.

Corporate governance Exnovation responsibility Of the top management
The compelling need for Exnovation Capability Units does not arise only from the fact that they assist in maintaining normal operations, but more so from the fact that they fall in line with urgently required corporate governance norms. It’s the responsibility of the top management to ensure that EC Units are created at every critical level or process or department, staffed with competent ‘general specialists’, allocated resources for successful functioning, provided independent authority and responsibility to undertake transparent actions, provided with access directly to top level management, and ensured transparency with Prime Stake Controllers like Shareholders, employees, regulatory bodies like SEBI, Federal Trade Commission, European Commission etc.

There is another interesting standpoint that develops once an organization has implemented the EC Units structure through all the critical levels of the organization. By the very definition, fault lines, anomalies, aberrations or deviation occurrences need to be corrected. In this case, after judicious analysis has been done to confirm the findings, the faults should be prioritized according to the damage they might continue to cause to the existence and operations of the organization. Such impending irreparable faults and their consequent damage should be immediately communicated to relevant Prime Stake Controllers

FORTIFICATION CAPABILITY UNITS (FC UNITS)
Fortification Capability Units are meant to continuously identify better processes and structures to achieve the predefined results. FC Units are capability units that ensure continuous improvements to the strategic architecture and processes being undertaken by EC Units at various levels. FC Units do not question the results to be achieved. They rather find out better methodologies of achieving the results. In traditional terms, FC Units attempt to be effective (doing the right things), while EC Units attempt to be efficient (doing things right). At each critical level of the organization, FC Units in organizations should be structurally above EC Units because FC Units dictate what optimal processes and structures should be present. EC Units ensure that the processes and strategic architecture laid out by FC Units is followed to the book.

Fortification responsibility of the top management What is the need for Fortification Capability Units in organizations when managers & executives probably know what the right processes and structures
to be followed are? The needs are a screaming many because of the following reasons:
• Managers’ vision to identify effective processes and structures is strangulated because of their stressed out focus on achieving regular targets and meeting key performance measures. They basically
do not have time to develop orientations towards designing newer and better processes and structures.
• Even if they get the time to develop more effective processes & structures, managers are myopically focused on their scope of operations without worrying about cross-structural and cross-process
effectiveness.
• Further, operational managers generally lack knowledge of using quantitative and qualitative analytical tools to calculate relative strengths and value worth of processes and structures.

Efforts of Fortification Capability Units ensure continuous focus on effectiveness of processes and structures throughout the organization. Fortification Capability Units (and to a large extent Exnovation Capability Units) also ensure that the organization retains ground level implementation sense of strategies, irrespective of how high its vision might become. The top level management retains control over practical issues of how profitable & worthwhile individual processes and businesses are through extremely well researched methods of value chain efficiency analysis (or rather, of Exnovation Capability Units) and effectiveness analysis (of Fortification Capability Units).

TRANSFORMATION CAPABILITY UNITS (TC UNITS)
In the order of hierarchy, Transformation Capability Units at each level of the organization are above the Fortification Capability Units (who in turn are above the Exnovation Units). Transformation Capability Units are meant to continuously question and re-question not only the objective orientations of various levels of the organization, but also the need for the levels themselves. For example, a Transformation Capability Unit in the manufacturing plant of an organization not only would decide what should be the manufacturing benchmarks & objectives with respect to various parameters, but also would decide whether the manufacturing plant should be allowed to continue or not. Once the TC Unit decides on the worth of continuing the complete manufacturing plant, and once the TC Unit decides on the objectives that are worthwhile for the manufacturing plant to undertake, the Fortification Capability Unit takes over to design processes by which the plant would undertake the various objectives; and the Exnovation Capability Unit takes over later to ensure that the processes so designed by the Fortification Capability Unit are adhered to perfectly.

What Lou Gerstner was to IBM, Jack Welch was to GE; Transformational catalysts beyond comparison. The early transformational initiatives of Jack and his team focused on the following strategies:
• Being in only those markets where GE could be number one or two (most importantly to counter infl ationary pressures)
• Delayering’ the organizational structures (To transfer the strategic planning function over from senior managers to direct business leaders)
• Going for quantum leaps rather than small steps (Vision orientation of dramatic improvements in financials through practicable mergers, acquisitions & divestments) The later transformational initiatives of Jack and his team focused on the following strategies:
• Improving service orientation (In 1980, 85% of GE’s revenues came from manufacturing. In 2000, 75% of $125 billion revenues came from service, entailing better profitability) •Going global (In 1987, $31.7 billion revenues came from domestic US sales, and $8.7 billion came from global markets. In 1998, $57.7 billion came from domestic US sales, while $42.8 billion came from global sales).
• Using the information technology tools to again competitive advantage (taking GE online on the net to create a boundary-less world to seamlessly connect all stakeholders)

At this time, there might be a presumption that while Exnovation Capability Units operate only at lower levels of the organisation, Transformational Capability Units operate only at the higher levels of the organisation. Not so. True, TC Units have more importance at higher levels, and EC Units have more at lower levels, but every level requires its own EC, FC, TC and LC units.

What I’ve attempted in this massively self-aggrandizing and theoretical editorial is to tell you – the CEO – that the first step to becoming a world class organisation is documenting a plan to know, maintain, develop and even destroy your capabilities and competencies. And if you had no idea how to prepare that document, like I said once before, just blindly implement what I’ve presented here – and keep sending me the royalty.

THE MOTHER OF ALL INNOVATIONS – EXNOVATION©

2011-11-04T11:01:00.008+05:30

WHY COMPANIES NEED TO MASTER THE ART OF NOT INNOVATING. IN OTHER WORDS, THE ART OF EXNOVATION – THE OPPOSITE OF INNOVATION

Good morning world. The mother of all anti-thesis theorems is here. Well, umm, it was already there since the past few years. Actually it was in 1996 when I conjured up this term called exnovation – which I defined as the opposite of innovation – and presumed that I had arrived on the global management scene; well, had not I finally created a better mousetrap? 15 years later, I see that the term exnovation is still known to almost zero individuals on this plant (‘cept me of course), and where known has taken up definitions that I never intended – and of course, nobody’s beaten their way up to my door yet. And that’s when I decided to give it one more try – define the term appropriately so that organisations realize the need to necessarily incorporate exnovation as a critical process within organisational structures.

I accept, in the present times, nothing excites corporate junkies more than the concept of innovation. Who in heavens would care about exnovation for god’s sake?! Would you wish your company to come out tops on the World’s Most Innovative Companies’ lists or would you wish to be the numero uno on the exnovation charter – in other words, the world’s topmost ‘non-innovating’ company? One doesn’t need to think too deeply to get the answer to that. Frankly, the term exnovation was perhaps doomed from its very definition.

And reasonably too. Iconic CEOs have grown in fame because of being innovative. How many CEOs would you know of in the world who are worshipped because they exnovated? The answer might surprise you. Quite a few. And to understand this dichotomy, you’d have to first understand the correct definition of exnovation.

Exnovation does not actually mean propagating a philosophy of not innovating within the organisation. Exnovation in reality means that once a process has been tested, modulated and finally super-efficiently mastered and bested within the innovative circles of any organisation, there should be a critical system that ensures that when this process is replicated across the various offices of the organisation, the process is not changed but is implemented in exactly the same manner in which it was made super-efficient; in other words, no smart alec within the organisation should be allowed to tamper with the already super-efficient process. In other words, the responsibilty of innovation should be the mandate of specialised innovation units/teams within an organisation and should ‘not’ be encouraged to each and every individual within the organisation. The logic is that not every individual is competent at innovating – yet, everybody wishes to innovate, which is what can create a doomsday scenario within any organisation. Think the case of two call centers, where credit card customers call when they wish to complain about their lost cards. Imagine one call center, where all employees are trained by exnovation managers to follow tried and tested responses and processes; imagine the other call center, where each employee is allowed independence in innovatively deciding how to respond to the calling customer’s lost card issue. Any guesses on which call center would ensure better productivity and customer satisfaction? Clearly, the one practising exnovation. And that, my dear CEOs, is the responsibility of the Exnovation units within an organisation – units staffed with managers and supervisors whose sole job it is to ensure that best practice processes and structures are followed to the tee and not tampered with within the organisation by individuals or teams without a formal mandate. Call them what you may – but any manager responsible for ensuring replication and mirror implementation of any efficient process is an exnovation manager.

And it’s a fact that CEOs and companies have thrived practising this management philosophy of exnovation. The last time this $421.85 billion- a-year topline earning company allowed each and every was much before its stock became a market-commodity on NYSE (on October 1, 1970). Till date, its “Save money. Live better” concept is based on standard processes, followed to the hilt and marginally improved over the years, to deliver maximum productivity and efficiencies. What gives this company’s operations the push? Leveraging tested economies of scale (a process that economists have discussed over decades), sourcing materials from lowprice suppliers (simply put – common sense), using a well tested satellitebased IT system for logistics (a technology that was invented in the late 1950s; today, the company’s vehicles make about 120,000 daily trips to and/or from its 135 distribution centers spread across 38 states in US alone, a count equal to the average number of vehicles that use the Lincoln Tunnel per day in New York City) and smarter financial and inventory management called ‘float’ (the firm pays suppliers in 90 days, but plans its stocks so that it gets sold within 7 days).

The company is #1 on the Fortune list: Walmart (2011; it has occupied the pole position in the Fortune 500 Rankings for the eight time in ten years!). For that matter, recall the last time you heard of an innovation from Walmart. “After I came in as CEO, I looked at the world post-9/11 and realised that over the next 10 or 20 years, there just was not going to be much tailwind. It would be a more global market, it would be more driven by innovation. We have to change the company to become more innovation driven – in order to deal with this environment. It’s the right thing for investors.” Wise words from a wise CEO, spoken in the American summer of 2006, it seems. This protagonist was appointed the CEO of a large conglomerate on September 7, 2001 [which he refers to as “the company”]. When he took over the mantle, the company having been led by his “strictly process-oriented” predecessor, had grown to become a $415 billion giant (m-cap). So how has his “innovation-driven-change” focus worked for his investors and shareholders [to whom he wanted to do right]? Ten years have gone by, and under him, the company has lost 58% of its value! And while America Inc. has become more profitable in the past decade, this company’s bottomline has actually gone drier by 14.91%. The first thing this innovation-lover of a CEO did when he took over control of this company was increase the company’s R&D budget by a billion dollars more and spend another $100 million in renovation of the company’s New York innovation centre. Well, loving innovation is not wrong. What is wrong is in forgetting that the best innovated products, processes and structures should not be tampered with!

In other words, Geoffrey Immelt forgot exnovation, which his predecessor Jack Welch had mastered. Yes, I’m talking about GE. Immelt, later in an HBR paper titled, “Growth as a process”, confessed, “I knew if I could define a process and set the right metrics, this company could go 100 miles an hour in the right direction. It took time though, to understand growth as a process. If I had worked that wheelshaped ‘execute-for-growth-process’ diagram in 2001, I would have started with it. But in reality, you get these things by wallowing in them a while. Jack was a great teacher in this regard. I would see him wallow in something like Six Sigma.” But this is not to say that Jack Welch was against innovation – in fact, he loved it; but he ensured that not everybody in the organisation was allowed to do that. Immelt’s paper does state that “under Jack Welch, GE’s managers applied their imaginations relentlessly to the task of making work more efficient. Welch created a formidable toolkit and mindset to maintain bottomline discipline.”

Whatever best practices were innovated in GE’s group companies, Welch ensured that the same were exnovated too and shared with other group companies in GE’s Crontonville Training Centre and GE’s Management Academy. And subsequently, such best practices were implemented throughout the group with a combination of commonsense and managerial judgement. From Six Sigma to the 20-70-10 rule, Welch was all about making GE’s traditional strength – process orientation – religion for its employees. It’s easy to guess a name that Welch would have fired in his tenure at GE. What else when you have a list of over 112,000 employees to choose from? [They were fired because they did not fit into the process-oriented culture of GE; according to a June 2011 HBR article titled, ‘You Can’t Dictate Culture – but You Can Influence It’, by Ron Ashkenas, Managing Partner of Schaffer Consulting and a co-author of The GE Work-Out, “The real turning point for GE’s transformation came when Jack Welch publicly announced to his senior managers that he had fired two business leaders for not demonstrating the new behaviours of the company – despite having achieved exceptional financial results.]

Next, tell us one innovation that Welch introduced. Difficult? In all probability, your answer will only end up defining a process he introduced at GE and ensured everyone – from his senior managers to the junior-most – followed to the hilt. Honestly, it wasn’t just innovation that created wealth on a massive scale for GE shareholders during Welch’s tenure by 2,864.29% (to make it the world’s most valuable company; with an m-cap of $415 billion, much ahead of the world’s thensecond- most valuable Microsoft at $335 billion), it was exnovation too – perhaps more so.

Talk about a petrochemical company which is the third-largest company in the world and the highest profit-maker ever (with $30.46 billion in bottomlines in FY2010). In the name of innovation, the last time you saw this company contribute was when it developed the naphtha steam cracking technology (which it uses till date to refine petrochemicals) in the 1940s. Since then, there have only been modifications and improvements on this technology. Even when others had started talking about bio-fuels and innovation, this company’s CEO was adamant on continuing to invest in the technology that made what the $363.69 billion company (m-cap as on November 1, 2011) represented in the modern world. “I am not an expert on biofuels. I am not an expert on farming. I don’t have a lot of technology to add to moonshine. What are we going to bring to this area to create value for our shareholders that’s differentiating? Because to just go in and invest like everybody else – well, why would a shareholder want to own Exxon Mobil?”, said Rex Tillerson, the Chairman & CEO of Exxon Mobil – the second-largest Fortune 500 company. And this is what Fortune Senior Writer Geoff Colvin wrote in his article titled, ‘Exxon = oil, g*dammit!’ about Tillerson’s attitude to innovate in fuels of the future: “The other supermajors are all proclaiming their greenness and investing in biofuels, wind power and solar power. Exxon isn’t. At Exxon it’s all petroleum. Why isn’t the company investing in less polluting energy sources like biofuels, wind, and solar? Remembering that Exxon is above all in the profit business, we know where to look for the answer. As a place to earn knockout returns on capital, alternative energy looks wobbly. It’s a similar story for alternative fuels for power generation. Exxon just doesn’t know much about building dams or burning agricultural waste. Its expertise is in oil and gas.” Translation – Exxon continues to work on processes set and ignores what Tillerson calls moonshine [read: innovative fuels].

And to talk about how efficient and bottomline focussed this system at Exxon has become, Colvin has some lines to add: “At this supremely important job, it is a world champion. All the major oil companies bear about the same capital cost, just over 6%. But Exxon earns a return that trounces its competitors. Others could be pumping oil from the same platform, and Exxon would make more money on it. It is like taking the same train to work, but they get to the office first.” Can the way the most valuable company on Earth functions be some lesson for exnovation managers? Of course.

Next, the auto majors. Since Henry Ford introduced real innovation in the industry in the form of the assembly line, the Ford Motor Company hasn’t had much to boast about in this regard. And yet, it became the only Detroit major to bounce back without a Fed bailout. And how about the real innovator? Appears, being an innovator does not pay well in the auto industry too! General Motors was ranked the #1 innovator (among 184 companies) by The Patent Board in its automotive and transportation industry scorecard for 2011. But all this came at the cost of the company’s bottomlines which bled $76.15 billion in the seven years leading to 2010 [and this is not considering the fateful year 2009 when GM got a fresh lease of life with the US Fed pumping-in a huge $52 billion that ultimately saved America’s innovation pride]. And what about investors? If GM has the patents and is the king of innovation, should it not have been the best bet for investors? Count the numbers and decide: if an investor had invested $100 in GM stock exactly 10 years back, he would have just $78.42 left in his trading account – a return of negative 21.58%! Had the same sum been invested in four of the other big automakers in the world, the reading would have been quite different. Investing in Ford, the investor would have gained 22.72%, in Toyota: 39.52%, in Hyundai Motors: 89.4%, and in Volkswagen: 364.32%! These are companies that focus on design and maintaining a procedure that helps create cars with set standards of quality – not innovate or lead the rush for patents in clean-energy fuels! Message for GM – instead of investing billions of taxpayers’ funds in developing green-fuel and propulsion technologies, put people on a production process that will help launch more variants of the small diesel car (the Chevrolet Beat) for the BRIC markets. That should suffice. Exnovate – like Toyota does with its production system that follows the 5S, Kaizen and Jidoka philosophies – and create a process of continuous improvement in small increments that make the system more efficient, effective & adaptable.

In his May 2007 best-seller ‘The Myths of Innovation’, author Scott Berkun [who had worked on the Internet Explorer development team at Microsoft from 1994-1999], using lessons from the history of innovation, breaks apart one powerful myth about innovation – popular in the world of business – with each chapter. “Competence trumps innovation. If you suck at what you do, being innovative will not help you. Business is driven by providing value to customers and often that can be done without innovation: make a good and needed thing, sell it at a good price, and advertise with confidence. If you can do those three things consistently you’ll beat most of your competitors, since they are hard to do: many industries have market leaders that fail in this criteria. If you need innovations to achieve those three things, great, have at it. If not, your lack of innovation isn’t your biggest problem. Asking for examples kills hype dead. Just say “can you show me your latest innovation?” Most people who use the word don’t have examples – they don’t know what they’re saying and that’s why they’re addicted to the i-word.”

The fundamental question really is – could airlines like Singapore Airlines, Virgin Airways, China Southern, United Airways, KLM Royal Dutch Airlines and Korean Air maintain their near 100% On-Time departure record for flights to and from India (for Aurgust 2011; as per DGCA) had each of their management heads, employees and pilots innovated in their transactions? No. [That would surely have disastrous consequences!] Would renowned hospitals for heart surgeries be the same safe place for patients if their doctors were to innovate their processes and dig out new surgery styles each time? No. [Absurd!] Would Chinese steel companies like Hebei Iron and Steel, Baosteel Group, Wuhan Iron and Steel, Jiangsu Shagang and Shandong Iron and Steel Group feature in the world’s top ten volume producers of steel (source: World Steel Organisation, 2011) had they innovated on the manufacturing method every single day? Impossibly no!

But really, I repeat ad nauseam that exnovation is not about refusing innovation within the company. Yes, a few of my examples may give off that air, but really, exnovation engenders an ideology that only some employees are gifted enough to analyse and innovate processes – and therefore such elitist employees should be placed in specialised innovation units with a sole responsibility to check processes and structures throughout the organisation and to innovatively improve them in whichever way possible. Employees who don’t have such innovative capacities may be better at simply implementing or following the processes; such employees should therefore be trained to ‘not innovate’ by exnovation managers.

The world believes that Steve Jobs was a great innovator. I would rather say he was the world’s second greatest exnovator – one who ensured that even his innovation teams had to follow a structured time driven process to come up with innovative solutions and products. And when they did, the same was exnovated across all of Apple’s divisions and offices. That was the wonder of Steve Jobs the visionary.

In the year 2003, the globally renowed management author Jim Collins wrote an iconic article for the Fortune magazine, titled The 10 Greatest CEOs Of All Time. Jim ranked at #1 on this all time list, an individual known as Charles Coffin. Jim wrote in that articel, “Coffin oversaw two social innovations of huge significance: America’s first research laboratory and the idea of systematic management development. While Edison was essentially a genius with a thousand helpers, Coffin created a system of genius that did not depend on him. Like the founders of the United States, he created the ideology and mechanisms that made his institution one of the world’s most enduring and widely emulated.” If this is not one of the greatest combinations of innovation with exnovation, then what is? The institution Coffin co-founded with Edison was GE. Coffin passed away in 1926. Till date, he remains for me the world’s greatest exnovator.

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA (C2A2)

2011-09-09T11:58:00.006+05:30

MODERN DAY CORPORATIONS SHOULD HAVE A STRUCTURED CAPABILITY & COMPETENCE DEVELOPMENT PROCESS IN PLACE TO ACHIEVE LONG-TERM SUCCESS! PRESENTING, THE THEORY OF IT ALL – A BENCHMARK MODEL THAT ORGANISATIONS CAN IMPLEMENT OFF-THE-RACK FOR DEVELOPING CAPABILITIES AND COMPETENCIES

Look around – and you’ll easily find a plethora of visionless CEOs arbitrarily deciding which business areas should a company enter and which it should leave, without giving a glimmer of thought to whether their organisations have the wherewithal to succeed in chosen battlefield. The astoundingly mammoth list of failed M&As is evidence of the same. More evidence is provided by the speed with which CEOs are being eased out of their jobs – from Yahoo to Google to Tiger Airways to Wipro to RIM, from new-age to traditional industries, companies and CEOs seem to be deciding on new businesses based more on the “fools dare where...” ideology than basing the same on a logical and structured capability and competence advancement agenda. I usually write what my readers term ‘light stuff’ – easy on the eyes and amusing on the brain – and would have used this column to simply berate those organisations that don’t have structured plans to develop competencies and would have praised those that did. But I realized that even for an organisation that in all sincerity wants to set in motion a long term plan that could match its capabilities and vision, there practically exists no ‘readymade’ model that one could implement straight off the board to document one’s competencies. Worse, there’s no telling which competence fits where and is how important for future growth!

Guess what, for a change, I decided to ditch the ‘light stuff’ trademark and to go ahead and benchmark the methodology that is followed by the best in class to match vision with strengths, goals with skills, objectives with focused training – I call it the C2A2 model; in other words, the ‘Capabilities and Competencies Advancement Agenda’! Of course, the ‘C2A2’ term might seem pure limerick at its best, meant to invoke ‘term recall’ in the minds of the reader. But irrespective of the play of the term, the fact is that implementing such a competence development agenda in your organisation – whatever you call it, as long you have a process that does it – might just save your firm from getting decimated in the near future.

C2A2: AN IMPERATIVE FOR IMPLEMENTING STRATEGIC INTENTIONS

An imperative reason for corporations to take up the C2A2 model is the fact that immediately, the top management within the organisation is forced – or encouraged – to match their irreverent business vision (which may have been earlier propagated more due to their ego) with the competencies that are documented within the organisation. In other words, call it what you may, but even if you have documents floating around in various business of your organisation that have mapped out various strengths and weaknesses of those businesses, you’re well started already. But wait, there’s much more left – and that’s where I hit you with the jargon.

‘CAPABILITY MODULATION’ IN C2A2: KNOW YOUR HARDCAPS Vs. SOFTCAPS

Capabilities within any organisation should be visibly perceived in two basic forms, namely HardCaps and SoftCaps. Hard capabilities, or HardCaps, show themselves in the forms of visible ‘hard’ items that can be seen. For example, machinery, cash, personnel, number of patents et al, are HardCaps. Soft capabilities, or SoftCaps, show themselves up in the form of ‘soft’ items that cannot be necessarily seen, rather can be perceived. The backbone of any company’s strategic architecture is made up of the combination of HardCaps & SoftCaps. HardCaps can be quantified. But Hard Capabilities are ruled by Soft Capabilities and this is where the problem arises. It is much difficult to maintain and understand SoftCaps. Knowledge management, process manuals, ISO et al, are all attempts by any organisation to maintain a Hard interface on Soft Capabilities. The corollary is that SoftCaps are most difficult for competitors to replicate and hence can become the basis for extremely long sustainable competitive advantages. But a corporation cannot succeed on Soft- Caps alone. There has to be a most practicable combination of Soft Capabilities and Hard Capabilities for any company to succeed.

So how does one understand which ‘Caps’ is more important? And which less? And how does one know which capability does one need to develop and which to destroy? Differentiating your capabilities using the Structural Capabilities Architecture is one solution that provides the answers.

THE STRUCTURAL CAPABILITIES ARCHITECTURE

Structural Capabilities within any organisation belong to four categories. Doorway, Elemental, Enrichment and Power Leadership Capabilities. Once you have categorised each and every capability under these heads, you would automatically understand which ones you need to maintain, develop and which ones you need to leave go.

DOORWAY CAPABILITIES: These are essential capacities which allow entry of the organisation into targeted businesses/markets/ industries by dissolving entry barriers. These capabilities could relate to any of the functional areas (marketing, human resources, manufacturing, finance, research & development, legal, advertising et al). For example, any corporation wishing to enter the business of manufacturing aircraft needs to have all-encompassing financial capabilities, technology backup with respect to personnel, plant & machinery, necessary government licences, patent clarifications et al. Similarly, every industry has a set of Doorway Capabilities (Porter slantingly refers to these as Entry Barriers), which one has to obtain ‘before’ entering an industry. The simple corollary which most CEOs forget: if you don’t have Doorway Capabilities, it makes quite less sense to enter a new industry, however attractive it might be. Ergo, first document what Doorway Capabilities are required to enter an industry, then acquire those capabilities, and subsequently enter.

ELEMENTAL CAPABILITIES: These are capacities that, after an organisation has procured the Doorway Capabilities, sustain any organisation’s functioning on a day-to-day basis. When Barista took leadership of the narrow market of café sales through Barista stores all over, competitors were more moved by the glamour of it all, rather than the pure profit dynamics. Also-ran competitors did not realise that coffee parlours were not a source of industry leadership, but were rather only a source of industry survival and continuance (Elemental) capabilities. Duncans (a G. P. Goenka group company) went into setting up Barista style tea parlours in various East Indian territories with the collaboration of retail outlets like Pantaloon (Café Bollywood). At the same time, Café Coffee Day was bent on targeting the highest potential markets by opening up coffee parlours all over India. Even though Nestle also has Café Nescafe outlets all across relevant markets, Nestlé is the leader in the overall coffee segment (with HUL following in at second rank) not because of Café Nescafe coffee parlours, but thoroughly because of the focus on converting traditional supply chain channels (institutional sales, vending machines, retail sales et al) into ‘Enrichment capabilities’ (definition on next page). Nestle & HUL have clearly realised that in this industry, the maximum sales growth can occur only through leadership in traditional channels, rather than through fashionable outlets.

But wait, there are two groups of Elemental Capabilities – Pure & Derived.

Derived Elemental Capabilities are those that are continuations & combinations of improved Doorway Capabilities. For example, for an automobile manufacturer, having a plant is a Doorway Capability, but continuing production in the plant is an Elemental Capability derived from already existing Doorway Capabilities like the plant, personnel, electricity availability etc. The fact that Maruti Suzuki India Limited’s plant in Manesar (Gurgaon), rolls out the maximum number of vehicles per day (1200 units, as of September 6, 2011) and has been attaining similar benchmarks for the past 14 years (since it started) is a brilliant example of excelling at attaining derived elemental capabilities. Setting up marketing channels are invaluable Doorway Capabilities for retail corporations to start operations; maintaining these marketing channels using a combination of Doorway Capabilities like sales personnel, dealer network, and transportation et al, is a Derived Elemental Capability. Globally, Walmart is an example of this.

The other group of Elemental Capabilities is known as Pure Elemental Capabilities. These are capabilities that have not been derived from Doorway Capabilities but have been developed or acquired anew. Having detailed customer query handling processes, in spite of not being Doorway Capabilities, are essential for almost all airlines and computer selling organisations for able day-to-day customer relationship management, thus becoming Pure Elemental Capabilities that should be acquired & developed by any computer organisation. Virgin Atlantic’s customer relationship management programme, being currently handled by loyalty marketing specialists ICLP (which also works with airline group Star Alliance and for several carriers like Cathay Pacific, Air New Zealand and Qatar Airways) is an example.

ENRICHMENT CAPABILITIES: Any capability that provides the basis for growth over and above the current standards of the organisation is known as an Enrichment Capability. Enrichment Capabilities are not about gaining leadership in the industry, neither are they about obtaining competitive advantage. Rather they are about gaining absolute growth in areas that are critical to the organisation. Jet Airways entered the Indian market in May 1993, and has since then, carried millions of passengers. Since the start of its operation, Jet was clinically involved with a radical focus on improvement of structural capabilities. It continuously attempted to upgrade the most critical structural capability, namely the aircraft fleet. In 2003, Jet Airways started with an operational fleet of 34 Boeing 737s and 8 ATR72-500 aircraft. Since then the airline has earned a reputation for “constantly maintaining its average fleet age below 10 years”, which is characterised by frequent phasing out of aircraft that exceed 10 years of age. As of May 2011, the average age of the airline’s fleet stood at just 5.4 years – the lowest in the industry! Today, the airline’s total fleet of 97 aircraft consists of 12 A330s, 55 B737s, 10 B777s and 20 ATR72s. Aircraft are nothing but Enrichment Capabilities for Jet, as growth of the airline increases with the number of aircraft acquired by Jet, ceterus paribus. In fact, today, despite not being at the top in terms of the number of aircraft in their fleet, Jet Airways has the largest market share of 25.5% (June 2011) and is the only profitable FSC (with a positive bottomline of Rs.96.9 million during FY2010-11) in the domestic market.

But wait. Even Enrichment Capabilities can be pure or derived.

The capabilities that have been derived from Elemental Capabilities are known as Derived Enrichment Capabilities.

For example, a food services organisation might believe after research and inference that improvement of the marketing channel reach might result in improvement of its market share. In this case, the organisation would attempt to Derive Enrichment Capabilities from the already existing Elemental Capabilities by combining factors like PR campaigns, advertising et al. The food services organisation might replicate this combination of its Elemental Capabilities in expanding marketing channels to other geographic regions, thus providing the much needed growth. For an automobile manufacturer, having a plant is a Doorway Capability, continuing production in the plant is an Elemental Capability, but improving production process efficiencies in order to be more cost effective are Derived Enrichment Capabilities. The other group of Enrichment Capabilities is known as Pure Enrichment Capabilities. These are capabilities that have not been derived from previous Capabilities but have been developed or acquired anew. Capability processes covering PR, market scanning & research, training & development, technology & capital asset acquisitions, research & development are all examples of capabilities that can take the form of Pure Enrichment Capabilities if directly acquired or taken over from the external environment. Brand takeovers, joint ventures, plant acquisitions, marketing channel purchases are all examples of Pure Enrichment Capabilities.

POWER LEADERSHIP CAPABILITIES (OR COMPETENCIES): Capabilities that provide the basis for gaining leadership and sustainable competitive advantages in various industries and markets – those that give you Power Brands too – are known as Power Leadership Capabilities or Competencies. This set is what a company should strive to maintain.

For example, becoming the lowest cost manufacturer in any industry could be a direct result of a previous Enrichment capability of cost effective manufacturing becoming extremely superior to those of competitors. Do not forget that this ‘cost effective manufacturing’ must have been obtained after combining various Elemental Capabilities like relevant training of personnel, process improvements & IT systems integration being refined to the highest degree and thus becoming a reason for industry leadership (see chart on previous page for progression). But this can be bought in one straight shot too!

Yes, Power Leadership Capabilities can also be obtained without necessarily goingthrough the progression of organic development of capabilities. M&As are typical examples of how companies attempt in one go to gain Power Leadership Capabilities external to the organisation by taking over targeted companies that have critical and strategically important assets, products, brands, structures and processes. But given the ever-present risk within M&As, it’s better (but not necessary) if Power Leadership Capabilities are developed organically within the organisation.

What I’ve attempted in this massively theoretical editorial is to tell you – the CEO – that the first step to becoming a world class organistion setting superlative benchmarks, is documenting a plan to know, maintain and develop your capabilities and competencies. And if you had no idea how to prepare that document, just blindly implement what I’ve presented here – and keep sending me the royalty.

DOES HAVING TWO CO-CEOS WORK FOR A COMPANY?

2011-08-12T11:28:00.007+05:30

HOW GOOD IS A CO-CEO FOR A COMPANY’S SALES, PROFITS, MARKETSHARE, AND SHAREHOLDERS? I FOUND OUT THE ANSWERS, AND WASN’T AT ALL SURPRISED...

In the weeks that followed the first signs of infertility in the US home mortgage market in the new century, panic gripped boardrooms in America Inc. According to the US Government’s Department of Commerce, these dates correspond to the Aug-Sept months of Q3, 2008. Then, the shock was expected, accepted and came with reasons. [Till Q3, 2009, the US economy continued going downhill with GDP growth recorded in the four quarters leading to Q3, 2009: -2.7%, -5.4%, -6.4% and -0.7%]. Corporations which till then had been a symbol of America shining, had fear in their minds – they wanted to avoid losing the pounds gained since 2001. And those who had been doing quite the opposite, sensed a threat to their very existence. One of them was Motorola.

(L-R, starting opposite page): Sanjay Jha (CEO, Motorola Mobility Solutions) & David Brown (CEO, Motorola Solutions) – co-CEOs whose roles and divisions were split after an initial failed start; Anshu Jain & Jurgen Fitschen (Co-CEOs of Deutsche Bank) – an unwelcoming reaction from the stock market on their appointments; and Mike Lazaridis & Jim Balsillie (co-CEOs of the troubled Research-In-Motion) – who will go first?

Motorola then, had become a shadow of its glorious past. Between 1994 and mid- 2008, Motorola’s global market share in the mobility devices market had plummeted from 45% to 9.5% (Gartner). The company had clearly missed the leap from analog to digital. It failed to introduce digital phones, missed out on customer interests when their attention turned towards more software-than-hardware handsets, and its plodding culture and bureaucracy within the ranks resulted in non-exciting launches in the decades leading to 2008 (except for the RazR). At the company – largely regarded as a victim of innovator’s dilemma – cancellation of projects and firing became the order of the day. Finally, after having lost 76.29% of its m-cap since Jan 2000 (from $109.14 billion on Jan 2, 2000 to $25.88 billion on Aug 3, 2008), on Aug 4, 2008, it planned a boardroom surgery. Two men were chosen to rule the fast-disappearing island kingdom and better what Edward Zander had tried with the RazR launch. Sanjay Jha and Greg Brown were the two co-CEOs. The move backfired.

Since Motorola became a victim to the co-CEO leadership practice, its decline accelerated. Until Q4, 2010, the company’s share in the worldwide mobile market – despite an 888.8% rise in sales of Android handsets (which was Motorola’s bet) – had fallen to 2.1%. And how did the co-CEOs do worse for the company than the much criticised authoritarian-andbureaucracy- promoting CEO Zander? While under Zander (between Jan 2004 and Jan 2008), the company had gained 1.2% in market share (to touch 17.5% for Q4, 2007), with its m-cap too appreciating by 24.0% to touch $39.01 billion (as on Dec 31, 2007), under the two co- CEOs, within just a year-and-a-half (between Q3, 2008 and Q4, 2010), the company besides losing 7.4% of the global market share, eroded more than half (55.56%) of their shareholders’ wealth – to touch a lowly $9.26 billion as on December 31, 2010. While everyone – from a near-dead HTC to the ever declining Nokia – moved ever so swiftly to capture opportunities in the 4G market, Motorola, under the duo remained every so dedicated to its engineering and careful to market culture [rather, slow – proof is the delayed launches of its Droid Bionic and Xoom 4G update]. This co-CEO arrangement suffered from delays in decision- making. In an interview with BusinessWeek, Jha had confessed that he takes about “90 days to assess a situation before taking any final decision.” Naturally, much time is spent in convincing the other co-CEO – Brown. 90 days to take any call in the world of mobility beats any logic. The Economist, in a Mar 2010 piece titled, ‘The Trouble with Tandems’, puts the problem with co-CEOs theory rightly: “Joint stewardships are all too often a recipe for chaos. Rather than allowing companies to get the best from both bosses, they trigger damaging internal power struggles as each jockeys for the upper hand. Having two people in charge can also make it tougher for boards to hold either to account. At the very least, firms end up footing the bill for two CEO-sized pay packets.”

The shareholders at Motorola (led by Carl Icahn), having finally realised that this joint-leadership is doing no good to them, split Motorola into two separate companies in Jan 4, 2011 – Motorola Solutions (headed by CEO Brown) and Motorola Mobility Holdings (headed by CEO Jha). Going by the financials during the two bygone quarters, it appears that both the companies are en route to safety. After losing $4.29 billion in FY2008 & FY2009, within seven months of the split in roles, it is quite visible that the move is working – the combined net m-cap of the two firms have reached $19.92 billion (a rise of 115.12%), and the two companies have also become more profitable (with a 206.93% y-o-y increase in PAT for H1, FY2011 to touch $709 million). Motorola invented the 6-sigma more than two decades back. It can’t have two CEOs in the name of ensuring quality, and missing out on timely meeting consumer demands. One CEO on top will do.

Trouble in cases where joint bosses are calling the shots, is not rare. The most recent instance being that of RIM which is led by co-Chairmen and co-CEOs Mike Lazaridis and Jim Balsillie. While Balsillie is the techie, Lazaridis is the salesguy. This combination was supposed to bring out the best in RIM. It has not. Considered to be amongst the biggest threats to Apple and Nokia, RIM’s co-CEOs structure has succeeded, but only so far as to please its small target audience with handsets that lack variety. Three years back, RIM’s mcap stood at an all-time high of $73.47 billion (Q2, FY2008). Since then, RIM has lost 84.14% in m-cap and is today, worth only $11.65 billion. In fact, over just the last five months, with delays in the launch of its tablet Playbook (and the poor reviews) the company’s share price has fallen by 65.5%. RIM in Q1, 2011, lost 5.1% of its global market share y-o-y (which fell to 14%). On the other hand, Apple (rise of 3% to 18.7%), Samsung (+6.5%; 10.8%), and even HTC (+4%; 8.9%) grew their respective pies. And the future? Both IDC and Gartner have bad news for RIM, whose market share is forecasted to fall to a lower 13% by 2015. For others, the picture is pretty. Android (43.8%), Apple iOS (19.9%), the Nokiasaviour Windows Phone 7 (20.3%) are set to rise further. So where lies the rub? Industry experts claim that RIM is not making a bad product. It is only that the company is not delivering what customers want to pay for. And this is where the two co-CEOs are finding hard to match their thoughts. Lazaridis would prefer selling something unique and mass-pleasing, while Balsillie does not seem too confident about RIM representing simple technology. A case in point of this company making a product unnecessarily complicated is the Playbook tablet. Why on earth would any user want to link his tablet to his smartphone to even send an email? Again, time is lost, and the worst case scenario is right in front of the world. Smartphones with no innovation, tablets that are not selling for the right reason (at present, what RIM is selling is a half-baked tablet, on which there is no email app, no calendars, no notes app et al), and two co-CEOs whose performance cannot be questioned as they are also the co-Chairmen of the Board of Directors of RIM. Balsillie should step down and perhaps assume the role of the CTO and Laziridis should continueas the sole CEO and not allow geeks to force him to sell engineering feats that do not help win customers’ dollars. What RIM needs to do fast is to make rapid, incremental alterations to its hardware, software, and platform products. If it does not, it only risks giving up the high-end status cult-crown, and will over time, slip in the priority lists of carriers, and witness a constant fall in margins. Remember: Palm was also once a smartphone leader, but is today, almost nowhere on the charts. RIM can become the second Palm. Balsillie cannot even blame any lack in R&D dollars for not getting his products right. Warren Buffett once wrote in one of his book titled, ‘On the Interpretation of Financial Statements’, that, “If a company has to spend more than a certain percentage of its gross profit on R&D, its competitive advantage cannot be sustained...” According to him, that percentage is 15%. RIM spent 15.86% of its gross profits in R&D last year (FY2010-11). See where the problem is? The geek co-CEO is burning cash, while the salesguy co-CEO is only getting complex stones to sell! Summing up the solution, Rick Wartzman, Executive Director of the Drucker Institute at California- based Claremont Graduate University writes in a BusinessWeek article titled, ‘RIM’s Prickly Board Problem’, “Some governance experts have long suggested that a good way to foster the kind of independence Drucker advocated is to have one individual acting only as CEO and another individual acting strictly as Chairman of the board. Indeed, over the past 25 years, the trend toward dividing these jobs has accelerated, so that 40% of S&P 500 companies now follow this practice. With RIM having had trouble launching new products, its profit forecast dwindling, and layoffs mounting, the board needs to demonstrate that it understands management’s performance is nothing to phone home about.” Strange – in case of Apple, the exit of its CEO is considered a danger to the company. In RIM’s case, the opposite is true!

Other creaky seesaws with two co- CEOs promoting organisational paralysis can be seen too. Bill McDermott and JimHagemann Snabe who have been co- CEOs of SAP, since February 7, 2010, have actually been leading the least-attractive outfit in enterprise solutions business for shareholders. Even in a growing enterprise solutions market (especially after recovery started post-2010), since they took charge of SAP, the company has lost 1.93% in m-cap. In fact, during the very next session of trade post announcement that the duo would take charge of SAP, the stock grew slimmer by 5.82%. To make a quick comparison, since Feb 2010, SAP’s competitors, led by single bosses who can hardly be described as consultative or the sharing types, have done better. While tyrant- Larry Elisson’s Oracle produced a return of 13.77% during the past 17 months, the salesguy-Sam Palmisano’s IBM increased his investor’s money by 40.44%!

It was the two co-Chairmen and co- CEOs Michael Klein and Tom Maheras of Citi Markets & Banking (Citi’s investment banking arm) who led the division to becoming the highest contributor to the bank’s total losses of $29.38 billion in FY2008 & 2009. When Anshu Jain was crowned co-Chairman and co-CEO of Germany’s largest bank (Deutsche Bank; alongisde Jurgen Fitschen) the stock market reacted negatively – one trading session after the announcement on Jul 26, 2011, the stock was down 3.31% to $53.77. Nine trading sessions later (Aug 8, 2011), it had shed 21.86% (at $43.41). Why such a stigma attached to co-CEOs? History is proof. Whether it be MySpace’s Jones and Hirschhorn or Wipro’s Paranjpe and Vaswani or Martha Stewart Living Omnimedia’s Millard and Marino, co-CEOs have always failed the litmus test. And quite spectacularly so. Either the company has suffered or they have been replaced (and the company still suffers!). These outcomes are summarised well by a 2010 paper titled, ‘Shared leadership: Is it time for a change’, in which Dr. Michael Kocolowski of South Florida University writes, “We are dealing with a universal myth: in the popular mind, leadership is always singular. A shared leadership issue to consider involves decision making. Since it is sometimes difficult for a more than one leader to reach consensus, decisions can take longer to make. The benefits of complementary leadership are negated when agreement about organisational priorities differ and irreconcilable differences impede decision making and forward progress.”

When the 20-feet long, 2 tonne-weighing Stegosaurus (a dinosaur that lived in the Woodlands of western North America) was first discovered in 1877, scientists were foreign to the idea of living beings with gigantic lizards & walnut-sized brains. Therefore, a palaeontologist named Othniel Marsh put forward his claim that a second brain resided in the Stegosaurus’ backside, which helped him control the back and lower part of its body. Debates continued over this extinct being that walked the Earth, 150 million years ago. But there is one lesson which this Jurassic Park-page has for today’s board of gigantic organisations that fear extinction: the second brain wherever in the body didn’t quite help Stegogaur’s fate? And it doesn’t seem to be working too well in the modern world either. There can be only one emperor to the empire. There should be only one leader in the corporation!

SHOULD CEOs WASTE TIME ON “INTERNAL MEETINGS”?

2011-07-01T12:12:00.012+05:30

“TOO MANY MEETINGS, TOO MUCH TIME WASTED,” IS A LAMENT ONE OFTEN HEARS WITHIN TOP AND MIDDLE MANAGEMENT. SHOULD CEOS EVEN BELIEVE IN MEETINGS?

Apple’s success is not hard to interpret. Same is the case with Steve Jobs, when you talk about anything (except a liver). After the music industry-defining iPod, the smart phone segment-winning iPhone, the tablet market-establishing iPad – “Apple=innovation” has become the new equation in the world of technology. And all this is not about to change soon. Despite the continuing dispute over Tim Cook’s competence [to fill Jobs’ shoes], the company’s shareholders have been on the right side of celebrations. Today, Apple has become a $310 billion-worth obsession for investors (m-cap on Nasdaq as on June 28, 2011; making it the 2nd-most valuable company in the world), having grown at an annualised rate (CAGR) of 45.8%, making it the fastest wealth-creating corporate entity in the world over the past decade (between January 1, 2000- January 1, 2011).

Innovation yes, but Apple is less about processes than it is about people – people who make machines, people who get fired, and people who have the final word at the end of a disguised six-sigma activity. But these are people who work in an atmosphere of discipline thrust upon them – wearing formal attire to work (unlike the bathroom slipper-and-bermuda casual culture of Adobe & Google) and compulsorily attending internal meetings. In these two respects, the black turtleneck-wearing Jobs has maintained a policy of no exception, whether it be the new recruit or his heir-apparent at Apple. It is perhaps the very reason why despite only a handful of 100 chosen employees being given the opportunity to spend a two-day workshop with Jobs in a secretive location every year, everyone across the board at Apple still breathes in an air of equality. How did Apple outgrow everyone else? [In the past decade, the company’s topline grew by 717.4% to touch $65.23 billion in FY2010, while its bottomline increased by 1677.2% to $14.01 billion.] This ruthless corporate culture that Jobs has nurtured since his return seems a mystery. Actually, it is not.

As much as Jobs finds no justification in the logic of paying people cash for not falling ill, he is absolutely convinced that internal meetings with employees help matters regarding the company’s set goals, product lines, costs and performance. It comes in the form of marathon Monday meetings at the company’s headquarter at 1 Infinite Loop.

This is what he told Fortune magazine in February this year about how important internal meetings are to him and everyone at Apple, “So what we do every Monday is we review the whole business. We look at what we sold the week before. We look at every single product under development, products we’re having trouble with, products where the demand is larger than we can make. All the stuff in development, we review. And we do it every single week. I put out an agenda – 80% is the same as it was the last week, and we just walk down it every single week. We don’t have a lot of process at Apple, but that’s one of the few things we do just so all stay on the same page.” To understand why they are called ‘marathon meetings’, you must note that there are 21 Senior VPs at Apple who report directly to Jobs, besides others like Cook, Jony Ive and Phil Schiller – names that are familiar beyond Silicon Valley. So respecting the voice of someone like a Craig Federighi (Sr. VP, Software Engineering, who of late has been working on new feature enhancement transition for the new Mac OS X: Lion, to pump new life into the declining sales of Mac OS desktops) or a Scott Forstall (Sr. VP, iOS Software, who would always argue for a higher budget allocation to support the ongoing project to come up with a new version of iOS – the next one is iOS 5.0), would mean tens of minutes of ear-filling patience on the part of the core team. But Jobs does not mind.

He knows that his company’s report card has improved dramatically in the past decade only because he has not been scared to give news during team meetings, especially the bad ones. That’s the solution to correct things that have gone wrong or avoiding things that could.

Jobs has never shied away from dropping shells and otherwise not-so-common shockers during regular weekly meetings. Call it tradition. Name a project and you have an instance. One which everyone at Apple would remember comes to mind. One fine Monday morning in the autumn of 2007, Jobs walked into a meeting with his design team and declared, “I just don’t love this. I can’t convince myself to fall in love with this. And this is the most important product we’ve ever done. All this work you’ve done for the last year, we’re going to have to throw it away and start over, and we’re going to have to work twice as hard now because we don’t have enough time.” He was referring to the enclosure design for the first iPhone due to be launched in about a month from then. As any of the 50-odd who attended that meeting at Apple will confess forever – it was unbelievable that this man had the heart to push the reset button at such a late stage. But they all volunteered to make it possible. Result: they re-created the way the first three versions of iPhone would look.
There is another incident which proves another aspect of Jobs’ team meetings – the bombs. CEO Jobs shouts and humiliates individuals or a group of insiders during meetings. In the summer of 2008, following the failure of MobileMe (which was supposed to become the new darling of corporate customers who loved their BlackBerrys), Jobs blasted-off the entire team that created MobileMe in the Town Hall audi in building #4 of the company’s campus. “Can anyone tell me what MobileMe is supposed to do?” Jobs asked. When someone gave a logical answer, he retorted - “So why the f#<>k doesn’t it do that?” The next 30 minutes, Jobs generously rebuked and abused the guilty lot. “You’ve tarnished Apple’s reputation.

You should hate each other for having let each other down,” said Jobs. Worse, after the verbal volley, with immediate effect, Jobs replaced the head of that project. What Jobs does is a lesson for CEOs to emulate. Hold regular meetings and punish the guilty accordingly, and publicly. Never mind the broken hearts – if it does good for your stock and your company’s coffer, sound them off! Here is the lesson: If you thought that giving the employees a stick in public was unethical, think again. That is not what successful leaders like Jobs think. Today, thanks to him, Apple is the World’s Most Admired Company for the fourth year in a row, as per Fortune’s ranking for 2011 obtained through a survey of business leaders around the world

There are other CEOs who follow the scripture that advocates internal meetings to the hilt. One of them is Sam Palmisano, the 59 year-old CEO of IBM. When Palmisano took over IBM, the Big Blue giant was losing ground fast. Revenue was declining and hardware no longer seemed the way. Keeping the long term in mind, Palmisano started engaging himself in gruelling long session with IBM’s researchers, during which he urged his employees to “track and shape the tech trends that will define the world a decade or more” later. Sweeping troubling matters under the carpet is not his style, and the proof of this is the manyhours- long discussions that he holds with IBM’s lab directors, with whom he discusses corporate strategy and the future of IBM’s technology. And to give you an idea of how unkind he can be during the interactions, his lab directors confess that showing up unprepared is the worst thing that you could do, because Palmisano values his own viewpoints.

Having shed its hardware deadweight at the right time (in 2005) despite the world opposing his move [“Services was seen as a low profit business when we got into it. We were criticised,” he tells Forbes], IBM has today become one of the only three brands in the world with a valuation in excess of $100 billion ($100.85 billion), and is the Most Admired IT Services Company in the world as per Fortune. From meeting 8,000 IBMers in Beijing’s Great Hall of the People to discussing growth with his employees at the Thomas J. Watson Research Center in New York on the company’s 100th birthday, Palmisano travels 200,000 miles a year to meet his employees. In fact, he has pumped-in the habit of meetings into the culture of IBM. While talking about uncountable pre-sales preparation meetings at IBM, Mike Karels, a former employee of IBM notes, “I cannot tell you how many meetings we had, before meeting with the customer…” IBM’s m-cap has risen by 57% since he took over. The company today is only the fourth in US with an m-cap in excess of $200 billion ($200.7 billion on Nasdaq, as of June 27, 2011). This CEO makes himself heard through what is called “meetings with staff ”, expressing both his pleasure & displeasure at will. He knows it works.

Leaders have to appreciate that even with the right team in place, leaving the organisation to prosper on autopilot sans engagement with the employees is wrong. This would mean that bosses should necessarily meet their SBU heads and other employees at least once a week (the higher the frequency the better), and give them an honest feedback on their respective performances – good or bad, encouraging or shameful. In their Fall 2007 paper titled, The CEO’s role in leading transformation, Carolyn Aiken (Consultant at McKinsey Toronto) and Scott Keller (Principal at McKinsey Chicago) conclude, “Typically, the first order of business is for members to agree on how often the team should meet, what transformation issues should be discussed, and what behaviour the team expects and won’t tolerate. Successful CEOs never lose sight of their responsibility to chair review forums. Through these, they identify the root causes of any deviations, celebrate successes, help fix problems, and hold leaders accountable for keeping the transformation on track.”

The reason why spending time interacting with employees is critical is because the role of a CEO is also one that of an reinforcement agent. A. G. Lafley, former CEO of Procter & Gamble (the current #5 company in Fortune’s Most Admired Companies ranking 2011) is an example. When Lafley took over in 2000, P&G was a ship sailing amidst rocks. When he handed over the baton on June 10, 2009 (to become the Chairman of the board), P&G was its powerful self again. So how did Lafley choose a new era over a lost decade? A hard taskmaster, Lafley has always been an advocate of employee engagement through meetings and one who has used words of praise and denigration alike. After the initial meetings with existing employees, Lafley understood that he had to re-do the consumers- employees-shareholders loop and alter management and cost structure to a great extent. First, he reduced R&D dollars greatly. Secondly, he re-jigged the company’s operational framework.

Through subsequent interactions with employees at various levels, he impressed upon them the need to keep that framework in mind, while taking all important decisions. Also, he put some new people in charge of some divisions. He made these changes only after many meetings. But being the hammer-hand that he was, he still had his choice of candidate on top. For instance, he appointed Deb Henretta as the new head of the declining baby care products segment, despite no other board member supporting her case. Reason – they felt she had no idea of how the machines worked. But Lafley knew her reputation for brand-building and marketing. Within two quarters, the segment’s sales began climbing. Later, she even became the head of P&G’s Asia operations. In his June 2009 Harvard Business Review paper titled, A. G. Lafley, Judgment, and the Re-do Loop, Dr. Noel Tichy, Prof of OB & HRM at the Ross School of Business (University of Michigan) concludes, “Lafley invited his top team to a meeting where each had a chance to make a case for a favoured candidate over Henretta. He took their input seriously, but at the end of the day he still believed he’d made the right choice.

He then explained his reasoning in detail – solidly grounded in his consumer- focused story line, which he had relentlessly drummed into their heads. The outcome may not have satisfied everybody.” But what was most important was that in his plan of action to take P&G ahead through marketing, Lafley moved along with his team. Talking about the need for seniors to spend time with subordinates over internal team interactions, Lafley says, “You need to understand how to enroll the leadership team. As a rule of thumb, 80% of the team’s time should be devoted to dialogue, with the remaining 20% invested in being presented to. Face-to-face meetings, as opposed to conference calls, greatly enhance the effectiveness of team dialogue. Excruciating repetition and clarity are important – employees have so many things going on in the operation of their daily business that they don’t always take the time to stop, think, and internalise.” So, did Lafley’s meet-and-discuss strategy work? Sure it did. Under Lafley P&G gave many innovations to the world of consumers (like washing detergent that could be used in cold water, toothpaste that whitens your teeth et al), which showed their effect on the company’s financials as well.
Numbers prove why this turnaround story was as much about cash than it was about exciting tales that were born in this one-divorced, twice-married CEO’s “huddle room” on his 11th floor office in Cincinnati – during his tenure, topline increased by 109.02% to touch $79.70 billion (FY2009) and profits increased 257.45% to touch $13.44 billion. And under his decade-long reign, the company’s market value appreciated by 136.49% to touch $175.4 billion – enough to convince shareholders that his principle works.

Research also proves why spending time with insiders helps. After analysing the timetable of 94 European CEOs of major corporations, Prof. Raffaella Sadun of HBS’ Strategy unit, in an April 2011 paper titled, What CEOs Do, and How They Can Do it Better, concludes, “The vast majority of a CEO’s time, some 85% was spent working with other people through meetings… while only 15% was spent working alone. Of the time spent with others, CEOs spent on average 42% percent with only “insiders”; 25% with insiders and outsiders together; and 16% with only outsiders. Likewise, time spent with insiders was strongly correlated with productivity increases. For every 1% gain in time spent with at least one insider, productivity – for example, profits per employee – advanced 1.23%. Less reassuring,however, was that the time CEOs spent with outsiders had no measurable correlation with firm performance.”

Even Prof John P. Kotter of HBS proves the same through his June 2009 paper titled, What Effective General Managers Really Do, “Successful General Managers [GMs] spend most of their time with others. The average General Manager spends only 25% of his working time alone, and that time is spent largely at home, on airplanes, or while commuting. Few spend less than 70% of their time with others, and some spend up to 90% of their work time this way. They spend time with many people in addition to their direct subordinates and their bosses. General Managers ask a lot of questions. In a half-hour conversation, some will ask literally hundreds of them.”

There are also some who believe that timings of meetings should always find a spot on the annual calendar and that last minute appointments and surprise calls only show indiscipline on the part of a CEO and the organisation. Wrong says Prof Kotter. Writes he, “Unplanned and unstructured activities help General Managers address two critical challenges: figuring out what to do and winning widespread cooperation. The key tools for meeting these challenges are flexible agendas and broad networks of relationships. With flexible agendas, General Managers capitalise on unanticipated opportunities that emerge in day-to-day events. With broad networks, General Managers can use impromptu encounters to exert influence far beyond their chain of command.” Team meetings make even a process-oriented company like GE versatile and strong to take on challenges of change; and the more dynamic the timings, the more your employees are on their toes. That keeps the organisation awake 24x7. What better?

It was the surprise plant visits (and the grinder sessions that followed) and the feedback notes that made Jack Welch feared and GE revered as a process-oriented, people-centric company. Welch used meetings & review sessions to advantage. Every January, he had meetings with GE’s top 500 executives in Boca Raton (Florida), and every month he took teaching sessions at Crotonville.

Also, each April, he undertook an annual review of employees of the executive level and above. These were called the ‘Session C’ meetings, which ran for 20 days. Everyone knows that these meetings (and many more) gave Welch the flexibility to mould and change GE’s strategic direction, and to discover talent. Discussions over lunch with managers (even many levels junior to him) were a common sight. 3592.3% increase in mcap (from being a $13 billion maker of appliances into a $480 billion conglomerate), 993 acquisitions (worth $13 billion) and a spin-off of 408 businesses (for $10.6 billion) – all this even Welch could not have managed in two lifetimes as CEO (forget two decades) had he not been fanatic about intra-and inter-team meetings. It has been eleven years since Welch left GE. But despite losing 59.61% of its market value since then, the brand is still amongst the top ten most valuable brands in the world ($50.31 billion, as per Millward Brown Optimor 2011). Beat that for the magic called “internal meetings”. [Lesson: If you want to see a real transformation sweeping through your organisation, make internal meetings mandatory and extremely regular. Enforce this law and witness change happen!]

BE UNETHICAL, BE NO.1!

2011-05-05T10:22:00.008+05:30

IF YOU BELIEVED WHAT’S WRITTEN ABOVE, YOU’RE THE FIRST ONE WHO DESERVES TO BE KICKED OUT OF YOUR COMPANY. IF WORK IS SALVATION, THEN ETHICS IS RELIGION!

From Gold to Goldman, even Warren Buffett can go wrong. His decisions and mistakes are both man-made. The latest which caught camera lenses around the world was his “personal error” in understanding dealings of David Sokol (one of the strongest contenders for the Berkshire crown) with his company’s capital. It all started last fall, when on December 13, Sokol picked up lubricants maker Lubrizol as the only name (of the 18 that Citi had put forward to him) worth investing in within the short term. He asked a Citi representative to request James Hambrick, CEO of Lubrizol, for a meeting concerning a stake purchase that Sokol was (personally) interested in. Between January 5 & 7, 2011, Sokol bought 96,060 Lubrizol shares at $104 per share (at a total investment of $10 million). Eight days later, he suggested to the Oracle himself to buy Lubrizol shares. On March 14, Berkshire announced a $9.7 billion all-cash buyout of Lubrizol for $135 per share (representing a 28% premium on the closing stock price, during the previous trading session – not too high as many reckoned). That very day, Buffett had openly said, “Lubrizol is exactly the sort of company with which we love to partner.” That the target was impressive was not difficult to see. Its numbers for the past five years looked strong. Sales had risen by a CAGR of 10% since FY2005, touching $5.4 billion in FY2010. So buying a company in this vertical – at much less than 2x of its annual revenues – sounded a “fair deal”. Numerically, yes. Ethically, it wasn’t.

Sokol, who was the Chairman and CEO of NetJets (a business aviation company, 100% owned by Berkshire) and Chairman of MidAmerican Energy Holdings Co. (89.8% owned by Berkshire), apparently had not disclosed the fact that he had made profits to the tune of close to $3 million ($2.98 million to be precise), at least not until Buffett learnt the details of Sokol’s insider trading act on March 19. Ten days later, Sokol, despite having been widely regarded as Buffett’s protégé (Buffett bought his views on multi-billion dollar deals & praised his art of fixing problems in companies under Buffett’s umbrella), and having brought before the company an asset as promising as Lubrizol, was relieved of his duties and resigned. But that was not the end.

Buffett has set stock investments standards in the past. Now, he is in for some lessons on how to treat an unethical employee. On April 27, 2011, Berkshire issued an 18-page report, accusing the 55 year-old of “misleadingly incomplete” disclosures (about his Lubrizol dealings) and violating “the duty of candour” he owed to the company. The matter is in SEC’s court now, and Buffett has confirmed his co-operation “with any government investigations relating to this matter.” For him, the star – but unethical – employee is already an outsider!

So, is Buffett right in firing one of his top managers and then allowing the judiciary to take over and prosecute him if found guilty? And how should you deal with an unethical divisional CEO (or any employee, for that matter) like Sokol?

Fire unethical employees immediately. And then file a civil or criminal litigation directly on the accused.

Incidences like this have been as much a lesson for the likes of Sokol, as they have been for Buffett. It was his mistake that he did not act on Sokol’s ethical lapses in the past. Buffett should have thrown him out of the Berkshire outfit long back and taken him to court – not once, but twice – for putting Berkshire’s image at risk. Digest this: About a year back, an Omaha civil court fined Sokol-led MidAmerican Energy to pay $32 million to a group of shareholders. Reason: the company had manipulated the book of accounts of one of its projects. As per the court’s ruling, the CEO was found guilty of “intentionally” falsifying bottomline calculations, so that some minority shareholders are excluded from the benefits arising out of the project. Even in 1999, when Sokol had joined the Berkshire family, with Buffett acquiring his MidAmerican Holdings company for $2.1 billion, MidAmerican shareholders had sued him for using personal relationships and deceit to convince the board. Their claim: Sokol had cheated the shareholders of $140 million, through sale of MidAmerican for a lower $35.05 per share (despite the company being worth $37.37 a share). The charges were proven and in 2003, the court ordered him to settle the lawsuit by paying up $7.5 million to the plaintiff.

So the fact that Sokol has done it again (and this time against the very Buffett), comes as a no shocker, not at least to those Group CEOs & Chairmen who know how to deal with those who try and set fire to an organisation’s ethical fabric. Get rid of them – that is Bible. In a warning to Buffett’s non-action, an investor of Berkshire Hathaway has filed a lawsuit charging that “both David Sokol’s purchases and Warren Buffett’s failure to act” went against Berkshire’s policies.

Companies should be intolerant to all forms of unethical behaviour at workplace. And we are talking about everything – from insincerity, deliberate absenteeism, nepotism, being careless about information that can damage reputations, to financial frauds and cheating customers, shareholders and investors alike. Especially in the last respect, the Sarbanes–Oxley Act of 2002 (also known as the ‘Public Company Accounting Reform and Investor Protection Act’) has helped limit the number of fraudulent accounting acts that company officials have undertaken since it was enacted (in their August 2008 paper, titled, The “numbers game” in the pre and post-Sarbanes- Oxley Eras, Profs. Bartov & Cohen of Stern School of Business, conclude that, “We document a significant decline in expectations management in the Post-SOX period compared to the late 1990s. This suggests that managers have reduced their reliance on such a mechanism to just meet or beat analysts’ earnings expectations, whereas real earnings management seems to have overall increased”).

Bosses should necessarily use the whip at the slightest hint of dirty-dealing by peers and juniors. And if the deed appears unforgivable, or damaging to the organisation’s culture, using the gun and sending an attorney (to the ex-employee), is the best option. Thankfully, it is happening today in some companies.

Everyone talks about how HP’s board forced Mark Hurd and Patricia Dunn to quit following their immoral and dishonest conduct, but no one talks about how a Fortune 500 name, and the largest offprice retailer of apparel & home fashions globally (worth $20.77 billion on NYSE and making $21.94 billion-a-year in topline) TJX Companies Inc., fired an employee Nick Benson two years back, for disclosing confidential company information over the Internet (related to security concerns relating to its customers’ credit cards). He had made disturbing claims about security practices at TJX in an online forum, which could have resulted in serious damage of the store’s image.

There have been other instances, where companies have simply showed the door to those who do not respect predecided norms and rules. On November 10, 2010, within hours of the leakage of an internal memo regarding a salary hike from Eric Schmidt, the-then CEO of Google (“We’ve decided to give all of you a 10% raise, effective January 1st. This salary increase is global and across the board – everyone gets a raise, no matter their level, to recognise the contribution that each and every one of you makes to Google,” is what it read), the employeein- question was fired. The memo read: “Confidential: Internal only, Googlers only.” Critics point a finger at Google’s harsh decision, but do they even realise that they are questioning the #4 name in the 2011 ranking of Fortune’s Best Companies to Work For?

Walmart, the world’s largest retailer is another example. In March 2010, Joseph Casias, a clerk at Walmart store in Battle Creek, Michigan (who suffers from brain tumour), was given the boot after he failed a drug test. It was medical marijuana, which he claimed was allowed in Michigan. Walmart was taken to court. The ruling went in the company’s favour. On February 11, 2011, announcing his decision, US District Judge Robert Jonker said: “The fundamental problem with (Casias’) case is that the medical marijuana law does not regulate private employment.” As per Walmart’s policy, the substance was banned, and therefore, usage of it, for whatever reason, was an act of cheating the company. Many claim that when it comes to ethics, Walmart has been particularly strict only with its lower- level employees. Untrue. In March 2005, Tom Coughlin, Wal-Mart’s Vice- Chairman and #2 executive, was forced to quit after it was proven (through a 6 week-long investigation), that over the past couple of years, about $500,000 in unauthorised payments had been made to him (which were obtained by making claims on falsified third-party invoices and other expense documents).

Then there is the Big Blue, IBM. In 2003, the company fired James Pacenza, a decorated Vietnam veteran. He was fired a day after he was caught accessing an adult chat room while at work (A fellow- worker who was a witness to his deed reported the matter to the senior management). Pacenza’s defense was that he suffered from post-war traumatic stress disorder, and that his Internet addiction helped ease his psychological problems. He had breached IBM’s corporate policy which strictly prohibited the access of adult websites at work and was fired the day after the complaint was received. Many question the iron-hand with which the top management of powerful corporations maintain work ethics, which starts from the very fundamental rules set by the company. They can continue questioning. Reality is – it is “the” right thing to do. If it’s unethical, it better be out!

Studies have proven over time why having a watertight workplace ethics policy is the way to keep your business right and pumping. A year 2010 report by Hay Group and Ethics Research Centre (US), titled, Ethics and Employee Management, made three key conclusions: “1. Positive perceptions of an organisation’s and management’s commitment to ethics is particularly important for employee engagement. Managers and supervisors should work actively to demonstrate a commitment to ethics, and encourage accountability; 2. Employees who observed misconduct were less engaged than those who did not; 67% who witnessed environmental violations were disengaged, 67% who saw the misrepresenting of financial records were disengaged, and 60% who observed insider trading were disengaged; 3. Engaged employees are more likely to report misconduct, thus reducing the company’s ethics risk.” In a year 2005 survey titled, Fast Track Leadership Survey, 1,655 employees of Fortune 500 companies were asked questions about their CEOs. Here was one of the key finding, “Nearly all (95%) say that a CEO’s business ethics remain very important and play a meaningful role in the way business gets done. When asked to grade CEOs on specific attributes, respondents said CEOs at large companies are ruthless in their pursuit of success (79%).” So ethics and passion to achieve success, go hand in hand.

As per a research paper by Profs. D. Michael Long and Spuma Rao, of University of Southwestern Louisiana, titled, The wealth effects of unethical business behaviour, unethical conduct involving illegal payments, bribery, environmental pollution and even insider trading, result in “a negative shareholder wealth effect because of increases in monitoring costs and risks to stakeholders of the firm. The results show that the significantly negative abnormal returns were persistent and cumulative for approximately one month following the announcement of unethical business conduct. Therefore, contrary to earlier studies, unethical business behaviour is not compatible with the goal of shareholder wealth maximisation.” [I am impressed that there is actually even the factor of “environmental pollution” included in this study. It will be good to see if anyone ever comes up with a study on the ethical nature of companies which are a threat to “health”, including tobacco and liquor companies. In my world, they are all declared unethical due to the very products they sell; and I would pull down the shutters on them!]

Forget about corporations, even at the State level, this holds true. One of the first documents that you will sign on being welcomed aboard by the Federal Government as an employee, is the Ethics Orientation form prepared by the USDA Office of Ethics. The introductory letter of the form opens thus: “To: All New Employees; Ethical conduct by Federal employees is critical in maintaining the American public’s trust in the integrity and fairness of its government.”

In today’s work environment, employees find all the more reasons to play dirty. Under such conditions, a true reform is needed in the name of strong rules for them – have a zero-tolerance policy when it comes to ethics at the workplace. That is the secret to a flourishing business. And for you my dear CEO, that journey can start right away. Start with ethics, and you will end-up with dollars, a satisfied lot of customers, employees, and a delighted set of shareholders.

AL CAPONE IN ALCATRAZ!

2011-04-08T14:22:00.005+05:30

DO CIVIL & CLASS ACTION LAWSUITS HURT YOUR SHAREHOLDERS? DO PATENT LITIGATIONS ERODE YOUR COMPANY’S REPUTATION? DO INVESTORS VIEW YOUR COURTROOM ENGAGEMENTS AS A SIGN TO DUMP YOUR STOCK? OR ARE LEGAL CASES SIMPLY MUCH ADO ABOUT NOTHING WITH NO EFFECT ON YOUR STOCK PRICES?

There is Butch Cassidy and there is Walmart. Much talked about and forced to run the gauntlet of protectors of the legal system, the similarities are strong. There is a difference though. As much as Cassidy enjoyed biking around on Wyoming’s mountainous curves with the Sundance Kid, keeping his shirt collar a good distance from the Sheriff’s grasp, Walmart is a behemoth that does not mind sauntering down the courtroom corridors. Its autobiography is strewn with litigations. But isn’t this bad logic, to be a target of and to be a propagator of various lawsuits?

Walmart is the poster boy of the retail revolution, and the #1 2010 Fortune 500 giant. Against Walmart, the cases have covered various spaces – not paying suppliers on time, gender discrimination, failure to dole-out fringe benefits to parttimers, deliberate selling of low-quality items, unfair remuneration and promotion- related policies, paying low wages (a lawsuit filed in 2001 stated that the average wage for a Walmart sales attendant was $13,861 a year, while the federal poverty line for a family of three was $14,630), environment-related and other accusations by government agencies et al. Suing the Bentonville retailer has become a wholesale affair, with the average count of lawsuits filed against it, touching 5,000 per year (as per a Forbes report). But how much of a difference have the aspiring attorneys and plantiffs made to the reputation and earnings of Walmart?

Numbers are proof. Yes, since 2001, the company has paid more than $2.5 billion in lawsuit settlements. But the parallel tale is that during the same decade, while the company has opened 4,266 new outlets in 16 countries around the world, the company’s m-cap has increased by $67.54 billion. As far as revenues go, the figures have improved 155.67% (despite two downturns since FY2000) to touch $421.85 billion (FY2010). The forecasts are bright. The company is fast approaching the $500 billion sales-barrier, with estimates of $439.81 billion and $461.86 billion for FY2011 & FY2012 respectively (as per Thomson Financial). Truth is: the company has grown from strength to strength despite umpteen disputes. And it has not been a strategy of hiding in a blanket of silence. The company is combining the wave of allegations with a strong focus on marketing and advertising to maximise opportunities to turn ‘negative’ headlines into huge recall exercises. Imagine this – every single day of FY2010, on average, the company spent $65.75 million on advertising, marking an increase of 14% y-o-y. Little wonder that the retailer is up for a better 2011 & 2012, with buyers across America and the world indoctrinated to the Walmart culture.

As for those who believe that legal affairs raise questions about a firm character, here is a correction: they don’t. Had litigations mattered, the percentage of American households visiting Walmart would never been as high as 83% (in FY2010). Had litigations mattered, the company-in-question would have always seen its stock crash on news of civil or class action charges. Well, it does not occur in that manner.

On June 19, 2001, six Walmart employees from California, Illinois, Ohio, Texas & Florida filed a nationwide gender discrimination class action lawsuit against it. The charge brought together about 1.5 million former and present employees, and was meant to be the biggest class action suit against any company in American history, with damage claims running into billions of dollars. That day, the Walmart stock closed 0.69% higher. It gained a further 3.41% the next trading session. The case was last heard by the Supreme Court on March 29, 2011. And despite expectations of a multi-billion dollar setback to Walmart, the stock saw a rise of 0.13% the day before the hearing date. Though it is hard to also understand why the stock rose just 0.15% on April 1, 2011 (the day the Supreme Court ruled that the class action case against Wal-Mart must be reversed), we may safely assume that courtroom engagements (involving well known corporate brands) have little say in describing negative market sentiments for their stocks.

Here is what Larry McQuillan, Director, Pacific Resource Institute explains in a report titled, Wal-Mart Stands Up To Wave Of Lawsuits: “Fighting lawsuits makes the most long-term sense. Thetrial bar’s strategy against corporate America up to now has been to file a suit and bring the company to the table to get a settlement out of it. Wal-Mart has been a leader in not bowing to those pressures, unlike many companies that are afraid of bad publicity and want to settle. If you don’t defend yourself early on, and be persistent, you will be steamrolled.” Adds Prof. Kathryn Harrigan of Columbia Business School, “I would litigate everything. And if in the end the law made me do something, I’d fight to make sure my competitors had to do it as well. Shareholders shouldn’t be overly concerned about litigation exposure, because it’s a small price to pay.”

This one instance is not the only encouraging spotlight for shareholders in a seemingly apocalyptic wasteland. 596 pharmacists in Colorado won $45 million in damages against the discount retailer on May 9, 2003. When trading closed that day, the stock had appreciated by 1.43%. On Dec. 22, 2005, the Alameda County Superior Court in Oakland, California slapped a fine of $172 million against Walmart for violating a State law. The stock rose 0.23% that day. On Dec. 3, 2009, a Boston court stuck up a $40 million bill on Walmart’s front door. Stock price change: a positive 0.89%.

There are other Al Capones too. Courtroom battles in the world of technology are common. Apple Inc., knows that well. It has been involved in many patent infringement cases over the past decade – both as an accused and as the plaintiff. From paying up The Beatles $26.5 million and deciding to stay out of the music industry on December 8, 1991(till it launched the iTunes), to selling faulty MacBook LCD screens and iPads with battery that had overheating issues, it has taken it well. Rather, too well. And the investors are the happiest lot. From the time Steve Jobs returned to Apple in late 1996, the company’s Mcap has increased by 10,039.68% to touch $314.33 billion (as on April 5, 2011). And the rise has happened during a period when it has been busy being slammed with court papers by companies like Cisco (on Jan. 10, 2007, for infringing upon and copying and using Cisco’s registered iPhone trademark, a day after Jobs revealed Apple’s new bet, the iPhone; the Apple stock gained 4.07% that day), Nokia (for infringing on Nokia’s patents in virtually all of its mobile phones, portable music players and computers; two complaints, of which the last was on Mar. 29, 2011 – stock rise of 0.16%), Xerox (sued on April 10, 1990, for stealing Xerox’s GUI technology, which gave birth to Apple’s then-best-selling Macintosh PC – stock gain of 3.32%) et al. Apple has not been a silent observer either. Its cases against Nokia, HTC (on March 2, 2010, Apple sued HTC over 20 patent infringements with regards to its iPhone; HTC fired back by claiming that Apple had violated five patents), Microsoft (ruling given against Apple on September 1994, in a case where Apple tried to prevent Microsoft and HP from using GUI elements), and many more are proof that litigation is only a part of the larger brand-building process meant to be accepted with a spirit of more youthful optimism.

Not convinced yet? Here’s the big bite. On Oct. 1, 2010, the US Eastern District of Texas held up a $625.5 million damages claim against Apple (for violating digi-tech patents held by Mirror Worlds) - the 4th largest patent verdict passed in US history & the largest for 2010. It was meant to send the Apple stock plunging. Quite the contrary happened. When markets opened the next week, within two trading sessions, the stock gained 3.70% – an m-cap gain of $9.49 billion.

After a long-drawn battle of 4 years, BlackBerry-maker RIM was forced to pay-up $612.5 million on March 3, 2006, by a US court to NTP Inc. (one of the earliest patent-holders of wireless email). The sum was meant to settle a dispute over RIM’s email service made available for its 3 million users. The verdict then was supposed to not just bring RIM into the scanner of many watchdogs, it was also predicted to put an end to the entire Black Berry network in US and raise questions on its future. This is what appeared in an online Fortune article post the verdict, “The price of RIM’s shares was halted at $72.00 at 4:37 pm in anticipation of the announcement. RIM’s stock price soared after shares began trading after-hours, reaching as high as $86.30 in after-hours trade.” RIM’s mcap had risen by $2.65 billion (19.86%) to touch $15.97 billion when the day ended. If such huge courtroom verdicts were destined to reduce citadels to dust, RIM would have been much smaller than it is today. Perhaps gone. The reality is different. Its user base in 4 years has swollen by 1733% to 55 million and its m-cap has risen to at $28.79 billion.

There seems to be a common belief that involvement in lawsuits will “always” lead to negative returns for shareholders and a poor financial reporting. Untrue. Prof. David Yermack of Stern School of Business (NYU) & Prof. S. Dahiya of Georgetown University, in their paper titled, Litigation Exposure, Capital Structure, and Shareholder Value, while analysing the case of value creation and destruction in the tobacco industry, concluded how companies have gained in the past by following a strategy of radical litigation. They took the case of Brooke Group CEO Bennett LeBow, who believed that civil suits had positive outcomes. The paper concludes, “Brooke Group had a tiny market share, low margins, high leverage, and highly concentrated management ownership. Beginning in 1996, the firm reached settlements in lawsuits brought by class action plaintiffs and US state governments. These events led to impressive returns for shareholders of Brooke Group.”

Even in the case of a shareholder litigation (which is considered the most vicious of all litigation types), as Prof. Georgi D. Kaltchev of International University College (Bulgaria) proves, the probability of shareholder wealth falling is low. In his November 2009 paper titled, Securities litigation and stock returns, Kaltchev proves how his hypothesis “that shareholder litigation announcements negatively affect stock returns, only finds partial support.” As per him, in more than 67% of the cases, wealth is not lost.

If the company involved in litigation adopts a heavy PR, advertising and marketing strategy (Promotion, Price & Place of 5Ps, like Walmart did by saving theaverage American household $2,500, as per Global Insight), allows innovation (Product of 5Ps, like Apple) to overshadow competition and targets the right segment (Positioning of 5Ps, like BlackBerry), litigation and court cases will only play in favour of the accused.

For companies that earn their bread and butter in the IT space, lack of innovation and absence of right positioning is poison. Why is it that Microsoft and Dell have lost tremendous value in the market, even when they have been quick to move to new emerging markets? Blame their stalled innovation engines, not litigation. About 10 years back (January 3, 2000), Microsoft was the most valuable company in the world with an m-cap of $466 billion. Then, besides 500-odd court cases, a series of innovation hiccups occurred. The Vista failed, the ‘Courier’ tablet idea planned for launch in early 2009 was dumped, its entry into the handset hardware market with the Kin was a disaster, the Zune music player was also an out-and-out failure, and its Windows software for smartphones is still scouting for a credible platform.

Of course, its SQL Server has made news, but then, what’s so innovative about a database server when everyone has already started talking about cloud computing? For Microsoft, the litigations (for lack of innovations to advertise about!) have played against investor sentiments. Litigations do prove how any company is still trying to test out something new.

That’s good. But when you keep the investors guessing forever, you’re in trouble. Like Microsoft, which has lost 53.52% of its value since 2000, Dell & Motorola are no different. From m-caps of $111 billion & $56 billion a decade back, the companies are today valued at $27.51 billion & $14.87 billion – reductions of 75.22% & 73.45% respectively.

Pharmaceutical companies over decades have been known to live through patent infringement lawsuits. The count of these increased from 81 in FY2005 to over 243 in FY2010. During the same period, generic players (which were taken to court by Big Pharmas), have won 70% of the cases – which directly translates to $60 million in revenues during the first six months for the generic players. This gain, after spending $5 million on an average on each challenge, sounds quite a deal. As new drug development pipelines are drying up, with no new blockbuster in sight till at least 2015, the next three-four years will witness many more litigations, where it could mean an increasing count of generics suing generics! In short – the lawsuits will get to you sooner than you thought. Gear up.

There is a joke which does the rounds in America. After the Feds, it’s Walmart which gets the maximum summons. It’s true. Consider this; how many will be surprised if you told them that companies in the technology & telecom industry are the ones sued the most (with drug makers at #2)? My guess is – none. And my advise is, ride on the opportunities. This time, they come in the name of litigations. If the courtroom-savvy-employee- whipping Walmart can, if the patentinfringing- Xerox GUI-stealing Apple can, so can any other company. Advertise, innovate, grow, and don’t you worry about litigations. They never could catch even Al Capone on that.

THE PAYCHECK SCANDAL

2011-03-11T10:58:00.005+05:30

IT’S AN OFT-ASKED QUESTION. GUESS WHAT, I DECIDED TO ANSWER IT AGAIN. HOW MUCH SHOULD CEOS BE PAID? DO THE HIGHEST-EARNING CEOS DELIVER THE HIGHEST RETURNS TO SHAREHOLDERS? HERE’S A DUMMY’S GUIDE TO WHETHER THE BOARD SHOULD PROMISE FAT PAYCHECKS TO THE TOP MAN OR NOT.

Petty scandals are found aplenty in rich nations. It is no different in business; the synonymity is ironically nostalgic. The correlation is much the same with big scandals too. And much like activists raise their voices against one such prevalent scandal in politics – the fat perks doled out to politicians – there is a group that feels no different about CEOs of multi-billion corporations. They are right. Despite criticism about lack of corporate governance for years, by large, CEOs are swept into offices with a seven to eight figure sign-up membership. Only problem is – before their disappointing terms are over, the boardrooms are filled with the noise of who “could” be presiding over the next company dinner. The failed CEO departs, having stripped shareholders to the bone, and having collected millions (or billions) in fat paychecks & belly-bloating perks!

There are many names which surface in this debate of a mismatch between executive compensation and performance in the modern world. The fourth largest US corporation (in terms of revenues for 2009), General Electric, is one. When Jeffrey Immelt took over as CEO on September 7, 2001, everyone was hopeful. He was handpicked by Jack Welch, to lead GE into becoming the new global powerhouse conglomerte of the new millennium. GE was then valued at $415 billion, and was comfortably ahead of the #2 Microsoft (which stood at $335 billion). The company’s stock was trading at $42 a share on the NYSE. Under Immelt, the company has lost half its value (m-cap of $216.4 billion - a fall of 47.9%), and its share trades at just 48.5% of the level at which it did a day before he assumed office. The mistakes he made could be described as “basic” as far as Welch was concerned. Welch had made it clear that a GE CEO had only two tasks – allocate the right amount of capital in the right places, and choose the right people. Talk to GE trackers, and they point to two critical mistakes that Immelt has made all through his term. Those very two.

When Immelt took over, GE had $42 billion of capital invested in it. By 2009, this had increased to more than $163 billion. The problem was: GE Capital (GEC – which was Immelt’s top bet) had also borrowed hundreds of billions separately. What spoiled the party was that, with GE Capital under-performing, the return fell much below the cost. And the value destroyed is there for the world to see. Immelt had bet too big on making GE a “diversified financial entity”. After many wrong acquisitions and untimely investments on businesses of the future (like green energy), today, GE carries a debt load of half-a-trillion dollars – 232.9% more than its FY2010 topline. So how does GE reward Immelt? Actually, he has earned quite a gunny bagful.

In the past nine years, Immelt has taken home $179.68 million as compensation, making him one of the most overpaid bosses in corporate America. Translation: for every $1 he earned during his tenure, he destroyed GE’s m-cap by $1,105.29¢.

As per the 2010 Forbes’ Special Report on CEO Compensation (a study of the top 500 firms on the S&P, ranked according to CEOs’ efficiency towards returns to shareholders’ wealth), despite earning millions, Immelt was ranked ‘secondlast’ on the “Efficiency” parameter. Question is – did he deserve the pay he received? [Apparently, a combination of poor performance and high pay also makes you a favourite in the Obama camp. Despite better CEOs around, it was announced on January 21, 2011, that Immelt would head the economic advisory council, The President’s Council on Jobs and Competitiveness, a board earlier lead by former Fed Chairman Paul Volcker.]

Immelt is not the only one living his well-cushioned dreams in the boardroom of America Inc. at the cost of his investors’ dimes. My favourite punching bag is billionaire Steven Ballmer, CEO of Microsoft Corporation, who became the only non-owner employee (after Coca- Cola’s Roberto Goizueta) to become a billionaire based on stock options. He is currently ranked at #33 on the 2010 Forbes’ World’s Richest People list, with an estimated wealth of $13.1 billion. Ballmer, who has taken home more than $35 million in direct annual compensation since he took over in January 2000, has seen Microsoft’s m-cap reduce by 61.2% - from $556.8 billion to $216.1 billion, as of March 8, 2011. Similarly, Howard Schultz, CEO of Starbucks Corp., took home $127.99 million in the past 3 years, but during this period, the company lost 13.94% in m-cap. Michael Dell, who made $61 million during the past 5 years (besides the $4.03 billion in stock holdings), ensured that his shareholders got slimmer by 58.9% (Dell’s m-cap today stands at just $29.61 billion). Dell was once the world beater in selling PCs (it was #1 till early 2006). No more.

There are some CEOs, like Aubrey McClendon of Chesapeake Energy, who despite not having given their shareholders poison to drink, have definitely served bitter syrups to gulp (by not giving them enough value appreciation). Iven G. Siedenberg, CEO of Verizon Communications, managed such a peanut trick – he made $112.8 million in six years and managed to increase the company’s mcap by just 0.089% ($0.9 billion, to touch $101.8 billion) during the period. Therefore, for every dollar that he earned, he increased Verizon’s market value by $7,979 – only a fraction of Verizon’s revenue per average employee figure of $0.55 million for FY2010!

The classic list of failed chief executives leading billion-dollar corporations, is long. John C. Martin of Gilead Sciences (made $60.4 million in 2009 & reduced his company’s m-cap by 25.5%), Sol J. Barer of Celgene (made $8.7 million; m-cap fall of 9.5% in 2009), William H. Swanson of Raytheon Company (earned $18.6 million; m-cap fall of 15.7%), and many more adorn the list.

So, from the enterprise point of view, arises a question – how should the boards of companies like Cisco (which has shed 81.9% in value since Mar 2000), Intel (lost 77.13% since Aug 2000), Nortel (lost 100% of value since Jul 2000, amounting to $283 billion, and was forced to close shop in Jan 2009), Lucent (lost 96.1% since Dec 1999, to fall to $11 billion, before it was acquired by Alcatel in 2006), AIG (lost 72.48% since Dec 2000), AOL (lost 99.07% since Dec 1999) et al, be paying their CEOs?

Actually, the question should be – how much should the CEOs pay back?!

If you look at the Forbes Report on CEO Compensation, there are some striking observations. None of the top 100 earning CEOs (vide total compensation for the past five years) figure in the top 10 spots on the “Efficiency” scale. Compare this to the iconic Steve Jobs, who was ranked “last” in the list of individual earnings of CEOs for FY2009. That’s because he actually took home $0! To talk about the most productive CEOs, none of the top 10 “Efficient” CEOs even managed to break into the top 130 odd ranks of FY2009 top-earners!

So what does research have to say about the pay-performance mismatch? That answer is pretty straightforward. Most CEOs who earn big bucks don’t really return the favour in the form of value creation. In a report by Booz Allen Hamilton titled Reining in the Overpaid (and Underperforming) Chief Executive, Corporate Governance expert Nell Minnow, while talking about the downturn, suggests that the Board of Directors of Citigroup, Merrill Lynch, and other financial institutions had contributed to their own downfall and loss in value by creating compensation packages for their CEOs that did not punish them for failure. “These CEOs were guaranteed outsized exit and separation packages, regardless of how their firms performed. All the CEOs who failed got paid very well. Because the CEOs were pushing much of the risk to shareholders, this is what you get,” she says. In a paper titled, Rising CEO Pay: What Directors Should Do, Prof. Jay Lorsch of Harvard states, “Criticisms of CEO pay have two related themes: It is too high, and not related to company performance. Ask any thoughtful corporate board member what they are most concerned about these days, and it is not Sarbanes-Oxley. It is CEO pay. Directors worry because shareholders continue to express outrage.”

This is a clear warning to boards who have forgotten that compensation committees should focus more on what the shareholders will accept. In the NYSE Euronext CEO Report 2010, the issue of compensation has also been discussed at large. Here are some quick conclusions: “Insufficient transparency about risk taking and insufficient Board oversight are the top concerns of shareholders today, with executive compensation frequently mentioned by US CEOs - 63% of US CEOs & 41% of European CEOs feel that Executive compensation is one of the biggest concerns to their shareholders.” Another work by Profs.Michael Jensen of HBS & K. Murphy of The Univ. of Rochester, after an analysis covering the paychecks of 2,505 CEOs in 1,400 companies over a 15 year-period, proved that “the compensation of top executives is virtually independent of performance.” With respect to paying for performance, the authors argue, CEO compensation is getting much worse. This problem is more prevalent amongst larger firms, as an August 2010 paper by Carola Frydman of Sloan School (MIT) Dirk Jenter (Stanford), titled, CEO Compensation, states, “Although executive pay has increased across the board, the growth has been much steeper in larger firms.”

A study by The Corporate Library (a governance analysis firm headquartered in Portland, Maine), titled, Pay for Failure: The Compensation Committees Responsible, concludes that between 2001- 2006, 11 publicly-listed companies doled out $865 million to their CEOs, who in turn eroded a total of $640 billion in shareholder value. The accused were AT&T, BellSouth, HP, Home Depot, Lucent, Merck, Pfizer, Safeway, Time Warner, Verizon and Walmart. Each of the companies
paid its CEO more than $15 million in 2005 & 2006, delivered a negative return to stockholders during the period, and underperformed industry peers. The boards claim innocence, but their ignorance is unacceptable.

Confirms Stanford’s Dr. Robert Daines, in his report titled, The Good, The Bad and The Lucky: CEO Pay & Skill, “Cases of excessive CEO pay reflect a systematic social problem of ‘fatcat’ CEOs skimming money at shareholders’ expense and therefore a systematic breakdown of governance.” After conducting an empirical, decade-long analysis, Prof. Lucian Bebchuk of Harvard Law and Prof. Yaniv Grinsten of Cornell, in their paper titled, The Growth of Executive Pay, conclude that, “Had the relationship of compensation to firmsize, CEO performance and industry classification remained the same in 2003 as it was in 1993, mean compensation in 2003 would have been only about half of its actual size.”

In their the book titled, Pay without Performance: The Unfulfilled Promise of Executive Compensation, Prof. Bebchuk & Prof. Jesse Fried (Univ. of Calif. Berkeley), argue that “Executive compensation is set by CEOs themselves rather than boards on behalf of shareholders...” This is unacceptable to the ordinary shareholder.

What however comes as good news is that the SEC has proposed to make the situation more friendly for investors. In July 2010, it proposed the addition of Sec. 14A (which required “companies to conduct a separate shareholder advisory vote to approve the compensation of executives”) in the Securities Exchange Act of 1934. But will such a move help balance the paranormal equation? It is not to be forgotten that the SEC had taken a similar stance more than four years back (on Jan 17, 2006), to protect shareholders (which forced companies to report compensations of all top executives, including all stock options, retirement and severance plans and perks worth over $10,000.) Five years later, and we still see the scandalmania of excessive pay for performance in vogue! Perhaps, the anomaly is here to stay, and till it does, there will always be losers on the stock markets and winners across boardrooms.

Does an autocratic CEO perform better than other CEOs?

2011-02-11T10:20:00.004+05:30

A LOOK AT THE MOST SUCCESSFUL CORPORATIONS OF THE WORLD – AND HOW THEY ALL HAVE AUTOCRATIC HITLERS AT THE VERY TOP, WHO ALL BELIEVE THAT HUMANS CAN NEVER BE PRODUCTIVE UNTIL THEY ARE WHIP-LASHED, AS HUMANS ALWAYS CHEAT AND SHIRK WORK AT THE FIRST INSTANCE... SURPRISINGLY, I ACCEPT THAT!

Hold on! Before you burn me at the stake for invoking the unforgivable fanatic, allow me to confess that I have no love lost for this clipper megalomaniac. And I’d hope that none ever follows the narcissistic madness of the man known for many years as Führer und Reichskanzler. Well, political correctness aside, truth in the real world is quite to the contrary. Despite whatever the world might wish for, the fact is that there is at least one quintessential and ubiquitous quality of this Austrian born German deuce that is followed to the tee by leaders of some of the largest and most successful corporations of the world – a quality that had, before WWII, led to Germany becoming the superpower it was; a quality that now is assisting leaders to ensure that their corporations are amongst the most productive and most efficient business units this world has ever seen! Read on and you might catch on to the wave.

William Clay Ford stepped down as Ford’s CEO in 2006, the carmaker was all drenched in a big bowl of hot soup, with the worst market scenario. Detroit had totally given up on Ford. The world had too. William Ford tried hard, but there were no respectable names in the auto space willing to take charge as Ford’s CEO and digest the numbers that threatened Ford’s very existence. Imagine this: During the first half of 2006, while Nissan earned $1800 per vehicle, Toyota and Honda pocketed about $1,400 apiece. Fly westward, and the numbers turn turbid. While GM lost $333 per unit, DaimlerChrysler lost $1,100 during the same period. And Ford? It bled the most – a disquieting $1,400 per vehicle.

Given the state then, what followed in the succeeding years was baffling – despite Ford being the first one expected to crumble first, since December 2008, GM and Chrysler were the ones forced to live through the ignominy of a Fed bailout plan of $110 billion. As for Ford, it managed to become the first one to bounce back into the black sans a revival package, having made $2.72 billion in net profits during FY2009 – the very year GM & Chrysler filed for Chapter 11!

And how in heavens did this astounding turnaround happen? The answer, the single change agent, as experts and researchers globally have accepted now, was the recruiting of one man – the most authoritarian CEO that Ford had ever seen after Henry Ford – Alan Mulally. This man, a veteran engineer at Boeing (who was in charge of the Boeing 777 development project), took up the task to play Captain America for Ford Motors in September 2006. Forget about never having been exposed to labour issues in his life (Ford had had enough of it with the UAW in place), or even having never seen a car being assembled before, this new boss of Ford, had never had the chance to make a single pitch as a salesman during his entire career. But what made him victorious was not just his desire to win, but in his viewpoint that what he – and not his team – believed was right. His style was autocratic and simply “results oriented”. When Mulally walked in as CEO, Ford was known as a maker of pick-up trucks and the Mustang. Despite popular displeasure, he forced his strategic planning teams to get a line of more efficient & smaller engines in place. It worked for the company. In his first two months at the company, he went ahead pledging $23.6 billion against Ford’s assets including its logo. Ford’s management disagreed. But Mulally was convinced, and that was enough. The idea of doing away with Jaguar, Land Rover, Aston Martin and Volvo, was his brainchild.

During his first day at work, Mulally went ahead to check Ford’s product lineup. When the engineers laid it out, Alan enquired why the iconic Taurus brand was missing. “Well, we killed it. We made a couple that looked like a football. They didn’t sell very well, so we stopped it,” said one Ford official. To this, Mulally retorted, “What do you mean, you killed it? You stopped the Taurus?!? You’ve got until tomorrow to find a vehicle to put the Taurus name on because that’s why I’m here.” Mulally had no statistics to justify why he wanted the Taurus back in the 21st century. He didn’t need one, because that was him – the authoritarian saviour of Ford, the latest rage in Detroit.

Mulally wanted results. Period. Today, Ford’s employees in US carry plastic cards with four goals printed on one side (which Mulally puts as the “Expected behaviors”) and “One Ford” written on the flip side. “This is me. I wrote it. It’s what I believe in. You can’t make this sh!# up.” He loves taking daily reports and every Thursday, starting 8 am, you can see all there is in the name of bashing up of non-performers in the conference room that Ford’s employees call “the Thunderbird Room”. There are eight clocks on the wall, each representing one time zone and the chair he sits on, he likes calling it the “Pilot’s seat”. Did someone mention narcissistic again?

Under Mulally’s reign of a little over four years, Ford’s Mcap has increased by 370.31% – enough reasons for shareholders to love this 65 year-old imperious monocratic boss.

Mulally is only one of umpteen despotic CEOs who have prospered and made billions for their companies. Steve Jobs, the face of Apple, is unmissable. Once out of Apple after a power struggle with the-then top management (the top brass considered him a “control freak”), he struck back, and is today the strongest living example of how an insistence on total control over your company and employees (call it totalitarian leadership if you like) and a focus on innovation can keep the clock ticking, with the sound getting sweeter by the second. There was a time when during late 1997, only a year after Jobs had taken over as Apple’s Interim-CEO (he had returned to Apple in late 1996), someone had asked Michael Dell during a conference what he would have done had he been in Jobs’ shoes. Dell’s reply to this was, “I’d shut Apple down and give the money back to the shareholders.” Then, Apple was just worth $3.1 billion, while Dell was worth $28.1 billion. 13 years later, Dell has become smaller with an Mcap of $26 billion (as of February 8, 2011), while Apple’s Mcap has grown by 10,456.13% to touch $327.24 billion and it is today the most valuable IT company in the world, and the second most valuable on the bourses (after ExxonMobil).

What Jobs did was to use a tyrannical leadership style – fire and force at will – to ensure that his employees delivered products that consumers lusted after, in an ever-evolving digital world. It has worked so far. Writes the American author Andrew Keen’s in his best-seller titled, The Cult of the Amateur, “There’s not an ounce of democracy at Apple. That’s what makes it a paragon of such traditional corporate values as top-down leadership, sharply hierarchical organisation and centralised control. It’s Steve’s company – pursuing his vision, at his pace, with his team, making his products. Without Steve Jobs’ authoritarian leadership, Apple would be just another Silicon Valley outfit...”

There are many names from history books that testify why oppressively domineering leaders stand for excellence, not mediocrity. Even today, ExxonMobil’s dictatorial CEO Rex Tillerson runs the oil major in the same way it has been run for years by the likes of John D. Rockfeller and Lee Raymond – preeminent and absolutist control over decision-making, whether it comes in the form of a justification as to why Exxon should not bet on non-fossil fuel or why the company should continue betting on Qatar for more than 13% of its reserves. The credit for the highest profits made by any company in the history of mankind goes to Rex of Exxon. Under him, despite fluctuating oil prices, during just the past 4 years, Exxon has reported total net profits of $142.61 billion. Today, Exxon is the most valuable company in the world – with an Mcap of $423.23 billion.

Even research supports the cause of authoritarian leadership style, especially during times of crisis. A 2006 Harvard Business School case, titled, Harley’s Leadership U-Turn, proves how under Rich Teerlink (ex-CEO of Harley-Davidson), the organisation took a U-turn from near extinction. It says, “When an organisation is under extreme pressure – so much so, that one wrong move can mean its collapse – authoritarian leadershipmay very well be necessary.” In another paper titled, Is Servant Leadership Part of Your Worldview?, by Dr. J. Howard Baker of University of Louisiana, he states, “An authoritarian, command and control model of leadership may be very effective for stopping something, destroying something, or conquering something...” He goes on to praise Jack Welch, the authoritarian former Chairman & CEO of GE, one of the most successful CEOs of all times, under whose 13 year-long tenure, GE’s market value appreciated by 2,828.5% to touch $410 billion. [This is something which Jeff Immelt, his democratic-participative leadership styled-successor has failed at; GE is valued at $221.9 billion today – down by 45.9% in a matter of six years.] Enough proof that authoritarian leadership does much good for investors.

From Larry Ellison, who has been written about as being an autocratic indomitable CEO (in one such book titled, ‘The Oracle of Oracles’, by Florence Stone, he has been described as “Ruthless, volatile, arrogant, impatient and autocratic”) to IBM’s former CEO Lou Gertsner whose shout-and-command policy helped save IBM (when he became the CEO in April 1993, IBM was struggling to survive, having lost tens of billions since 1990; under him, IBM’s Mcap increased by 476.67% in a decade to $173 billion, while its stock price increased sevenfold, to $101), there are names that have become immortal as leaders who have used lashing at will.

The CEOs I have mentioned embody the typical American ego, and they only have two bad habits – a hard-to-believe vision and an unbelievable fantasy for total control. And the reason all this despotism works is because experience has shown these iconic legends that humans, in general and most of them, will cheat and shirk work at the first possible instance. Of course, there will be exceptions – like you, obviously – who would not shirk work and who would not need to be threatened, to be productive. But these will remain, as the saying goes, exceptions. Once you truly start believing that the only way an organization can be ruthlessly productive and profitable is to be as ruthless to its people, that’s the moment you’ve qualified in my diary as one of the world’s best CEOs.

2011: HELLO LOSERS!

2010-12-30T10:51:00.001+05:30

IF YOU DESCRIBE YOURSELF AS THE BANKRUPT ALSO-RAN, THE SURE-TO-LOSE STOOGE, THE DUD THAT ALWAYS FLOPS, THEN WELCOME MY DEAREST ICONIC FAILURES, JOIN THE CLUB OF LOSERS WHO WILL RULE 2011

Loser! If that word stings you to the core of your heart, yet is the exact word that describes you completely, in every aspect, then this editorial is for you. Hello losers! Let me usher in the new year 2011 for you hoping that you never forget the feeling of being a loser, and that you always hate every moment of it. Before you start cursing my ten generations and beyond, let me quickly take you through the story of five losers who, for me, embody the spirit of despondent losers.

This boy from Syracuse (New York), was labelled a dyslexic when he was just seven. His friends would harass him, and his school teachers would humiliate him. This is how he describes his early days, “I’d try to concentrate on what I was reading, then I’d get to the end of the page and have very little memory of anything I’d read. I would go blank, feel anxious, nervous, bored, frustrated, dumb. I would get angry. My legs would actually hurt when I was studying. My head ached.” He went to three different high-schools and each time, he would try to hide his disability. Soon it would be discovered, and he would be sent off to remedial reading. He raised his hands very often in class, only to ensure that his teachers noticed him and gave him extra points so that he could just about make the passing grades. Even when he had to complete his homework, he would first dictate it to his elder sister, make her write it down, and then copy it word to word.

His parents got separated when he was just 12, and he along with his sister Lee Anne, moved with his mother to New Jersey, where she had to work in three jobs simultaneously to earn enough to feed the family. Everything in his life, besides playing baseball, soccer and football, seemed hopeless. He finally managed to clear high school but failed his undergrads as he was a “functional illiterate”. He loved to learn, wanted to learn but the dyslexia was debilitating (Many times, he would even forget that when the fuel gauge in the car falls to ‘E’, it needed refuelling). He decided to move to LA to become an actor. Even then, the loser in him found it hard to pass auditions, because he simply could not read the script. He started requesting others during the auditions to read the script and the directors to talk about the characters and the film. He wanted to give it all up many times, but whenever he did, all he remembered were his mother’s words – “You’ve got so much potential. Don’t give up.” In 1983, he landed his first starring role in the film Risky Business. He got noticed. Three years later, Top Gun was released, which grossed $343 million and made him a millionaire (he earned $2 million from the film)! Thomas Cruise Mapother IV is his name; Tom Cruise is how we know him – the winner of three Golden Globe Awards (and nominations for three Academy Awards). Tom Cruise, then a dyslexic with poor memory, and today, a certified-flying pilot, a millionaire- producer and one of Hollywood’s most powerful stars! And all that because the loser never gave up!

The second loser in my list was born to unwed, teenage parents at a farm in Mississippi. Her mother was an 18- year-old housemaid (named Vernita Lee), while her father was a 20-year-old freshman in the US army (named Vernon). Soon after she was born, her parents decided to part ways, and she was left in the care of her grandmother, with whom she stayed till she was 6. Her childhood days could simply be described in three statements – she was a female, she was black, and she was very poor. As a child, she used to “playact” before an “audience” of farm animals. She was a bright kid though. On her first day at school, she left her kindergarten class after writing a note to her teacher, where she expressed her intent to study in the first grade. She was promoted to the third grade the very next year.

At the age of 6, she was sent to a very poor and dangerous neighborhood in Milwaukee, where she lived with her mother and two half-brothers. There, she was repeatedly raped by her cousin, her uncle and her mother’s friend. And her mother, because she worked odd jobs during odd hours, and because of their massively disadvantaged background, could frustratingly do nothing. The girl’s sufferings did not end there. She disintegrated into a habit of repeatedly skipping school, stealing money, and running away from home. Fed up, her mother then decided to put her into a detention home. As luck would have it, there were no openings in the home – and so she was sent to live with her father in Nashville. She became pregnant when she was 14, and gave birth to a dead baby.

Raped, humiliated, without any future, she was devastated, but she swore to herself that she would never give. Her father somehow aided her financially, and through sheer gut-wrenching effort, she became an excellent student at school and participated in the drama and debate clubs. The following year, she won a full scholarship to Tennessee State University (TSU) – and the following year, she was invited to a White House Conference on Youth. Subsequently, she was later given a job to read afternoon newscasts by a local Nashville radio station. When she became Miss Black Nashville and Miss Tennessee during her freshman year at TSU, Columbia Broadcasting System (CBS) offered her a job. And all this while she was still nineteen. She worked at various TV channels and got her biggest break in January 1984, when she became the anchor on a morning talk show called A.M. Chicago. Given the popularity of the show, 20 months later, it was renamed to ‘The Oprah Winfrey Show’. The black, poor, loser had been noticed and was already on her way to becoming a global celebrity. Today, she runs a production house (Harpo Inc.), is the richest black billionaire in the world (worth $2.7 billion) and most importantly, the most powerful celebrity in the world (as per Forbes 2010 ranking). And all because she never gave up!

The third loser in my list was born to Elias and Flora d’Isigny in Chicago’s Hermosa community area. His father was a farmer and a worker at a railroad company. As a young man, he was fired from the Kansas City Star newspaper. Reason: his boss claimed that he lacked creativity. To fulfil his desire to become a full-time cartoonist, he started an animation company called Laugh-OGram Films in 1921. Though the start appeared bright (as he was able to raise $15,000 for the company), the New York distributor, with whom he had tied-up, went bankrupt. Result: end of Laugh- O-Gram. With a mountain of debt in his name, emotionally drained and financially broke, he barely earned a few dimes to pay his rent. Not able to afford proper food, this loser started eating dog food. But despite all that, there was one objective that the man nurtured all along, and that was to never give up.

By missing out on a few meals, he saved his last few dollars to buy a train ticket to Hollywood. And here, in 1926, he created an effervescent cartoon character named Oswald the Rabbit. When he tried to strike a deal with Universal Studios, without his knowledge, Universal went ahead and patented the Oswald character. Of course, the studio paid him nothing. He created more characters; but there were other rejections too. His Three Little Pigs concept was rejected for lack of more characters; filming of Pinocchio was stopped during production; his others creations like Bambi, Pollyanna and Fantasia were utterly disliked by viewers during those times. Fighting against all odds and bankruptcy, the man went on to make the animation film Mary Poppins in 1944, which became a blockbuster hit.

Today, we all know this loser more because of Steamboat Willie, a cartoon character he made – a character that came to be later known as Mickey Mouse. Walt Disney was the name of this loser, who fought failure and sketched his road to success. Although he died in 1966, he left behind a legacy of never giving up. The company he co-founded, The Walt Disney Company, is worth $71.4 billion in the stock market!

The fourth loser in my story is a woman, whose life went into a massive disarray at an age when most of us are well settled. An English teacher in Portugal, she married a TV journalist. But just four months after the birth of her daughter, her husband separated from her. At wits’ end, she left her teaching job in Portugal and decided to be with her sister in Edinburgh, Scotland. Recovering from the divorce was still too painful and the lady kept struggling to make ends meet for herself and her year-old daughter. She had only government subsidies for support. She thought of teaching in Scotland too, but was soon rejected as in order to teach in Scotland, she required a ‘PGCE’ (postgraduate certificate of education). And then, she was diagnosed with clinical depression, and even thought of committing suicide.

Through all this, her one unwavering lighthouse was a book she was writing; a book which allowed her to escape all her miseries; a book which encompassed her spirit of fighting against the worst that life could offer and never giving up. Despite her miserable real life existence, she continued writing the book, spending time in many cafés. After completing the book, when she presented it to publishing house Bloomsbury in 1995, the owner asked her to “get a day job.” Twelve other publishers rejected the book; yet, she continued resolutely. A year later, the same publisher that had rejected her initially, Bloomsbury, offered her a measly £1500 advance for publishing rights in UK.

Although that money wasn’t enough at all, she didn’t give up. In 1997, she applied for grants from the Scottish Arts Council to enable her to continue writing. She received £8000 in return. And then, in 1998, Scholastic Inc. bought the US rights to publish her book for $105,000. The book came to be known as Harry Potter and the Philosopher’s Stone. And she is Joanne K Rowling, the world’s richest author, worth $1 billion. Following are the excerpts from a speech that Rowling delivered to graduates at HBS two years back – “A mere seven years after my graduation day, I had failed on an epic scale. An exceptionally short-lived marriage had imploded, and I was jobless, a lone parent, and as poor as it is possible to be in modern Britain, without being homeless... By every usual standard, I was the biggest failure. Failure meant a stripping away of the inessential. I stopped pretending to myself that I was anything other than what I was, and began to direct all my energy into finishing the only work that mattered to me... And so rock bottom became the solid foundation on which I rebuilt my life. I was the biggest failure I knew. Failure gave me an inner security that I had never attained by passing examinations. Failure taught me things about myself that I could have learned no other way.” Her books have so far sold more than 400 million copies and her last four titles of Harry Potter have consecutively set world records as the fastest selling novels in the world. Today, the Harry Potter brand is alone worth $15 billion, with the seven Potter films having grossed close to $5 billion! All because the loser Rowling decided to not give up.

Finally, I come to the fifth loser – and that is you! Every person in this world has had failures, some small, some big. There is no individual on this planet who has been a born winner and one who has never experienced any failure – from Steve Jobs to Bill Gates to Mahatma Gandhi to Nelson Mandela, all legendary icons have been as legendary in being failures at some point or the other in their lives. But the one common quality amongst all of them has been, that they’ve never given up. The resolve to fight each failure – however harsh it might be – with conviction is the attitude that these losers have had. And that’s exactly the attitude that you should cherish for the new year of 2011.

May you not be the biggest example of success ever, but be the biggest example of how to fight the worst failures. May you succeed in inculcating the right loser’s attitude. May you always be the loser that I wish you to be. Wishes for a fantastic new year, my dear losers!

Long live Bruce Lee!

2010-10-08T10:19:00.005+05:30

Why in heavens would I decide to write about China when everybody around has been harping on China almost day in and out. Because while everybody around has been simply comparing Chinese growth and India’s growth (and complimenting China to no ends about it), I find no economic commentator exhorting Indian firms to partake of Chinese growth by thinking about setting up companies in China, or by selling their products and services to Chinese consumers! Each day that passes with you as a CEO not thinking about setting up a business in the world’s fastest growing market – and the largest in a few years – is a day lost with criminal intent! The statistics are devastating – if you have even an iota of cash to spare, go the China way... immediately!

Just a few decades back, marketers would have ridiculed the very idea of setting-up shop in China, where per capita income stood at a sheepish 1% of USA’s. Not to say that during those days, the Chinese GDP was one that was consciously ignored during discussions in economic forums, more so due to the defiant communist regime, which was more intent on autocratic uplifting of masses than on blindly promoting capitalism. But China was growing because of that same upliftment of masses.

After having broken through the $100 billion ceiling in 1988, the foreign trade figure of China ran past the $500 billion-mark in 2001 and the trillion dollar mark in 2004. Today, it has touched $2.21 trillion (figure for 2009, as per WTO), and much water has fl own under the Shanghai bridge, bringing in a dramatic macroeconomic improvement. China is now arguably the second-largest economy in the world (having surpassed Japan’s GDP during Q2, 2010, though Japan still leads in terms of total GDP during H1, 2010), and is the world’s second largest trading nation, and its per capita income as a percentage of that of USA’s has increased to 14.2% (quite a rise from a value of $180 in 1990 to $6,567 in 2009; IMF data).

That China is turning into a huge consumption behemoth – one that Indian companies should most selfishly exploit to whatsoever extent – is supported by many economic indicators. The rise in per capita income (a jump of 3,548% over the past 19 years!) becomes an electrifying consumption increase jump when seen in the light of the fact that this growth happened for a gut wrenching 1.4 billion! China is also now the world’s second-largest importer of goods (the value of which stands at a no less handsome $1.01 trillion, as compared to USA’s $1.56 trillion during FY2009).

In support of China’s domestic consumption comes a September 2010 paper by McKinsey Consultants John Horn, Vivien Singer and Jonathan Woetzel, titled, A True Picture of China’s Export Machine, which shuns the age-old method used by the government to calculate the contribution of total exports to GDP growth. As per the paper, “Net exports have contributed to only between 10-20% of China’s annual 10% GDP growth in recent years,” while “domestic value-added exports” (DVAE; which is the net of total exports and those imports used in the production of goods & services exported), contributed to between 19-33% of the total GDP growth. This is much lower than what many agencies have claimed, including the Chinese government (according to them, exports contribute to almost 60% since 2000 till date). To sum up the discussion in favour of the Chinese domestic market, the report which uses the McKinsey Global Institute (MGI) China urbanization model, concludes, “The most common wisdom overestimates the role of exports while underestimating the role of domestic consumption for China’s growth. Any Chinese or MNC that currently manufactures goods in China and primarily exports them to other countries should ask itself whether it needs to scale up its domestic strategy to get a bigger piece of the pie.”

The truth, which the tallest of sceptics concede, is that China is the next powerhouse for the world’s sellers, across industries. Pulitzer Prizewinning Thomas L. Friedman wrote in an NYT column from Tokyo, “Those leaders of Japan, America, Australia, Taiwan, Malaysia, Russia, Thailand, Indonesia, Singapore, the Philippines, or the European Union, who are not going to bed each night saying a prayer for China are not paying attention.” The 2010 China Consumer Survey report by Credit Suisse explains how, “Chinese households are earning more but saving less.” Household income of the bottom 20% has risen by 50% since 2004, while the top 10% has grown 255% to around 34,000 yuan per month. The savings rate has dropped from 26% to 12% during the same period. Credit Suisse expects China’s share of global consumption “to increase from 5.2% at US$1.72 trillion in 2009 to 23.1% at US$15.94 trillion in 2020, overtaking US as the largest consumer market in the world!”

We take a look at specific industries and the lessons that corporations which have paid due respect to the Chinese domestic market have to impart. In 2009, China became the largest auto manufacturing nation in the world, with 13.79 million units rolled out, thereby surpassing Japan as the largest automobile maker in the world. No surprises there as most of these would be exported subsequently, right? Wrong. Of these manufactured cars, only 369,600 units were exported – which accounts for just 2.7% of the volumes produced. In simple mathematics: 97.3% of the cars manufactured in China are sold in China! And if the 100 km long traffic jam that made global headlines in August this year was some indication, China has also become the world’s largest auto market in terms of annual domestic sales, having overtaken US in this respect in 2009. The number of registered vehicles with Chinese number - plates are forecasted to grow from the present 62 million (as per China’s State Statistical Bureau) to 200 million by 2020 (as per China’s Ministry of Industry and Information Technology).

Talking more about cars, here are some interesting facts. In the first half of 2010, GM sold more cars in China (1.21 million units) than even in its largest market so far – US (1.08 million), making it the first time that any overseas market outsold GM’s domestic market in its 102-year-old history. The company plans to touch 3 million in annual sales count in China by 2015. Moving on to its Detroit cousin, Ford, the company also set a new record in half yearly new car sales in China this year (301,524 units, up 53% y-o-y). German Audi is also geared up to set a new annual sales record this year, boosted by deliveries in China, where it presently sells more vehicles than it does in Germany. In fact, as per a Deutsche Bank report, by 2016, China will become the largest export market for German automakers, surpassing France. Going forward, given by the fact that 44.3% of cars sold in China are local brands, including names like BYD, Chery, Geely, Hafei, Jianghuai, Chang’an, Great Wall, Roewe, et al, there lies great opportunity for global auto makers to make the most of their Chinese odyssey.

New research by the McKinsey Global Institute also throws light on the emergence of the Chinese urban middle class, whose consumption power will soon redefine the Chinese market. The report claims that, “These consumers earn more than $12,500 a year and command nearly 10% of urban disposable income – despite accounting for just 1% of the total population. They consume globally branded luxury goods voraciously, allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them.” This strong 1% of the population may be just the tip of the iceberg, and that’s the most likely possibility. While describing her confidence on the Chinese consumer at a Leadership dinner held recently in New York, Andrea Jung, CEO & Chairman of Avon Products Inc., said, “We’ve been on the front lines of this market for a little over a decade. We’ve identified it as probably the fastest-growth market. From a consumer point of view, I hope that we have proved, and are still proving, that China’s growth is a domestic story. Our focus has been not so much on the manufacturing side, although we have a wonderful plant there, but on the consumer side.”

There are many other names whose walk in the dragon’s den tell you why China is the next place to bet on and sell. The Fortune 500 #4 and the largest conglomerate in the world, GE’s revenues from emerging economies are set to increase from the current 22% to 30% by 2014. And in its attempt to make China count, the company plans to increase this market’s contribution to its topline from the current 4% to about 25%. P&G, the world’s largest producer of household and personal care products, which is increasingly focusing on the Chinese market, has now got China as the #2 contributor to its sales volumes and #4 in terms of toplines for the company. Today, the company commands 50% of the shampoo market and 40% of the personal hygiene market in China, a market which accounts for 25% of the 4 billion customers that P&G has globally.

The world’s second-largest manufacturer of aircraft, Airbus, which expects 20% of its revenues to come from China during FY2010 (as compared to Boeing’s 4%) also has big plans for China. The European manufacturer, which expects a total of $349.3 billion to be spent by the Chinese airline companies on acquisition of new aircraft over the next 15 years (second highest after US airlines, which is expected to spend $538.1 billion; by 2030, as per its competitor Boeing’s forecasts, China is expected to spend $400 billion in acquisition of 3,770 new planes), is smiling at the moment. Reason: Though Chinese airline companies at present operate 766 Boeing aircraft as compared to 547 Airbus planes, the orders received so far are in favour of Airbus – 418 as compared to Boeing’s 284.

From engines in the air to air waves – Nokia. If you thought that India was all that Nokia had left to hinge its hopes on, rotate your globe a little to the left. The world’s #1 seller of handsets today commands a 35% market share in China (FY2009), a geographical market which contributes to 16% of its annual revenues ($8.6 billion in 2009), even bigger than India’s 7.4%; surely, anything that happens in the Chinese mobile market would trouble the Finn doubly than it would if its Indian elephant ride goes awry! The dozens of steel-making companies to the chipmakers and software producers of the world, from fast-food chains to the biggest of retailers and toy-makers, from far-away America to close neighbours, marketers across companies and continents are fast realising that one big learning of their career remains the Chinese consumer tale, and if they lose out on it, they’ll have little left to survive on later. Two decades back, the Chinese low-cost manufacturing prowess took the world by storm. It’s the Chinese consumers who are on fi re today. Sadly, there are not many Indian case studies to write home about – and that is what I call criminal.

Till the time every Indian firm’s CEO believes passionately in having the vision of tapping the Chinese market, India can in no way think of beating the Chinese bandwagon. Learn to read Chinese, learn to write Chinese, learn to speak Chinese, go on and watch cheesy Bruce Lee movies in Chinese for whatever it’s worth – just do it!

Long live China! Long live Bruce Lee!

THE MISSION QUESTION!!!

2010-08-12T13:24:00.000+05:30

IS A MISSION STATEMENT REALLY REQUIRED? ARE COMPANIES WASTING AWAY THEIR MONEY AND TIME IN ATTEMPTING TO DEVELOP MISSION STATEMENTS?

For the sake of technical differentiation, Vision statements are not the same as Mission statements. To give a quick glimpse of the essential difference, a Mission statement represents the reason for the existence of the organisation. It’s a feel-good statement that is ethical, motivating, and talks ‘generally’ about the current & future of the organisation. A Vision statement is necessarily about the future. Vision statements are aggressive and are mostly meant to be viewed as reasons for ruling the world in the future. That’s not the case in Mission statements.

Glueck & Jauch say, “The mission can be used to legitimise the organisation.” In other words, its profits – because the external environment is always questioning organisations that earn large, abnormal or supernormal profits. But then, there are organizations like Maruti Suzuki (India’s largest car manufacturer with a 47% market share as on June 30, 2010), along with companies like Wipro and Reliance, that either have no mission statements (umm, don’t confuse advertising slugs with mission statements please) or have hidden the statements in various jargons. The question then is, does the mission statement really matter?

In small companies that are privately held, the need for a publicised Mission statement is very low as the management can keep a tab on all stakeholders at close quarters themselves. But in large organisations, the answer is “Very much!” The Mission statement is unarguably one of the most important public relations exercises undertaken by any organisation to be accepted as ethical, society friendly, value based & for the benefit of stakeholders. In fact, it’s extremely necessary for any large company’s management to implement this amazingly vibrant PR hype focused on prime stakeholders and other entities (customers, societies etc). Large companies have more branches, more employees, more customers, more need for government interaction, more necessity to show Corporate Social Responsibility; in summary, more need for having a standard PR effort. With so many stakeholders, it becomes tougher for management to keep a direct tab on each and every relevant group. Managers should be very convinced that Mission is the strongest tool they have to maintain a wonderfully pervasive PR hype about the corporation. Even General Electric – a company which people said never had a mission statement – has had a ‘value statement’ for decades (see box on the next page). Jack Welch was no ignoramus.

Unfortunately, sometimes the Mission statements of various organizations end up being mirror images of each other rather than displaying the required inimitable uniqueness in culture. Let’s look at the Microsoft mission statement: ‘To enable people and businesses throughout the world to realize their full potential’. Look at what the mission statement (or the purpose statement) of GM was at one point of time: ‘The fundamental purpose of General Motors is to provide products and services of such quality that our customers will receive superior value, our employees and business partners will share in our success, and our stockholders will receive a sustained, superior return on their investment’ If one were to change the name of General Motors to IBM, the statement would still be extremely appropriate.

Are these companies to blame? Not at all! The folly of Mission statements is in their creation itself. In striving to be looked upon as society friendly, most of the Mission statements of organizations now contain standard words & similar phrases in order to not be off the beaten track. Given the true need for a Mission statement, the deliberation within any organisation while developing the Mission statement should ensure that the statement remains on the beaten track, lest the corporation be seen negatively by outsiders. Microsoft is an extremely intelligent firm that has realised long back the irrelevance of wasting time in developing nouveau Mission statements.

The mistake that modern business corporations are making is to not market and advertise the mission statement appropriately. In other words, you as a CEO have the prime responsibility to advertise the mission statement in a similar manner as you would when you advertise a product; albeit with reduced budgets of course. You might not be able to really “Save our tigers,” but the least you would have managed would be to ensure that companies like Aircel get a societal friendly image for the next few quarters.

Below, I list out the three most frequently asked questions on mission that I have been asked by CEOs through my past years:

Why cannot Vision statements be used as PR hype instead of the Mission statements?
Vision statements can be used as PR hype for internal stakeholders (most importantly management, shareholders…). But for external stakeholders (customers, government, society, regulators etc), dramatic Vision statements of the organisation might be interpreted as being unfriendly to society and aggressive beyond requirements.

Like Sub-Vision statements, are different Mission statements required at different levels of the organisation?
Technically speaking, the answer depends upon the organisation’s need. Organisation’s that have expanded globally or have many operationally diversified divisions have a bigger need for localised mission statements, like Mc- Donalds – which has different mission statements for its various operations.

How frequently should I modify my company’s Mission statement?
Given the objective of a Mission statement, and given the fact that the Mission statement should have been constructed to last a long-term, it should not be changed frequently. At least, not unless the founders of the Mission statement were really stingy with the words they used…

Even my employees don’t know my mission statement. Is that a problem?
Yours, not mine!

FOUR LESSONS FROM FAILED BRANDS

2010-07-16T12:37:00.001+05:30

For today’s marketers, new brand failures imply burning shame. But many in the past have learnt lessons and succeeded after the great tumble; the failures were worth it!

A whole generation of thoroughbreds has been evangelised to practice perfection. Getting it right, every time, has become a religion. Amelioration is the word for the present. It’s really not an age for failures – not for men, not for companies, and worse, not even for the most generic of brands. For marketers, failure of a brand means nothing less than blasphemy! But do such outcomes call for unforgivable sentences for the makers of brands? Granted, no brand failure is praiseworthy, but lessons on “how to succeed” that can be learnt from most brand failure tales are worth a read.

LESSON #1: Don’t kill an established brand simply to introduce a new one; brands take years to build and are invaluable.
The most classic example when it comes to failure of a brand is the case of the New Coke in 1985, which is quoted by some as the biggest brand collapse of all times. 100 years after Coke was launched, things had changed; competition had. There was Pepsi-Cola willing to fight Coke. By the time Roberto Goizueta became the CEO in 1981, Coke’s numero uno status had started appearing vulnerable. Coke was fast slipping and the prime reason was Pepsi- Cola. Pepsi had already proven to the world in the 1970s with its Pepsi Challenge, how blindfolded drinkers preferred the sweeter Pepsi-cola over Coke. It was only Coke’s superior distribution network that was keeping it ahead (for instance, there were still more Coke vending machines in US than Pepsi-Cola’s). Goizueta deciphered the problem to be the ‘product’ itself. He assumed that Coke would lose out to Pepsi soon because of its taste. That was 1984. A year later, the Atlanta-based giant decided to give to the world the ‘New Coke’, which was sweeter and closer to Pepsi- Cola in taste. Coca-cola conducted 200,000 taste tests in the pilot testing stage. The results made Goizueta smile. The research had proven how the New Coke was preferred over Pepsi-cola. Goizueta, drunk on the forecasted success of the New Coke, even decided to halt the production of the old Coke. Following the April 23, 1985, launch, a large percentage of Coke-drinkers in US decided to boycott the new product. A few days later, when the production of the old Coke was halted, this further angered the masses – a double blow! New Coke didn’t sell, and Goizueta was forced to get the old version back. “We have heard you,” confessed Goizueta on July 11, 1985. Even Donald Keough, the-then COO of Coca- Cola, publicly said, “All the time and money and skill poured into consumer research on the new Coca-Cola could not measure or reveal the deep and abiding emotional attachment to the original Coca-Cola felt by so many people.”

So, what was wrong with the New Coke? To begin with, the 101 year-old ‘Old’ Coke defined American glory and the passion for it was what had kept the brand on its wheels despite its taste being inferior to its rival’s. Coca Cola’s top brass forgot in one instant that it takes eons to build a brand; and dramatic one-trick-ponies, like the New Coke, stood no chance in front of the Old Coke due to this outstanding brand value. Coca Cola in reality should have concentrated on the original brand’s perception and simply delivered what the consumers needed without trying to over-innovate. They should have not looked around for problems with the product when it didn’t have any – having an inferior taste is not an issue, having an inferior perception is; as Jack Trout, author of Differentiate or Die, writes, “Marketing is a battle of perceptions, not products.” Any attempt to foolhardily copy rivals is wrong. With New Coke, the company was simply trying to clone Pepsi-Cola. But what Goizueta got right is that he showed fearlessness when it came to reverting to the classic Coke. That helped establish a “New” bond between the brand and its consumers. Today, Coca-cola is the most valued brand on the planet, valued at $64.9 billion by Interbrand (as of 2009).

LESSON #2: Don’t over-innovate and provide to consumers features they do not desire.
The legendary Ford Motors also went through an expensive embarrassment, known to be the most hyped-up failure in the auto industry till date. ‘There has never been a car like the Edsel’ is what Ford promised through its ads. The publicity began an year before the Edsel was launched (in September 1957). To increase crowd curiousness, even dealers were strictly warned to keep the cars “under covers” till the time they were given the permission. Expectations were high. The pre-publicity initially showed promise and people rushed into Ford’s showrooms on the date of launch to catch a glimpse of the new model from Ford, which was supposed to be revolutionary – the footfalls touched 3 million in US, in just the first seven days post-launch! The model was supposedly an example of innovation in the car industry. It had a number of new features which were the first in the industry – a rather “different” front-end grille, self-adjusting brakes, an electronic hood release and an extremely advanced and powerful engine for a mid-segment car. It was meant to be a treat for auto-lovers.

The market however didn’t want the “new” features. The car disappointed the potential buyers, who in turn disappointed Ford. Edsel sold just 64,000 vehicles within a year of its launch, which spelled a big failure for the brand (as opposed to a sales target of 200,000 units). Henry Ford II tried harder, made more changes, innovated the model further and launched two new versions of the Edsel in 1959 and 1960. Result: sales fell further (the Edsel 1959 version sold 44,891 units, while the 1960 model sold a shameful 2,846 units). The Edsel had to be relegated to the grave. The last advertisement of the model was seen in November 1959, post which, Edsel was scrapped.

So what were the mistakes? With the new model, Ford offered too much to buyers, which automatically resulted in Edsel’s price tag shooting northwards – unreasonable for the sceptic buyers. There was inadequate market research conducted and Ford failed to understand what the customers really desired. Surprisingly, the company spent millions of dollars on collecting possible names for the new car before coming up with a ghastly pale one like Edsel (which was the name of Henry Ford II’s father!). Secondly, the company created a hype around an ‘untested’ product. Gayle Warnock, PR Director for the Edsel launch, said thus in a confession much later: “I learned that a company should never allow its spokespersons to build up enthusiasm for an unseen, unproven product.” Edsel also fell fl at on the “Style” differentiation front, and ignored visual appeal completely – a huge mistake, especially when we talk about cars. However, Ford learnt its lesson soon and made no mistake with the Mustang, which became one of the legendary trademarks of Ford. It was launched in 1964, and sold 500,000 units in just the fi rst year of its rollout. A better name, less experimentation with innovation, better looking (rather simple looking), and most importantly, it was affordable for the technology and style it offered.

LESSON #3: Providing the best quality product in the industry will get you nowhere, unless you remember Kotler’s basic ‘P’remises and accept that the ‘product’ makes up only one of the Ps in the marketing mix!
For this, a brilliant failure has been in the consumer electronics domain. In 1975, Sony developed a home video recording equipment for consumers, which ran on Betamax technology. It sold 30,000 units in US in the first year. Over the next two years, five companies, which were Sony’s rivals, released the Video Home System (VHS, initially patented by JVC). The sound and video quality of the VHS launched were inferior to that of the Betamax, but the convenience of use and wide availability made it a more attractive buy for the consumers. By 1987, VHS had captured 95% share of the US market. Sony finally withdrew the Betamax and announced plans to get into the VHS market in January 1988. The mistake that Sony made was that not only did it refuse to associate with any other electronic major (while JVC shared its VHS technology with others), it also refused to look beyond its product quality. Kotler didn’t make his millions for nothing. He proved long back that the product only accounts for that much. There are many more Ps that play significantly greater roles, if not more, than the quality of the product.

LESSON #4: Diversify yes, but with some transferred competencies; doing otherwise would be a sure shot failure.
McDonald’s learnt a lesson with the failure of its Arch Deluxe burger (which it marketed as the ‘Burger with the Grown-up Taste’) in 2001. The core concept was to bring-in “sophistication” into the brand, so that it could provide a burger which was not linked to kids. Even the ads showed children ignoring the product. Did McDonald’s succeed? Surely not. The exercise was one of the biggest disaster launches of Mc- Donald’s. And clearly because the global giant forgot to transfer competent strengths in their attempts to diversify. A saying goes that you can sell new products to your old target group, you can sell old products to your new target groups, but you simply cannot sell new products to new target groups that easily. McDonald’s forgot that its brand offerings stood for “simplicity and convenience” and not “sophistication”, and especially when for ages they had developed their competence in understanding the buying behaviour of kids. As I mentioned, diversification is great, provided there is some sense to it – in other words, a leveraged competence.

All the above examples were failures, but surely, lessons learnt. It doesn’t matter if any of your brands have failed. It’s not some hazard that has struck an adventure-seeking corporation for the first time. Your shareholders and employees know that there is as much chance for your new product to fail, as there is for a snowfall on a cold Christmas night in the Alps. Remember, Thomas Edison conducted over 10,000 experiments before he managed to invent the light bulb, which brought him much fame and wealth. It was also his first success, which ultimately led to what we know as the fourth-most valued brand on Earth today - GE (valued at $47.8 billion in 2009 as per Interbrand). Experiment. Fail. Learn. Experiment again. Don’t repeat your failure. Succeed! It’s that simple with a brand.

PRODUCT RECALLS-A CURSE OR A GOOD NEWS?

2010-06-18T10:28:00.001+05:30

Product recalls have earned much criticism over time. First, it was considered a taboo with consequences that could spell doomsday for the accused. Then, it made the shareholders utterly uncomfortable. Today, the CEOs are being forced to embrace it as a part and parcel of their lives. After all, is a product recall so unforgivable an act?

What’s it with product recalls that gets the world staring at the accused with a frown-filled skeptical look? Profit-seeking investors count such actions on behalf of the corporations as just another signal of failure heaped upon failure. But the inevitable truth is – the buck stops at the CEO, or in other words, the man at the top! My discussion focuses on the recent slamming of Akio Toyoda, whose family-founded Toyota Motor Corporation has amassed recalls of 8.4 million vehicle units so far during the year, which included the iconic Prius, Corolla and Camry models. The US government, of course, gave him a stick of its own – $16.4 million in fines payable to US Safety Regulators for failing to warn about the defects on a proactive basis. Meanwhile, work went on at Toyota’s plants.

A majority of the studies conducted over decades on product recalls comment that recalls, in general, tear down both investor and consumer sentiments. Some have gone to the extent of even quantifying how disastrous recalls can prove to bottomlines and share prices. One such report published in the Quarterly Journal of Business and Economics claims after analysing 269 product recalls over a period of 20 years that the mean cumulative abnormal returns (MCAR) were negative over the post event period, hovering around 3% from day 13 to 36, with the largest MCAR being -3.55% on event days 19 and 20. Several studies in the past by Jarell & Peltzman (1985), Pruitt & Peterson (1986), Hoffer (1987), Bromiley & Marcus (1989), Davidson and Worell (1992), Thomsen & McKenzie (2002), Chu, Lin & Prather (2005), Heerd, Helsen & Dekimpe (2007), Chen, Ganesan & Liu (2008), Zhao & Stephen (2009) have also proven that product recalls are associated with decrease in shareholder value.

But that’s where I realised that many of these studies, perhaps all of them I dare say, got it critically wrong. All these abovementioned works suffered a common ailment – the observation window was “limited” to anywhere between -1/+1 (days) and -60/+60 (days) of the recall announcement. What about the longer term effect? The fact is that contrary to what these reports mention, product recalls in fact should have been improving the customer perception about a corporation’s commitment to quality. Especially as the company helps ‘correct’ a past mistake transparently and truthfully. Was this hypothesis of mine correct?

I decided to do a deeper and a wider time window analysis of the fi ve most publicized product recalls in history (considering volumes as well), and see whether these recalls added to or negated from the company’s future performance.

1. TOYOTA’S RECALL OF 8.4 MILLION VEHICLES IN 2010: After posting losses of $4.8 billion in FY2009, the Japanese carmaker had the worst start to the new year amongst all automakers, at least as far as brand image and goodwill were concerned. But that’s where the black suit ceremony ends. The Japanese car manufacturer is extremely confident about a quick recovery and has predicted a net profit of $892 million for FY2010 – a far improved situation as compared to the previously forecasted loss of $2.2 billion by the company. Better still, as per estimates by Thomson Reuters, the automaker is set to

record $1.74 billion in net profits during 2010, a figure which will skyrocket to $8.32 billion by 2011. And here’s a treat for shareholders who have been plagued by hearsays about how recalls lead to value erosion. Even as news of how Toyota planned to exceed its initial recall estimates started doing the rounds on February 5, 2010 (with an additional recall of 270,000 Prius units in US & Japan, to fix their brakes), the company’s share surprisingly rose 4.1% to close at $74.71 on the NYSE. That was a day when even the Nikkei 225 fell by 2.9% to a 60-day closing low. The
five year comparative analysis of the Toyota share performance on NYSE vis-avis the S&P 500 shows that the automaker has beaten the benchmark index consistently over the past half-a-decade, and that the recalls haven’t spoilt Toyota’s game. Lesson learnt – if you’ve earned a goodwill already, even a couple of record-setting recalls won’t hurt, as Bob Johnston, Deputy Dean (Operations and Finance), Professor of Operations Management of Warwick Business Schools puts it in a line: “Companies can get away with recalls once or twice in a period of time!” I should add, “Too profitably!”

2. FORD’S RECALL OF 14.1 MILLION VEHICLES IN 2009-10: Another auto major, another record. Having recalled 4.5 million vehicles in October 2009, Ford Motor Company recorded the highest aggregate number of recalls in history in a single stretch. The record – 14.1 million units. That should have destroyed all hopes for the Detroit carmaker, which was supposedly in the worst shape when 2009 began, having made $17.3 billion in cumulative losses during FY2007 and FY2008. But instead of moving downhill, the figures climbed and share prices shot up. In the past one year, the Ford stock has gained 98% in value, outperforming the S&P 500 by a long way. When FY2009 came to a close, instead of recording a negative bottomline (as was anticipated amidst the recalls), the Alan Mulally led giant got the better of cynics, scoring a positive bottomline of $2.71 billion. Even the first quarter of FY2010 was good news, with the company announcing $2.09 billion in profits. Learning: Having a super dual-role perfoming man on top (CEO & President) like Mulally helps. Recalls do too!

3. JOHNSON & JOHNSON’S RECALL OF 84 MILLION UNITS IN 1982 AND 2010: Within a span of a week in 1982, seven Chicago dwellers died without a serious ailment. Reason: they had consumed the ‘Extra Strength Tylenol pain-and-fever reliever’. The catch? It was cyanide-laced. This forced McNeil Healthcare (Johnson & Johnson’s consumer healthcare subsidiary) to recall 31 million units of Tylenol. The move was made with all haste. By the time the year ended, J&J’s stock had actually gained 38.9% in value to touch $1.75 on the NYSE! The year 2009 and 2010 saw a repeat. The company recalled 53 million units of Tylenol on two occasions – December 18, 2009 and January 15, 2010. The stage was set for the recalls to fracture the first quarter results and share prices of J&J. Worse, unlike eighteen years back, the company had withdrawn the compound after 20 months of complaints. It had acted slowly. Critically, the troublesome consumer healthcare category contributed to 24.12% of total revenues from J&J’s overall portfolio. But the markets chose to move against expectations. There were immediate positive gains. A day following the recall of December 18, 2009, the J&J stock climbed by 0.25%, and following the recall of January 15, 2010, the stock gained 1.23% in the next trading session! As far as financials are concerned, J&J recorded a 29.1% y-o-y increase in quarterly profits, which touched $4.53 billion for Q1, 2010 and a 28.6% increase in EPS which stood at $1.62. Learning: Be truthful to the public, publicise your recalls fervently, and see such moves as invaluable marketing opportunities!

4. MERCK’S RECALL OF ARTHRITIS DRUG VIOXX IN 2004: Within five years of receiving the FDA approval, Merck recalled the Vioxx drug, which had earned it revenues totalling $2.3 billion in 2003. The drug was known to double the risk of sudden cardiac attacks leading to deaths than those who took Celebrex (Vioxx’s main rival). FDA researcher David Graham, who was the lead scientist testing the dangerous side effects of the drug, after an analysis of a database of 1.4 million patients also proved that same year that Vioxx had led to more than 27,000 sudden cardiac- arrest related deaths in US, since it was launched in 1999. On September 30, 2004, Merck was forced to remove the blockbuster drug from the market. When news of this reached the bourses, the stock plunged 26.77% on that fateful Thursday, stripping-off $28 billion of shareholder wealth, leaving Merck’s Mcap battered at $75.41 billion. Three years later, the stock was at a historical high and its Mcap had climbed to $134.22 billion! And for the record, Merck’s revenues for FY2004 rose by an unexpected 2.01% to touch $22.94 billion, with net profits touching $5.81 billion. And these figures have been rising steadily since then. For FY2009, Merck’s revenues touched an all time high of $27.43 billion, with a record of profit margin of $12.90 billion (and all this despite having paid up upto $4.1 billion to settle about 50,000 liability lawsuits in the past five years). Learning: Disbelieve critics who claim that one blockbuster drug recall can kill your future – bet on the long run.

5. MATTEL’S RECALL OF 20 MILLION TOYS IN 2007: In what is by far the largest recall in the history of toy-making, Mattel’s recall of 20 million toys in a span of just two weeks surprised many families who had trusted brands like Barbie, Hot Wheels, He-Man, Dora the Explorer and Elmo for years. The first lot was a 1.5 million units recall on August 1, 2007, which was followed up with an 18.2 million units recall on August 14, 2007. Reason: the extremely harmful toxic lead paint that was used on the toys. So, did it lead to what we call shareholder wealth erosion? Actually, no! In the trading session that followed the first announcement, the Mattel stock gained 1.62% on the NYSE. Similarly, the stock gained 1.83% in the second instance. And if financial performance is some justification that product recalls actually help stem consumer faith, here is one shining example – for FY2007, Mattel recorded a 5.66% increase in revenues to touch $5.97 billion and a 1.2% increase in bottomline that touched the $600 million mark for the first time ever! Talking about the recall, Prof. John A. Quelch, Lincoln Filene Professor of Business Administration at Harvard Business School, praised Mattel to no ends in his August 2007 paper titled, ‘Mattel: Getting a Toy Recall Right’. “Mattel deserves praise for stepping up to its responsibilities as the leading brand in the toy industry. The CEO has taken personal charge of the situation. The CEO knows that Mattel’s brand trust – built up over 62 years – is at stake. Mattel is effectively getting the word out about the recall. Mattel’s recall Web site is a model of excellence,” he wrote.

There are many other product recalls that you can perhaps recollect. Why is it that despite Coca-cola having recalled 30 million cans and bottles of Coca Cola in Europe in 1999 and 2000, it still entered the first ever global valuation ranking by Interbrand a year later on the “number one” spot, a position it holds till date? Why is it that despite tens of thousands of battery recalls by IBM in 2005, 2006 and 2009, it still ends up as being the second most valued brand in the world, a brand valued at $60.21 billion with an Mcap of $167.08 billion? Why is it that Microsoft, despite the Xbox recall fiasco in 2007, is still is the third most valued brand at $57.65 billion, and bears an Mcap of $232.05 billion – the third most valued company on the planet?

Truth is – product recalls actually work to build consumer and investor confi dence in the long run if the company handles it “positively” and acts in favour of the shareholders. It’s also true that simply recalling your faulty product is not a guarantee for future success – as competitive leadership in a cutthroat market can be obtained by well defined strategic plans. But it is an undeniable fact that a significantly larger number of product recalling companies seem to be coming out better off than companies that have been more or less noncontroversial. So does this mean I’m recommending that you should simply start recalling your products, irrespective of whether or not they’re faulty? Obviously not... But then again, why not?

SO WHAT’S YOUR DIFFERENTIATION BET?

2010-05-21T09:59:00.001+05:30

Many companies commit the mistake of equating ‘differentiation’ purely with ‘providing better quality’. There’s much more you can do with this thrilling strategy of differentiation.

Walk into the International Supermarket and Museum in Naples, New York, and you’ll learn how to pay your humblest tributes to “failed products”. About 60,000 products that failed in US supermarkets find a place in the museum. Hear out their names – Clairol’s Touch of Yogurt shampoo, Gerber Products baby food, Captain Cat Cat-Litter Deodorant, Gorilla Balls (a vitamin-rich candy), Yogurt Face and Body Powder, Gimme Cucumber hair conditioner, Soaps for Lovers, Moonshine aftershave, Buffalo Chip chocolate cookies, Batman Crazy foam, Hagar the horrible Cola, Kickapoo Joy Juice, Sudden Soda, and many more. Actually, how many of them have you heard of? None, because their ‘formulae’ – as in branding mix – failed to hit home their relative superiority to consumers. They were undifferentiated and therefore undervalued by the “quick to form a perception” consumer market. They were simply “commodities”. As Jack Trout writes in his book ‘Differentiate or Die’: “While categories are expanding thanks to the law of division, something sinister is happening. More and more of these categories are sliding into commoditisation. In other words, fewer and fewer of the brands in these categories are well differentiated. In people’s minds, they are there, but that’s about all!”

But then, what is differentiation (as opposed to selling the cheapest products – or price leadership)? Differentiation is simply ensuring that your prospective consumers are convinced that your product is superior relative to competitors. Nobel Prize winning theorists have proven that even if your products are in reality ‘not’ superior, as long as the consumers are convinced about the same, you’ve done your job and hit bull’s eye! But then again, what factor do you differentiate on? Obviously quality, right? Wrong! Or rather, not necessarily. While companies globally make the mistake of equating differentiation with ‘providing better quality’, the fact is that differentiation can be as successfully attempted on certain other key parameters. Here’s a primer with my most loved examples.

THE FIRST DIFFERENTIATOR – SERVICE
Every one who wishes to fly to London wants to be aboard the Virgin Atlantic. Not that it has more comfortable seats, not even that it has better planes and so flies faster; the reason is simple – unlike competitors, it has set itself apart as a brand that delivers superior “service”– 30,000 feet in the air. Little touches prove that – on a Virgin flight, underneath the salt and pepper shakers, modeled on mini-airplanes, you’ll find the words “Pinched from Virgin Atlantic.” The butter knife is engraved with the words “stainless steal”. And there’s always a bar in the upper class cabin so that its travellers can chat and socialise. The airline was the first to really stretch the grade of what is called service in air to the next yard. It was the first to put in seat-back televisions, and serve ice-creams while mid-flight. “We did everything we could to lighten the mood and the experience. Twenty-five years later, the airline retains that very same sense of fun and the true ability to surprise and make people smile,” says Sir Richard Branson, Chairman of Virgin Group of companies.

And if you’ve ever heard of a company named Maruti Suzuki, you’ll know very well that the world buys Maruti cars purely on the basis of the geographic expanse of Maruti’s service outlets, rather than the design of its cars. That’s differentiation for you!

THE SECOND DIFFERENTIATOR – STYLE
For the world Nokia stands out for quality; truth is, that’s not the truth! As per the most recent Gartner study (May 2010), Nokia commands 36.4% of the world’s mobile device market share, while its next closest competitor is Samsung at 20.6% and the third is LG, with 8.6% global share. In India, Nokia fares better. As per the most recent ORG survey made public, Nokia rules with 59.5%, Sony Ericsson comes second with 8.1%, while Samsung is third with 7%. Now here’s the most recent shocker of 2010 for you – according the 2010 Wireless Traditional Mobile Phone Global Evaluation Study by J.D. Power and Associates, LG was ranked number one by customers in terms of “overall wireless customer satisfaction amongst all traditional handset brands”. This is the fifth year that LG has won the crown since 2003. Nokia was #7! The secret is, Nokia knows mobile consumers love newer designs, newer models, newer rehashes of the same old ‘stuff’, and Nokia rules on that differentiation: style!

Apple, a name which you often hear being associated with innovation, or technology for that matter is again one clever differentiator. Steve Jobs is cleverer. His company didn’t invent the portable music player, or the first laptop, or even the first smartphone. He only followed, and followed better! His iPod, iMac, iPhone have become bestsellers, but were never the ones which innovated technology. Jobs simply gave the products a better appearance, a better interface, a better style. In short he gave it a better overall design. That’s a style differentiator for you.

THE THIRD DIFFERENTIATOR – TECHNOLOGY
How many of you know whether Intel chips are faster or AMD? The fact is, AMD Athlon chips have even beaten Intel’s comparable chips in lab tests – and vice versa too. But right from the start, Andy Grove, the former Chairman of Intel (who wrote: Only the Paranoid Survive) realised that it didn’t matter what was true, it mattered what consumers believed. Through perceptionbuilding exercises, Grove managed to keep consumers convinced that Intel’s processors were technologically faster and superior than those of AMD. Since 1971, it has introduced 662 “unique” versions of the microprocessor; AMD has introduced just 79 versions since 1975! Intel has changed its logo four times; AMD has done it just once. Everyone wonders now it’s “Intel Inside”; how many ask if it’s “AMD Inside”? Nobody! For 2009, research firm iSuppli puts Intel’s share in the PC market at 80.6% (as opposed to AMD’s 12.1%), while IDC research puts Intel’s share at 80.5% (as opposed to AMD’s 14.4%). Even Fedex differentiated using technology rather than just service, where they were the first ones to provide customers with an online package tracking system.

AND OF COURSE – QUALITY
After the setback caused to the Toyota brand post 8.4 million recalls in the beginning of 2010, none would have given the Japanese automaker a chance in the 2010 J.D. Power and Associates’ Vehicle Dependability Study, which was released in March this year. But Toyota’s longstanding belief in quality being a differentiator paid off. The study, after measuring and analysing drivers’ experiences after three years of vehicle ownership, gave Toyota the top spot in four segments – more than any other auto brand. While the Toyota Prius topped the list of the Most Dependable Compact, Toyota Sequoia was the Most Dependable Large MUV, Toyota Tundra was the Most Dependable Large Pickup and Toyota Highlander the Most Dependable Midsize MUV. You want to learn what quality differentiation is? Ask Toyota, which manages it despite multi-million recalls.

AND IF NOTHING WORKS – BRAND RECALL
What do you do when your product cannot be differentiated on any factor? Then go for the simple and straightforward strategy of brand recall. Bombard the consumer ad nauseum with advertisements. He’ll hate you – yet, he’ll buy your product. Brand recall is too powerful. Be the Nike, which sells more not because it’s superior, but simply because it advertises much more than its counterparts like Adidas, Puma, Reebok, Converse, K-Swiss, Skechers, et al. Be the Procter & Gamble, Unilever, PepsiCo, Coca-Cola – each spend more than $2 billion each in advertising – where all you see in their ads are either celebrities or spanking humour (or both). Well, now you know why your wife hates you, yet still can’t let go of you :-)

SHOW US YOUR FACES, DEAR CEOs!

2010-04-22T11:59:00.002+05:30

CEOs come in many flavours. While some are plain vanilla, others are charismatic. While some fail, others redefine success. And while some hide, others believe in the fact that “seeing is believing”. Which one are you?

Undercurrents of controversies have always chaperoned the question: Should a CEO’s face represent the company and vice-versa? The answer is, yes – for good or for worse! That black and white photograph of Henry Ford, standing next to the ancient Model-T will always represent what Ford Motors was during its glorious heydays. Bill Gates will always be the representative of the might of Microsoft, all across the world, despite his giving away all his executive powers. Carly Fiorina will remain in the memories of thousands, for having been the loud public CEO, who created the much criticised HP-Compaq giant (the world’s largest IT company today). And whose face do you recall when you think of Dell Computers?

Much has been written and discussed about the Fed’s unceremonious firing of Rick Wagoner (the-then CEO & Chairman of General Motor Co.) in March last year, after he came under heavy criticism for allowing GM to bloat beyond logical dimensions, thereby paving way for $82 billion in losses since he took over as its CEO in June 2000. The Harvard Alumnus scrapped the EV1 electric- car program and diverted resources away from hybrids (his biggest mistakes as he confesses), but had built enough credibility to carry all shame on his strong shoulders. And to give what’s due to him, he became the symbol of the imperial auto manufacturing American nation called GM, so much so, that the Fed practically had to ask him to step down in lieu of further aid to GM. Wagoner represented brawns; the man who had worked for 32 years at GM, ever since he earned an MBA degree, represented GM. [For the critics, under Wagoner, GM had more cars that exceeded 30 miles-per-gallon than any other automaker in the world!]

To many, Akio Toyoda, the President of Toyota Motor Co., represents nothing but a meteoroid. Toyota surpassed GM in 2009, to become the world’s largest producer of automobiles for just a year before it got off to the worst possible start to 2010. To many more, he still cuts that sorry figure who apologised before the US Congress for his act of recalling 8 million vehicles this year, while taking home a $16.4 million slap. To most, the only picture that comes to mind when you imagine what Toyota is, is its three ellipsical logo. Toyoda was a character unknown to the world; no doubt, even when he testified how the company was committing to recalls in all good faith, he failed. You don’t believe a CEO whom you’ve never seen before – neither as a customer, nor as a Senator!

“If you get your face and your name out there enough, people will start to recognise you,” says this flamboyant CEO of over 200 branded companies. Over the years, he has launched costumes to amuse his business partners, customers and the media. He has thrown himself off tall buildings, hung off bridges and taken deep sea dives – all to grab attention. He had the gall to drive a tank into Times Square and fire at the Coke signboard to launch the challenge against the big cola maker. His bet – Virgin Cola. The CEO – Richard Branson, who’s flamboyant smile represents his group of over 200 companies – the Virgin Group. “A young girl once came up to me and told me I could be famous because I looked just like Richard Branson,” says he. That’s the power of being a CEO brand.

Larry Ellison, the highest paid CEO of 2009 is the poster boy of Oracle. Not easy to become a recognised face amongst the masses, especially when your company has a B2B business structure, but Ellison, born out of wedlock to a 19-year-old Jewish mother, had managed his public image quite well, despite having been married four times! He started Oracle in 1977 (the same year when Wagoner joined GM), investing $1,400 of his own money. Today, it is worth $131 billion on the bourses, and Ellison is the sixth richest man in the world. Ellison has suffered a series of personal mishaps, but has managed to cover it up well, for the sake of his corporation, which has grown in leaps by the years. Today, he is known for his extravagant lifestyle, his $200 million real estate, his fleet of exotic cars and his personal aircrafts. What he is known for most widely is for being the poster CEO of Oracle.

Jeffrey Immelt is another name that has earned a huge critique following –for converting GE into more of an Automated Teller Machine that a manufacturing giant (close to 50% of GE’s 2009 revenues came from GE Capital Services). The slowdown hit it hard, washing away close to $100 billion of its Mcap. It wasn’t an easy task to become the GE ambassador to the world, but Immelt, minus all his shareholder wealth destroying acts, has done his bit to play it to the galleries. Some blame him, some praise him, but everyone knows him.

Larry Ellison’s good friend Steve Jobs is no different. From being the brand ambassador at the launch of every iconic Apple product to fi ring employees at will, his fame has grown over time, at manifold the rate at which he has lost pounds. If it’s not Steve, it’s not Apple!

The list of CEOs who have led from the front, both in the boardrooms and outside in the open isn’t short. From Warren Edward Buffett (of Berkshire Hathaway) to Rupert Murdoch (of News Corporation), from Larry Page and Sergey Brin (who are known for their product Google, unlike the founders of Orkut, LinkedIn and Twitter) to Mark Zuckerber (the 24 year-lad founder and CEO of Facebook and the youngest selfmade billionaire in the world), from Indra Nooyi (“The Iron Woman” who is not just the most powerful woman in the world on many lists, but also one who has transformed PepsiCo’s portfolio, and publicly so, leading the aggressive expansion of PepsiCo into nations like Brazil, Russia, India and China; not many would recall who CocaCola’s CEO is!), the list is long.

Think about it, American CEOs, you’ll know a dime a dozen. But if I were to ask you to name a few Japanese CEOs, apart from Akio Morita (and perhaps Toyoda too), you would know none. Is that the reason why for the past many years, Japan is suffering from a debilitating recession? I don’t have the answer to that, but what I can surely say is that Japan lacks CEOs not only at the corporate level, but even at the country level (for example, the US has Obama) who would be able to jumpstart the economic growth by individually becoming the face of change. Clearly, the term ‘leading from the front’ was not made for no reason. on. 4Ps

FIRST LOSER’S ADVANTAGE

2010-04-08T09:52:00.000+05:30

EVERYBODY TOLD US WHY HAVING THE FIRST MOVERS’ ADVANTAGE WAS MOST CRITICAL FOR SUCCESS. THEY WERE ALL WRONG!

The global business acumen is populated with a multitude of mildewed and hollow adages that fail to equip companies with knowledge to reap extraordinary benefits; First Movers’ Advantage is one such hogwash. Over decades, there have been entrepreneurs who have been washed away by this cliché, that once promised them a blue ocean. And most often than not, they ended up wasting truckloads of dollars in inventing the next unimaginable business bet, and building the platform for the late coming slumber-jacks, who eventually walked away with all the goods – the revenues, the profits, and in most cases, even the innovator’s future!

Henry Ford, who himself was a first mover (having pioneered the automobile), had once proclaimed, “I believe that the best strategy for the first per son is to be second!” He was right. Today, Ford Motor Company, his brainchild has not only slipped from being the world leader in automobiles, which it was some decades back (Toyota, GM & Volkswagen with respective market shares of 13.7%, 12.2% & 9.5% are the top three as per the December 2009 World Motor Vehicle Production OICA Survey), but has also become the champion of automobile recalls, globally! If you thought that the $16.4 million fine imposed on the late-mover Toyota Motor Co. by the US government, following its monstrous recall of 8 million vehicles since January 2010 was a fair punishment, how much would you recommend for the first mover Ford, which in 2008 recalled 14.1 million vehicles, after recalling 8 million in 1996?

What’s common between Vivola, Erwise, Midas and Mosaic? All four, individually claimed that they created the browser market. Their hard work translated into a business idea for late-mover Bill Gates. As of February 2010, Microsoft’s Internet Explorer commanded a 65% control over the global browser market (data by Janco Associates Inc.).

Being the first to stake a claim on a new territory doesn’t ensure sustainability. Sadly, it doesn’t even guarantee advantages as was originally believed. Take the case of the lesser known Prodigy Communications. It was an early bird in the business of online connections, which it entered in 1984, along with huge brand names to guarantee it success: there was IBM leading technology for its operations, Sears Roebuck heading its online retail and CBS was roped in for news coverage and selling of ad-space. Twelve years later, it was sold to a private investor group for just $250 million. Similar was the case with the Graphical User Interface, which was developed by the Xerox Corporation at their Palo Alto Research Center (PARC) in the 1970s. Steve Jobs, co-founder of Apple Computers, visited PARC in 1979 and was impressed by the Xerox Alto, the first computer with a graphical user interface feature. He offered Xerox a chance to invest $1 million in Apple pre-IPO stock, in lieu of two visits to PARC with his engineers. Today, none remember that the Xerox Alto was the first computer with a GUI; for the world, it is the Apple Lisa, which simply “copied” the technology which Jobs saw at Xerox. It’s interesting how one man can prove the case for the late movers so well. Steve Jobs didn’t invent the portable music player, or the first laptop, or even the first smartphone. He only followed, and followed right! His iPod, iMac, iPhone have become bestsellers.

There are many examples of how the first mover lot has been one which has been long forgotten. Names like King Kullen Grocery Inc. (which pioneered supermarkets in America in 1884), Minnetonka (which produced the world’s first liquid soap), Ampex (maker of the first VCRs, which lived for just two decades), Chux (from J&J, which was the first disposable diaper brand), Micro Instrumentation & Telemetry Systems (which pioneered personal computing with the Altair), Visicalc (the first desktop spreadsheet program), Atari (which brought to market the first video game), Dumont (which led the way in selling television sets), and many more, have been relegated to the dust-laden history books. And to talk about the new age champions, they are all those which learnt from the mistakes of the early birds.

Walmart was not the pioneer of retail. Excel was not the first spreadsheet to hit desktops. Commercial aircraft were not the brainchild of Boeing or Airbus. Neither did Disney start a theme-based park, nor was Starbucks the first to sell gourmet coffee. It’s true: they were not the first, they had learnt well and did better!

The criticism is supported well by research too. Researchers DavidMontgomery (Stanford University) and Marvin Lieberman (University of California), in their paper titled ‘First Mover Advantages...’ stated that the ability “to ‘free ride’ on first-mover investments and resolution of technological and market uncertainty” comes as an advantage to second movers.

“Pioneers often miss the best opportunities, which are obscured by technological and market uncertainties. In effect, early entrants may acquire the ‘wrong’ resources, which prove to be of limited value as the market evolves,” added the duo. And to talk about numbers, the fi nal nail is hammered in by Richard B. McKenzie of the University of California, who proved through an extensive study how failure rates across traditional industries for pioneers, was a 71%, with their lot controlling just a pathetic average market share of 6%.

A research by professors Markus Christen (INSEAD) and William Boulding (Duke University) also testifies thus, “We found that pioneers in consumer goods had an ROI of 3.78% lower than later entrants. And the ROI of first movers was 4.24% lower than followers in the industrial goods sector. Bottomline: Pioneers were substantially less profitable than followers over the long run…

Once upon a time, long long ago in Bethlehem, the wise men said that competition was like a 100 meter race – the first off the blocks is the one who has the biggest chance of winning the race. What they unfortunately forgot was that competition was more like a 40 kilometer marathon, where it matters more how well would you last the whole distance and learn from the mistakes of those ahead of you. Imagine driving a car at 120 miles an hour on a completely pitch dark highway in the middle of the night. Now, wouldn’t you give a king’s ransom to have another car ahead of you tasting the bumps and ditches first?

SPIEL GURUS TO SPIN DOCTORS

2010-03-11T10:28:00.000+05:30

From Socrates in 400 BC to Barack Obama in contemporary times, the teaching profession has given more transformational leaders than any other profession.

The correlation was known for many years. But it took a spate of recent examples for pushing the premise beyond argument. Call them spiel gurus or spin doctors or plain and simple professors, the fact is that the teaching profession has regularly, over centuries, provided transformational leaders unmatched in the history of mankind.

Of course, the supremely confident and inspirational Barack Obama is the most recent and perhaps most brilliant example of this qualified hypothesis. Obama, a graduate of Columbia University and Harvard Law School, used to teach constitutional law for more than 12 years (1992-2004) in the University of Chicago. But if the 2009 Nobel Prize winning Obama is impressive, you’ll be amazed at the number of trailblazing tutors in history who’ve moved mountains and masses in their endeavours to changes the world.

Socrates, an iconic Athenian philosopher who lived around 400 BC, was a teacher who spawned students equally iconic, like Plato, and value systems that have become legendary discourses of today – one, which holds relevance till date and beyond, without any footnotes to the preacher, is where Socrates implores the community to focus on self development rather than on the objective of gaining material wealth.

America is replete with similar examples. The most charismatic William Jefferson Clinton, better known as Bill Clinton, went to law school and after passing out, became a law professor at the University of Arkansas-Fayettville. His teaching career is said to have contributed significantly to his political career. He’s one of the few Presidents of the United States who were elected twice to the position. It’ll be hard for any person to deny the command Bill Clinton holds over masses till date. Dixy Lee Ray was the 17th Governor of the U.S. State of Washington. She was Washington’s first female governor. After getting a master’s degree and later a PhD from Stanford University, Ray became a marine biologist and was a professor at the University of Washington for 26 years till 1972. James Abram Garfield (1831-1881) was the 20th President of the United States. In his earlier years, not getting his preferred job as a principal of a high school in Poestenkill, New York, James joined the Eclectic Institute teaching classical languages. For that matter, John Quincy Adams, the sixth President of the United States, was a professor at Harvard. The list of member representatives within the US Senate, who have been or still are professors in American universities (Vernon James Ehlers, Berkeley; Samuel Hayakawa, University of Chicago etc), is growing by the day. The Federal Reserve head, Ben Bernanke, used to teach at the Stanford University’s Graduate School of Business.

Even beyond America, the essence of education and belief in professors is noteworthy. The largely anti-American Mahmoud Ahmadinejad is the current President of Iran and enjoys an unassailably huge majority within Iran (despite all talks to the contrary by western media). He’s into his second term and is none the better when it comes to diplomatic talk. This son of a blacksmith holds a Ph.D from Tehran’s University of Science and Technology and used to teach in the University as a lecturer before becoming Iran’s premier. In the same breath, Vaclav Havel – the tenth President of the Czech Republic – is a close qualifyer being a chemical laboratory assistant for almost four years.

In the corporate front, Dr. Craig R. Barrett, retired CEO and Chairman of the Board of Intel Corporation used to work as an assistant professor in Stanford University before joining Intel. Post retirement, he has now joined the faculty at Thunderbird School of Global Management in Arizona. Barrett ushered in what is considered the most dynamic times in the history of Intel.

Ask yourself. Do you remember anyone in your life, apart from your family and close friends, who has been a significantly large – if not the biggest – influencer in modulating the way you think, and in the way you perceive situations? High chances are that you’ll have a school or college professor in your mind, one whom you would not forget even after years of disuse of the topics taught.

Millions across the globe idolize Mohandas Karamchand Gandhi, Mahatma to all of us. Single handedly, he generated a revolution out of the weakest link in our personalities, that of non-violence. His charisma and vision are what India owes its existence to. Given that, not many know that Mahatma Gandhi once wanted to take up a job as a high school teacher.

Looking at more recent times, this man is an MA, DPhil (Oxford) and DLitt (Honoris Causa). He was a senior Lecturer in Economics (1957- 59), Reader in Economics (1959-63) and Professor in Economics (1963-65) at Punjab University. Later, he became the Professor of International Trade in the intellectual hub Delhi School of Economics, University of Delhi. He further became an honorary Professor at Jawaharlal Nehru University, New Delhi, in 1976. The man is none other than Prime Minister Dr. Manmohan Singh, who led the globalisation wave into India and earned an image that is highly value based.

Clearly, if a country wants a radical and transformative change amongst its citizens and within the nation, it has to focus first on generating outstanding quality professors, without whom the change exercise is futile. To that effect, honourable Union HRD Minister Kapil Sibal has a hitting point when he says that there is a huge dearth of quality teachers in the Indian education system. This is actually an extremely worrisome issue as not only does it hinder the generation of quality professionals to join the corporate industry, it also stymies the nation’s development considerably as there are fewer and fewer thought leaders who can say, “Yes, we can,” and move a nation ahead with them. And that is the call of the day that India needs to address if it wants a revolutionary approach to developmental issues.

WOULD YOU MERGE YOUR FINANCES/ACCOUNTS WITH YOUR WIFE’S?

2010-01-29T10:16:00.000+05:30

Promises of combined superpower financial strength aside, the terrifyingly benumbing question was posed to me by one of my closest friends, who had found time within his desperately busy business schedule to get engaged through ‘arranged’ channels with a wonderful lady (a brilliant attorney at- law!), whose first advice post the engagement to my beloved comrade was, “Let’s get our finances together and start a joint account... Asap!” Blast freezing couldn’t have chilled me to the bones faster than the lady’s statement! But incredulously, my besotted cocker bum of a buddy seemed so deliriously fascinated by the fiancées proposition, that all my pleadings and entreaties to influence him to not ‘give in’ were either flatly shoved away or angrily dismissed as being “hysterical!” To a point, where my utterly bewitched friend literally screamed at me to back off, shouting, “Why the hell are you stopping me? Wouldn’t you merge your finances with your wife’s?

Well, would I? Corporate research teaches well, and to married men, I say it teaches better; because much that happens in the corporate world applies lock, stock and a beer barrel to the personal lives of married men! And I had known for years the answer to the beguiling question of whether one should merge finances – or for that matter operations/ branches/employees... M&As for short. In one word. “No!”

Mergers – used as an inorganic growth strategy – rarely work. And the faster managers realise that, the better! I start with the authoritative IBM Global CEO study 2009, titled ‘The Enterprise of the Future’, which, after interviewing more than 1,130 CEOs globally, reports that a smashing 67% of the CEOs voted for growth through “organic” routes, with another 81% voting for “partnering extensively,” rather than M&As. In another 2009 survey finding from Deloitte Consulting’s CEO Survey, ‘Now is the time when winners stand out’, four out of five CEOs surveyed voted in favour of organic growth being the path to their companies’ future growth, with just a paltry 16% voting in favour of M&As. There seems to be increase in the number of those whose blindfolded faith in the power of M&As is rightly being wiped out, with the most contemporary 2009 dose coming from PricewaterhouseCoopers in the name of its 12th Annual Global CEO Survey, which states how “only 6% of CEOs think that M&As currently offer much potential for growth.”

The 2010 NYSE Euro next CEO Report titled ‘The Road to Recovery’ proves empirically that today, the percentage of CEOs who believe that “M&As, as an external factor, will impact the company’s overall growth through calendar year 2010”, has fallen by 16%, as compared to the figure three years back. In fact, 76% of the CEOs surveyed confirmed how M&A market opportunities are “not exceptional” through 2010. In a classic M&A global research report furnished by KPMG, all optimism regarding M&As is buried deep: “53% M&As had actually destroyed [shareholder] value, and 83% of mergers were unsuccessful in producing any benefit to shareholders…” The IABC Research Foundation report, ‘How Communication Drives Merger Success’ interestingly combines five different studies over a period of two decades, conducted by McKinsey & Co., A.T. Kearny, Business Week and Fortune, and concludes, “A majority of today’s mergers will fail. 1/3rd will be sold within 5 years, 90% will fail to live up to financial expectations, 50% will destroy shareholders’ wealth, 60% will see their stock price fall behind peers” within 2 years, and 2/3rd could have earned more simply by putting their money into certificates of deposits!

To put all heavy-duty research aside, let me give you a very interesting piece of information that may set your think tank rolling. During the year 2006, when sentiments in the global economy were on an extreme high (a year when even India Inc. saw its biggest billion dollar deals ever!), the top seven names on Dealogic’s M&A dealmakers list were Citigroup (having spend a continental $296.28 billion on 51 deals during the year alone), Goldman Sachs (spent $296.26 on 70 M&A deals), JP Morgan ($271.93 on 96 deals), Lehman Brothers ($255.57 on 47 deals), Merrill Lynch ($227.90 on 67 deals), UBS ($204.83 on 85 deals) and Morgan Stanley ($184.06 billion on 56 deals).

Strangely, the amount of money they spent on deals only increased their respective debt loads and weighed heavy on to their portfolio of non-performing assets. Just two years later, the largest of the M&A dealmakers, Citigroup returned losses amounting to $99 billion in 2008 – the highest ever for any company in the history of capitalism! Beat that for positive returns with $230 billion worth of shareholder wealth erased in the two years following the deal!

A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of A study by the University of Exeter’s new Centre for Finance and Investment also revealed how in the five years post-deal, the ROI for merged entitites underperformed by an average of 26%, compared with shares in companies of and this is precisely how Daniel W. Rasmus, Director of Business Insights, Microsoft Corporation quotes him in his 2009 report titled ‘Working in a blended world’: “Between 65 percent and 80 percent of M&As destroy shareholder value, rather than enhance it.” Explaining the reasons for failures, the white paper by Professors Ulrich Steger and Christopher Kummer of IMD Lausanne, titled, ‘Why M&A Waves Reoccur – The Vicious Circle from Pressure to Failure’ elaborates, “Synergies [of functioning together] are frequently overestimated – they look good on paper but are not realized…”

Having said that, I would put forward the proposition that M&As are not growth strategies but survival strategies – meant for drowning entities, who latch on to each other to live another day. That means that during the times of economic slowdown, M&As should have increased, especially in the companies floundering to survive. Unfortunately, the corporate world remained blinded and in fact reduced the number of M&As during this period. According to a January 2010 Global M&A Report by data monitor ZEPHYR, the value of global M&A declined by 15% to $3.62 trillion in 2009 (from $4.24 trillion in FY2008 and $5.61 billion in FY2007). The number of deals reduced to 64,981 in 2009 from 66,472 in 2008. Private equity deals declined in every outlined region by both volume and value.

Even in India, total value of M&A deals announced in 2009 was $21.20 billion against $41.54 billion in 2008, according to Grant Thornton’s Deal Tracker report 2010 – a drop of 49.01%. There were 488 deals in 2009 as against 766 a year back. While on one hand, domestic M&A volumes dipped to 142 from 172 last year, outbound M&A was down at 64 (as against 196 last year) while inbound M&A fell to 61 (as against 86 last year).

But brilliantly, the ever-solid Towers Perrin 2009 report titled, ‘M&A in the post-Lehman world’ proves my conjecture by stating, “Companies that completed M&As since the beginning of the downturn are outperforming their non M&A peers by 6.3% globally.”

Dionysius Exiguus initiated the BC & AD dating systems. For the contemporary mergers world, there’s one such Exiguus – and he’s called Warren Buffett, who in 1981 had narrated the momentous constitution regarding the futility of M&As, when he said, “Many top managers apparently were overexposed in impressionable childhood years to the story in which the imprisoned handsome prince is released from a toad’s body by a kiss from a beautiful princess... We’ve observed many kisses but very few miracles!” Mergers rarely work, and those that are undertaken in a rush of ego, infatuation and blindsighted power hunger, will fail!

All said and done, I knew that the battle to influence my unsuspecting friend’s mind had been lost the day he had set eyes on the lustrously effulgent solicitor. I scraped back what was left of my ego and decided to trudge back to my own turf – my home – where the rules were all mine. Entering home, I was just about to take off my coat, when my sweet wife shouted from across the hall, “Tell me, who is the nominee on your life insurance policy?” I could swear I felt a freezing blast from somewhere down the hall...

DO I LOOK LIKE TIGER WOODS?

2009-12-18T10:32:00.000+05:30

Truthfully speaking, it’s become quite an embarrassing ‘accomplishment’ for me. Almost two years ago, I had taken up the self-acclaimed mantle of being a Tiger Woods lookalike, writing in an editorial how a group of Americans had increasingly pointed out the same to me. Over time, I had rampantly propagated the same vaingloriously. My timing couldn’t have been worse! They say Tiger Woods hasn’t been able to come out of his house for the past many days. I think I won’t be able to come out of my house for many weeks altogether! Be that as it may, the question now is, would the various brands that used Tiger as an ambassador benefit from continuing with him? But even before that, revisiting a question I touched many issues back, do celebrity endorsements really help companies perform better?

While the the latest Interbrand-BusinessWeek ‘Most Valuable Global Brands 2009’ list has Coca Cola (a company renowned for choosing regional celebrity ambassadors) as the most valuable brand in the world (valued at $68.7 billion), the fact is that seven of the top ten ‘most valuable brands’ on the list do not have even a single celebrity brand ambassador as of date. These include names like IBM (worth $60.2 billion), Microsoft ($56.6 billion), Google ($31.9 billion) and Intel ($30.6 billion). Are the times of celebrity branding getting over? Not quite. In fact, not at all!

In their December 2008 paper titled ‘The Economic Value of Athlete Endorsers’, Anita Elbersei (Professor at Harvard Business School) and Jeroen Verleunii (VU University Amsterdam, Amsterdam) prove how sports athletes have a definite positive influence on their clients’ stock performance. They write, “We find that a firm’s stock market valuation increases when it recruits an athlete endorser, and (also) each time one of its athlete endorsers achieves a major career milestone.” In a hallmark 2009 Wharton marketing paper titled ‘Advertising yourself’, Prof. Eric Bradlow of Wharton states that it is important “to reach out to people who are ‘influencers’. Everyone should have a list of 20 or 30 people who will act as their ambassadors…” Professors Robert Clark (HEC Montreal) and Ignatius Hortsmann (University of Toronto) give empirical evidence in their classic research ‘Celebrity Endorsements’ that proves that not only do “celebrities enhance product recall... They also enhance consumer perception of product value... Consumers value more highly a product endorsed by a celebrity than one without a celebrity endorsement.” The acclaimed duo of Amit Joshi and Dominique Hanssens, after a decade-long analysis of Apple, Compaq, Dell, HP and IBM, prove in their thesis ‘Advertising Spending and Marketing Capitalization’ that when celebrities endorsed these ‘tech’ brands, shareholders and investors ensured the firm’s future earnings potential rose. In the brilliant treatise, ‘The Economic Worth of Celebrity Endorsers’, Professor Kamakura (University of Pittsburg) and Professor Agrawal (California State University) put forward the concept that the average impact of celebrity endorsement announcements is definitively positive on stock returns. Researchers Miciak & Stanlin give a global synopsis, “Celebrity endorsements work so well that (now, globally) about 20% of all TV commercials feature a celebrity.” It is time that those companies which do not use brand ambassadors wake up to see the true benefit. Tiger or no Tiger, celebrity endorsements work fantastically well, and avoiding the same can only lead to many opportunities lost.

With all this in the background, after many days, I finally started again socialising. I forced myself out to meet people, realizing that thankfully nobody was reminding me of my earlier follies... until this Saturday, in a party, I noticed one foreigner on the other side of the room intently staring at me for a long time. Petrified – and trying to avoid his gaze – I noticed to my chagrin that he’d started walking towards me. With disappointment, I realised my cover was blown. The man walked up to me, smiled, and spoke, “Has anyone ever told you that you look very similar to... Barack Obama?”

FABLES OF MYOPIA, AND OTHER BESPECTACLED TALES...

2009-11-20T09:51:00.000+05:30

The time I spent in school will perhaps never be forgotten. I wasn’t referring to myself (who in heavens would claim he can’t remember his own time in school... alright, maybe a former US President), but to the teachers whose subjects I failed, to the administrator whose projector I destroyed, to the provost who rusticated me out of the hostel five times by the time I kicked myself out, and to the Principal who once chased me around the sports ground brandishing a pair of industrial scissors threatening to cut my slovenly two penny hair. All this was pretty fine with me... all, except one boy, whom I envied to perdition. While we both were equally good sports enthusiasts and used to get into all the school sports teams – basketball, cricket, swimming, football, tennis – he would always be made the captain, however hard I tried to prove my sporting skills to the nepotistic coaches.

The frustrating irritation in me knew no bounds – well, the captain used to be treated like an emperor; and obviously, he would get all the, umm, fan mail, if you know what I mean! Driven to the point of galling exasperation, one fine afternoon, I cornered him at the school grounds after sports practice and loudly threw the accusation that it was only because of his connections that he, and not me, became the captain. Not taking a moment, and like a true sophisticated cultured gentleman that all boys in my school were trained to be, he lunged at me screaming bilingual four, five and six-letter words and shouted, “That’s not true. You couldn’t become the captain because you didn’t clear the vision test. You couldn’t even read the first line on the alphabet board!” His answer hit my jaw like a ten tonne truck before his fist did. The pest was right about the test. I had short-sight, but refused to wear spectacles (like all the ‘boys in the hood’) and to accept that I even had myopia. Consequently, I always failed the vision test, while he’d always pass it. But then, given the emotion of the moment, I did start wondering: did such a fabled connection really exist? Did a leader necessarily need to have an excellent vision to succeed?

Well, I won’t even childishly attempt to draw the metaphor up in the real corporate world – as the answer is a resounding yes! Vision is the obsessive compulsion to continuously achieve beyond benchmarks, and is the essence, the soul, the character of great leadership. Without a sustained and sincere visionary approach, not only does the CEO doom himself, he also magnanimously devastates his company’s future irreparably, targeting objectives which will never allow the organisation to become a global leader. But the toughest part in the whole imbroglio is – does the CEO even have a ghost of an idea of how wonderfully visionary could a vision be? Do you?

This boy of 14 dropped out of school and joined his uncle’s store as a watch salesman (as his penury ridden father had passed away due to tuberculosis). He worked 16 hour days, and even learnt English from a tutor during the night, after work! Seven years later, when he was just 21, he borrowed capital from some friends and family members and opened a plastic flower manufacturing company. Nine years later, his firm became the largest supplier of plastic flowers in Asia. Half-a century later, his empire spans across industries like oil, electronics, telecommunications, retails, ports, power, electricity and even health and beauty. The name of his empire – the publicly traded Hutchison Whampoa group (which he acquired from HSBC in 1971) and Cheung Kong Industries (which he founded in 1950), which operates across 55 countries and employs 2,20,000 people. The name of this determined and born visionary – Li Kashing, the richest man in Hong Kong and the 16th richest on the 2009 Forbes billionaires list, his net worth valued at over $16.2 billion, with his empire worth much more – $120 billion in mcap. Can you match his vision?

Born out of wedlock in Kosciusko, Mississippi, to teenage parents who broke-up soon after, this lady’s mother was a housemaid, and her father, a coal miner. Raped by family members when young, imprisoned in detention centres, pregnant at 14 (with her child dying soon after birth), she’s my icon of how vision can motivate one to become the champion of circumstances and business. At 17, she won the Miss Black Tennessee beauty pageant and was noticed by the local black radio station, WVOL, which hired her as a part time radio jockey. That proved to be her baby step into the world of media. After that, she worked with Nashville’s WLAC-TV and Baltimore’s WJZ-TV. Today, her company Harpo Corp. produces The Oprah Winfrey Show, aired in 140 countries around the world, with 30 million viewers a week in US alone. Oprah is the only black woman billionaire in world history, her personal worth estimated by Forbes at $2.3 billion. Can you match her vision?

Born nearsighted, a dyslexic, a school dropout, a failure in the first two business ventures he started, this man started a magazine called Student to cater to young demographics. To cover postage charges, his mother donated four pounds. Working from his basement, Student debuted in January 1968 (The first feedback he received for the magazine was from the headmaster of his previous school, who wrote: “Congratulations! I predict that you will either go to prison or become a millionair”) Within 25 years of that letter, this visionary put into place a diversify ed group with more than 150 companies, spread across six continents; and much to prove his school headmaster wrong, became a billionaire! With businesses ranging from comics to airlines, from colas to mobile telephony, Richard Branson’s personal wealth now amounts to $2.5 billion, and his fame to something much beyond! Well, can you match his vision?

A few years back, the Stanford University paper (Vision, Key to Creating Shareholder Value) quoted Lord John Browne, then CEO of the oil behemoth BP, “You have to remember what your vision is, and you have to be disciplined about sticking to it in order to create shareholder value!” When Browne became BP’s CEO in 1995, the company’s annual revenues were $26.95 billion. In 2007 when he resigned, they were a spectacular $274.32 billlion – a stupendous rise of 917.88%! Browne’s successor, Anthony Hawyard, has kept the visionary approach as rampant – the revenues for 2008 were a mind blowing $367 billion! That is vision!

The brilliant management guru Jim Collins, using a 70 year long study as a basis, showed in his best selling book Built To Last how ‘visionary companies’ gave stock returns that were almost 700% more than ‘comparison (not so visionary) companies’. The findings of a huge research by the well known Ken Blanchard Group (covering 2000 odd worldwide respondents between 2003-2006) show how “failing to communicate the vision in a way that is meaningful,” is the biggest mistake that leaders make when working with others. Noted author Jim Heskett, in a Harvard Business School paper (‘How much of leadership...’), writes, “Companies growing value the most are the ones with leaders that have a clear vision, continually communicate that vision, and then get out of the way!” Are you such a leader?

Clearly, it’s not just about what vision you have, but about the vision you make your followers believe in, and work towards! In summary, fanatic vision is about targeting objectives fantastically beyond what your normal potential would ever allow – devastate and destroy all current pretensions, processes, procedures, and assumptions that stymie the power of imagination and passionately work towards the fantastical objective like a delusional zealot, believing completely in the fact that you will achieve the quixotic target, at the same time ensuring that all your followers believe as fanatically in this prophetic atom-smashing finality!!! That, my CEOs, is being a visionary!

Coming back to where I started, back in school, post the jaw breaking fight, I ended up over a few months actually becoming friends with the truant captain, given our common roguish antecedents. One day, we both decided to skip school and watch a movie in the nearby theatre. The moment the movie started, I was stunned to see him take out a pair of spectacles from inside his bag and wear them. I was totally dumbfounded! With my mouth agape, I garbled to him, “But you said you had perfect vision?!?” The devil of the town coolly looked at me, and spoke, “I never said that. I just said that you never were able to read out the alphabets on the eye test board... while I used to mug them all up!” Geez, where was it that I started this editorial?...

IN SEARCH OF EXCELLENCE: 6 LESSONS FROM THE WORLD’S BEST MANAGED COMPANIES

2009-11-05T12:26:00.002+05:30

In the past few months, while I have been trying to make sense of the strategies of the world’s largest companies in my editorials, my analysis has many times flamboyantly and quite shamelessly used the Fortune 500 lists, without doubt the most well known international listing of the world’s best managed corporations. Over the course of various editorials, my research team has time and again brought out data and analysis, which has almost never ceased to surprise me, and many times even changed my preconceived notions of what constitutes the best course of strategic action for a company. In short, the findings of my team have represented some of the most contemporary understanding in the world of modern management and in the world of Fortune 500, the highest revenue earning firms internationally. And in this issue’s editorial, after analysing many of my past editorials, I bring to you the compendium of 6 unique strategic factors that drive a majority of these Fortune 500 corporations in their search of excellence:

LESSON #1: TO HELL WITH ‘FUN’!
Only 6% of Fortune 500 companies in 2009 made it to the list of Fortune Best Companies to Work For 2009 list. In other words, the entire list of Fortune’s Best Companies to Work For had no mention of 94% of the top Fortune 500 names! The highest placed amongst those in the Fortune 500 list was the 10th ranked Valero Energy, which was placed eighth-last on the Best Companies to Work For list. The #1 company on the Best Companies to Work For list (NetApp) was ranked #647 on the Fortune 1000 list! The #2 and #3 on the Best Companies to Work For List (Edward Jones & BCG respectively) did not even feature amongst the Fortune 1000 names!

Learning: The best performing corporations of the world (in terms of revenues, increasing shareholder value and earnings) make sure they’re not fun places to work; rather, excellently performing companies like Exxon and Berkshire ensure that employees are made to work killingly hard.

LESSON #2: ‘SERVICES’ IMPLY ‘SHAREHOLDER VALUE’!
Surprisingly, the top ranked Fortune names weren’t the ones who could be most proud about delivering the best of returns of their shareholders. So guess which company delivered the maximum returns to its shareholders amongst all 2009 Fortune 500 names? An unknown firm called Dollar Tree, now ranked #499 on the Fortune list, gave back to its shareholders 60.8% returns y-o-y. In fact, only six Fortune 500 names delivered annual returns superior to 20%. The other five names are: Family Dollar Stores (ranked 359), Nasch-Finch (ranked 492), World Fuel Services (ranked 147), Amgen (ranked 168) and Omnicare (ranked 392); all of which, except one (Amgen) are into the ‘Services industry’! Even when we look at the revenues earned per dollar of assets or per dollar of equity, the top five industries in both the categories belong to the services sector.

Learning: If you want to be counted amongst the most efficient and productive companies of the world (for your shareholders, investors, customers), the services sector is where you might want to be for the coming few years.

LESSON #3: NEVER TRUST A WOMAN!
Only 3% of 2009 Fortune 500 companies have women as their CEOs; and the irony is that this puny woman CEO figure is actually a 0.6% jump over the previous year. And if the Fortune 1000 names are considered, the count boils down to a lower 2.8%. The figure is similar to the Standard & Poor’s 500 list, which has just 14 names of companies that are headed by women CEOs (again, 2.8%).

Learning: The world’s biggest companies don’t trust a woman to be their CEO.

LESSON #4: THE ‘FORTUNE’ OF LOYALTY AND YOUTH
While the average tenure with a single Fortune company for a Fortune 500 CEO is a high 26 years, the same for an S&P 100 CEO is also a similar 23 years, disproving the hype and hoopla about job-hopping leaders. While 61% of S&P 100 CEOs have been working for the same company for 15 years or more, 30% have never worked anywhere else (Source: Hewitt Associates CEO Study)! The report by Booz Allen Hamilton titled ‘CEO Succession: Stability in the Storm’, after analyzing the world’s 2,500 most valued publicly listed companies, also proves how loyalty is still alive and kicking, with boards today even encouraging succession planning of ‘internal candidates’. The study notes how “among new CEOs, outsiders – those brought in from outside the company to take the helm – make up only about 24 percent of the incoming class.” The belief in youth is also quite strong. Another study by Hewitt Associates, titled ‘Board Index 2008’, notes that as boards get older, “the average age of the CEO has decreased” as compared to 10 years back. As per the C T Partners report titled ‘Does Age matter when you’re CEO?’, S&P 500 companies, which are run by the youngest CEOs, outperform those run by the oldest. Stocks of S&P 500 companies whose CEOs are 47 and younger have outperformed the S&P 500 Index by 6.2% since 2007, while those led by CEOs who were 72 and older underperformed the S&P 500 Index by 12%. Even when Forbes magazine measured the performance of the 10 youngest (average age 44) CEOs vs. the 10 oldest (average age 74) CEOs of large companies using a formula to measure CEO compensation packages relative to shareholder return, it found that “the younger CEOs as a group outperformed the higher-paid, older CEOs.”

Learning: If you have any ambition of becoming a CEO, be loyal, and never jump jobs (at least, not more than once)!

LESSON #5: CEO + CHAIRMAN = SUPERMAN!
Despite all the hogwash talk about corporate governance and splitting of the CEO and Chairman roles, the truth remains intact – one bird in the hand is better than two in the bush. While 64% of Fortune 500 CEOs play the dual role of a Chairman and CEO, the figure is just about the same with S&P 500 companies, where 61% of the companies have the same person serving as the CEO & Chairman (Source: Hewitt Associates Board Index Report). A case to point is Rex Tillerson, the man in charge of ExxonMobil, one of the world’s top three corporations. Rex has been serving as both the CEO and Chairman. Under him, Exxon has reported eight of the ten highest quarterly net profits for any company in the history of mankind. The top three highest being $14.83 billion (during Q3, 2008), $11.68 billion (Q2, 2008) & $11.66 billion (during Q4, 2007) – all three records when he was the ‘dual’ man on top!

Learning: More the people taking the decisions, more delayed a company’s response to competition. Clearly, the world’s leading firms combine the Chairman’s and CEO’s post.

LESSON #6: CORE FOCUS ON A SINGLE BOARD
Over the past decade, outside board service by CEOs has fallen by 65% as compared to 1998. On an average, CEOs now serve on only 0.7 other boards, down from 1.0 in 2003 and 2.0 in 1998, as the Board Index Report by Spencer Stuart concludes. Not just that, the average size of the Board of Directors is also shrinking, having fallen by 10% over the past decade. The trend towards smaller boards becomes more noticeable now: The number of boards in the S&P 500 with 12 or fewer directors has increased by 18% since 1998 and 8% since 2003. Surprisingly, today 80% of S&P 500 Boards have 12 or less than 12 directors.

Learning: Do not allow the top management to focus on anything other than your corporation!

STEVE BALLMER SAYS IT’S UTTER HOGWASH!

2009-10-09T10:01:00.000+05:30

If looks could kill, the outrageous way my seven year old cellphone looks could have killed anybody a mile around with a ten mile collateral radiation damage. I have been supremely chided by friends, families (neighbours’ included), philosophers and tour guides about the villainously repellent profile my cellphone seems to have inherited after so many years of use, misuse, and abuse. I had been completely insulated from all these ‘change-to-a-modernphone- dear-junkie’ diatribes, till one evening, for the first time, my wife with quite a rancid look on her face accosted me the moment I entered the house, and steamed away, “It’s not anymore about you, but about how outsiders have started perceiving us all due to that schlock of a contraption. Why can’t you buy a new phone? Even the car cleaners have better handsets. Don’t you think buying new technology actually improves productivity?” The thundering sword of a question was pretty haunting in nature: Critically, how valuable do the world’s greatest organisations consider investments in new technology? How well do these investments improve profits, sales etc...?

When the famed Jim Collins wrote a few years back in his best seller, Good To Great, that “none of the Good-To-Great [world class] executives put technology as one of their top 5 drivers,” not many believed that that would be the way it would be in the future. A year back, when I researched the outstanding NYSE CEO Report 2008, it stunningly corroborated Jim’s findings by showing that only 5% of CEOs now thought that new technology would be “the most important internal factor affecting profitability...” 67% of CEOs believed that “the ROIs from technology investments have failed to meet expectations till date!” In fact, the factor considered most important by CEOs for revenue growth was ‘management team’, rather than technology. Now, when I study the most recent NYSE CEO Report 2010, it brilliantly states, “As was the case [previously], operational efficiency and management stand out as the internal factors expected to have more impact on profitability. CEOs have downgraded the importance of new technology and products...” 70% of CEOs now say they would not increase their investments in technology.

A lucid and provocative speaker on business and technology, Nicholas G. Carr, in his most celebrated and controversial HBR article titled, ‘IT Doesn’t Matter’, proves through extensive research how, “As Information Technology’s power and ubiquity have grown, its strategic importance has diminished. Technology’s potential for differentiating one company from the pack – its strategic potential – inexorably diminishes.” While experts and media houses from around the world called the work “A bombshell” (Forbes), “Provocative” (NYT), “Firestorm!” (BusinessWeek), “Accurate description of the technological world...” (CNN Money), “...and of today’s tech landscape” (WSJ), Steve Ballmer, CEO of tech-giant Microsoft, predictably called the article a “hogwash!”

A famed letter from John Seeley Brown (former Chief Scientist, Xerox) and John Hagel III to HBR had this epitaph of a warning, “Businesses have overestimated the strategic value of IT. They have significantly overspent on technology in the quest for business value. IT-driven initiatives rarely produce expected returns...” And for those companies believing in being at the forefront of innovating new technology, I present PwC’s most recent Annual Global CEO Survey 2009, which shows that ‘technological innovation’ does not feature even in the top five factors for CEOs as a “critical driver of long-term success” (The most important factor was “Access to, and retention of, key talent”). Even when it comes to ‘Immediate threats’ that are driving CEOs’ priorities, ‘technological disruptions’ are ranked at a lowly #13; second from last! ‘Terrorism’, ‘Climate Change’, ‘Inadequacy of natural resources’ and other such factors are ranked higher in importance by CEOs. From the IBM Global CEO Study 2006 to the peerless thesis titled Economic and Technical Drivers of Technology (March 2006) by Dr. P. Yin (HBS) and Dr. Timothy F. Bresnahan (Stanford), from the superlative Economist Intelligence Unit 2007 report to McKinsey’s classic 2007 report (The Next Frontiers in IT Strategy), study after study has now proven that investments in technology have not only left a humungous majority of CEOs completely unconvinced about their effectiveness but are also atrociously useless in many cases.

So what do you do when on one side you have all the research in the world screaming away to you to not invest in a new cellphone, and on the other side you have a pressure cooked wife shouting at you to invest thousands in the latest thingamajig?... You buy the cellphone! Period!!!

BEASTUS MAXIMUS OR DON JUAN DE MARCO?

2009-09-24T10:51:00.001+05:30

No man ever gets a potbelly. No one! And born gymnasts like me, never in ten lifetimes. You might get a little plump here and there, but a potbelly? Bah! Thus it was, when – with much irritation after being hounded for over a month by my wife who libelously accused me of having procured a potbelly – I landed at the neighbourhood gym (which looked more like a fancy den for bully boys, one-third my age, trying to show off their hormone pumped muscles).

Trudging in contemptuously, while ogling at the plethora of mile-long machines lined up on both sides, I was straightaway introduced by my teenage nephew, who frequented the gym, to two brawny thickset six-footers, and asked to choose the trainer I would desire to be trained under. And why would I ‘desire’ one trainer over the other? Their differing training styles were put forward for my consumption. While one hooligan roughneck (Beastus Maximus is what I call him) was purported to be the toughest monster-trainer west of Cambodia, who could savagely whip your ten generations blood-dry till you got into shape, the other surprisingly had a gentler and suaver style of training, allowing you to lavishly train according to your ‘desires’ and needs, without pushing too hard.

Not surprisingly, Mr. Don Juan predictably was the more admired trainer with a bigger following. But that brought me to an interesting question. Despite the likability – or dislikability – index, who would be in reality more effective in getting people into shape – would it be bullboy barbarian who could machine wrench your guts out; or would it be the caring inveigler who’ll give you enough space to set up a farmhouse?

I decided to check out the metaphor in global corporations – have hard taskmasters been less successful universally than soft taskmasters? My research gave results to the contrary. The list of Fortune’s 2009 Best 100 Places To Work For (which contains names of 100 corporations which employees love the most globally) had only 5 names from the world’s top 100 and best performing corporations. That is, 95% of the world’s 100 largest companies – including Exxon- Mobil (the most profi table corporation in the world), Walmart, Chevron, Hewlett-Packard, GE, Berkshire Hathaway – are actually not the best places to work!! More shocking is the fact that the #1 company in the Best Places to Work ranking (a company called NetApp) did not even make it to the Fortune 500 list of the world’s largest corporations! The #2 and #3 do not even feature in the Fortune 1000 list!!!

For information, Fortune once noted that research shows that having or not having natural talent is “irrelevant to great success. The secret? Painful and demanding practice, and hard work...” Fortune also wrote about Warren Buffett, the world’s richest individual, that he was “not a born CEO or investor or chess grandmaster,” and that he achieved greatness “only through an enormous amount of hard work over many years. And not just any hard work, but of a particular type that’s demanding and painful.”

In other words, deep-rooted and long standing sustained sincerity works terrifically better than plain passion and myopic bursts of commitment.

Tiger Woods is a textbook example of what research proves. Because his father introduced him to golf at an extremely young age (when he was just 2 years old!) and encouraged him to “work hard,” Tiger had racked up at least 15 years of hard work by the time he became the youngest-ever winner of the US Amateur Championship, at the age of 18! Even today, after winning many world titles, he works as hard, devoting many hours a day to conditioning and practice, even remaking the same swing twice, because that is his formula to getting super better.

When Carly Fiorina left HP (of course, after halving HP’s shareholder value in her six year term), the tumultuous 2001 merger with Compaq appeared to be driving HP straight to the undertaker’s workshop. Enter Mark Hurd, who is described as a “peerless control freak and an unrepentant leftbrainer!” As Fortune confi rms, “Hurd quickly established himself as a stern taskmaster for accountability.” Ben Horowitz, who was CEO of Opsware, which HP bought in 2007 in a $1.7 billion deal, adds, “His weapon of choice is the voicemail... and he begins the barrage in the wee hours. If Hurd is down on someone’s work, he’ll complain openly, so everyone knows he’s displeased. It feels like the walls are closing in on you.” Hurd’s greatness comes from the fact that he’s unrelenting, unrepentant and ruthless in his employee destruction, reaching below various levels of employees to rebuke bad performers personally. HP today is the world’s largest IT corporation (Fortune #9) whose revenues of $118.36 billion surpass even that of IBM’s. Even in the face of recession (a time when desktop and laptop sales have been battered), HP’s stock price has jumped by an unbelievable 130% since 2008 to touch $46 as of date.

That brings us to a close associate of Mark Hurd, A. G. Lafley, who in July stepped down as the CEO of P&G, while retaining the seat of P&G’s Chairman. When Lafley took CEO charge on June 6, 2000, P&G was in a big mess. Over the next six months, matters worsened, with the stock losing 50% of its value and its Mcap falling by more than $50 billion. But Lafley did the unimaginable through his ‘Working It’ program, which ensured that every member of the P&G family was made to “actually go into shops to sell to consumers,” as the April 2008 book by Ram Charan and Lafley titled The Game Changer notes. This go-to-field program ensured that each and every employee was made to work hard and sweat it out for maximum productivity! By the time Lafley left office as the CEO, P&G’s Mcap had improved dramatically to $150.59 billion from the lowly $33.74 billion it touched in the first six months of his arrival – a rise of 346.28%! What about ‘unhappy’ employees? Lafley confesses, “The company has no right to be happy unless ‘the boss’ is happy.”

Mentioning Jack “Neutron Welch” as “a tough taskmaster” would be a cliche. But it’s still important to note that Jack was well renowned for his often most displeasing “handwritten notes on performance” to employees, throwing out even passionate people at will, if they didn’t have sustained sincere attitude towards work. When Jack retired, GE’s value had increased by an astonishing 2,729% to $410 billion!

In the 2009 Conference Board Review paper titled, Why Americans don’t trust CEOs, Jason Jennings, author of the best-seller Less Is More notes that “strong leaders should be: straighttalking, hard-charging, tough taskmasters...” Many say like AIG’s former boss Hank Greenberg, who built a $99 billion financial-services empire (before Martin Sullivan, his successor destroyed it) – BusinessWeek calls Hank “the impatient and prickly leader, who could yell at people even while cycling furiously on a stationary bike!”

For too long, we have been a nation purporting the myth that companies should protect employees, give them brilliant and amicable working environments. No more! It is time to call the ridiculous bluff and to realise that without being the worst taskmasters and slappingly demanding sustained sincerity from employees, we can never become world class and globally benchmarked!!!

But hey, all said and done, research could go to hell, what about my personal life – and the ever growing potbelly? I still had the Damocles’ predicament hanging on my head at the gym. Who could ensure my potbelly could be zapped away with sureshot guarantee? Was the ungodly taskmaster Beastus Maximus really a better choice as my trainer or was my hero going to be the genteel Don Juan de Marco? I was confused and undecided through the day, until dinner when I met my dad – who had sometime back rid himself of his potbelly almost unbelievably overnight. I asked him what choice would he have made in such a damning situation? “Kapalbhati,” came his lightening reply. Taken aback, I said, “Kapalbhati?!? What in crazy heavens is that?!” He coolly replied, “It’s a yogic breathing technique, kid.” I stammered back, “But how can a breathing technique help you to get rid of your potbelly overnight?” Dad smiled mystically, and said, “Suck the damned potbelly in boy, that’s what it teaches you!”

ALL CONSUMERS ARE FOOLS!

2009-08-28T11:10:00.000+05:30

Well, almost all! It was three years and three months ago when I had covered this concept passing a conclusive judgement on the intellectual incompetence of consumers around the world. And the wonder is, while releasing this iconic issue of 4Ps B&M that contains the exclusive ICMR survey of India’s 100 Most Valuable Brands, I realised that even after so many years, nothing has changed globally, and therefore I decided to bring to you the same editorial once again in toto! All consumers surely still remain fools! Seriously believe that, and you’ve got the most astoundingly rocking and smashingly successful marketing campaign! But don’t blame me, blame Dr. Daniel Kahneman of Princeton University, who received the Nobel Prize in Economics in 2002-03, for emphatically proving the above mentioned statement... His ‘Prospect Theory’ suggests that rather than undertaking decisions just based on ‘logical reasoning’ (namely, choosing the better product over the worse), humans also include a critical factor known as ‘intuition’, which is the main reason for consumers behaving irrationally and many a time even foolishly while purchasing products and services. Some years ago, even Dr. John Nash (of Nash Equilibrium fame) won the Nobel Prize for theorising a similar concept.

Most interestingly, the ‘Prospect Theory’ has its mirror image in the competitive strategy theory propounded by Dr. Michael Porter, where he postulates that all the global theories of competitive strategies and tactical warfare can be summarised into one electrifying word, ‘positioning’, and consecutively, into another word that is mind-bogglingly changing paradigms of marketing battles in global industries and consumer spaces. And that word is ‘perception’. Porter aggressively argues that consumers do not make decisions based on which product is better, but based on which product is “perceived” as better. Amusingly, across industries, more often than not, the product which is actually worse off in quality is the one which sells more, and many times, despite being priced higher.

And it’s been the same for quite a few years. For example, in 2006, the cell phone manufacturer that had the number one rank in quality in India was Sony Ericsson (IDC survey 2006); while the company which sold the most cell phones was Nokia (with a jaw dropping 79% market share, compared to a pathetic 5% of Sony Ericsson; the figures are 64% for Nokia and 6% for Sony Ericsson in June 2009), in spite of lagging behind Sony Ericsson in quality, and in spite of a majority 60% of their sales being in the costlier priced segments. Similarly in automobiles, Toyota has been consistently ranked as number one in quality, year after year (JD Power Surveys) and in 2009 was ranked the third Most Admired Corporation globally by Fortune. But still, despite being ranked relatively way below Toyota in quality, despite not even featuring in Fortune’s Top 50 Most Admired Corporations list, despite being bankrupt, the company that has consistently been the world’s largest passenger car manufacturer for years is General Motors (August 2009 global market share: GM 18.9%, Toyota 17.5%). And if speed & technological excellence were the factors of quality, then while Ferrari has won six of the past nine years’ F-1 Grand Prix Championship, its parent Fiat’s market share globally is 3.6% only. The ‘Judgement of Paris’ wine tasting competition in 1976, covered by TIME magazine’s George Taber, which was held again in May 2006 in London, proved that California wines tasted better than French, and by miles. Guess which sells more? But obviously, the French.

The strategy these global leaders use is ‘perception’! Play on consumers’ irrationality, and one can easily change their perception about eating cancer causing burgers, drinking liver destroying alcohol, consuming pesticide infested cold drinks, munching on fungal infected and worm strewn chocolates, smoking life destroying cigarettes, doing dope etc. etc. etc.; the list is never ending and extends even to football. In the history of FIFA World Cup Finals since 1930, only three times has a team that had the best quality player (that is, the player who won the Golden Boot award for scoring the most goals) gone ahead to win the tournament! For the sake of it, guess who is the most successful footballer of all times scoring the most goals in the history of international football. Obviously, the “perceived” answer is Pele, right? Wrong! The man is Daei Ali of Iran (109 goals). With 77 goals, Pele is not even second in the list (Ferenc Puskas from Hungary is, with 84 goals)! So are all consumers fools? Like I mentioned, I know of at least two people who’ve got Nobel Prizes proving just that! And none of them is a consumer like you or me!

YOU’RE A CLASSIC FAILURE, BOY!

2009-08-12T10:09:00.001+05:30

Flying is something that I simply hate. The symptoms are always the same. My heartbeat and BP shoot up the moment the aircraft starts taxiing for a takeoff, I break into a sweat, yet my hands turn ice cold. Thus it was when last week, with great trepidation, I entered an unavoidable flight down south. It was with pleasant surprise that I noticed that my co-passenger was none other than my favourite professor from my b-school days; the wizard used to teach us astounding leadership case studies, but I liked him more because he was the easiest to irritate amongst the lot and we used to take full advantage of it. Initial greetings aside, the fleeting scowl on his face was a giveaway that he remembered me too well. Attempting to rekindle old relationships thereon, I mischievously told him how I remembered his classes even now, and he smilingly nodded back, knowing very well I didn’t mean it at all. Thereon, we kept exchanging random statements... till the point that I got this crazy devilish urge to vex him and fibbed up a make-believe grouse that despite trying very hard, I had still not been able to achieve some of the visionary things that I had been aiming to achieve by this age. He looked at me, and surprisingly said, “That’s pretty good, I say!” I was foxed by his reply. Looking at my confusion, he said, “Let me tell you a story...” And that’s how the story began...

He was born at an underprivileged medical center. Even as a baby, life was anything but sweet for him. His parents divorced within three years of his birth. Although his mother remarried, she unfortunately married a man who was known to be jobless, and who got into the habit of coming home drunk every night – in fact, during a drunk-driving incident, the man had both his legs amputated and died soon after. As a young lad, struggling to keep up with social questions about his multiracial heritage, he became addicted to alcohol, marijuana and cocaine during his teenage years, which he later said was his “greatest moral failure.” He also became an uncontrollable chain smoker who couldn’t quit smoking despite trying too many times. He even lost his mother to ovarian cancer in 1995, much before he had anything signify cant to achieve. But failures are what taught this man the beautiful attitude of sincerity. That belief is what led Barack Obama to win the Illinois senator seat in 1997; that belief is what led him to convince a totally opposed state assembly to pass a bill that forced police to videotape all interrogations to reduce torture and deaths in custody, especially of blacks; that belief is what led him to run the Presidential elections in 2008 despite being trounced devastatingly in the 2000 Congressional elections and despite being told a few years back by his media consultant that he stood very little chance as his name sounded too similar to Osama Bin Laden.

If Obama had an underprivileged childhood, Steve Jobs went through worse. When he was born, his mother was an unwed graduate student who put him up immediately for adoption as she did not wish to rear him. Ironically, Steve wasn’t even the first choice of his adoptive parents as they had actually wanted a girl. Steve’s ‘new’ mother was just a high school pass-out, and his father wasn’t even that. Later on in life, Steve Jobs did join college, but dropped out within six months as he couldn’t see the value in it. But despite dropping out, Jobs continued dropping into classes that interested him. He would sleep on the floor of his friends’ rooms and returned Coke bottles to earn 5 cents per bottle to buy food. Every Sunday night, he would walk seven miles across town to get a free meal at a Hare Krishna temple. The learning from that part of his life and those ‘dropout’ classes is what gave him the zeal to co-found Apple in 1976, market its Mac products too passionately, and make the cover of the TIME magazine by the age of 26. It’s common knowledge now how Steve Jobs was fired from his own company by Apple’s board of directors, a failure that drove him again to found Pixar and NeXT, two more iconic companies, before he was reinstated storybook style as Apple’s CEO! A pancreatic cancer patient (one of the most dangerous cancers with the lowest survival rates), Steve Jobs also had a liver transplant earlier this year. And he has already joined back for work! “Living every day as the last day of your life,” is the very statement Steve Jobs says has been driving his ambitions through all his failures since the age of 17.

From Milton Hershey of Hershey Chocolate Company (whose businesses went bankrupt three times before he finally made it big) to Henry Ford (who failed twice before Ford Motor Corporation was born) to Abraham Lincoln (who lost seven times in the Presidential elections before he finally made it), all successful people have been the biggest failures at one point or the other in their lifetimes.

My professor was almost done speaking and strangely justifying to me why when he kept reemphasizing that I was an utter failure, he actually meant good. Well, I seriously didn’t know how to take it. Before I could poke him further, the plane hit the biggest godforsaken air pocket I’ve ever experienced in my life and started rocking and rolling better than Elvis could ever have done in his dreams. And then, suddenly, the aircraft plunged into a dramatically sickening dive; and I did likewise into a crazy bloodcurdling banshee scream. With cups, and my whole life, streaking in front of me, I couldn’t help but astonishingly notice the professor calmly smiling away to glory. It looked totally ridiculous. Didn’t the professor realise we all were well on our way to Kingdom Come? Sniggering, he shouted to me through all the noise, “Live every day as the last day of your life!” It sounded insane and totally inappropriate. I shouted back, “Sir, if I don’t make it alive through this rotten flight, how the heavens do you think my failure to survive will ever make me hugely successful?” The prof shouted back through his guffaws, “Son, your ‘failure’ could result in somebody else’s success! Your sacrifice could very well help rewrite future safety rules to create the most successful airlines in safety standards...” If I had to understand what being a failure meant, that moment in time encompassed it all; a moment when I decided that if I were to escape the crazy air ride, I would never ever trouble any professor of mine, especially this one. Well, as is obvious, I escaped; but I have to confess that the talk did have some advantage at least. These days, whenever my sweetest wife accuses me during our classic championship bouts of being the biggest loser in life, she just can’t get it why my face starts glowing with pride. Last I heard she was growling at me that this was going to be the last day of my life... That’s the way we husbands live it all the time honey, that’s the way we all live it...

WHO’S A BETTER PRESIDENT? OBAMA OR BILL CLINTON?

2009-07-31T11:45:00.000+05:30

I hate that first Friday of every quarter, when I have to meet three of my school friends for dinner. We’ve met almost regularly since the past twenty years (yes, that’s how long ago I passed out of school... somehow). But over years, as much uncivil, raucous and impressively fat my three loudmouthed friends have become, have I become more docile, quieter and thinner. We’re the oddest Hangover combination; and restaurants that have been graced by our benign presence in the past, shiver at hosting us again... I keep asking myself, why do I keep going? And here I was again with them, a couple of hours into another Friday’s dinner, caught in a completely dunce of an argument about who has been the better US president till date – Bill Clinton (their choice) or Obama (my choice)?

To cut them all to size, I broke down my argument intellectually, and told them that a brilliant President/ CEO (of a country or a company) as per global research needs to have five outstanding necessary characteristics and how Obama had all of them:

Outstanding Characteristic #1: Passion: In a classy 2005 HBS paper, Dr. Jonanthan Byrnes (who also teaches at MIT), after an exhaustive international research, identified “essential characteristics” of transformational leaders. The top one was “capacity for passion!” Describing it as the “fire in the belly,” Dr. Byrnes says exceptional leaders are simply “people who leave their footprints in their areas of passion!”

I told my friends how one look at Obama speaking either after his win or even, say, recently in Cairo, was enough to prove how passionate a person he is. My friends retorted how even Bill Clinton’s State of the Union address to massive crowds proved his passion. In fact, the US economy had the most positive feel because of his speeches only. Sensing a tied point, I moved on.

Outstanding Characteristic #2: Dynamism: I argued that simply passion is not enough, but dynamism, both mentally and physically, is also a complementary requirement. In a May 2009 HBR paper titled ‘Those Poor CEOs...,’ Melissa Raffoni proves how the top characteristic of “The best, most successful CEO” groups is that “they’re made up of... dynamic CEOs”. In the book ‘The Ghosn Factor: 24 Lessons from the World’s Most Dynamic CEO’, Miguel Rivas-Micoud shows that Carlos Ghosn – CEO of two companies (Japanese Nissan and European Renault) – travels 150,000 miles on an average annually, or 411 miles/day! He’s half a week in Japan and half in Europe, every week without fail.

And that, I argued, is Obama’s forte, what with his travelling to various continents – Africa, Europe, Asia – within the first year of his getting elected. But then, I had to accept, in the most authoritative study of ‘Presidential Travels’ since 1953, the US National Tax Payers’ Union proclaims Bill Clinton is America’s ‘Best Travelled President’. I had to get to the next point...

Outstanding Characteristic #3: Authoritative: Yale University’s Prof. Samuel Huntington’s paper Political Order in Changing Societies says, “Authoritarian regimes are more capable of rational, consistent, and responsible decision making...” Prof. John R. Oneal of the University of Alabama, shows that “(shareholders) rates of return have been greater under authoritarian regimes.”

There is no doubt that Obama is authoritarian! When Obama wishes things done, he passes executive orders! From appointing different genders/ races in his cabinet to threatening truant countries despite opening up talks with them, Obama means business. Could Clinton ever do that? My friends remind me that not only did Clinton appoint Madeline Albright, the first woman secretary of the state in US history, but also actually declared war on Iraq (on 16th December 1998, as it refused to allow UN inspectors to inspect its various chemical plants). Hmm, they had a point... and I didn’t want to lose! So I gave them my best point.

Outstanding Characteristic #4: Driven by gut feel and emotions: The Burson Marsteller CEO Survey, 2006, shows how “no effective CEO is driven solely by numbers.” The survey further proves that 71.4% of high-revenue-company CEOs believe that “intuition and gut feeling” are very influential in guiding their decision making!

I showed how Obama doesn’t just go by numbers, but emotionally decides on the cuff too. His response against the police to the recent arrest of a Harvard professor proves it and he’s loved the world over for it. My friends corrected me that on one hand, Obama is not loved that much in Asia, and on the other, he looks completely non-emotional and military-like as compared to, say, Bill Clinton, who was and is loved like mad the world over – even in countries at complete war with US – and was one of the few presidents who cried when he got elected, and never felt ashamed of it. I was losing the battle.

Outstanding Characteristic #5: Multi-tasking: I rambled off how a dynamic CEO has to be a master multi-tasker! And none the better than Obama, who not only manages to host dinners, sign executive orders, travel, give speeches, but also manages to meet up school kids, replies to many emails himself, and most importantly, regularly exercises and keeps a fit body. Could Bill Clinton ever manage to do anything else while signing his executive orders? At this point, I saw my friends breaking up into uncontrollable laughter, giving each other high-fivers and almost toppling over. Before I could ask them the reason, one of them managed a few words through the howling episode, and said, “Dude, you’ve never heard of Ms. Lewinsky, have you?”

Damn it!!! I should have known they’d bring it up! Couldn’t the world look beyond personal indiscretions? Damn their laughs! Damn the Lewinsky factor!! I had had it with the dinner... It was useless arguing with this bunch, ever! And as usual, the whole restaurant was staring at us, what with the three garbling giants lying on the floor guffawing their guts off. It was a wonder they didn’t choke on something, given the tones they’d stuffed in during the dinner... Geez, I’m sure you all must be wondering why in heavens do I keep going back to having dinner with the Tyrannosaurus bunch. Hmm, I know, it’s a paradox, I keep asking that myself. I’ve known them for thirty years of my life now; and over the years, they’ve kind of become very close to me. I know that they look like aliens, they behave like aliens, but they really mean no harm and come in peace. Yeah, I hate them (sigh...), but I love them too...for in their life, there’re not many people they have as friends, except me... Guys, they ain’t heavy, they’re my brothers...

THE FIVE [HR] HABITS OF HIGHLY LOUSY CEOs©®

2009-07-16T09:57:00.001+05:30

The last time I wrote my trademark ‘Lousy CEO’ dummies guide almost a year and a half back, I was strangely inundated with requests for a reprisal from my handful of‘ friends’. Sensing how my ‘loving ones’ were simply trying to stoke a similarity between my habits and those lousy CEO habits I’d written about (I have to admit, there does sometimes seem to be a remarkably frightening similarity...), I’d chosen to give their caring requests a sweet by. But as many bridges have already been blown on the river Kwai, I decided to finally present the second in the inimitable ‘Highly Lousy CEO©®’ series, focusing on the world’s worst CEOs and their equally (dis)regarded HR habits!

Lousy Habit #1: Believing old is the new gold!: Lousy CEOs passionately believe that the older they get, the better they become. Outstanding CEOs don’t, and realize that with age, they will lose their effectiveness! The Spencer Stuart CEO Survey report (November 2008, ‘Route to the Top’) shows how not only the median age of S&P 500 CEOs recorded in 2008 was lower than those recorded in the past six years, but also that in the past 28 years, the percentage of CEOs in the list who are either 49 years or below has increased by a smashing 29%! Compared to 53% of CEOs who were aged 60 years or above in 1980 in the S&P 100, today only 23% are.

Lousy Habit #2: Never say die...till you’re dead!: Lousy CEOs are infatuated with the hypothesis that they personally cannot ever be replaced. Outstanding CEOs commit themselves to succession planning. A remarkable 2009 Booz Allen report statistically proves how the count of planned successions (as a percentage of total successions) has increased over the past years. HBS wrote in 2006 (In Search of Excellence: In CEO Succession) how “merely announcing who your next CEO will be, can move (up) the market value of your company by 15% or more...”

Lousy Habit #3: Always recruit an outsider for a CEO!: Even if a lousy CEO buys the succession planning argument, he would almost always choose an external candidate over an internal candidate as his replacement. Outstanding CEOs always choose internal candidates. The 2009 report from Booz Allen titled Stability in the Storm proves – after evaluating 2,500 leading global companies – how even during times of downturn, 76% MNCs rely on internal CEO candidates to steer the company to safety. They state in another report (The Perils of Good Governance), “The outsider who comes in to whip a company into shape is most likely to get a thrashing.”

Lousy Habit #4: To hell with loyalty!: Lousy CEOs believe that if they don’t keep jumping jobs every few years, they’ll be perceived as being out of fashion. Outstanding CEOs almost never leave their companies during a lifetime. In a research I quote often, Forbes proves how a mind numbing 81% CEOs of America’s top 100 corporations have never changed their jobs (or have changed at best only one) throughout their lives! A monumentally similar 75% CEOs of leading non-US corporations have spent more than 35 years or more with the same company they lead.

Lousy Habit #5: Multi-tasking is for sissies; specialization is the future! The Institute for Innovation and Improvement profiled the legendary Bill Gates and reported that “Gates is the original multi-tasking man...” In fact, the ambidextrous Gates’ belief in multi-tasking is so supreme that “once, Gates hung a map of Africa in his garage, so he could have something to occupy his mind for the precious seconds spent turning on the engine of his Porsche.” Multi-taskers today are not only more educated than non-multi-taskers (78% more), but also are better paid (in general, a whopping 200% more) as they lead to more productivity (Dr.Gibbs in a Chicago Graduate School of Business co-authored paper). Lousy CEOs specialize; excellent CEOs multi-task!

With these words, I end this ‘lousy’ editorial! Man, these guys have started giving me too much varied work... Phew, I need a new focused job! But how the hell will they ever fi nd anybody who can do my job? Who cares... Hey, what’s this lousy slip doing on my table... and why’s it coloured a silly pink?...

THE DUMMIES GUIDE TO GLOBALIZATION!

2009-06-18T10:03:00.000+05:30

It was almost as if I was waiting for that day. The cacophonic kids of my block are one intemperate, raucous and uncivil bunch belonging to the we’ve-just-now-entered-double digit- age variety. But I somehow kind of really like the cheeky brat lot of fifth and sixth graders. Thus it was, when one day while returning from work, I chanced upon the truants discussing how that day, one of their teachers at school had told them how globalization had worked for... I froze in my tracks, and didn’t even let them finish the statement when I literally jumped into them! Like I said, it was almost as if all my pent-up emotions were just waiting for that that moment to happen, as for ages, I had known ‘the’ answer!

Well, my first question is, is globalization really necessary for companies? This one’s actually a no-brainer. The noted neo-IT 2006 study titled ‘Globalization and the Impact on Shareholder Value and Revenues’, which used the Fortune 500 and S&P 500 companies as their research base, dramatically proved how companies that globalize “create more value for shareholders than companies that don’t globalize!” The year 2006 Accenture report, ‘Expanding Markets: Innovation and Globalization’ added that “the best performers [globally] were 83% globalized, while the average performers were only 18% globalized,” – which brings us to my second question.

Is India globalized? One of the most outstanding reports released by AT Kearney and Carnegie Endowment titled, The Globalization Index 2007, after analytically ranking countries around the world on multitudes of parameters like political engagement, FDI, technology, personal contact and economic integration, puts India at a lowly rank of ‘second from last’ (ahead of just Iran!). So much for our claims of being globalised! Jordan, Estonia, Tanzania, Senegal, Nigeria, Kenya, Botswana, Uganda, Ghana and many more are ranked above India. In 2002, the same report (Globalisation Index), based on the same parameters, had ranked India seventh from last! In other words, with each passing year, we have actually regressed when it comes to going global.

This brings up my third question – how many recognized, valued globalised product/service brands does India have? The answer is not two or one, but zero. Most recently, MilwardBrown released its much awaited Most Valuable Global Brands 2009 rankings. Out of ten Asian brands which fought their way into the rankings, 6 names were from Japan and 4 were from China! Zero from India. A similar tale is repeated in the most respected Interbrand/BusinessWeek’s Survey of top brands for 2008, where amongst 8 Asian brands, none are of Indian origin! What a shame!

Bringing us to my fourth and last question – isn’t India supposed to be the top globalised country when it comes to technology adoption? As per the 2008 report by World Economic Forum, titled, The Global Information Technology Report 2008, India is ranked a lowly 50 on ‘readiness to adopt technology’, much behind countries like Barbadoas, Slovak Republic, Latvia, Tunisia, Chile, Lithuania, Estonia and others. The February 2009 report by Nokia-Siemens, titled Connectivity Report 2009, proves how India Inc. stands battered at the 6th last position on the global rankings in terms of technology adoption by companies.

In straight terms, India stands shamefully last on almost all parameters of globalization... I was out of breath when I stopped bleating to the fi ve foot gang on the wretched global performance of India. A few moments of silence passed, when I realised that they were all staring at me, predictably stunned. I knew I had made a path breaking impact... till one of them spoke, “Mama [they call me that; it means Uncle, colloquially], guess you’re working too much. Not that we understood even a word of what you said, but all I had said was that our sports teacher told us today how globalization has worked for Indian wrestlers, as they get desi Indian food outside the country too... Mama, chill down...” Food?! Wrestlers?!? What was I thinking!! While slinking away totally embarrassed, I got my fi nal learning on the topic – globalization never works, not even with Indian kids!

CHOOSE FAST! ONE FRIEND OR MANY FRIENDS?

2009-06-04T09:46:00.000+05:30

The argument dates back to a dinner I was having at a restaurant last week with three of my Austin Power school friends (yes, we all have a combined IQ that just about beats a tubelight’s... when it’s switched off), who were complaining rancidly that whenever we ate out, I always ordered the same old dish time and again. “Man, why’re you so against ordering different dishes? Look at the wide range we’ve ordered,” they all argued. When I tried to throw them off by mumbling something complicated about how core is better than diversified, they all pounced on me clearly highly irritated, and the grouchiest one of them threw me a choker, “If you’re so much in love with the stupid concept of sticking to your so-called ‘core’ dish, choose dude, which friend amongst us do you want? And choose fast...”

Cornered, my life flashed in front of me... Alright, not my life, but at least a few research reports I had read up a few days back on whether focusing on core businesses is more profitable for companies or having diversified streams of operations. Prof. Gert Bruche of The Berlin School of Economics destroyed the happiness of the core lovers when he proved in his working paper titled, Corporate Strategy, Relatedness and Diversification, that diversify ed companies “display a better performance” than single business companies. Another sparkling report by an erstwhile core proponent, McKinsey & Co, titled, Beyond focus: Diversifying for growth, proves how over a period of a decade, the market value CAGR of diversified companies stood 126% higher than of focused companies. There’s more. The report further clarifies how on one hand, while “the focused group tallied an average annual excess Total Returns to Shareholders of 8%,” the “diversified group notched up 13% annual excess TRS and higher median EPS growth…”

Then follows the pumped-up and charged to the core, ‘anticore’ study by Profs. A. M. Pandya & N. V. Rao of Northeastern Illinois University titled, Diversification and Firm Performance: An empirical evaluation, which proves how, “Diversified firms show better performance compared to undiversified firms on both risk and return dimensions. Diversification can improve debt capacity, reduce the chances of bankruptcy by going into new product/ markets, and improve asset deployment and profitability. Diversified firms pool unsystematic risk and reduce the variability of operating cash flow…” Even the iconic Professor Michael E. Porter of Harvard Business School argues in his almost revolutionary book, Competitive Advantage: Creating and Sustaining Superior Performance, “Resource sharing and competence transfers enable the ‘diversified firm’ either to reduce overall operating costs in one or more of its divisions, and/or to better differentiate the products of one or more divisions resulting in a price premium.”

The argument against core focus entities doesn’t change, even when we talk about the Fortune #1 company ExxonMobil. In his paper titled, Risking Shareholder Value, well-acclaimed consultant Mark Mansley of Claros Consulting, while analyzing the oil giant, proclaims and proves definitively, “ExxonMobil has the potential to transform the company into a total energy business, increasing global market share, through [vertical] diversification!” Another sparkling paper titled, Can Diversification Create Value?, by Prof. Tomas Jandik of Sam Walton College of Business, University of Arkansas and A. K. Makhija, Fisher College of Business, Ohio University, proves how for diversified firms, “this ‘failure’ to focus has been rewarded with higher firm values. Diversification can create value by opening up new investment opportunities...” The most celebrated Professor Belen Villalonga of Harvard Business School proves in his paper titled, Diversification: Discount or Premium? that diversify ed firms “trade at a significant average premium relative to comparable portfolios of single business firms.” Slapping worshippers of single business philosophy harder, he finally sums it all in one short line, “I find diversification as a premium!” Further good news to shareholders of diversifying firms comes from the Boston Consulting Group which, while mocking all praises about ‘core competence’, proves in its report titled, Managing for Value: How The World’s Top Diversified Companies Produce Superior Shareholder Returns, how during the years 1996-2005, not only did the majority of diversified companies resoundingly beat the stock market average by hugely significant margins, but also that a majority of the core focused corporations (almost 60% of them) were not even able to beat the average shareholder returns provided by diversified companies. The typical nail in the core coffin is the conclusive remark that, “There is no statistical correlation between ‘focus’ and shareholder value. The more businesses a company has, the greater the flexibility it has to reinvent itself and sustain growth.”

Even demergers ostensibly attempted by companies to focus on core businesses have ended up destroying shareholder value. BCG in its report titled, Conglomerates Report 2002: Breakups Are Not The Only Solution, it proves statistically how 70% of such break-ups to focus on lesser number of businesses in the past ten years, either “destroyed” or “did not create value”! Contrary to narrowing down multibusiness focus, diversifying mergers in the past 55 years have continued to deliver superior returns as compared to single-business deals, as proven in the landmark paper by Professor Mehmet Engin Akbulut and John G. Matsusaka, Marshall School of Business, University of Southern California, a report that analysed 3,667 mergers in the past 55 years.

But research be damned! With many highly annoyed restaurant guests starting to stare, I still had three massively slighted friends who were spewing fi re in front of me ready to put me on the stake, asking me to choose just one of them, and that too during a dinner where I was supposed to foot the huge bill. Cornered, I did the most intelligent thing – I apologized to my friends and accepted my mistake that diversification was better than core. With all the three gluttons guffawing away to glory in the most atrocious manner at their victory, I did the next most intelligent thing. I loudly asked the waiter to get four ‘diversified’ bills instead of one ‘core’ bill. I paid up my quarter part of the bill, wished my friends a loving goodnight, got up and walked away home... to my sweetest ‘core’ wife... Well, that sets me thinking, would one core wife be better or many diversified wives?... Hmm, not in this life honey, not in this life... Sigh...

Keep the damned remote back in the next five seconds!

2009-05-21T10:30:00.001+05:30

Is First Movers’ Advantage really a blinder or a blunder for the Einsteins of business?

.He’s the grouchiest uncle with the most terrifying frown I’ve known since childhood. He’s over sixty, talks to nobody and nobody is encouraged to talk to him. Anger is his middle name and fables have been told by my aunt and my mum about the times Godzilla has blasted men out of this universe. And unfortunately, the first Saturday of every month, I have to escort my mum to uncle’s house for an evening family gettogether. It’s a ritual that has no escaping, try as hard as I have [‘family honour at stake, son’, I’ve been irritatingly told]. So through the two hours while everybody meets up and indulges in blackboard nail scratching polite conversation, I slip away to watch the only television in the household kept in the study; but most unfortunately, with my uncle, who holds the remote like a revolver, and ensures that almost every time, I get to see this most boring astrology channel bleating paeans after paeans of painful discourses.

Throughout all of it, T-Rex never talks; and I don’t talk to him. In fact, I don’t remember the last time he spoke a word. The same scene gets repeated month after month... “Boss, be the first mover in making conversation with your uncle!! Believe me, the results would be fantastic!” My eloquent investment banker friend was pretty convincing in his incisive analysis of my predicament, “Look dude, global research proves that first movers have succeeded beyond imagination in history. And don’t forget the time in college when everybody knew you were a sissy while all your first moving friends got the most beautiful damsels? Why don’t you at least try and be the first mover in breaking the ice with your Unc? Invite him out for dinner. Anything! It’ll surely work!”

Perhaps the biggest claim to fame across the world for biting the bullet goes to Dr. Richard Schmalensee, Dean, MIT Sloan School of Management, who in an exemplary discourse in May 2006 (in which he amusingly quoted, “I have the disadvantage of having actually studied the first mover’s advantage...”) proved not only how first movers were at a major disadvantage, but also that “there were plenty of industries where the first movers got killed!” This criticism was resoundingly supported by well-acclaimed global researchers David Montgomery (Stanford University) and Marvin Lieberman (University of California), who, in their outstanding paper titled First Mover Advantages... stated that “The ability to ‘free ride’ on first-mover investments and resolution of technological and market uncertainty” comes as an advantage to Second- Movers! Putting a nail on the first movers’ coffin is the research by Richard B. McKenzie of University of California, who showed how failure rates across traditional industries for first moving pioneers was an elephantine 71%; first movers also had a pathetic average market share of 6%.

Talking more about numerical conclusions, a well referred research by professors Markus Christen (INSEAD) and William Boulding (Duke University) reads thus, “We found that pioneers in consumer goods had an ROI of 3.78% lower than later entrants. And the ROI of first movers was 4.24% lower than followers in the industrial goods sector. The bottomline result: Pioneers were substantially less profitable than followers over the long run, controlling for all other factors that could account for performance differences.”

Dorde Kalicanin, faculty of Economics, University of Belgrade, while outlining the myth of first movers’ advantage, notes in his paper titled A Question Of Strategy: To be a Pioneer or a Follower, “Historically, the advantages of being a pioneer have been promoted to a much greater extent than the risks... It is logical that risks associated in a completely new product are greater than those associated with incremental product changes.”

Professors Vladmir Smirnov and Andrew Wait, faculties of economics, University of Sydney, also devastated the supposed advantages associated with first movers. Their report titled, Second-movers advantage in a market entry game, conclusively puts forward the fact that each player “prefers to be a follower rather than a leader in the market, perhaps because they can free ride on the other party’s investment... The second entrant into a new market often does better than the first firm that entered. If a firm could commit to being the second entrant it would be better-off.”

Another award-winning research titled First-Mover (Dis)Advantages by the previously mentioned Montgomery (Stanford University) and Lieberman (University of California) proves emphatically that “Pioneers often miss the best opportunities, which are obscured by technological and market uncertainties. In effect, early entrants may acquire the ‘wrong’ resources, which prove to be of limited value as the market evolves.”

The most dramatic paper by Rhee (Hong Kong University), Palma (Universite de Cergy, France) and Thisse (ENPC, France) titled First-Mover Disadvantage... supported the fact that the follower “has an informational advantage not only because it directly observes market conditions, but because it makes inferences about market conditions based on the first-mover’s quantity choice. Thus, informational advantage enables the follower to attain higher market share and profits.”

Another sparkling paper by Lieberman titled, Did First-Mover Advantage Survive the Dot-Com Crash?, statistically proves how, “benefits of early entry appear much less pronounced when firm survival is used as the performance measure.” This fact was also vindicated by Min (California State University), Robinson and Kalwani (Purdue University) through their paper titled, Market Pioneer and Early Follower Survival Risks... which statistically proves how, “When the pioneer starts a new market with a really new product, it can be a major challenge just to survive... Overall, these results indicate that in markets started by a really new product, the first to market is often the first to fail.”

It strangely seemed too quiet in my uncle’s study as the channel bleated on, with Groucho Marx (my uncle) and I, super-silently watching the same stupid channel on the same stupid television. But my mind was working overtime. Strangely, though almost none of the above mentioned research supported the first movers concept, I was torn back to my friend’s advice. I couldn’t help thinking that perhaps being a first mover does actually help in relationships. Well, like my friend had mentioned, wasn’t college time the most painful for me just because I always was the second mover? Moving first and fast had to work! I didn’t want to be the loser ever again! I had to do it!! It was now or never!!!

Pumped up and charged to the core, I decided to crush the Orwellian worm of silence this time. In a superflash, I grabbed the remote from my uncle’s hand, switched off the TV in one smashingly swift move, threw the remote to one corner of the room, and looked my uncle straight in the eye, and blurted out maniacally, “Unc, let’s do something new; let’s go out for dinner...” Seconds passed by like eons, but a deafening silence prevailed... I could hear my heart beating at 200 beats per second and the blood rushing in and out of my liver... For the first time in my life, I could hear sweat slowly dripping down from my face, drop by drop... I could even hear someone breathe, perhaps me... Like I said, the silence was deafening...till my uncle spoke to me for the first time in my recorded history, “Keep the damned remote back and switch on the goddamned TV in the next five seconds!”

I did both the things in much lesser time than he had requested. For the next hour, we continued watching the astrology programme in silence... The frog eyed saffron haired presenter was braying away his prediction for my zodiac sign that it’s going to be the happiest day of my life... Last I heard, my investment banking friend – trying to out beat the market by being the first mover – had been wiped out clean in the stock market crash!!! And these days, Godzilla has strangely started visiting our house. Crap! What an ending!!!

Let’s not bring good ol’ Barack into this!

2009-04-17T09:57:00.000+05:30

Recession tests companies to the hilt, but following some basic principles can help

If you want to learn the tricks of the trade in recession, the first rule of the game is, understand the economic difference between a recession and a depression. They say a recession is when your neighbour loses his job. And a depression is when you lose yours :-). Actually, the same rule applies for companies too! Till the time your competitors are getting rogered, it’s ‘fair play’; the moment the downfall hits you, it’s ‘Barack Obama must go’! But seriously, the National Bureau of Economic Research defines a recession quite succinctly as the time when business activity (a conglomeration of factors like employment, real income and wholesale retail sales) starts to significantly and regularly fall! Generally, if the fall is more than 10%, economists term the extreme recession as depression! At a time when the IMF has forecast that the total hit due to the subprime crisis could well touch the gut wrenching mark of $1trillion, it’s quite imperative that corporations globally develop strategies not just to survive, but to lead the market and to beat competition! So what do the world’s most excellent CEOs do to tackle recession? The first question is, can you forecast recession itself? Nobel laureate and top-notch economist Paul Samuelson had claimed, “Economists have correctly predicted nine of the last five recessions.” In other words, it’s perhaps better to learn what to do when recession hits, rather than waiting in fearful anticipation year after year for recession to hit. The hilariously famous presenter Jon Stewart had side splittingly commented once, “Bush advisers have long been worried that a lagging economy could hamper the Republican Party’s re-election chances. They hope that the Cabinet shake-up will provide a needed jolt. If that doesn’t work, North Korea has to go!” Tackling recession doesn’t really require literally ‘bombastic’ strategies (as the ones Bush uses regularly, whether in Iraq, or now in Iran) but intelligent and simple tactics!

It was just a few months ago that I met the hallowed Ram Charan (Fortune considers him one of their favourite management gurus), over lunch. And it was only two months ago that he wrote the classic ‘Investor’s Special for the Recession Economy’ in Fortune, where he gives four simple and broad principles for CEOs to crack the recession conundrum, which are: (1) Keep Building: “Do not consider product development, innovation, and brand building optional. Sacrificing your future for a slightly more comfortable present is not worth it.” (2) Communicate Intensively: “It’s counter-intuitive but true that when the economy slows down, the pace of decision-making has to speed up. The companies that are readiest to act on solid information are primed to shoot ahead of the business cycle.” (3) Evaluate Your Customers: “In good times, companies manage the P&L; in bad times, cash and receivables matter more. Therefore, you need to identify your higher-risk, cash-poor customers. You could decide to simply not supply them anymore.” (4) Just Say No To Across-The-Board Cuts: “By all means, cut costs if it makes sense to do so, but make sure there is purpose in how you do it.”

Jay Leno, the king of stand up acts, gave a classic perspective of the US economy in one of his shows: “Some good news for the economy. President Bush went on a month-long vacation.” Companies, like I mentioned before, wouldn’t necessarily find the blame game as easy as Jay wishes it to be. Harvard Business School, in its most recent April 2008 posting, gives a tempered, but well researched, response with its paper, ‘4 Steps to Growth During a Recession’. First, “Invest heavily in research and development” – Your competitors may in general cut R&D investments; ergo, your investment increase would yield a “strong product advantage” in the future. Steve Jobs quoted a few days back, “In the last recession, we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over… And it worked! That’s exactly what we’ll do this time!” Second, “Spend some time learning about the customers of your weakest competitors” – Instead of focusing on bagging your strongest competitors’ largest clients, choose these times to add attractive customers of your weakest competitors, who would not have the wherewithal to withstand your attack. Third, “Identify your most critical suppliers and distributors” – Find out ways you could help them. HBS quotes, “Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come.” Prime time TV host Craig Kilborn commented recently, “President Bush’s economic plan will create 2.5 million new jobs. The bad news is, they are all for Iraqi soldiers!” After you’ve recovered from your sarcastic chuckles on this statement, is the fourth, and I think the most important of HBS’ learning philosophies, “Think carefully about your talent needs” – When weaker competitors try to survive, many excellent employees of these companies would find themselves without jobs. Recession is the best time to grab on to these world-class employees and give them jobs and responsibilities that they’ll cherish for a long time with unwavering loyalty!

The most distinguished Professor John Quelch, who is also the Senior Associate Dean at HBS, added his expert views for the marketing heads in his terrific treatise, ‘Marketing Your Way Through Recession’, which came out just around a month back. Some of his key recession mantras for the marketing team are: (a) Research the customer well before deciding on pricing tactics. Price elasticities might not change as dramatically as you might expect. (b) Maintain marketing spending. Recession is surely not the period to cut advertising. Recession creates, as Quelch says, “uncertain customers, who need the reassurance of known brands,” and thus ensure customer loyalty for years. (c) Adjust pricing tactics. In other words, rather than cutting the price of your product (which will immediately send a wrong signal about quality), intelligently play around with newer promotional schemes, give credit to the A-category customers, play around with the quantity of your product in, say, every pack (price it the same, but start giving a non-noticeable less, for example). (d) Ensure employees (and customers) believe in the core values of your oganisation and believe that your organisation will get through tough times! For that, the CEO himself must “spend more time with customers, and employees.” My favourite David Letterman’s classic and ripping statement stays with me forever, “Al Gore says President Bush’s economic plan has zero chance of working. Now, this raises on important question: Bush has an economic plan?!??!” Seriously, look at yourself and ask, do you as a CEO have a plan in place if recession hits you? Chris Zook & Darrel Rigby, noted consultants of the globally renowned consulting firm, Bain & Company, had warned a few years back through their path breaking paper (Strategy For The Re-cession) that CEOs globally today don’t have a ghost of an idea of what their Plan B would be if recession were to hit their economy/company. Think about it again yourself. What is the reason that you don’t currently have a Plan B if the economy crashes? Zook & Rigby recommend that as a CEO, you should most necessarily “build strategic contingency planning into your culture,” even if the economy looks really rosy currently. A fact that was supported fanatically by McKinsey & Co in their quite readable paper in Spring 2007 – Preparing For The Next Downturn.

There was once a millionaire CEO who, while on a lone yachting expedition across the Atlantic, got his yacht smashed up in a thunderstorm, floated for a fortnight living on molasses, till one day, half dead already, he floats ashore on a completely isolated island in the middle of nowhere, when he sees an amazingly seductive supermodel, wearing palm leaves, walk over to him. She smiles at him, tells him how she also is a shipwreck living alone on the island. She then guides him to her awesome tree home, gives him delicious water, new super- fashionable leaves to wear, provides him a top quality animal bone razor to shave his beard, shows him her utopian teakwood bathroom! The CEO’s over the moon! Freshened up, he comes out of the bathroom to see her lying down on her banyan bed, dressed in a very tasteful sarong, when she whispers, “Guess what more I can provide to you!” He thinks for a moment, and he screams in pleasure, “Don’t tell me you have email too!!!”

Dear CEOs, the final learning is, in a recession, in your attempts to read too much in market dynamics, don’t miss the obvious!

A story about the 2Cs and the 2Ps!

2009-04-09T14:44:00.000+05:30

These are slowdown times, and both my driver and my cook think I’m the most atrocious employer that could ever have been, recession or no recession. Their opinion does not matter to me though, as I think that both of them are crooks and the grubbiest liabilities acquired generations ago by my dad and forced down my throat without my consent. I was mulling over how to use the slowdown as an excuse to get rid of the tormenting two, till one day, I noticed a non-descript book left on my study table by my father, with a deliberate note to a chapter titled ‘A story about the 2Cs and 2Ps’. Curious, I opened the chapter... and that is where my story begins.

Charles Coffin had a strange name and a stranger background. For more than twenty long years, working in his uncle’s shoe company with irascible employees – much similar to my own – Coffin mastered the art of bringing out the best in his worst employees. In 1883, he financed a struggling electrician’s company with his savings, and helped convert Thomson-Houston Electric Company into a mammoth enterprise. Jim Collins writes that Coffin “created a system of genius that did not depend on him – he created the idea of systematic management development.” Coffin practiced communication as a religion to transform mediocre performing employees into fantastically valuable ones. My 2C hero Charles Coffin is now considered by Fortune as ‘The Greatest CEO Of All Times’! He was the first President of General Electric! Let me move on to Paul Pierce (or 2Ps) now. On a fatal night in September 2000, Pierce, a brilliant 23-year-old Boston basketball player (drafted to the NBA bench), was repeatedly stabbed by hoodlums. Doctors didn’t believe that the man will pull through, but he did. Only thing, Pierce was crippled of nearly all faculties. Eight years later, lowly ranked Boston Celtics (who had never won the NBA championship in 22 years), played the NBA Finals against the supreme Los Angeles Lakers (the second highest winners ever in NBA history, featuring the legendary Kobe Bryant and coach Kareem Abdul-Jabbar). The game ends with shocked silence. Boston Celtics have thrashed LA Lakers by 131-92, the largest margin ever in a championship game. The captain of Boston Celtics is an unknown Paul Pierce, who is also named the Most Valuable Player of the NBA Finals. And all because of the one value he believed in, which electrifyingly converted his non-believing team mates into fanatical followers, outstanding team players and exceptional achievers... the value of communication!

Effective leaders communicate thoroughly, exhaustively and most regularly to their employees to retain them during slowdown. Ineffective ones, don’t! BCG’s report Creating People Advantage In Times Of Crisis says that ‘clear communication’ during slowdown is the trademark of an outstanding leader. Business Week’s 2008 report Recession Strategy documents that “communication is the key” to retain employees. Clearly, if there’s one strategy you need to implement authoritatively to get the bedazzling best out of your employees, it’s putting into place a highly structured process of communication – a fact that I seemed to have lost touch with completely. “So what are you going to do?” my wife asked me with a sarcastic snigger after hearing the story. My moment of truth had arrived. It was now or never. I decided to swallow my pride and to finally ‘communicate’ with the two creeps, I called my ‘employees’. And I was pretty straightforward too. I called them both to my room and passionately asked them to leave their jobs... with immediate effect!

P.S.: All this happened a fortnight ago. Just for information, my dad called them both back. They’re still working for us and strangely, now even my parents don’t seem to be communicating with me... Geez, I need a new life!

HOW IN #@%# HEAVENS DO YOU MANAGE HER?!?

2009-03-13T10:50:00.000+05:30

The wife, that is! My cousin, married for two years, seemed totally flustered when he stormed into my office. “She drives me nuts,” he screamed, “and tries to dictate everything. I hate it! What the hell do I do man?” All this while, I had my malevolent love-guru yogi smile resplendently plastered on my face (see above). Twirling a pen, I calmly asked him, “Tell me, who pays for everything in the house?” “Of course me,” came the provoked answer. At that very moment, with a satisfied chuckle, I revealed the Bible of manhood to my man, “Then it’s very simple my friend. Go and tell her the golden rule of management. The one who pays is the one who rules. No questions about it, not in family, not in business! One company, one hero! Period!”

I hope wives the world over realise that this actually holds true globally. All current talk about having a CEO who is different from the owner/Chairman is actually balderdash of the highest order. The research is unquestionable. The classic paper titled Chairman and CEO – One Job or Two? by McKinsey’s Paul Coombes and Northwestern’s Simon C.Y. Wong proves how combining the two positions “empowers a chief executive to act decisively...” Nearly 80% of S&P 500 companies combine the two roles in one person (as per a McKinsey study) – a proportion that has barely changed in the past 15 years. The brilliantly well referred study (...The Separation of CEO and Chairman [positions]...) by Brickley (Rochester), Coles (Arizona) and Jarrell (Rochester) affirms how “Empirical evidence provides preliminary support for the hypothesis that the costs of separation [of the roles] are larger than the benefits for most firms.” Of course, Spencer-Stuart masterfully circumstantiates in its 2006 paper titled Board Governance that “splitting the roles of Chairman and CEO does not improve... the performance of the company. There is no evidence of economic gain...”

The splendid Christian & Timbers study, Rethinking the CEO-Chairman Split, shows how “stockholder returns were nearly 5% lower in European companies that implemented the split,” when compared with companies that hadn’t, and how in US, “returns were 4% lower in companies with a separate Chairman and CEO.” Booz Allen’s 2004 report titled The World’s Most Prominent Temp Workers nails it down that “separation of the roles of Chairman and CEO generally reduces returns to investors.” The final nail is driven in by Dr. M. Useem, Director of Wharton’s Center for Leadership & Change Management, who authoritatively states how “research has shown that the performance of US companies in which the Chairman and CEO positions are held by different people is no better than that of firms in which those posts are held by the same person.” From Michael Dell (Chairman, CEO, Dell) to Steve Jobs (Chairman, CEO, Apple), from Warren Buffet (Chairman, CEO, Berkshire) to Osamu Suzuki (Chairman, CEO, Suzuki), from L. N. Mittal (Chairman, CEO, Arcelor Mittal) to Mukesh Ambani (Chairman, MD, RIL), owners of outstanding corporations the world over have only one man running the show, themselves!! Two hours after I had gloatingly packed off my ‘Chairman/CEO’ cousin – who left with newfound confidence to settle scores with his upstart wife – I received a mysterious text message from him. It cryptically read, “Thanks for your advice. I gave it off to her nicely; took your name too. She’s cool. I get to decide from now on what to eat, what to purchase, which channels to see... and where to stay. P.S: My wife conveyed your ‘conclusive’ research to her best friend – your wife – who suggested to me that you avoid returning home (I’m put up tonight at a hotel near the crossing; food’s cheap too).”

VISION VAMPIRING! ...SANS THE BLOODY TRAVAILS

2009-02-14T11:20:00.000+05:30

“We don’t like their sound, and guitar music is on the way out” – Deccan Recording Company, rejecting the Beatles, 1962

Nothing is more critical and more elusive than the vision of the top management. Guys at the Deccan Recording Company are not the only ones who lost a huge opportunity for lack of vision (Beatles went on to become the most legendary rock & pop band ever), it’s rumoured that Elvis – after his first live performance – was advised by his producer to become a truck driver. So much for the producer’s vision!? In the cat-eat-cat world of contemporary business, Vision Vampiring as a philosophy is about looking into the best that the future can ‘NOT’ offer and ensuring that the organisation has a burning desire to vie for that seemingly unbelievable and unachievable objective. But to inculcate Vision Vampiring in your firm, the first step would be to understand the Vision Annihilation Theology...

Vision annihilation theology

Annihilation! Because ‘vision’ should necessarily annihilate and takeover an organisation’s senses and functions at all identifiable levels! Theology... Because it requires an ocean of spirituality and mysticism to grasp the wonder that is encompassed by ‘vision’! Vision is not something that can be calculated using a formula, instead it needs to be determined with an amazing sense of future-thought.

Vision Vampiring therefore is all about ensuring that the Vision dream of a firm is developed and spread to every link in the organisation using compelling transactions, akin to how vampires spread their clan. Vision Vampires are the individuals who ensure that the Vision dream is developed and spread across the organisation. All individuals bitten by Vision Vampires become the new Vision Vampires, who in turn spread the Vision to others; creating more Vision Vampires. Firms need to ensure that Vision Vampiring Groups (VVG) are developed at all identifiable organisational levels, with dedicated personnel focused on the Vision job. Walloping vision-ridicule-entrapment (where managers refuse to think beyond previously set boundaries and get entrapped due to fear of ridicule) is the first step for any discernible vision development at multiple organisational levels. VVGs have to be blasted with the message of not fearing ridicule while developing Vision, else the concept of Vision gets thwarted at the very outset.

Vision Vampiring is the future foresight that provides annihilating inspiration to a firm’s stakeholders; it is the ability to be clairvoyant with compelling reason, and spread this futuristic compulsion and attitude among necessary people. It must be backed by this obsessive pang for achievement that has the capability to be called a revolution. So effectively, Vision Vampiring is where the basis of any corporate planning starts. And ends. And starts again… It, in fact, is why any organisation demands to be the absolute leader. It is indeed Vision Vampiring, which creates targets that seem unachievable; and also creates structures and people who believe in achieving those seemingly unimaginable targets... Obsessively, compulsively, futuristically!

Vision-strangulation

Critics argue that once defined, each employee of the organisation should become enmeshed in this Vision concept. But the Vision Annihilation Theology demolishes this idea. The Vision-Strangulation concept says that as we move down the levels of management, the principle and spirit of Vision is perfectly strangulated and killed because employees at lower levels get enmeshed in their job responsibilities and work pressures, instead of getting enmeshed in Vision. This occurs because stakeholders like lower level managers and employees get totally engrossed and stressed out in achieving their short to medium term objectives. Also because more often than not, the magnanimous Corporate-level Vision does not relate to the everyday job of employees. The more one moves to lower levels in the organisation, the more the top-level Vision Statement has to be refined to include perspectives of the lower levels. A sales officer in any organisation, irrespective of the company’s Vision to be world’s number one, would keep worrying about his own monthly targets. A recruitment executive would be more worried about planning the next recruitment requirement that might be expected within the organisation and so on. For example, the Vision of Microsoft is ‘Empowering people through great software – any time, any place and on any device’. However, the Business Head of Microsoft’s Xbox business would obviously be worried about empowering people less through software and more through Xbox! This exemplifies how work pressures at functional levels succeed in strangulating orientation towards the overall organisational Vision.

Clearly, if Vision-Strangulation has to be effectively whipped, then there can be no single Vision that can be applied to the complete organisation. The demand of Vision Annihilation Theology is that for each identifiable and link level in the organisation, one should develop a separate Vision. So instead of attempting to force the Corporate Vision down the throats of junior stakeholders and employees, employees should be instead provided a terrific mix of top level Vision philosophy and expected best-level achievements at their own management (or functional) level. This is where VVGs at each level include link representatives from other levels who develop a relevantly different spin of what the organisation Vision is all about (quite similar to what Microsoft’s Advanced Technology Group does; or GE’s Work-Out programme at different levels). So a sales officer could be roped into the spirit of the Corporate Vision – let’s say of being the world’s number one – by ensuring he understands the Corporate Vision in principal; and is just as aware about the stupendous results expected out of him and his team in objective terms. Ditto with other levels and functions. This is the process of Sub-Vision development. However, all these sub-Visions have to be linearly aligned with each other, and most importantly with the top-level Corporate Vision.

Vision-intervention-exercises

The compelling transactions that VVGs use could range from standard workshops & meetings, to specific intervention exercises attempting to recreate and regenerate vision across the organisation. But these intervention exercises need to be formally designed, planned & implemented. The firm’s CEO (and his core team) should accept the role of being the key Vision Propagator and ensure that individual Vision Vampires & VVGs are developed at various levels. But there are issues to be handled deftly while propagating ‘Walloping Vision-Ridicule-Entrapment’. Vision has to be defined in concrete terms at the top. The top-level Vision Statement should act as a benchmark for progress. This top-level Vision could be defined using a combination of quantitative and qualitative statements. Correspondingly, Vision Vampiring needs structures and people for its success in adoption. More importantly, it is about how fervently the concept has been adopted. Some organisations feel proud that their Vision is created by their bottom level employees. And some feel proud that their Vision has been developed and approved by customers. Vision Vampiring has to ‘soar’ from top to bottom, and from inside to outside. Vision should not be created from bottom to up. Vision should not be developed by outsiders (unless the organisation is Enron where the corporation’s vision smells of totally illegal, immoral & unethical endeavours). Moreover, Vision should preferably not come out of just one person’s thought processes (Rupert Murdoch is one of the better known exceptions to this theory), instead it should be something that is well-thought about by a responsible top manager. Other levels of management and employees should feel extremely related with the developed Vision statement.

Glorious Vision Statements are worth trash if they’ve been made without reckoning the current & future capability and competence advancement agenda of the organisation. Stanford’s Vision of being the Harvard of the west was believably backed up by its agendas toward development of capabilities and competencies. Further, the world’s best Vision Statement cannot get the corporation anywhere unless it is backed up by sincere strategic plans and implementation controls. Initially, Apple failed & Microsoft won because of just this: Sky-high Vision; Ground-level Flop! (Later, Apple realised this; and it served the Cupertino giant well.)

Oh! And needless to say, Vision Vampiring is always the ‘continuous’ process of looking into the future. So the trick, my friend, is to regularly revisit & ReVision! Remember the dynamic nature of Vision Annihilation Theology?!

THE 3-D TERNION!!! NOW MORE THAN EVER!

2009-01-30T11:33:00.000+05:30

“Destroy! Devastate!! Demolish!!!” With his voice thundering louder than lightning, the professor at the seminar was almost shouting at all of us that any CEO who continues to practise tried and tested business processes will be doomed to be shallowly average at best, if not a b-school case for leading an extinct corporation at worst. Though my narcissistic cook [a self-proclaimed CEO], with his most irritating and unpalatable dishes, came first to my mind, I realised the professor’s bent was more corporate. For radical transformation into a superlative global leader, what is required – especially in these recession times – is fanatical belief in the 3-D Ternion; that is, destroy, devastate and demolish ‘standard’ processes and structures and most importantly, complacent CEO attitudes for never before seen business growth. And the No.1 key to this is discovering ‘profitable innovation’!

It’s clearly the CEO, who is solely responsible for bulldozing in this attitude within this company. Way back in ‘97, when, despite all research to the positive, this man’s engineers gave him 38 reasons why the proposed strange multi-coloured computer would be a failure and questioned him on why he was so steadfast about the product, he shot back, “Because I’m the CEO, and I think it can be done.” The iMac is a historical top-seller, Apple’s top grosser till date! Innovation is not at all about the money, as Steve justifies, “...Or about how many R&D dollars you have. It’s about the people you have, how you’re led...” Zuckerberg was an imp of a Harvard student in 2003, pulled up by the administrative board for computer security breaches as he uploaded a software for rating students’ photographs/profiles. Four years later, on October 24, 2007, this imp sold 1.6% stake in his new creation to Microsoft for $240 million [valuing his entity at a walloping $15 billion]. You know his ‘product’ as Facebook. We know it as a $40 billion revenue grosser in 2007.

And you don’t even need to have a dramatic ‘product’, so to say. A great idea is more than enough meat. In May ‘81, when Rolfe Shellenberger, Marketing Manager of the $184 million revenue grossing American Airlines, proposed a strange new discount scheme to entice current air travellers to take future tickets too, CEO Bob Crandall didn’t take much convincing, once Rolfe had proved the innovative idea was profitable! ‘AAdvantage’ became the world’s first frequent-flyer scheme, resulting in a mammoth 13,000% revenue increase. The case has been the same since years. Accenture’s benchmark report [Measuring Profitable...Innovation] shows how “each new product introduction mentioned in the WSJ between 1975-84 resulted in an average return to shareholders of $115.7 million beyond industry norms.” AT Kearney, Wharton, Harvard, IMD, Booz Allen, BCG, the industry is splattered with similar reports.

From Post-It notes to YouTube, from ball-point pens to potato chips and cola, profitable innovation has ruled and the CEO has to believe fanatically in it... Well, I was a believer. The shouting professor had succeeded. With unshakable belief now in the 3-D Ternion, I rushed back home from the seminar pretty late in the night. Despite being very hungry, and with lions growling in my stomach, all I had in my mind was to ‘Destroy, Devastate & Demolish’ the super-ego of my arch nemesis – the utterly non-innovative cook! Strangely, the house was empty. I kicked myself for forgetting that everybody had gone for a birthday party. But where was the cook? It was then that I saw the note on the refrigerator. It read: “1. I’m off for a week. 2. There’re no groceries... 3. And no dinner too!” [Goddammit, innovation never happened on an empty stomach!]

THE LEGEND OF THE 7 PRODIGAL IMPS!

2009-01-02T11:14:00.000+05:30

It’s about the seven neighbourhood brats whom I had to take out for a lunch last Sunday. Not that I had any love lost with them, but the nine year old imps irritatingly demanded a gourmet at either McDonald’s or Pizza Hut, while I was stuck on to the fact that if I really had to waste my money during an economic downturn, I’d rather do that at the relatively health-oriented Subway. “Who’s even heard of Subway?” the scallywags protested in unison. The deepening frown on my face notwithstanding, I realised a point in their statement. Was global recession forcing Subway to advertise lesser? Given that Subway is now America’s largest quick service restaurant chain [larger than McDonald’s], would it therefore mean that during a slowdown, reducing one’s ad spend was the correct strategy for a stronger and fortified long term vision?

In this fantastic 2008 Kellogg report [Innovating Through Recession], Dr. A. Razeghi argues that in times of recession, “the worst thing you can do is to hide... and disappear from a marketing perspective.” Companies should, he says, “use this time to increase their customer communication!” Senior Associate Dean, John Quelch, of HBS, the noted author of the 2008 benchmark Harvard paper, Marketing Your Way Through A Recession, definitively proves, “Brands that increase advertising during a downturn improve market share and ROI...” The world renowned Prof. P. Barwise of London Business School concludes, “The most successful firms maximise long term shareholder value by maintaining or increasing their ad spending when the economy slows down... This enables them to build market share faster and at less cost...” My personal favourite Sir Martin Sorrell, Group CEO of the world’s leading media firm, WPP, deliberates [in Their Recession, Your Opportunity] that even maintaining advertising spend vis-à-vis the previous year during an economic downturn “carries clear benefits in terms of market share and profitability once the post-recession upturn develops.”

Wharton professor Leonard Lodish, in the November 2008 report [...The Tough Don’t Skimp On Their Ad Budgets], strongly advocates, “If your company has something to say that is relevant in this environment, it’s going to be more efficient to say it now,” a fact supported by the fall 2008 JWT report [Marketing In Recession], “Boosting ad spend in a recession is more beneficial than at other times;” with the closing statements by Dartmouth’s marketing totem pole, Kevin L. Keller – “People who starve their brands now will be paying for it in the future.” According to Forbes-TNS’ 2008 research, the ones who suffered the most in recession are those industries that cut advertising: Real estate (-14.3%) and car makers (-6.6% to -7.1%). The globally quoted McGraw Hill research proves statistically that in the past recession (1981/82) those companies that continued to advertise in the subsequent three years enjoyed a whopping 275% sales increase, while those that didn’t had at best only a 19% increase.

No wonder while Subway had an annual ad budget of just over $100 million [and revenues around $10 billion], McDonald’s had a gut wrenching $1500 million ad budget [with revenues smashing above $23 billion]; and forget the US, internationally McDonald’s is the numero uno QSR by miles!!! With options of bodily threatening the seven rapscallions literally out of the question, damn the research is what I thought! If advertising was what it took, advertising is what the kids would get. In the two days leading to the lunch, I made one-page exhaustive flyers about the massive health benefits of eating out at Subway. I then deliberately spent the better half of Saturday prancing around the neighbourhood meeting with the kids’ parents, convincing them too, which they absolutely were! Advertising works, and like nobody’s business. Sunday lunch, my wife sweetly told me to proceed to Subway to book the table, as she was getting all the kids in her car. The lunch was a fantastic success! I ate a veg sandwich... alone! Nobody else came. My wife had taken all the kids to McDonald’s. She didn’t even call once...

FEMALE BOSSES ARE BETTER FOR EMPLOYEE HEALTH!

2008-10-24T05:29:00.000+05:30

The smirk on my face all but got wiped out when I saw the University of Colorado 2005 report [‘Worker wellbeing and supervisor gender’] which confirmed beyond doubt that “working in a more female dominated environment” was truly beneficial for employee health! Chauvinist that I was, I couldn’t digest the fact that finally, to get ‘healthier’, I had to work under – of all blistering barnacles – a female boss!!! I mean, there obviously had to be better methods to get healthier than getting fried in the devil’s pan, right?! And there began the quest of my team members to escape perdition.

In fact, if one thought that not having a female boss would lead to productivity losses, the National Business Group on Health [representing 185 companies, primarily Fortune 500 firms covering more than 40 million workers...] shows how, for US firms, “...productivity loss resulting from... smoking related diseases cost a staggering $157 billion every year.” [In fact, the Purdue University’s Health Care Special Report puts this at a killing $234 billion]. This dirge is just the tip. The US Office of Technology & Assessment conclusively proved [in ‘Burden of Tobacco on Your Workplace’] that smokers averaged a whopping 300% more sick leaves than non-smokers. Seattle University showed how “the propensity for smokers to become disabled and retire early is almost 600% greater than for non-smokers!” But what left me stunned was this incredible research of Cappelli, Pauly & Lemaire of Wharton, [‘The Effects of Obesity, Smoking & Drinking...’] who quote that “obese individuals have 30%-50% more chronic medical problems than those who smoke or drink heavily!”

The authoritative US National Bureau of Economic Research and Chicago GSB confirm in their benchmark September 2008 paper that “expenditures on health care in the US are likely to rise from a current level of about 15% to about 29% of GDP by 2040.” That is a mind boggling $3 trillion even at current prices! So are global firms getting worried? Hewitt Associates’ April 2007 survey found out after surveying 8 million workers that now 77% of firms are “profiling chronic health conditions prevalent in their workforce!” This figure was a mere 43% just a year back. Without doubt, employee health & productivity are perfectly correlated! Period! GEMI, a top non-profit research firm with Fortune 500 firms as members, irrefutably proves [in ‘Clear Advantage: Building Shareholder Value’] that excellence in health [and even environment and safety issues] can add dramatically to shareholder value by almost 50 to 90%, apart from reducing operational and capital costs [16% less for high performing companies, as per the noted Towers Perrin ‘2008 Health Care Cost Survey’].

So who should take the blame for all the productivity losses occurring due to bad health habits? The big league Watson Wyatt covered 5 million workers in their stupendous 2005/2006 survey [‘Staying@Work: Employee Health...’] and established that a compelling 74% of organisations believe that “their employees should be held accountable.” Weyco Inc, a top health care firm, now has a policy of throwing out employees even if they smoke at home. BusinessWeek’s February 2007 cover story shows how the ‘totally-smoke-free’ $2.7 billion Scotts Co. throws out its employees for failing nicotine detection tests [for which, Jack Welch exclaimed to Scotts’ CEO Jim Hagedorn, “Man, you have balls of steel!”]. Tell me now boys, after reading all this, doesn’t it occur to you that there are obviously better ways to improve productivity than to have female bosses?! Tony, to have the guts to say yes, all you will need, like the thrice-married Jack mentions above, are two metallic spheres! Got them?

THE ‘LEGEND’ OF THE VAINGLORIOUS VISIONARY

2008-10-10T05:25:00.000+05:30

Narcissistic! That’s how it was described. I found myself staring at the report quite disbelievingly. But I should have known, the warning signs had already been there for years. You tell me, would you ever like such a person around you, especially as your superior – a person who dominates meetings, a pathetic listener, not at all showing empathy, with a clear distaste for helping others and one who believes in giving vainglorious visionary speeches? In fact, would you want your CEO to be a narcissist?

Well, I’ve seen such losers all around. This man was born to a teenage unwed girl, who gave him up for adoption! A dropout from the Illinois University, he’s known for his ultimate arrogance, and has not spared even his family members, what to talk about employees. The four times married – thrice divorced – man once boasted to BusinessWeek many years back, “As long as Stanford keeps turning out beautiful 23 year old women, I will keep getting married.” His best friend, not surprisingly, is Steve Jobs, another temperamental leader with many similarities [including being put up for adoption and being a dropout]. Till date, this man doesn’t know who his real father is. Another friend, Andy Grove, warns in the BusinessWeek report, “I would beware of him as a businessman,” while Gates adds, “His hype has expanded to fill his ego.” In 1977, he founded Software Development Labs. From 1986 till late 2008, he has made its shareholder wealth grow by 950% to a super $102 billion!!! His vision is stupendous. His objectives are as arrogantly audacious as his attitude. He’s the 14th richest person in the world. His company is better known as Oracle. He’s Larry Ellison, my vainglorious visionary, whose biography is titled, ‘The Difference Between God & Larry Ellison: God Doesn’t Think He’s Larry Ellison!’

But does one example prove the complete hypothesis? Unbelievably, ivy league research now supports the concept that visionary leaders are narcissistic. In fact, considered amongst the ‘Best of HBR’ is their 2004 report, ‘Narcissistic Leaders – The Incredible Pros...,’ that says, “Many leaders dominating business today have a narcissistic personality. That’s good news for companies that need passion and daring to break new ground.” The report confirms that productive narcissists – like Welch, Soros etc – have “the audacity to push through massive transformations..., and have compelling, even gripping visions” due to their intense desire to compete and – through their awe inspiring speeches – have the capacity to inspire scores of people, despite their being poor listeners, lacking empathy and hating criticism. Professors Chatterjee and Hambrick of Penn University proved in their spectacular May 2006 paper, ‘Narcissistic CEOs...’, that narcissism in CEOs “is significantly positively related to several company outcomes, including strategy dynamism...”

Think about it. From the sniggery “You’re fired!” Donald Trump to the volcano-headed Steve Jobs, from the shoot-from-the-hip Michael Eisner [Disney CEO, added 2747% to shareholders’ wealth from 1984 till 2005, when he quit] to the don’t-know-don’t-care Roberto Guizueta [CEO, Coca Cola, 7100% increase, 1981-1998], the world’s top CEOs have been atrociously egotistical. Which brings me back to the report I started with at the top of this editorial. Lest you be mistaken, the report did not pertain to my ego-state [Oh please, I’m married; not a visionary!]. It was my irritating cook’s. His annual checkup – on which my money got wasted – threw up what I always knew. The ego-maniac is pompous, cooks up visionary unpalatable dishes, hates criticism, is a pathetic listener, and goddammit, behaves like a CEO all the time!

STAY HUNGRY, STAY FOOLISH!

2008-09-26T05:19:00.000+05:30

I found myself on the top roulette table at Wynn, the leading casino in Macau [now the world’s largest gambling centre by revenues, larger than Vegas], wondering whether to bet on the next roll of the dice being even, or odd. The last four rolls had been odd, and I had lost all the past bets. Though the laws of averages – and my wife – were screaming out ‘even’, my intuition was screaming harder to be the ‘odd’ one out. Well, my intuition had almost always seen me through such crucial life-threatening situations [my wife, remember?!], and then, don’t even the top CEOs of the world depend mainly on gut feel and intuition?

Fred Smith received a ‘C’ grade [just escaped failing] in his college economics paper where he gave an overnight delivery business idea. “C was a very good grade for me,” he later explained, as his gut told him the idea would work. He started FedEx! Eric Bonabeau in HBR says “the stories are certainly seductive,” with Disney’s Michael Eisner [who, “knowing in his heart,” pumped in millions into the killer show ‘Who Wants To Be A Millionaire’], George Soros [who sensed “in his bones a big shift in currency markets and... made a billion-dollar killing”] and R. Pittman [who “had a vision...while taking a shower,” and created AOL] leading the gut-wrenchers gang! A. Hayashi, Senior Editor, HBR, writes, “Obviously, gut calls are better suited to some functions [strategy, planning, PR, marketing...].” Surely, as Chuck Porter, creator of the historic BMW Mini campaign, comments, “When it comes to creating advertising, we don’t research it!”

But it is not that intuitions are purely figments of irrational imagination. Professor Smith [Surrey] and Erella Shely of the most respected Academy of Management Executive prove that intuitive decisions are viewed by executives as “expertise that has been built up... and influences conscious thought and behaviour.” The Burson Marsteller CEO Survey, 2006, shows how “no effective CEO is driven solely by numbers.” The survey further proves that 71.4% of high-revenue-company CEOs believe that “intuition and gut feeling” are very influential in guiding their decision making [compared to 54.8% who depend on “analyst reports”]. The PwC Global Data Management Survey 2004 amusingly shows that globally, companies in fact feel low level of confidence in their own data, and “an even greater degree of scepticism over outside data.”

In his commencement address to Stanford students, he revealed how his mother [“a young, unwed college student”] rejected him and put him up for adoption, how the folks who were supposed to adopt him backed out at the last moment, how even his ‘final’ parents weren’t graduates, how he himself dropped out after joining college, how he would later sleep on dorm floors returning Coke bottles “for 5 cent deposits” to buy food, how he would “walk 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple.” And how he loved it all, as, much of what he “stumbled into” by following his “curiosity and intuition, turned out to be priceless later on.” He says, “You have to trust in something – your gut, destiny... This approach has never let me down... And most important, have the courage to follow your heart and intuition... Stay hungry, stay foolish!” On Fortune’s March 17, 2008 issue [where his company is ranked The World’s Most Admired in 2008], he says, “We do no market research. We just want to make great products.” He’s Steve Jobs, my hero! I went against the law of averages and bet on ‘odd’. I walked away from that hall resolute in what I had learnt from that one man... I’ll stay hungry, I’ll stay foolish! Yes, even though I lost...

LOSE IT LIKE GOIZUETA DID!

2008-09-12T05:15:00.000+05:30

Unlike me, Goizueta wasn’t bald! But like me, it’s reported that even he had only one wife (!!!). Unlike me, that imp of a daredevil has already [in 1997] kicked the bucket (I mean, come on, I’m still alive... Right?!). Like me, the poor devil was, is and will continue to remain infinitely unknown through eternity. But unlike me, this impoverished Cuban immigrant – who escaped to Miami with his wife and $40 (not necessarily in the order of importance) to escape Castro’s political influence – became the best performing CEO globally in the history of mankind during his incredible 17 years at the top. Since the time he took over the CEO’s mantle in 1981, he created more shareholders’ wealth than any CEO in history – a mind numbing 7,100% share price increase – more than Lou Gerstner, Steve Jobs, Bill Gates, and even what the neutronic Jack Welch, could ever achieve in that time period!!! And ironically, this top performer’s biggest motherlode of a contribution to the management fraternity has been formalising the art of ‘losing it all when at the top’... in other words, ensuring that he was thoroughly replaceable and could be kicked out lock, stock and barrel, anytime – what we today know as ‘succession planning’!

The world’s most excellently performing CEOs believe religiously in finding their replacements. The ground-breaking 2006 research (In Search Of Excellence: In CEO Succession) on the world’s top-most corporations quotes the Harvard research that “merely announcing who your next CEO will be, can move [up] the market value of your company by 15% or more!” Global research displays unprecedented backing for CEO succession plans, with share prices of companies with planned successions over-performing those of companies without planned successions. And yet – according to National Association of Corporate Directors, US – only a pathetic 16% of directors “reported that their board is effective at CEO succession planning.” The noted Wharton management professor Dr. Katherine Klein comments, “The ideal scenario is careful succession planning that grooms people internally.” The famed 2007 Hay Group Study confirms that almost 80% of Fortune’s Most Admired Companies preferred an internal candidate as a CEO successor! Booz Allen’s 2008 CEO research confirms that around 80-83% of new CEO recruits globally are insiders! Booz Allen also proves beyond doubt that operationally and statistically, ‘insider CEOs’ outperform ‘outsider CEOs’!

And it’s clearly the current CEO’s job to shortlist future replacements [‘The Job No CEO Should Delegate’, Larry Bossidy, HBR]. From GE, where at any given moment there are 5 people battle-ready to become CEOs [Immelt (current GE CEO), Nardelli (current Chrysler CEO) and McNerney (current Boeing CEO) worked under Welch for years before Immelt was chosen], to Warren Buffet who has already identified his successors [in a secret envelope, with the lines, “Yesterday I died. That is unquestionably bad news for me; but it is not bad news for our business!”], top CEOs fire themselves out!!!

To end where we started, my hero, Goizueta had four people ready to takeover his throne at any given moment, and ten more to fill in their posts! Roberto Crispulo Goizueta died of lung cancer on October 18, 1997. For 17 sparkling years, this Cuban ‘revolutionary’ was the world’s best performing global Chairman & CEO of a Fortune 500 company we now know of as Coca-Cola! And nobody’s ever ‘lost’ it like he did...

THE STRANGE EXISTENCE OF JAGDISH SHETH

2008-08-29T05:11:00.000+05:30

Two years back, when I heard this name being whispered in management circles, it sounded more like that of a garment trader’s [think about it, Jagdish Sheth & Sons...] than like that of the leading management thinker of modern times. At that time, Fortune had mentioned this media-avoiding former MIT & Columbia professor’s name in a futuristic article, with reference to his unique Rule of Three [a rule that competitive industries, in general, will finally only be left with three significant players]. An year later, this 67 year old imp of a powerhouse called Sheth combined his years of exhaustive global research on the world’s leading corporations and wrote the rule book on why CEOs of the world’s leading and most successful corporations will destroy themselves and their companies [The Self-Destructive Habits of Good Companies] because of a simple reason, “Complacency!” (The book was picked up by the famed Wharton Publishing).

“I used to think that competition destroys good companies. Strangely, I found that’s not true: companies destroy themselves… Success breeds complacency. The average life span of corporations is declining, even as that of humans is rising.” Out of the seven self-destructive habits of corporations, Sheth lists “The No-One-Can-Beat Me Syndrome: Arrogance & Complacency” as number one! From Prof. Carl Robinson of University of Maryland, [Why Great Companies Fail] to the famed Courtman & Wild of Turnaround Management Association [Avoiding Common Traps That Lead to Distress], leading management scientists now accept that complacency of CEOs is the Number 1 reason why companies get destroyed! In fact, now the most famous Prof. Clayton M. Christensen of HBS notes, “Leading companies decline and sometimes die not because of competitor’s advances, but because of new players with lower-quality solutions!” However out of this world this might, this is exactly what Sheth warns about. The first one to forecast that GE is self destructing itself in turf wars, all Sheth got from the world were chuckles. Today, Immelt has proved to be the worst performing CEO of all times for GE. During Immelt’s 7 year reign, GE stocks have plummeted by 30.2% [Jack Welch’s first 7 years had seen a 140.2% rise: Bloomberg].

CEOs have completely forgotten the concept of visioning. Forget visioning, unbelievably so, CEOs have even stopped “thinking.” Ask a CEO a modern management paradigm, and all you’ll see is a blank face. Ask yourself, when was the last time you sat down to ‘think’. Sheth is the first to statistically prove that where earlier “a [Fortune] company would be in existence for 50 to 60 years, now its life cycle is down to just 10.5 years!” Shocked? Sheth’s corporate clients roster now includes Cox Communications, Delta, Ernst and Young, Ford, Lucent Technologies, Motorola, Nortel, Sprint, 3M, Whirlpool, and even General Electric itself, the same company he doesn’t lose an opportunity to criticise. BusinessWeek now notes, “Dr. Sheth is one of the most globally acclaimed academicians, authors, and Board Advisors,” connected to 186 board members across the world [he’s now even a Director at Wipro]! Cut to June 2008, Sheth wins the Guizeta Global Innovation Award; it is presented to him by John Quelch, Senior Associate Dean at HBS in a small ceremony... It’s seriously a strange existence for this man I know of as Jagdish Sheth. And imagine, you hadn’t even heard of him! That’s complacency! This is a special double issue of 4ps B&M and as we have burnt a lot of midnight oil, I guess it is time for us to take time off and be a little complacent. we will be back after a break issue. Cheers!!!

THE LOVE GURU! YEAH, BABY, YEAH...

2008-08-01T05:06:00.000+05:30

Ahuja! That was his name! He was my first boss and the teacher of my most important leadership lessons. He taught me exactly what never to do as a boss; because everything he did was, well, horribly wrong! I called him the Love Guru much before Mike Myers even made his first movie, because Ahuja showed me how much a ‘leader’ could be hated! He evoked that emotion – and much more – in almost everybody in office. I personally considered him the worst leader history had ever seen. And I realised all that one had to do to be a fantastic leader was to never do the things he did! Mr. Love Guru’s biggest claim to fame was that he never used to mix ‘work’ with ‘fun’! And he used to preach how the world’s top corporations reached ‘there’ because of this rule only. Ugghh!

If only Ahuja had even smelt of an imp of a company called Google! The 2008 Fortune 100 Best Companies To Work For list ranks Google at the brilliant position of #1 amongst all the companies in the world. In their in-depth analysis, Fortune writes, “Why is Google so great?... [Apart from other reasons] Google’s employees like to have a lot of fun during the work day – to relieve stress, build camaraderie and fuel creative thinking.” In fact, the “opportunities to learn, grow, travel and have wildly zany fun during the workday” are what sets the Google culture thoroughly apart. Google’s official “Top 10 Reasons to Work at Google” document clarifies amusingly, and in reality, “Work and play are not mutually exclusive.” Interestingly, Fortune writes that Quicken Loans, the 2nd Best Company to Work For, is also up there because of “its fun, family friendly workplace.” And that’s the common thread through the list. Digest this – Fortune’s year 2008 Best Paying Companies list gives the same Google the unbelievable last rank; clearly proving that being the best company to work for has nothing to do with pay!

Katherine Karl (Marshall University) and Joy Peluchette (University of Southern Indiana) perhaps wrote the rule book on this issue, How does workplace fun impact employee perceptions.... Their finding was succinctly put; and they wrote, “Our results showed that employees who experienced fun in the workplace had greater satisfaction with their job!” Renowned international behavioural scientist Robert Nelson comments, “There’s a big difference between getting people to come to work and getting them to do their best work. Making work fun brings out the best in people.” The notoriously likable Herb Kelleher, CEO, Southwest Airlines, quotes about the employees he hires, “What we are looking for, first and foremost, is a sense of humour!” The last century’s most admired CEO, Jack Welch, writes in this issue of 4Ps B&M how you, as a CEO, have to be “dead serious” about managing employee emotions and being passionate about it at every moment! Steve Wozniak, the co-founder of Apple (Yes! With Steve Jobs!!) gave the following title to his 2006 autobiography – How I invented the PC, co-founded Apple and had fun doing it. Of course, work is worship. But fun mixed judiciously with work is what the world’s excellent CEOs recommend if you want the very best out of your people.

And that, unfortunately, is what my first Hitlerian boss never understood... In fact, I still get nightmares of Ahuja. He’s my Vietnam post-war trauma experience. My wife now calls my symptoms the Ahuja Syndrome. I call it the Love Guru’s kiss. Yeah, baby, yeah...

THE LEAGUE OF INCOGNITO MAFIOSI!

2008-07-18T05:01:00.000+05:30

This happened to me a few years back. It was my eight-year-old nephew’s annual school sports meet [I call him Kit; he calls me Mama]. And the apt ‘grand’ final afternoon event was a classic seven member 350 metre relay race. There were five teams pitted against each other – three mean looking teams from the sixth grade, one more hooliganish clearly over-aged team from the fifth grade, and the last one, my bespectacled nephew’s motley ‘we-were-better-off-in-the-shade’ three-foot tall team from the fourth grade. I realised right away that their chance of winning was worse than what the term ‘impossible’ could have defined; but still, I was all for cheering them like crazy! Come on, they seemed truly excited, and winning wasn’t everything, was it!? Yeah, right, till the time dear Kit, balancing his spectacles on his nose, ambled over confidently to me and shoved a relay-race baton into my hand, with the quasi-order, “Come fast Mama, the seventh member has to be a guardian, and he has to run first!”

The ten seconds of silence that followed, with me looking perplexed, was a lifetime. Me?!! A relay-race runner?!?! The sun was burning down hotter than in a western movie; I could smell the sweat running down the back of my head into my spine. Worse, the cannibal competitors seemed all set to massacre the ‘fourth’ graders. No way could I be humiliated like this in public. Neither was I fit, nor was I on the right side of 30! And my team’s incompetence was more evident than the burning dust on the track. I shoved the baton rudely back into Kit’s hands, ordered him to find somebody else, and shouted, “Anyway, what difference can I make in a team born to come last?” I felt the words hit him like a ton of bricks. His expression changed from eager enthusiasm to sudden disappointment... For a moment, I regretted my words... But then, seriously, can an individual really make a difference? Especially when the team, for the lack of a better word, sucks?

O. E. Graves was born way back in 1811, on a farm near Vermont, to a family in perennial financial trouble. Afflicted with poor health throughout his life, he moved to New York and worked as a mechanic in a railway workshop, where he understood the concept of railway safety brakes. Graves kept wondering why couldn’t such brakes be used in elevators [which had already been invented]. His mechanic teammates kept dissuading him for his inane idea, trying to convince him that elevator lines were practically unbreakable. Despite all negative opinion, Graves conviction grew in his idea and in the belief that he individually could make the change. After years of struggle, and more of financial pecuniary, he invented the first elevator safety brake. In 1853, Otis Elisha Graves founded the world’s first ‘safety’ elevator company, today the world’s largest elevator company.

This man struggled to handle his doomed-from-the-start shoe business for many years. His invention was neither a product or a service. He invented a ‘process’ called General Electric! Neither is he Jack Welch, nor is he Thomas Edison [the founder, on paper at least]. His name is Charles Coffin, the man who convinced Edison that rather than simply having a ‘GE’, the company should depend less on individuals and more on self-replicating processes. Coffin understood that world-class companies can succeed over a long term only if the concept of innovation is not restricted to singular people and only when top performing people find their replacement, and in hordes. Edison made him the first President of General Electric. Renowned management expert Jim Collins quotes, “While Edison was essentially a genius with a thousand helpers, Coffin created a machine that created a succession of giants.” Today, the long dead and gone Coffin is rated by Fortune as Number 1 in the list of Ten Greatest CEOs of All Times!

This man used to see Star Trek like nobody’s business. He was so enamoured by Captain Kirk’s “Scotty, beam me up!” calls that he decided to find out how to invent such a phone. Despite everybody dissuading him [because of the unbelievably high costs involved], this general manager in a tiny electrical company kept working on the concept. On April 3, 1973, from a Manhattan street corner, using an apparatus that had no wires attached, he rang up Joel Engel, Head, Bell Labs research, to tell him, “Joel, I’ve beaten you in the race to make the first mobile phone.” Martin Cooper, the inventor of the mobile phone, individually re-invented not only Motorola’s history, where he worked, but of global telecom.

It is the night of September 25, 2000. This promising 23 year old Boston basketball player, who is a draft member of the ‘NBA bench’, is stabbed ruthlessly by hooligans. Medical reports show 11 lethal injuries to the back, face and neck, enough to kill any man. Doctors work relentlessly through the night to save him. Just when they’ve given up, a do-or-die lung surgery unbelievably gets him breathing again. The man lives, but just... Devastated physically, the chances of his coming back are, like I mentioned before, worse than impossible. Eight years pass. It’s June 17, 2008. The judgement night of NBA Finals history. Banknorth Garden in Boston is more than jam packed. The totally unfancied Boston Celtics, who have never won the NBA Finals in the last 22 years, are playing against the second highest winners in history, Los Angeles Lakers [featuring legends like Kobe Bryant, coaches like Kareem Abdul-Jabbar]. The game finally ends. Lowly Boston Celtics have beaten LA Lakers by a margin of 131-92, the largest margin ever in a championship game. The captain of Boston Celtics is an unknown Paul Anthony Pierce. This is his first NBA Finals appearance in life. Though he scores only 10 points, he is surprisingly named the Most Valuable Player (MVP) of the NBA Finals, because of the openings he creates... Oh yes, they also comment that he’s the same guy who was stabbed many times eight years back...

I call all these singular people The League of Incognito Mafiosi. We never knew their names, yet they kept working, steadfast in their beliefs, never giving up in the power of their individual self... Kit was still standing there, not letting his three foot persona stoop in front of me, his face grim, yet not stoic. He hadn’t moved an inch. I knew Kit had been practising with his friends for a long time for this race. But I had no idea that the reason he had invited me so fervently to attend the finals was to make me participate as the lead runner! And he had even promised his team members I would be there. The sun seemed to be mercilessly burning my face. The heat was unbearable. The silence, more than that. Kit kept standing there, not moving, and I wasn’t sure but I thought I saw his eyes turning moist, when he looked at me totally teary eyed, and commented in halting words, “Mama, you can make a difference. We don’t have anybody else... and I believe in you.” [The baton felt too heavy when I ran the lap; oh yes, we lost the race; ...and we won too; Kit made sure we didn’t come last; he was our MVP! And this time, I’m practising with them for the next year... An individual does make a heaven of a difference... Kit was that individual... Yes, ‘I’ believe!

WHY WOMEN LIE, CHEAT AND CAN NEVER BE TRUSTED!

2008-07-04T04:57:00.000+05:30

Jesus Christ! If I had made this statement in the US, I might have been flogged in public! But think about it, is there any woman in this world who doesn’t lie all the time, who doesn’t cheat people every moment, and who can ever be trusted even for a nano-second? Well, if you’ve reached this part of my editorial, you’ve fallen into the trap I laid for you like sweet unsuspecting daffy duck! The fact is, neither do I believe in my own statement above, nor do I care a hoot about the answer. But I care a billion hoots about ensuring people read my editorials. And if that factor is the critical measure of my performance, I, dear Angelina, have succeeded like nobody’s business. Controversy begets performance! Reputation has no correlation with success.

Shocked? Gulp down the air stuck in your pipe, for indisputable research from across the globe proves this a thousand times over. Check it out! The most path breaking research globally was the one by noted Professors Chung, Eneroth and Schneeweis of the reputed University of Massachusetts. In their paper titled Corporate Reputation and Investment Performance, the stalwarts prove, “There exists little relationship between high corporate reputation rankings and a firm’s equity performance. It is primarily a firm’s equity market performance...that affects published reputation ranking, and ranking has no impact on the firm’s future returns.” To that effect, even Professor Hungtao Tan of Southwestern University of Finance and Economics, in 2007, thumpingly concluded in his report Corporate Reputation & Earnings Quality, “I find no evidence to support that companies with good reputation share superior earnings relative to the corresponding industry levels.”

To the utter consternation of doubting Thomases, global authorities S. Brammer (University of Bath), C. Brooks (Cass Business School) and S. Pavelin (University of Reading), in their classic international December 2005 report, Corporate Reputation and Stock Returns, electrifyingly state, “There is no such thing as bad publicity. We find that those firm’s whose [reputation] scores have fallen substantially still exhibit positive abnormal [stock] returns in both the short and long run!” Famed Doctors Rajiv Sarin and Brit Grosskopf from the Department of Economics, Texas A&M University, in their world class August 2006 thesis, Is Reputation Good or Bad? An Experiment, ruthlessly devastate past notions and establish, “Reputation is not bad, but neither is it as good as previously thought... as long run players are able to do equally well without having reputations.”

And it’s not just about controversies or reputations per se, but even about the pathetically manipulated agendas that ranking agencies globally have. In their universally published covenant (The Reputation Quotient), Dr. Charles J. Fombrun, professor of management at Stern School of Business, and Dr. Christopher B. Foss, Associate Director of the Reputation Institute, state, “Measures of reputation proliferate, encouraging chaos and confusion... Some are arbitrarily performed by private panels... Some are carried out with private information and are unverifiable.” And now, report after report [NYSE CEO Report 2008, SMU Cox CEO Sentiment Survey 2007, PwC Global CEO Survey] proves that CEOs don’t give priority anymore to reputation or to published rankings, but only to performance. Moving ahead, Authorities G. Chen and Dean Tjosvold of Tsinghua University, Beijing, in June 2006, analysed that “participation and people values, coupled with constructive controversy, provide a foundation for effective CEO leadership!”

And why not! The most successful of global CEOs – Steve Jobs, Jack Welch, Steven Ballmer, Larry Ellison, Lee Scott – have been those who have been most controversial. The most successful of global companies – WalMart, Chevron, GE, BoA, Citigroup – have been the most controversial. If you thought the amazingly successful movie, Erin Brockovich, ran full house because Julia Roberts ‘controversially’ revealed more than her usual self, you perhaps forget, 30 sickening million gallons of oil spilt in Brooklyn, New York, that led to a historic never-before seen $58 billion class action suit, was targeted at a company that is now the world’s most profitable company ever, Exxon-Mobil (with 2007 sales of $373 billion and profits of $41 billion)! Quick, answer my questions. Most controversial book? You said Da Vinci Code, did you? Or The Satanic Verses? Both historic best sellers. Most controversial brand? Coke? It’s the most valued brand ever! And of course, most controversial group of people? Ah, women, obviously! Aren’t they the very best!!! :-) And don’t we love them like crazy :-)

6 SURESHOT WAYS TO SCORE HIGH ON DQ!!!

2008-06-20T04:52:00.000+05:30

CEOs! Thank me like crazy! For after years of insightful research, I’ve finally hit upon the top six mother-guaranteed strategies to score imperially high on your DQ (Donkey Quotient)! Presenting to you, a never before seen DQ checklist. Do you have it in you to win the world DQ crown? Give yourself one mark for each yes!

DQ Poser #1: Successful CEOs never believe in regularly firing people! Yes or no? If your answer is yes, my hero, you’ve gloriously earned your first Donkey Quotient point. A well quoted classic Forbes 2005 study confirms how “employee retrenchment actually increases loyalty!” BCG too confirms in a BusinessWeek article, “Few things demotivate an organisation (and its top performing employees) faster than tolerating and retaining low performers.” Jack Welch became Fortune’s “Manager of the Century” by firing the bottom 10% of his workforce every year! And his DQ is zero!

DQ Poser #2: A successful CEO is known to have jumped more jobs than wives! Yes/No? If you think that a CEO who has been in only one company all his life, must be a joker CEO not worth the toothpaste he uses, brother, you’ve just earned your 2nd DQ point! The Deloitte 2007 CEO Survey shows how a mind-numbing 81% CEOs of the top 100 US firms have never worked anywhere else (or maximum, have changed only one job) all their lives. Forbes quotes how a monumental 75% CEOs of leading non-US firms have spent 35 years or more with the same company they lead.

DQ Poser #3: Experienced people are forever more valuable than youth! Yes/No? Wrong without question my DQ aspirant! While the exemplary Spencer Stuart Route To The Top CEO Survey shows how the average age of CEOs is continuously falling, the most respected Roper Starch Inc.’s survey shows how an unbelievable 67% of American workforce now accepts that “the new century is all about youth.” Economist quotes how Bill Gates has ensured that the most important of Microsoft’s employees [programmers] are now in their 20s and early 30s.

DQ Poser #4: A CEO should never end up destroying or selling his company just to increase shareholder value! Yes/No? If you agree with the statement, you’ve just earned another glorious DQ point. CEOs who destroy their own company’s identity by selling it off or entering into an M&A deal when the offer was ripe and pristine, are now considered the world’s most effective and successful. Lucio A. Noto, CEO, Mobil, sold off his company to Exxon, and instantly added 15% to shareholder’s wealth. Reebok shareholders got a 34% premium when their CEO sold off the company to Adidas. Capellas of Compaq got his shareholders a super 35% (sold to HP). Guy Dolle, CEO Arcelor, is the best by getting an awesome 69% for his shareholders from Mittal Steel. On these terms, Jerry Yang of Yahoo fails miserably for having refused a 62% premium being offered by Microsoft in May 2008. Top CEOs destroy, devastate and demolish their own companies, if that can maximise shareholders’ wealth.

DQ Poser #5: Successful CEOs are never authoritative in their style of leadership! Yes/No? Absolutely wrong! Various separate researches of top institutions like HBS, University of Louisiana, Yale and many more support the authoritarian style of leadership without question. Steve Jobs, head of Fortune’s #1 Admired Global Corporation of 2008, Apple Inc., follows this to the tee. Andrew Keen writes in his best seller (The Cult Of The Amateur), “There’s not an ounce of democracy at Apple... Without Steve Jobs’ authoritarian leadership, Apple would be just another Silicon Valley outfit...”

DQ Poser #6: This is the easiest one... Excellent CEOs are never passionate about what they do! Yes/No? Well, duh... If you said yes to this, a donkey must be more passionate than you are! In a classy 2005 HBS paper, Dr. J. Byrnes (actually from MIT), identified “eight essential characteristics” of transformational leaders. The top one was “capacity for passion”. The existence of just one quality defines the world of a difference between being a titan of a performer, or simply being a historical also ran. And that’s passion!

Clearly, if you’ve scored zero (that is, all ‘No’) on my patented Donkey Quotient questionnaire, you’re in the company of the world’s greatest CEOs. And if you’ve achieved a perfect DQ score of 6, you qualify as the world’s first donkey that can read. Congratulations!!! It’s a privilege...

HOW TO USE RECESSION TO BEAT THE PANTS OFF YOUR COMPETITORS

2008-06-06T04:48:00.000+05:30

If you want to learn the tricks of the trade in recession, the first rule of the game is, understand the economic difference between a recession and a depression. They say a recession is when your neighbour loses his job. And a depression is when you lose yours :-) Actually, the same rule applies for companies too! Till the time your competitors are getting rogered, it’s ‘fair play’; the moment the downfall hits you, it’s ‘George Bush must go’! But seriously, the National Bureau of Economic Research defines a recession quite succinctly as the time when business activity (a conglomeration of factors like employment, industrial production, real income and wholesale retail sales) starts to significantly and regularly fall! Generally, if the fall is more than 10%, economists term the extreme recession as depression! At a time when the IMF has forecast that the total hit due to the subprime crisis could well touch the gut wrenching mark of $1 trillion, it’s quite imperative that corporations globally develop strategies not just to survive, but to lead the market and to beat competition!

So what do the world’s most excellent CEOs do to tackle recession? The first question is, can you forecast recession itself? Nobel laureate and top-notch economist Paul Samuelson had claimed, “Economists have correctly predicted nine of the last five recessions.” In other words, it’s perhaps better to learn what to do when recession hits, rather than waiting in fearful anticipation year after year for recession to hit. The hilariously famous presenter Jon Stewart had side-splittingly commented once, “Bush advisers have long been worried that a lagging economy could hamper the Republican Party’s re-election chances. They hope that the Cabinet shake-up will provide a needed jolt. If that doesn’t work, North Korea has to go!” Tackling recession doesn’t really require literally ‘bombastic’ strategies (as the ones Bush uses regularly, whether in Iraq, or now in Iran) but intelligent and simple tactics!

It was just a few months ago that I met the hallowed Ram Charan (Fortune considers him one of their favourite management gurus), over lunch. And it was only two months ago that he wrote the classic ‘Investor’s Special for the Recession Economy’ in Fortune, where he gives four simple and broad principles for CEOs to crack the recession conundrum, which are: (1) Keep Building: “Do not consider product development, innovation, and brand building optional. Sacrificing your future for a slightly more comfortable present is not worth it.” (2) Communicate Intensively: “It’s counterintuitive but true that when the economy slows down, the pace of decision-making has to speed up. The companies that are readiest to act on solid information are primed to shoot ahead of the business cycle.” (3) Evaluate Your Customers: “In good times, companies manage the P&L; in bad times, cash and receivables matter more. Therefore, you need to identify your higher-risk, cash-poor customers. You could decide to simply not supply them anymore.” (4) Just Say No To Across-The-Board Cuts: “By all means cut costs if it makes sense to do so, but make sure there is purpose in how you do it.”

Jay Leno, the king of standup acts, gave a classic perspective of the US economy in one of his shows: “Some good news for the economy. President Bush went on a month-long vacation.” Companies, like I mentioned before, wouldn’t necessarily find the blame game as easy as Jay wishes it to be. Harvard Business School, in its most recent April 2008 posting, gives a tempered, but well researched, response with its paper, ‘4 Steps to Growth During a Recession’. First, “Invest heavily in research and development” – Your competitors may in general cut R&D investments; ergo, your investment increase would yield a “strong product advantage” in the future. Steve Jobs quoted a few days back, “In the last recession, we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over… And it worked! That’s exactly what we’ll do this time!” Second, “Spend some time learning about the customers of your weakest competitors” – Instead of focusing on bagging your strongest competitors’ largest clients, choose these times to add attractive customers of your weakest competitors, who would not have the wherewithal to withstand your attack. Third, “Identify your most critical suppliers and distributors” – Find out ways you could help these suppliers and distributors. HBS quotes, “Even the smallest gesture can sometimes build an enduring loyalty that will pay off for years to come.”

Prime time TV host Craig Kilborn commented recently, “President Bush’s economic plan will create 2.5 million new jobs. The bad news is, they are all for Iraqi soldiers!” After you’ve recovered from your sarcastic chuckles on this statement, is the fourth, and I think the most important of HBS’ learning philosophies, “Think carefully about your talent needs” – When weaker competitors try to survive, many excellent employees of these companies would find themselves without jobs. Recession is the best time to grab on to these world-class employees and give them jobs and responsibilities that they’ll cherish for a long time with unwavering loyalty!
The most distinguished Professor John Quelch, who is also the Senior Associate Dean at HBS, added his expert views for the marketing heads in his terrific treatise, ‘Marketing Your Way Through Recession’, which came out just around a month back. Some of his key recession mantras for the marketing team are: (a) Research the customer well before deciding on pricing tactics. Price elasticities might not change as dramatically as you might expect. (b) Maintain marketing spending. Recession is surely not the period to cut advertising. Recession creates, as Quelch says, “uncertain customers, who need the reassurance of known brands,” and thus ensure customer loyalty for years. (c) Adjust pricing tactics. In other words, rather than cutting the price of your product (which will immediately send a wrong signal about quality), intelligently play around with newer promotional schemes, give credit to the A-category customers, play around with the quantity of your product in, say, every pack (price it the same, but start giving a non-noticeable less, for example). (d) Ensure employees (and customers) believe in the core values of your oganisation and believe that your organisation will get through tough times! For that, the CEO himself must “spend more time with customers, and employees.”

My favourite David Letterman’s classic and ripping statement stays with me forever, “Al Gore says President Bush’s economic plan has zero chance of working. Now, this raises on important question: Bush has an economic plan?!??!” Seriously, look at yourself and ask, do you as a CEO have a plan in place if recession hits you?

Chris Zook and Darrel Rigby, noted consultants of the globally renowned consulting firm, Bain & Company, a few years back had warned through their path breaking paper (Strategy For The Recession) that CEOs globally today don’t have a ghost of an idea of what their Plan B would be if recession were to hit their economy/company. Think about it again yourself. What is the reason that you don’t currently have a Plan B if the economy crashes? Zook and Rigby recommend that as a CEO, you should most necessarily “build strategic contingency planning into your culture,” even if the economy looks really rosy currently. A fact supported fanatically by McKinsey & Co in their quite readable paper that came out in Spring 2007, Preparing For The Next Downturn.

There was once a millionaire CEO who, while on a lone yachting expedition across the Atlantic, got his yacht smashed up in a thunderstorm, floated for a fortnight living on molasses, till one day, half dead already, he floats ashore on a completely isolated island in the middle of nowhere, when he sees an amazingly seductive super-model of a woman, wearing palm leaves, walk over to him. She smiles at him, tells him how she also is a shipwreck living alone on the island. She then guides him to her awesome tree home, gives him delicious water, vegetarian food and fruits to eat, new clothes made out of super-fashionable leaves, provides him a top quality razor made out of animal bone to shave his overgrown beard, shows him her utopian teakwood bathroom, which even has a shower for him made out of bamboo sticks with coconut water pouring out! The CEO’s over the moon! Freshened up, he comes out of the bathroom to see her lying down on her super sized banyan bed, dressed in a very tasteful sarong, when she whispers, “Guess what more I can provide to you!” He thinks for a moment, and then his eyes light up like crazy, and he screams in pleasure, “Don’t tell me you have email too!!!”

Dear CEOs, the final learning is, in a recession, in your attempts to read too much in market dynamics, don’t miss the obvious!

CAN YOU GET ARRESTED FOR DOING IT?

2008-05-23T04:43:00.000+05:30

I mean multi-tasking! Actually, the issue had been hitting me since many days, since I saw my teenage nephew multi-tasking like mad on an everyday basis; as I really hate it when, while talking to me, he takes out just one earpiece [of his iWhatever], keeping the other in at full blast, at the same time mumbling away half words that he’s “givin’ me full attention!” Didn’t I say thoroughly inefficient? I knew that with statistical research, I would be able to convince my nephew not to multi-task ever! Well, the famed Ram Charan (Fortune magazine’s favourite management guru) had told me during a lunch last year that “mastery of the subject” one is practising is its own reward. Obviously, you can’t do that if you multi-task, can you?! I was sure the world’s greatest CEOs focus on “mastery” of the subject than on multi-tasking, and decided to do a quick review of what really works for the world’s most specialised leader, Bill Gates! More so as he’s kind of an icon for my nephew...

It was personally shocking for me when I read the NHS Report of the world famous Institute for Innovation and Improvement, which profiled Gates and reported that “Gates is the original multi-tasking man...” In fact, Gates’ belief in multi-tasking is so supreme that “once, Gates hung a map of Africa in his garage, so he could have something to occupy his mind for the precious seconds spent turning on the engine of his Porsche.” Time magazine reported in an inside story on Bill Gates that when Gates was in the sixth grade, due to his behaviour, “his parents decided he needed counselling!” After one year of counselling sessions and a plethora of tests, the psychological counsellor reached his conclusion. He told Gates’ mother, “Mary, you’re going to lose. You had better just adjust to him!” That he can eat food with both hands (in fact, he’s ambidextrous) was something I learnt much later after getting to know that experts describe him to be a master of “parallel processing” and, uhh, “multi-tasking.”

The noted Dr. Louis Csoka’s pathbreaking research (International Communications Research, Dec 2006) shows how great multi-taskers – people who handle more than one job, one designation, one profile at a time – are not only more educated than non-multi-taskers (78% more), but also are better paid (a whopping 200% more)! The benchmark IMF research paper (Enterprise Restructuring and Work Organisation) proves with conclusive findings that world-class organisations of today are slimmer and have an increased number of multi-skilled workforces where, “workers have to be able to handle a multiplicity of tasks and be very flexible.” Dr. Levenson (University of Southern California), Dr. Gibbs (Chicago Graduate School of Business) and Professor Zoghi (Bureau of Labour Statistics) moved the management world three years back when, in their world beating research (Why Are Jobs Designed The Way They Are?), they provided definitive quantitative evidence from the world’s largest and best performing organisations that its ‘multi-tasking’ instead of ‘specialisation’ that “leads to greater productivity.” Dr. Jaime Ortega in a Centre for Labour Market sponsored research, statistically showed that for increased profits, it’s ‘job rotation’ rather than ‘specialisation’ that should be followed!

My arguments against multi-tasking were growing thinner by the minute. That’s when I called up my professor from b-school to take his help. He asked me just one question: “What’s common between top CEOs like Paul Wilbur, Thomas Wright, Carlos Ghosn, Steve Jobs, Larry Page, Larry G. Stambaugh and a host of others?” I didn’t even wish to answer a losing question. Forget multi-tasking at a job level, these world beaters serve as CEOs in two companies at the same time! While few know that Jobs is the single largest shareholder of Disney (apart from being the CEO of Pixar – now with Disney – and Apple together) or that Google’s Larry Page is a top board member at Apple, fewer perhaps know that Carlos Ghosn is the CEO of both Nissan (Japan) and Renault (France), spending half of the week in one country, and half in the other. I was shattered further when my professor shared that there perhaps was no better a multi-tasker than Ram Charan himself, who runs the boards of three global companies (Tyco, Austin Industries and Biogenex) at the same time! These days, every time my nephew saunters across my home sniggering away at me, my blood boils, but there’s little I can do... And yes, for the sake of mentioning, if the only place you think you can multi-task is talking on the cell phone while driving, forget it! I’ve tried it! Not got arrested; but fines have burnt emotional holes larger than my nephew’s smirks!