We are about to send off yet another year in to history. Perhaps most dramatic year!
We saw almost everything in this year, high and crash of stock market; financial system melt down; manufacturing sector reaching it’s bottom; inflation high/lows. In summary, we have seen all, which literally created liquidity problems to working and business community. Arguably this termed as worst year industry ever seen; where impact was seen across all industries.
Internationally, this year saw meltdowns like Lehman Brothers, narrow escapes of GM, Ford, Citi. Officially entire world is in to recession. Bad numbers poured in from US, Europe, Japan, India, Russia and China.
In general, we are not yet out of recession; we still need to deal with its impact.
It was large belief that BRIC countries (Brazil, Russia, India and China) are largely insulated from what happening in US and Europe, this year proved that concept wrong. No body in insulated and it impacts all alike.
From social front, we saw worst terror attacks, which took entire world shocking.
Though, silver line being Indian sports; this year we have been on high. We also saw premier sports event, Olympics being conducted with at most precision.
So, there will be no tears in saying good bye 2008. Let’s hope we will have better 2009; where the happiness and energy in the industry comes back.
Wish you a happy and safe new year ahead.
Monday, December 29, 2008
Sunday, December 14, 2008
“Stay Hungry, Stay Foolish”
This is the book I just completed reading. It is about 25 IIM graduates; who choose to find their own ways by rejecting corporate offers.
Reading stories of Sanjeev Bikchandani (Naukri.com), R.Subramanain (Subhiksha), Jerry Rao (Mphasis), Nirmal Jain (India Infoline) gives immense motivation and inspiration.
Couple common things I observed out of all these 25 profiles;
Risk Taking: Entrepreneurs are born risk takers. In each of these profiles, we get to see about this fact. They don’t hesitate to take the risks.
Hardworking and persistent: Once they dream; they constantly follow that to make it happen. Though there would be difficulties on the way. They are not losers!
One thing for sure; these guys are from different ring of the Saturn!
Sunday, November 16, 2008
How Mortgage Crisis in US Pushed The Whole World in to Depression.
Let me share you what I felt about this topic.
While we are getting ready to deal with ‘depression’ which has spread across the whole world now and saw some big names tumbling; the question comes up is, how in the first place a visibly simple mortgage crisis in US couple of years back turned to be a depression? Affecting the whole world?
The search leads to one word ‘derivatives’.
Derivatives are financial instruments that are used to reduce financial risk, just as a fire insurance policy is used to reduce the risk of a fire by compensating possible damage in the event of one. Why did, then, Warren Buffett, whose financial acumen is legendary, describe them recently as “weapons of mass destruction”?
Wikipedia definition of derivative is; these are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset (eg commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (eg interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items (eg weather conditions, or other derivatives). Credit derivatives are based on loans, bonds or other forms of credit.
The main types of derivatives are: forwards (which if traded on an exchange are known as futures); options; and swaps.
Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect. This activity is known as speculation.
It is not hard to see why such “derived” securities or “derivatives” have become so popular. A bank that makes a loan, for example, for a house, faces many different types of risk. The borrower, for instance, may not be able to return the loan on due date. Or, he may not be able to keep up with interest payments. Or, the market interest rate may rise far above the rate the bank has given the loan, leaving the bank stuck with a loan at a low interest rate. Or an earthquake might hit the area demolishing the borrower’s business. Or, high inflation may reduce the value of the loan by the time it gets repaid. Derivatives are a way to “hedge” against these risks. For example, a housing loan to a borrower in, say, Pune can be combined with a housing loan in Mumbai and another one in Bangalore under one common instrument and this combined “derivative” can be sold to an investor. This combination reduces the risk of disparate housing markets such as Pune, Mumbai and Bangalore all suffering downturns at the same time. The investor in this derivative rightly believes that the instrument he holds has a balanced risk.
If derivatives can diversify risk, as just described, what can go wrong? For one, the borrowers may have mis-represented their income. Or, the loan issuer may not have verified their incomes. Or, they may have borrowed 95 per cent of the value of their houses such that if property prices decline by, say, 20 per cent, the asset cover may become inadequate. In all of these cases, should interest rates rise sharply, from say, 6 per cent to 10 per cent, these borrowers may no longer be able to meet their monthly payments. When Greenspan, who was Chairman of the US Federal Reserve Board, was told about similar issues developing in the US mortgage securities market he believed that such problems in the housing sector would be restricted to a city and could never become a national, let alone an international problem.
This would normally have been true, but mortgaged-backed securities were sold not only nationally in the United States but also throughout Europe and Asia. When the US housing bubble burst and borrowers started defaulting on their mortgage payments, the value of the mortgage securities fell precipitously. The shock waves were transmitted throughout the world. What started as a crisis in some specific parts of the US now became a worldwide financial crisis.
While we are getting ready to deal with ‘depression’ which has spread across the whole world now and saw some big names tumbling; the question comes up is, how in the first place a visibly simple mortgage crisis in US couple of years back turned to be a depression? Affecting the whole world?
The search leads to one word ‘derivatives’.
Derivatives are financial instruments that are used to reduce financial risk, just as a fire insurance policy is used to reduce the risk of a fire by compensating possible damage in the event of one. Why did, then, Warren Buffett, whose financial acumen is legendary, describe them recently as “weapons of mass destruction”?
Wikipedia definition of derivative is; these are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying on which a derivative is based can be an asset (eg commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (eg interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), or other items (eg weather conditions, or other derivatives). Credit derivatives are based on loans, bonds or other forms of credit.
The main types of derivatives are: forwards (which if traded on an exchange are known as futures); options; and swaps.
Derivatives can be used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect. This activity is known as speculation.
It is not hard to see why such “derived” securities or “derivatives” have become so popular. A bank that makes a loan, for example, for a house, faces many different types of risk. The borrower, for instance, may not be able to return the loan on due date. Or, he may not be able to keep up with interest payments. Or, the market interest rate may rise far above the rate the bank has given the loan, leaving the bank stuck with a loan at a low interest rate. Or an earthquake might hit the area demolishing the borrower’s business. Or, high inflation may reduce the value of the loan by the time it gets repaid. Derivatives are a way to “hedge” against these risks. For example, a housing loan to a borrower in, say, Pune can be combined with a housing loan in Mumbai and another one in Bangalore under one common instrument and this combined “derivative” can be sold to an investor. This combination reduces the risk of disparate housing markets such as Pune, Mumbai and Bangalore all suffering downturns at the same time. The investor in this derivative rightly believes that the instrument he holds has a balanced risk.
If derivatives can diversify risk, as just described, what can go wrong? For one, the borrowers may have mis-represented their income. Or, the loan issuer may not have verified their incomes. Or, they may have borrowed 95 per cent of the value of their houses such that if property prices decline by, say, 20 per cent, the asset cover may become inadequate. In all of these cases, should interest rates rise sharply, from say, 6 per cent to 10 per cent, these borrowers may no longer be able to meet their monthly payments. When Greenspan, who was Chairman of the US Federal Reserve Board, was told about similar issues developing in the US mortgage securities market he believed that such problems in the housing sector would be restricted to a city and could never become a national, let alone an international problem.
This would normally have been true, but mortgaged-backed securities were sold not only nationally in the United States but also throughout Europe and Asia. When the US housing bubble burst and borrowers started defaulting on their mortgage payments, the value of the mortgage securities fell precipitously. The shock waves were transmitted throughout the world. What started as a crisis in some specific parts of the US now became a worldwide financial crisis.
Sunday, October 19, 2008
`It`s excitement, not stress`-Article on Chanda Kochhar
As joint MD of ICICI Bank; Chanda Kochhar has achived a lot.
Following is the link appeared in Business Standard; it gives a lot of insights.
http://www.business-standard.com/india/storypage.php?autono=337265
She call stress as excitement!
Following is the link appeared in Business Standard; it gives a lot of insights.
http://www.business-standard.com/india/storypage.php?autono=337265
She call stress as excitement!
Sunday, September 14, 2008
Business Around Entertainment Channels
There are so many entertainment channels which are coming out in
Sunday, September 07, 2008
Go Kiss the world!
This is the auto-biography of Subrato Bagchi; which I just completed reading.
The pinnacle of my career at Wipro brought with it the opportunity to work directly for Azim Premji. Mitta had taught me to be a good human being before trying to be a leader. From Ashok Soota, I learnt what it takes to be a good leader. It was by observing Azim Premji from close quarters that I learnt about leadership from an entrepreneurial standpoint. Premji was acutely aware of the challenges that lay ahead for Indian companies in a progressively open economy. I learnt my final lesson on leadership on my last day at Wipro. He wanted me to stay back. I told him that one of my reasons for leaving was that we were very different people, we thought differently. He answered: “That is the reason we should work together.”
Sunday, August 31, 2008
Should we start teaching Mandarin to our kids?
After seeing spectacular closing ceremony at the Beijing Olympics and feeling the vibrations of Chinese drummers; one question we need to ask; how did China managed to put together such a spectacular show? And what it means to the rest of the world?
One thing is sure; China didn’t build this overnight; there is a hard work of 7 years (It was decided in July-2001 that China will hoist these games), there is a meticulous planning, spectacular management. Entire China has been preparing for this moment.
Let’s reflect on how China and USA have spent last seven years; China has been preparing for Olympics and USA has been preparing for al-Qaida. China has been investing in sports infrastructure/nation building and USA has been investing in installing metal detectors and security processes. I am not saying, what USA was/is doing wrong, probably it was required to fight terrorism. And as a country USA was supposed to respond to 9/11.
But, results are there to see for all of us. Lets look at the infrastructure China has built up, super speed electromagnetic trains; ultra modern airports, spectacular high-ways and great industry revolution. On the contrary USA seems to have missing the ‘Nation Building’ activities; for which America has been famous for.
For argument, we can say, though cities have good infrastructure; but rural China is like old; lacking proper facilities; in fact no one knows more about how China is! But point I am making is; under the banner of 2008 Olympics, China started a domestic revolution and a nation building process and I am sure; they will only stop when entire nation building process is complete. Now they have a proven process in hand.
I think, entire world need to take a note of it; though it is too early to say any thing. There could be a competition to US in technology, engineering, education and infrastructure.
It might be a good idea to start teaching Mandarin to our kids! Probably they might have to go to China to see future as we are seeing our future in US!
Who knows?
One thing is sure; China didn’t build this overnight; there is a hard work of 7 years (It was decided in July-2001 that China will hoist these games), there is a meticulous planning, spectacular management. Entire China has been preparing for this moment.
Let’s reflect on how China and USA have spent last seven years; China has been preparing for Olympics and USA has been preparing for al-Qaida. China has been investing in sports infrastructure/nation building and USA has been investing in installing metal detectors and security processes. I am not saying, what USA was/is doing wrong, probably it was required to fight terrorism. And as a country USA was supposed to respond to 9/11.
But, results are there to see for all of us. Lets look at the infrastructure China has built up, super speed electromagnetic trains; ultra modern airports, spectacular high-ways and great industry revolution. On the contrary USA seems to have missing the ‘Nation Building’ activities; for which America has been famous for.
For argument, we can say, though cities have good infrastructure; but rural China is like old; lacking proper facilities; in fact no one knows more about how China is! But point I am making is; under the banner of 2008 Olympics, China started a domestic revolution and a nation building process and I am sure; they will only stop when entire nation building process is complete. Now they have a proven process in hand.
I think, entire world need to take a note of it; though it is too early to say any thing. There could be a competition to US in technology, engineering, education and infrastructure.
It might be a good idea to start teaching Mandarin to our kids! Probably they might have to go to China to see future as we are seeing our future in US!
Who knows?
Sunday, August 17, 2008
A ‘Golden’ Business Opportunity.
First of all, congratulations Abhinav Bindra; you made us feel great! We, all Indians; salute you for your hard work, dedication and determination. It was an incredible job!
Coming to business side of it; I feel it is a ‘Golden’ business opportunity. In fact, for two individuals; one Abhinav and second one is Michel Phelps.
This is a right time for our brand guru’s to focus on sports other then cricket. With Abhinav being a house hold name now; corporate world can utilize his fame to market their brands. There is other side of the story as well; if Abhinav gets promoted by corporate; non-cricket sports get more visibility. Though there is no history in India of non-cricket brand ambassadors; it might just start, who knows?
Phenomenon Phelps made history in this Olympics; and I am sure his brand is now ready to explode. CNN reported his current brand value is $30 million! Phelps has become a synonymous to swimming as Born Borge (Arguably) was to tennis or Tiger Woods is for Golf. By doing nothing; Swimming will get more popularity in whole world by Phelps name. That is the fame and brand he has created himself.
Corporate America is famous in catching such great players and builds the branding around him/her. Sports Marketing is very systematic there and I am sure Phelps will en- cash this.
I believe; both these cases are real golden opportunities, if done right.
After seeing Olympics this time; I can’t help myself but jump the lane and ask myself; how much our city (Pune) is prepared for an international event like CYG?
Do we really care that we want to be a good host?
Coming to business side of it; I feel it is a ‘Golden’ business opportunity. In fact, for two individuals; one Abhinav and second one is Michel Phelps.
This is a right time for our brand guru’s to focus on sports other then cricket. With Abhinav being a house hold name now; corporate world can utilize his fame to market their brands. There is other side of the story as well; if Abhinav gets promoted by corporate; non-cricket sports get more visibility. Though there is no history in India of non-cricket brand ambassadors; it might just start, who knows?
Phenomenon Phelps made history in this Olympics; and I am sure his brand is now ready to explode. CNN reported his current brand value is $30 million! Phelps has become a synonymous to swimming as Born Borge (Arguably) was to tennis or Tiger Woods is for Golf. By doing nothing; Swimming will get more popularity in whole world by Phelps name. That is the fame and brand he has created himself.
Corporate America is famous in catching such great players and builds the branding around him/her. Sports Marketing is very systematic there and I am sure Phelps will en- cash this.
I believe; both these cases are real golden opportunities, if done right.
After seeing Olympics this time; I can’t help myself but jump the lane and ask myself; how much our city (Pune) is prepared for an international event like CYG?
Do we really care that we want to be a good host?
Sunday, August 10, 2008
The High Performance Entrepreneur
This is the title of a book I just completed reading, it is by Subroto Bagchi, co-founder of MindTree consulting, a mid-sized IT and consulting company.
On top, this book is about guidelines of creating a company, from a business idea, to IPO. The start, the VC pitch one need to make, branding & marketing etc.
In addition to above tips, this book gives enormous amount of learning for building a team; managing customers and managing difficult times; especially times like 9/11 and global recession. This book runs through different stages of a company, from a start-up from an apartment to multi-million dollar company. The author narrates MindTree story while he speaks these different stages. It catches because you can actually co-relate a theory with an example.
MindTree story is real amazing by itself; in terms of the way it progressed to achieve $100 million in a span of 6 years. This book gives a detailed description of culture and value system MindTree has and why it was build in that way. Author stresses the need for quality of services and gives instances as why this is important in today’s world.
In all, it has very good tips about starting and building a company. And it is an inspiring story to read. And more important lesson I learnt is following the dream you have, even if you face difficulties. After all, all MindTree founders were from pretty general middle class background and it is their hard work and resilience made their dream come true.
Building a company and watching it grow is like seeing your kid growing and going to college!
On top, this book is about guidelines of creating a company, from a business idea, to IPO. The start, the VC pitch one need to make, branding & marketing etc.
In addition to above tips, this book gives enormous amount of learning for building a team; managing customers and managing difficult times; especially times like 9/11 and global recession. This book runs through different stages of a company, from a start-up from an apartment to multi-million dollar company. The author narrates MindTree story while he speaks these different stages. It catches because you can actually co-relate a theory with an example.
MindTree story is real amazing by itself; in terms of the way it progressed to achieve $100 million in a span of 6 years. This book gives a detailed description of culture and value system MindTree has and why it was build in that way. Author stresses the need for quality of services and gives instances as why this is important in today’s world.
In all, it has very good tips about starting and building a company. And it is an inspiring story to read. And more important lesson I learnt is following the dream you have, even if you face difficulties. After all, all MindTree founders were from pretty general middle class background and it is their hard work and resilience made their dream come true.
Building a company and watching it grow is like seeing your kid growing and going to college!
Sunday, August 03, 2008
Nano: Tata’s Costly Promise?
There should be no doubts about that innovative idea, market it is targeting and given the technology and process knowledge, Tata Motors will bring out the Nano as designed. But, question need to answer is, is it going to be a costly promise?
Back in January, when Tata first unveiled the Nano at the Delhi auto show, this would-be king of econo-boxes grabbed more attention than anything shown at the North America International Auto Show in Detroit held the same month.
No matter. The Nano, a 623cc-engine compact that will get 20 KPL, instantly won kudos as a showcase of frugal Indian engineering. It sent shock waves through the auto world as carmakers reassessed how cheaply they could make small vehicles. For Ratan Tata, the car symbolized something much grander than just another product.
Steel Prices:
One problem is that Tata's cost concerns with the Nano are more serious than those faced by other automakers. First, at a time when global steel prices are touching record highs, prices in India are rising even faster.
Singur Plant:
Rising input prices aren't the only factor increasing costs. Tata Motor admits that its Nano plant in Singur is not ready yet because of protests and it might drag a bit, adding the costs, or it’s manufacturing has to be shifted to Pune site; which can’t handle Nano production yet, adding to total cost of operations.
No surprise, then, that analysts are wondering how Tata Motors can earn a profit on the Nano.
Supplier:
One obvious answer is to look at suppliers. But suppliers, already scrambling to make parts as cheaply as possible, can only be squeezed so far. So, this option will not going to yield more.
Volume:
Other option would be to look at volume, as per one analyst, until production volumes hit 500,000 units, it's difficult to be optimistic about any profits.
Passing rising costs on to car buyers through higher prices looks to be more difficult. With the 100,000-rupee price not up for negotiation, one option is to sell a larger proportion of higher-specification Nanos, which come with electric windows, air conditioning, and central locking. But while luxury Nanos will be more profitable per vehicle, higher prices risk edging out many customers who until now could only afford two-wheelers. One difficulty is that as the price edges closer to the Maruti 800, the Nano becomes less of bargain.
Business is all about such catch-22 situations!
Back in January, when Tata first unveiled the Nano at the Delhi auto show, this would-be king of econo-boxes grabbed more attention than anything shown at the North America International Auto Show in Detroit held the same month.
No matter. The Nano, a 623cc-engine compact that will get 20 KPL, instantly won kudos as a showcase of frugal Indian engineering. It sent shock waves through the auto world as carmakers reassessed how cheaply they could make small vehicles. For Ratan Tata, the car symbolized something much grander than just another product.
Steel Prices:
One problem is that Tata's cost concerns with the Nano are more serious than those faced by other automakers. First, at a time when global steel prices are touching record highs, prices in India are rising even faster.
Singur Plant:
Rising input prices aren't the only factor increasing costs. Tata Motor admits that its Nano plant in Singur is not ready yet because of protests and it might drag a bit, adding the costs, or it’s manufacturing has to be shifted to Pune site; which can’t handle Nano production yet, adding to total cost of operations.
No surprise, then, that analysts are wondering how Tata Motors can earn a profit on the Nano.
Supplier:
One obvious answer is to look at suppliers. But suppliers, already scrambling to make parts as cheaply as possible, can only be squeezed so far. So, this option will not going to yield more.
Volume:
Other option would be to look at volume, as per one analyst, until production volumes hit 500,000 units, it's difficult to be optimistic about any profits.
Passing rising costs on to car buyers through higher prices looks to be more difficult. With the 100,000-rupee price not up for negotiation, one option is to sell a larger proportion of higher-specification Nanos, which come with electric windows, air conditioning, and central locking. But while luxury Nanos will be more profitable per vehicle, higher prices risk edging out many customers who until now could only afford two-wheelers. One difficulty is that as the price edges closer to the Maruti 800, the Nano becomes less of bargain.
Business is all about such catch-22 situations!
Sunday, June 15, 2008
Importance of Strategy- A good story
One day, there was a blind man sitting on the steps of a building with a hat by his feet and a sign that read: "I am blind, please help".
A creative publicist was walking by him and stopped to observe he only had a few coins in his hat, he dropped a few more coins in his hat and without asking for his permission took the sign, turned it around, and wrote another announcement. He placed the sign by his feet and left.
That afternoon the creative publicist returned by the blind man and noticed that his hat was full of bills and coins. The blind man recognized his footsteps and asked if it was him who had re-written his sign and he wanted to know what did he write on it? The publicist responded: "Nothing that was not true, I just rewrote your sign differently".
He smiled and went on his way.
The blind man never knew but his new sign read : "TODAY IS SPRING AND I CANNOT SEE IT".
Change your strategy when something does not go your way and you'll see it will probably be for the best. Have faith that every change is best for our lives.
A creative publicist was walking by him and stopped to observe he only had a few coins in his hat, he dropped a few more coins in his hat and without asking for his permission took the sign, turned it around, and wrote another announcement. He placed the sign by his feet and left.
That afternoon the creative publicist returned by the blind man and noticed that his hat was full of bills and coins. The blind man recognized his footsteps and asked if it was him who had re-written his sign and he wanted to know what did he write on it? The publicist responded: "Nothing that was not true, I just rewrote your sign differently".
He smiled and went on his way.
The blind man never knew but his new sign read : "TODAY IS SPRING AND I CANNOT SEE IT".
Change your strategy when something does not go your way and you'll see it will probably be for the best. Have faith that every change is best for our lives.
Ranbaxy Deal: It is two way street.
The promoters of Ranbaxy Laboratories are not the first to sell out of their company nor will they be the last. But this remains the only case so far of a successful, listed, globalized enterprise with national leadership in a growth industry deciding that it does not have a bright enough future on its own, and that it needs to be a part of a larger corporate entity. It therefore underlines the point that even as Indian companies are stalking the world picking up companies like Corus, this is a two-way street.
Many will feel a twinge of regret that a company that has been a symbol of successful Indian entrepreneurship in a research-intensive field has decided to throw in the towel, for this is the flip side of Indians celebrating corporate acquisitions overseas (and Ranbaxy has done its share of them). But the time may have come to set nationality questions aside, and to look at business rationale with the same clinical detachment with which Malvinder Singh has put Ranbaxy's future ahead of his own natural desire to hold on to his corporate inheritance.
The issues that Ranbaxy faced, and which it hopes to solve by becoming a subsidiary of Daiichi Sankyo, are technical and financial. On the technical side, it needed a stronger product pipeline. Implicit in the change of ownership is also the admission that the company's strategy for research and generics has run into a headwind, and therefore that the game has to be re-invented. Financially, the company has been burdened by the prospect of having to redeem $400 million of convertible bonds issued in dollars. On the Daiichi Sankyo side, the company gets market entry into some 60 countries, a strong production base and a low-cost research capability.
It seems to be a time of M&As, it is quite interesting to follow the strategy behind such deals.
Many will feel a twinge of regret that a company that has been a symbol of successful Indian entrepreneurship in a research-intensive field has decided to throw in the towel, for this is the flip side of Indians celebrating corporate acquisitions overseas (and Ranbaxy has done its share of them). But the time may have come to set nationality questions aside, and to look at business rationale with the same clinical detachment with which Malvinder Singh has put Ranbaxy's future ahead of his own natural desire to hold on to his corporate inheritance.
The issues that Ranbaxy faced, and which it hopes to solve by becoming a subsidiary of Daiichi Sankyo, are technical and financial. On the technical side, it needed a stronger product pipeline. Implicit in the change of ownership is also the admission that the company's strategy for research and generics has run into a headwind, and therefore that the game has to be re-invented. Financially, the company has been burdened by the prospect of having to redeem $400 million of convertible bonds issued in dollars. On the Daiichi Sankyo side, the company gets market entry into some 60 countries, a strong production base and a low-cost research capability.
It seems to be a time of M&As, it is quite interesting to follow the strategy behind such deals.
Sunday, May 18, 2008
Prize Catch or Head-Scratcher?: HP offer to EDS.
This week’s blog is just continuation of last week’s story of mergers and acquisitions. But EDS and HP deal is more of global in nature.
When Hewlett-Packard announced its $13.9 billion acquisition of tech services giant Electronic Data Systems on May 13, pundits heralded it as a bold move by HP CEO Mark Hurd. In one stroke, it seemed, he had put HP on a stronger footing with market leader IBM in the fiercely competitive tech services business. Together, HP and EDS will create a services giant with $38 billion in revenues, compared with IBM's $54 billion.
Yet a closer look at the deal raises questions about Hurd's strategy and choice of dance partner. EDS, pioneered the practice of taking over corporations' computing operations, was slow to respond in the early 2000s to the threat of nimble Indian rivals offering services at sharply lower prices. Revenues stagnated, and EDS racked up huge losses. Eventually, the company increased its overseas hiring, and bought control of an Indian company, MphasiS. (I wrote in my blog about this merger of EDS and Mphasis as how it makes sense and which was eventually figured in Rediff)
So this deal may not change the game when it comes to one of the most important factors in tech services. The top-tier services companies need large, low-cost, global workforces, and their operations need to be tightly integrated so employees with diverse skills collaborate smoothly. IBM, Accenture, and Indian companies such as TCS, Infosys and Wipro lead in this effort, while EDS and HP have lagged. The services sector is going through a shift, and this merger doesn't address the global service-delivery challenges that HP faces.
For Hurd, the logic is simple. He prizes EDS's giant outsourcing business because it has a large number of customers producing annuity-style revenues. There isn't much overlap between the companies. And he says there will be considerable cost savings. EDS CEO Ronald Rittenmeyer will run the services subsidiary.
Hurd, who excels at cost-cutting, had a choice between buying a big racehorse seemingly past its prime or a young colt with lots of potential. He bought the mature horse. Now we'll see if he can whip EDS back into shape.
When Hewlett-Packard announced its $13.9 billion acquisition of tech services giant Electronic Data Systems on May 13, pundits heralded it as a bold move by HP CEO Mark Hurd. In one stroke, it seemed, he had put HP on a stronger footing with market leader IBM in the fiercely competitive tech services business. Together, HP and EDS will create a services giant with $38 billion in revenues, compared with IBM's $54 billion.
Yet a closer look at the deal raises questions about Hurd's strategy and choice of dance partner. EDS, pioneered the practice of taking over corporations' computing operations, was slow to respond in the early 2000s to the threat of nimble Indian rivals offering services at sharply lower prices. Revenues stagnated, and EDS racked up huge losses. Eventually, the company increased its overseas hiring, and bought control of an Indian company, MphasiS. (I wrote in my blog about this merger of EDS and Mphasis as how it makes sense and which was eventually figured in Rediff)
So this deal may not change the game when it comes to one of the most important factors in tech services. The top-tier services companies need large, low-cost, global workforces, and their operations need to be tightly integrated so employees with diverse skills collaborate smoothly. IBM, Accenture, and Indian companies such as TCS, Infosys and Wipro lead in this effort, while EDS and HP have lagged. The services sector is going through a shift, and this merger doesn't address the global service-delivery challenges that HP faces.
For Hurd, the logic is simple. He prizes EDS's giant outsourcing business because it has a large number of customers producing annuity-style revenues. There isn't much overlap between the companies. And he says there will be considerable cost savings. EDS CEO Ronald Rittenmeyer will run the services subsidiary.
Hurd, who excels at cost-cutting, had a choice between buying a big racehorse seemingly past its prime or a young colt with lots of potential. He bought the mature horse. Now we'll see if he can whip EDS back into shape.
Sunday, May 04, 2008
Aztechsoft acquisition: Is this start of consolidation?
This week’s news that caught my thinking is Mindtree’s acquisition of Aztechsoft. On paper, it looks like a good deal in terms of money Mindtree will spend to acquire. Also, from strategic point of view, it might help Mindtree to gain that extra mile it wanted. Analysts believe, this is merger of synergies.
It is true, Mindtree has a target of meeting 1 billion in revenue and it wanted a portfolio in product development area. Off course this acquisition serves that purpose.
Since I am a small time investor in Mindtree, I would naturally want their top line to grow. But, the question that came to my mind is; is this start of consolidation in Mid-tier services companies in IT sector?
With rupee appreciation, challenging global conditions, stiff competition from global companies; are few points why doing business looks difficult for mid/small companies. I am not entirely ruling out a possibility of running the business in spite of these conditions. But the overall condition seems to be real challenging.
This kind of consolidation is quite natural and it is phenomenon across all industries. I remember my MBA professor telling about “Rule of consolidation”. It seems, in all the sectors, the consolidation happens and 3 or 4 big players will control the entire business there after. I remember him quoting American Airline Industry, American Retail industry, American Pharmacy industry. And surprisingly this rules sounds sense!
Off course I am not of the opinion that there will be only 3 or 4 companies in IT sector. But, the question I am raising is, is this beginning of consolidation? Where slightly bigger player will acquire smaller companies? Or is it just one-of-those cases?
I believe, we need to watch this mid-tier sector very closely and I am sure there will be surprises! Who knows?
It is true, Mindtree has a target of meeting 1 billion in revenue and it wanted a portfolio in product development area. Off course this acquisition serves that purpose.
Since I am a small time investor in Mindtree, I would naturally want their top line to grow. But, the question that came to my mind is; is this start of consolidation in Mid-tier services companies in IT sector?
With rupee appreciation, challenging global conditions, stiff competition from global companies; are few points why doing business looks difficult for mid/small companies. I am not entirely ruling out a possibility of running the business in spite of these conditions. But the overall condition seems to be real challenging.
This kind of consolidation is quite natural and it is phenomenon across all industries. I remember my MBA professor telling about “Rule of consolidation”. It seems, in all the sectors, the consolidation happens and 3 or 4 big players will control the entire business there after. I remember him quoting American Airline Industry, American Retail industry, American Pharmacy industry. And surprisingly this rules sounds sense!
Off course I am not of the opinion that there will be only 3 or 4 companies in IT sector. But, the question I am raising is, is this beginning of consolidation? Where slightly bigger player will acquire smaller companies? Or is it just one-of-those cases?
I believe, we need to watch this mid-tier sector very closely and I am sure there will be surprises! Who knows?
Sunday, April 20, 2008
The business behind IPL
The much waited IPL, the T-20 format of funfair, has started. Pundits jumped in quickly to announce it as hit, in terms of revenue, TV viewrship and on the field tickets being sold.
If we look at the business side of this format, it really makes great sense. And I think the concept of the game, revenue generation model, team ownership and even the concept of cheer leaders, is being lifted from American sports industry. The whole business behind IPL to me looks like a MLB, NFL or NBA, except one change, BCCI (Or body like BCCI) is not the ultimate beneficiary there! Every dollar earned comes back to franchisee.
The basic revenue model for the franchisee is; in-ground ticket sales, in-ground marketing revenue, and other in-ground sales revenue. Considering the amount of money they spend on team players, and other costs they need to take care, it might not be possible for franchisee to break even in first couple of years.
However, if the great rush continues and people keep coming to ground and keep watching; no question; it really makes sense from business perspective. After all, every franchisee should make money by end of the season.
I do see few challenges as well; first thing is to manage the entire team in a professional way. As I can’t stop drawing similarities between a MLB and IPL, this format of the cricket should bring out competitive side of every player and players should not treat this like an exhibition match. Also, for owners, there has to be a tight monitoring of the revenue generated vs. cost incurred for team, otherwise, like any business, owners will end up loosing money.
In end, it is good for fun and it would be successful in entertaining the cricket lovers and in that sense it has served its purpose.
But question un-answered for me is; which team you really support?
If we look at the business side of this format, it really makes great sense. And I think the concept of the game, revenue generation model, team ownership and even the concept of cheer leaders, is being lifted from American sports industry. The whole business behind IPL to me looks like a MLB, NFL or NBA, except one change, BCCI (Or body like BCCI) is not the ultimate beneficiary there! Every dollar earned comes back to franchisee.
The basic revenue model for the franchisee is; in-ground ticket sales, in-ground marketing revenue, and other in-ground sales revenue. Considering the amount of money they spend on team players, and other costs they need to take care, it might not be possible for franchisee to break even in first couple of years.
However, if the great rush continues and people keep coming to ground and keep watching; no question; it really makes sense from business perspective. After all, every franchisee should make money by end of the season.
I do see few challenges as well; first thing is to manage the entire team in a professional way. As I can’t stop drawing similarities between a MLB and IPL, this format of the cricket should bring out competitive side of every player and players should not treat this like an exhibition match. Also, for owners, there has to be a tight monitoring of the revenue generated vs. cost incurred for team, otherwise, like any business, owners will end up loosing money.
In end, it is good for fun and it would be successful in entertaining the cricket lovers and in that sense it has served its purpose.
But question un-answered for me is; which team you really support?
Sunday, March 09, 2008
India’s Best Managed Companies.
This week’s Business Today has a survey, ‘India’s best managed companies’. There are some parameters with which these companies are surveyed, like HR policies, Innovation, Customer focus and community services etc.
My biggest surprise after reading this is, there is no IT company appearing in this list. This led to so many questions in my mind.
- Is IT industry HR policies are not in par with other industries?
- The common perception is, IT Company’s talent management is of global standard, is that not true?
- IT service companies, to my knowledge at least, are best known for its service to customers and this industry is highly influenced by western culture in terms of service.
- Innovation: - I have a big question mark on this as well. Some companies have really innovative products and business models.
My intention is not really questioning the survey and its credibility; rather I am looking at software industry and trying to answer these questions to my self.
First thing comes to my mind is, is software industry is forgetting the common and basic rules of business? I can claim, for sure not. You can’t be in business without following the basic rules of the game.
So, next question mark I have is on HR. I personally feel, we, as an industry, needs to improve in this field. We need to be more innovative in terms of talent management, building the common feeling of team. Given the industry we are in to, what ever we have done in this area is very less. We all need better working place, better balance between work and life.
And, more importantly, we need to build the culture of innovation within the company. Apple and Google are true example of how innovation can be taken in to new height. Have you seen a screw fitted in to an iPod?
I can go on listing the things, which I feel we are missing. But, I would like to hear from you all. I would like to see a discussion on this.
Ideas? Suggestions? Feedback? Inputs?
Sunday, January 27, 2008
Kingfisher+Deccan : How much sense the merger makes?
Recently Kingfisher acquired Deccan Aviation’s majority stake. Both are like Chalk and Cheese, with different operating philosophies and different target segments. What, then, is the rationale behind their merger? Why did this happen after all?
The two airlines have different business models and cater to totally different passenger segments. Air Deccan, after it’s arrival in 2003 has rewrote the Indian aviation industry. With low cost operating model, Air Deccan bought the prices down and thus allowed Indian middle class and business travelers to afford the prices. Result: domestic air travel really took off. However Deccan is still bleeding in terms of revenue.
First and obvious outcome of this merger is the consolidation in the sector. The reason is, weaker players pay more attention to cash generation than profitability and that brings down the financial health of the industry. So, this merger will help industry in consolidation.
Other compelling reason behind the merger is the potential for huge savings from cost synergies, route rationalization and bulk order deals. A close look at the two airlines reveals that except the business model there is no fundamental difference between two airlines. Sharing parking lots, maintenance, flight operations, cabin crew, pilots and ground staff really will save a lot of cost. Besides marketing network created by Deccan can be used by Kingfisher and visa versa.
Also, with this merger Kingfisher will get license to operate international sector. Due to 5 years ban, Indian operators are not allowed to enter international sector for 5 years of their operation. Since Air Deccan is operating since last almost fives years, getting the international license will not be an issue for Kingfisher.
Tough Air Deccan is at the lower end of the spectrum with lost cost service and Kingfisher is operating in service and business sector. But merger is promised to maintain separate identities thus serving entire spectrum of the industry. With international sector getting added up, it will only help in revenue generation. So, merged entity will serve low cost sector, service sector and international sector, thus becoming one preferred carrier for all needs.
Years ago, Mr. Gopinath changed the rules of the Indian aviation industry and rudely woke up the established players with his innovative pricing policies. Following this merger, Indian aviation industry will be consolidated with three players, Indian-Air India, Kingfisher and Jet-Jet Light.
The bottom line is, Mr Mallya’s gambit may result in a win-win situation. And also, good for passengers.
After all we want good service and also want to save money when we fly, isn’t?
The two airlines have different business models and cater to totally different passenger segments. Air Deccan, after it’s arrival in 2003 has rewrote the Indian aviation industry. With low cost operating model, Air Deccan bought the prices down and thus allowed Indian middle class and business travelers to afford the prices. Result: domestic air travel really took off. However Deccan is still bleeding in terms of revenue.
First and obvious outcome of this merger is the consolidation in the sector. The reason is, weaker players pay more attention to cash generation than profitability and that brings down the financial health of the industry. So, this merger will help industry in consolidation.
Other compelling reason behind the merger is the potential for huge savings from cost synergies, route rationalization and bulk order deals. A close look at the two airlines reveals that except the business model there is no fundamental difference between two airlines. Sharing parking lots, maintenance, flight operations, cabin crew, pilots and ground staff really will save a lot of cost. Besides marketing network created by Deccan can be used by Kingfisher and visa versa.
Also, with this merger Kingfisher will get license to operate international sector. Due to 5 years ban, Indian operators are not allowed to enter international sector for 5 years of their operation. Since Air Deccan is operating since last almost fives years, getting the international license will not be an issue for Kingfisher.
Tough Air Deccan is at the lower end of the spectrum with lost cost service and Kingfisher is operating in service and business sector. But merger is promised to maintain separate identities thus serving entire spectrum of the industry. With international sector getting added up, it will only help in revenue generation. So, merged entity will serve low cost sector, service sector and international sector, thus becoming one preferred carrier for all needs.
Years ago, Mr. Gopinath changed the rules of the Indian aviation industry and rudely woke up the established players with his innovative pricing policies. Following this merger, Indian aviation industry will be consolidated with three players, Indian-Air India, Kingfisher and Jet-Jet Light.
The bottom line is, Mr Mallya’s gambit may result in a win-win situation. And also, good for passengers.
After all we want good service and also want to save money when we fly, isn’t?
Sunday, January 20, 2008
Employee Polls
Did you ever wonder why these employee polls are being conducted? Did you fell these are waiste of time and money?
Jack Welch tries to answer these 'obvious' question in his column in Business Week.
Good Read!
http://www.businessweek.com/magazine/content/08_04/b4068090140030.htm?chan=magazine+channel_opinion
Jack Welch tries to answer these 'obvious' question in his column in Business Week.
Good Read!
http://www.businessweek.com/magazine/content/08_04/b4068090140030.htm?chan=magazine+channel_opinion
Sunday, January 13, 2008
Power of Strategy- ITC's Bingo Story.
ITCs entry into wafers market with Bingo chips is an excellent case study of how to enter in to already overcrowded market and be successful with right strategy.
A year ago, ITC Foods was looking at new business segments to expand its product portfolio. The packaged snacks category was growing at approximately 25-30 per cent every year. But it had only one national player — PepsiCo’s Frito-Lay. Ten months after it entered the category with its wafer snack brand, Bingo, ITC’s foray into the Rs 1,800-crore branded snack market has fetched the company a 16 per cent market share across the country.
Bingo’s success story is about how a combination of leveraging synergies, building on consumer insights and high decibel advertising can win the game. There were many advantages for ITC to enter this segment. The company could leverage its existing distribution network and also source from farmers easily, as its earlier foray into categories like atta and biscuits had already given it access to the supply chain.
Once this decision was made, a cross-functional team of eight individuals were sent across the country to research the snacking habits of the Indian consumer. After travelling to 14 cities and speaking to more than 1,000 people, the team came back with an insight that Indian consumers were looking for novelty and excitement in existing snacks.
The team found that while vada pavs and samosas still sell, vada pav with cheese and paneer-filled samosas, or for that matter, tomato-flavored khakra were the ones that excited the new and more demanding Indian consumer. Based on this information, the company decided to look at chips with innovative flavors.
For the recipes, the company went to the chefs in its hotels. The chefs came back with 16 flavors with twists like bindaas masti chaas, chatkila nimbu achar and tandoori paneer tikka-flavoured potato chips, chilli and tomato-flavored mad angles — inspired by khakras — and other snacks. The company decided that youngsters in the age group of 16-30 are the most experimental and hence they would be the primary target audience.
But there was another challenge. Advertising in the category was extremely crowded. Every week, two-three new brands (many of them, local) are launched and more often than not, they are targetted at the youth.
ITC also ensured that it reached its audience through every possible medium. It first created a website www.bingeonbingo.com with offers, online games, downloads and even mobile games. The site was advertised with banners on websites such as Yahoo!, Rediff and Sify.
On television, the company booked 10 to 15 spots per channel per day on youth channels such as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels. It also had around 20 spots on a variety of radio channels and advertised in most leading national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product.
But, analysts believe the Bingo story is more about well-leveraged distribution. The company distributed more than 4 lakh large racks, to display the brand at all points of sale. The racks created so much impact that even competitors like market leader Frito-Lay’s introduced its own version of wafer racks. After all in India, joh dikhta hai, wahee biktha hai,”.
It is all about offering a differentiated product or service, which will clinch the market share. ITC has been there and have done it!.
A year ago, ITC Foods was looking at new business segments to expand its product portfolio. The packaged snacks category was growing at approximately 25-30 per cent every year. But it had only one national player — PepsiCo’s Frito-Lay. Ten months after it entered the category with its wafer snack brand, Bingo, ITC’s foray into the Rs 1,800-crore branded snack market has fetched the company a 16 per cent market share across the country.
Bingo’s success story is about how a combination of leveraging synergies, building on consumer insights and high decibel advertising can win the game. There were many advantages for ITC to enter this segment. The company could leverage its existing distribution network and also source from farmers easily, as its earlier foray into categories like atta and biscuits had already given it access to the supply chain.
Once this decision was made, a cross-functional team of eight individuals were sent across the country to research the snacking habits of the Indian consumer. After travelling to 14 cities and speaking to more than 1,000 people, the team came back with an insight that Indian consumers were looking for novelty and excitement in existing snacks.
The team found that while vada pavs and samosas still sell, vada pav with cheese and paneer-filled samosas, or for that matter, tomato-flavored khakra were the ones that excited the new and more demanding Indian consumer. Based on this information, the company decided to look at chips with innovative flavors.
For the recipes, the company went to the chefs in its hotels. The chefs came back with 16 flavors with twists like bindaas masti chaas, chatkila nimbu achar and tandoori paneer tikka-flavoured potato chips, chilli and tomato-flavored mad angles — inspired by khakras — and other snacks. The company decided that youngsters in the age group of 16-30 are the most experimental and hence they would be the primary target audience.
But there was another challenge. Advertising in the category was extremely crowded. Every week, two-three new brands (many of them, local) are launched and more often than not, they are targetted at the youth.
ITC also ensured that it reached its audience through every possible medium. It first created a website www.bingeonbingo.com with offers, online games, downloads and even mobile games. The site was advertised with banners on websites such as Yahoo!, Rediff and Sify.
On television, the company booked 10 to 15 spots per channel per day on youth channels such as MTV and Star World, mass Hindi channels like Zee and Star TV, and news channels. It also had around 20 spots on a variety of radio channels and advertised in most leading national dailies. In the top-30 cities, over 1,000 outdoor hoardings advertised the product.
But, analysts believe the Bingo story is more about well-leveraged distribution. The company distributed more than 4 lakh large racks, to display the brand at all points of sale. The racks created so much impact that even competitors like market leader Frito-Lay’s introduced its own version of wafer racks. After all in India, joh dikhta hai, wahee biktha hai,”.
It is all about offering a differentiated product or service, which will clinch the market share. ITC has been there and have done it!.
Tuesday, January 01, 2008
New Year Resolutions for 2008.
- Get more profitable revenue for MatrixOne Services group.
- Be regular in blogging/writing articles.
- Continue hitting gym! (With same intensity that I have currently)
- Read more and think strategy!
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