Friday, August 31, 2012

FOUR DIMENSIONS OF PROFIT-MAKING!

Competition today has forced organisations to overlook the importance of values, ethics, credible leadership and corporate governance. they simply hinge their hopes on luck. wrong. Dr. Jamshed Jiji Irani, Director of Tata Sons and Chairman of the Board of Governors, IIM-Lucknow, writes about those elements, which if considered first, would result in fair profits.

From the dawn of civilisation, societies and cultures have been impacted by a numerically minute group of men and women who, because of their vision and their willpower, have swayed and changed the course of history; and they have significantly impacted the lives of their fellow human beings. Such persons have not just happened, they have been trained to grasp their moment of history. They have lived by the adage – “God give me the strength to change what I can, the humility to accept what I cannot and the wisdom to differentiate between the two”.

Profit is about “Values”
The one common thread that joins all successful leaders, is that they have seized the opportunity that came their way. Some say that to be successful, you must be lucky. In my opinion, there is no luck involved in building a successful career or a happy family life. I would rather say that good luck comes as a result of “preparation” meeting “opportunity”. Another very important subject is of “values”. In some quarters, particularly amongst young executives, “values” are looked upon as old fashioned and, may be even considered as being out of sync with the demands of the current competitive scenario. But let me assure you that it is not so.

Today, society is once again recognising the merits of value-based decisions. Please be assured that society is demanding that businesses get cleaned up; and this movement is going to accelerate in the future. I would like to quote J. R. D. Tata here: “No success or achievement in material terms is worthwhile, unless it serves the needs or interests of the country and its people and is achieved by fair and honest means.”

Profit is about “Ethics in Business”
What is Ethics in Business? It devolves into playing the game of business according to rules, even if your competitor does not. Some critics might argue that in the prevalent environment, this philosophy would not be acceptable, as “ethics” might result in a disadvantageous situation in the business arena. But, being “ethical” does not mean that one cannot also be “profitable”. It is most important to make profits and to generate wealth; because only then can one have the resources to do good in the community. That differentiates between ‘good’ and bad’ business practices, and decides what happens to the wealth after it has been generated. I would once again like to quote J. R. D. Tata here. He said, “Every company has a special continuing responsibility towards the people of the area in which it is located and in which its employees and their families live. In every city, town or village, large or small, there is always a need for improvement, for help, for relief, for leadership and for guidance.

I suggest that the most significant contribution that an organised industry can make is to identify itself with the lives and problems of the people of the community, to which it belongs and by applying its resource, skills and talents, to the extent that it can reasonably spare them to serve and help them.”



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Thursday, August 30, 2012

Shinzo Nakanishi, MD, Maruti Suzuki India

Maruti’s market share and stock price has taken a beating in the recent past; blame competition for it. Shinzo Nakanishi, MD, Maruti Suzuki India, explains the comeback plan of the company to B&E.

B&E: The company has capacity expansion plans for 2012. How do you plan to manage till then, as the company is selling whatever it can produce?
SN: The company was working on ways to bring that to an earlier date and I am pushing my engineers very hard to ensure that Maruti is able to start the additional 250,000 units production as soon as possible. However, as of now, I will not be able tell you by when we will be able to start our new assembly line. But till then, we will have to manage with out existing capacity, and look at options by which we can maximise our production.

B&E: What about the developments on Suzuki Motor Corporation’s alliance with Volkswagen?
SN: The talks with Volkswagen are going on at a global level but there is still no clear picture as of now. However, there is very much a possibility of an OEM (original equipment manufacturing) supply contract with Volkswagen, which will be similar to what Maruti has with Nissan. But there is no possibility of sharing a common production platform with Volkswagen. Keeping in mind the fact that the German company’s production and product development costs are very high, it could make our business model unfit for India.

B&E: What prompted you to launch a five CNG models, even before a proper infrastructure was available for usage?
SN: We had two very radically different options in front of us regarding this – either we could wait till the point when the infrastructure got ready and then launch our products or being a market leader, we act first and allow competitors to follow us. We chose the second option!


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Wednesday, August 29, 2012

Is legislation the only way out?

There’s a silent epidemic of workplace bullying... Is legislation the only way out?

Not all measures need to be so drastic though, as Dr. Mallary Tytel, President of Healthy Workplaces, shares, “As an employee, you can document occurrences in detail with dates, times, places, what was said or done and who was present at the time, and then work with the employer or a trusted advocate to solve the problem. One must understand that bullying is about control and power, not performance.” Research by Nathanael Fast, Assistant Professor of Management & Organisation from University of Southern California’s Marshall School of Business, affirms, “It was those individuals who had power and also felt incompetent who were most likely to treat others badly. It does appear that bullying could be a sign of inner weakness.” Thus he validates what many of us already suspected to be true – bullies are just insecure about themselves.

The job of senior management is to pluck out such elements from the system and ensure that the top leadership sets an example for others to follow. S.Y. Siddiqui, MEO – Administration (HR, IT & Finance) at Maruti Suzuki India, is a believer in the zero-tolerance policy, and says that a clear code of conduct needs to be set by the company. Garry Mathiason of the employment and labour law solutions firm Littler Mendelson seconds this view, stating that the best solution is to prohibit bullying as a company policy. He clarifies, “A ‘policy’ is very different from a ‘law’. View it as a yellow light highlighting conduct that the employer wishes to eliminate, as it violates employer policies, but is not yet illegal.”

It is not likely that such legislation will hit Indian shores soon, but this does serve as a reminder to companies operating here. Employers must demonstrate their commitment by equipping their employees with tools like awareness sessions, open-door policies, and speedy redressal of grievances to tackle such issues even without talk of a law. Prevention, really, is better than cure.


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Friday, August 24, 2012

Soaring popularity meter

In a recent exercise by Twitter authorities to ascertain personalities with maximum number of followers on the website, Genelia D’souza featured in the top 20, beating several celebrities from various walks of life. Though a curious feat, she is very happy about it and wishes to thank all responsible for it! Considering that Twitter is seen as a popularity barometer these days, our hearty congratulations to Genelia!


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Wednesday, August 22, 2012

ICICI BANK: INORGANIC GROWTH

First it was the Bank of Madura. Then, it was Bank of Sangli. And now, the Bank of Rajasthan. ICICI Bank is seemingly strengthening its presence in the Indian banking space by undertaking a slew of acquisitions much like its peer HDFC Bank did in the past. by Avneesh Singh

As seen by experts, the merger, which will increase ICICI’s branch count by 463 and ATM count by 111 (adding to the bank’s existing network of 2009 branches and 5,219 ATMs), will make ICICI Bank the undisputed no.2 in the Indian banking space and the no. 1 amongst those in the private sector. [This will increase the difference in number of branches between ICICI and HDFC from just 7 in 2008-09 to 747!]. But then, the question remains – is it such a wise move as it seems on the first go?

Well, experts are still divided in opinion. While some like Vaibhav Agarwal and Amit Rane of Angel Securities say that, “Based on the swap ratio (25:118), ICICI Bank has valued BoR at a premium of 89%, which is expensive, considering the poor profitability and the recent asset-quality pressures and corporate governance issues with the Bank of Rajasthan.” On the other hand, others like Hatim Broachwala, Banking Analyst, Khandwala Securities, says, “The deal is positive because of Bank of Rajasthan’s huge branch network in northern India. Also, the price paid per branch is not a huge amount considering ICICI Bank’s renewed strength.” Clearly, the proposed merger will help ICICI Bank make its presence felt in Rajasthan, in a manner similar to how CBoP helped HDFC Bank grow in Punjab and Haryana.

However, if you look at the Mcap per branch figure (of the acquired) involved in the ICICI Bank-BoR deal, it reads better than the HDFC-CBoP transaction. Based on the swap ratio announced, the figure works out to be Rs.66 million in the former case, a lot lesser than Rs.241 million paid in the latter. But one must also consider the fact that the existing capital adequacy of BoR is on the lower side and ICICI Bank would need to infuse more capital to bring them to the desired level. Translation – the deal would dry up funds from ICICI Bank’s lockers. Worse, the bank would need atleast two-three more years to scale-up productivity in BoR’s branches.

Certainly, there is no denying that inorganic growth strategy is good for a bank like ICICI Bank in a growing economy, but going by what expected synergies indicate, it appears to be more of an inorganic strategy out of compulsion. And that isn’t what’s called following the road to glory. The dynamism in the Indian banking industry is set to go through major changes in the near future, when the Reserve Bank will start issuing new banking licenses and the expected new cash-rich entrants of the likes of the Ambanis, the Tatas and the Birlas will take competition to a new level altogether. How many more such forced takeovers will we witness from ICICI Bank? The positive side is that if the BoR buyout works for ICICI, it will prove a preparation much before the real battle begins!

A pro-active step to scale up even before competitors starts biting at your heels or a purchase of the latest headache for ICICI Bank? Two more years, and we’ll know more...


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Tuesday, August 21, 2012

Touch me not!

From healing touch to heeling touch… Women have an incredibly wider spectrum of influence than one could have ever anticipated!!

Have you men ever walked into a shop and felt incapacitated as a negotiator, and had to deal with the brunt of a raw deal that may have burnt a hole in your pocket? Isn’t it true that our female counterparts have an edge when it comes to negotiations and bargaining? Not only that; it has been observed that men accompanied by women folk may also feel much more confident and far more secure while closing deals or simply venturing out. A recent study in New York shows that the reassurance of a woman’s touch can influence decisions made by men. It finally stands to logic why women always get their way and it won’t be a surprise if another study showed that women are in fact always aware of the fact that men feel empowered when they are around! Now, the million dollar question that remains is why are they still given the tag of the ‘weaker sex’?

Women sure have accomplished almost everything that was earlier considered a man’s forte. And in some cases they have achieved even greater feats. Be it personal chores or strategising in a corporate forum, women are omnipresent. Although, some chauvinists and uninitiated introverts donning the garb of shyness, moving further into their cocoons (read wimps) might beg to differ and still vouch for male bosses and colleagues, just so the equations remains ‘simple’. It is a known fact that men would score way lesser than women as far as emotional quotient is concerned. This largely fuels the debate that claims women are better managers, because women colleagues and bosses have greater people management skills, and empathy tops the charts on their priority lists. One might have noticed that while being served in any of the airlines where air hostesses as well as flight stewards are on duty, a passenger might get agitated if a male steward falters, but a reassuring smile from the hostess pacifies even the most irate guest.


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Tuesday, August 14, 2012

SUBHIKSHA: FAILURE

Subhiksha was a dream flight, which crash-landed as soon as it took off; B&E presents a decisive story covering a summary of its flawed strategies and the way forward. by Pawan Chabra

A former senior employee tells us, “Subhiksha’s debt-equity ratio was always wrong since the expansion began. The company pushed the accelerator simply depending on debt. Even as the company was not able to pay its existing employees properly, it still kept on hiring more till the recession started.”

Both Satyam and Subhiksha, coincidentally, have been cases of investor activism, where shareholders, sniffing something out of the ordinary, have demanded deeper investigation. This has specifically re-ignited the debate on the relevance of independent directors on the board. According to a report by KPMG titled ‘India Fraud Survey Report 2010’, almost 40% of the frauds committed in India Inc. are because of the failure on the part of line managers/departmental heads to act against deviations from established policies, and only 10% are because of inadequate oversight by the Board/Audit Committee. But they add that bribery and corruption are now considered to be an inevitable aspect of doing business in India by many Indian companies, with fudging of financial statements perceived to be the most rampant corporate fraud within India.

Practitioners like Susil Dungarwal, MD, Square Feet Management feel that though Satyam and Subhiksha may look similar, there are differences, "especially in the intentions; while Raju wanted to take the money home, Subramanian still wanted to put the money attracted by the falsified documents back into the company.” According to a report by KSA Technopak, the share of organised retail in the Indian retail industry will reach 12%; standing at $67 billion out of the total $587 billion of the total retail industry by 2015, which is expected to close with a 5% share in 2010 with the organised retail industry contributing $21 billion out of the total $435 billion of business. "But if cases like Subhiksha get repeated, the projection may be revised soon; and the biggest hit would be in the PE investments that were coming into this sector," says Prasoon Majumdar, President, Global Strategy and Investment Consulting.

That the Indian retail industry – like the airlines sector – is going through a bloodbath is no secret. Vishal Retail was another firm which almost reached a collapse point – but the company was saved by the US-based PE firm TPG Capital. Even Satyam got taken over by the IT arm of M&M Group Company Tech Mahindra, and the conglomerate has since been trying to get the IT major back on track. A saviour for Subhiksha, unfortunately, is still not in picture. Sources familiar with the matter confirm that ICICI Ventures has now even approached many strategic buyers; but so far, nothing has worked out as the prospective acquirers don't see much value in the retail chain. Even Premji is said to be suffering from the same predicament, with the investment value plummeting post the scandal and collapse.

So where to from here for Subhikhsa? Clearly, wherever it is, would be only downhill. The chances of Subhiksha being sold lock, stock, and barrel are extremely low. But a higher probability exists for a part by part sell off of Subhiksha's various business units – but there would be very less assets to speak off once all claims are settled. Depressed about that? Well, read the book...




 
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Monday, August 13, 2012

Living its millionth life, king size!

Maruti Suzuki is well on its way to hit one million unit sales in this fiscal. But how does the market leader plan to prepare itself for the rougher road ahead?

It was back in 2004 that during a cross-functional team meeting at Maruti Suzuki, the officials derived a slogan for 2010 - ‘Ten Ten Ten’, wherein the first ten stood for 2010, the second referred to the targeted 10 lakh unit sales in the 2009-10 fiscal and the third referred to the 10% operating margin which the company would like to maintain in the process. “Few in the meeting were still not in favour; thinking we had gone crazy, but many supported the goal and designed the way forward,” recalls Shashank Srivastava, CGM – Marketing, Maruti Suzuki India.

While the arrival of the first Ten was inevitable, the third one looked hugely daunting; as the company was striving hard to maintain its margins under the intense competition in which the industry is operating. But the company has proved more than equal to the challenge as it rapidly continued to expand and strengthen its market position. However, the second Ten was what was bothering Maruti the most. It is indeed ironic that at the start of the financial year of 2009, Maruti Suzuki had clocked total sales of over seven lakh units and no one thought that the company is going to cross one million by any chance and hence will not be able to transform its ‘Ten Ten Ten’ slogan into reality. And here we are today – Maruti Suzuki’s total sales are now standing at 9,23,242 units (7,06,498 units in the corresponding period a year ago!) by the end of February 2010. And going by the calculations made by the company, Maruti Suzuki should cross the one million mark on March 23 (co-incidentally on the same date that Tata Motors launched its much-hyped Nano a year ago). Maruti’s MD Shinzo Nakanishi said at the 10th Auto Expo in the capital, “For the first time in 26 years, we hope to sell one million vehicles in one year. The one million sales mark is a landmark, not just for Maruti Suzuki. It is an important threshold for the Indian passenger vehicle industry. But we are finding solutions to reach the next million in ways that are sustainable and mutually beneficial.” Even Osamu Suzuki, Chairman, Suzuki Motor Corporation has expressed his contentment on such a huge achievement. So much so that Suzuki is also expected to take part in a special ceremony on March 23 in the capital.

The Indian journey of Maruti Udyog Limited started with the first unit of the Maruti 800 being delivered by the then Indian Prime Minister Indira Gandhi; and since then, there’s been no looking back for this automaker in the country. Apart from the changes in the shareholding patterns, which transformed a public sector unit into a subsidiary of the Indian automaker (Maruti Udyog Limited to Maruti Suzuki India), the company has even transformed its small-car maker image over the years gone by and will soon be stepping into the Honda and Toyota’s playfield with the launch of Kizashi well slated to take place by the end of the calendar year. “Maruti not only provided India with efficient wheels but also brought a work culture not only in the automobile industry but also the Industry as general. They brought in a culture in the industry where not only the workers and other staff was treated as equal but the big bosses and owners were also made to mix with the staff and workers,” exclaims auto expert Tutu Dhawan. The company attributes the credit of its one-million unit sales tag to the aggressive growth that the industry is enjoying and increasing exports. Now with one million in reach, the company is gearing up to march for the next one million. Notably, Business & Economy did a cover story last year on ‘Who Will reach the Two million mark first?’ in the Auto Special issue dated 29/10/2009 wherein Maruti Suzuki was obviously the front runner in the unit sales war in the Indian automotive market followed by players like Tata Motors (taking cue from Nano) and Hyundai Motors India (with mind-boggling export figures). But the way forward isn’t that smooth for the company as the competitors are increasingly eyeing its bread-and-butter hatchback segment to enhance their own prospects in the Indian market.

Be it Honda, Toyota, Volkswagen, Ford or General Motors, the automakers have decided to jump into Maruti’s playfield with the launch of their respective small cars. With Chevrolet Spark and Beat already running on the roads, accompanied by Volkswagen Polo and Ford Figo, other automakers are also scaling up their pace to transform their small car dreams into reality.

On the contrary, Maruti Suzuki has decided to move into segments that were still out of its reach in the Indian market. Be it the rising exports figures or the launch of new products, the efforts are clearly going in the direction of making the Indian subsidiary of the Japanese automaker more competent in the Indian market. Notably, Maruti Suzuki accounts for 80% of Suzuki’s profits and the Indian arm even out tipped the unit production figure of the parent company. With a three-year export contract with Nissan and its products reaching destinations like Europe, Sri Lanka, China and other countries; the company has scaled up its exports to 70,023 units for the 2008-09 fiscal from a mere 12,233 units in 2001-02. In fact, the Made-in-India car (made from scratch including conceptualisation, design and R&D in the country) from Maruti’s stable is expected to be out in the next 18-24 months; clearly depicting the transformation in the R&D ability of India in the sector. 

Read more.....

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