Strategy - my take on Porter II

Porter 5 forces model for analysis of 'industry', as I mentioned in the previous post has been widely acclaimed and acknowledged, though there are some gaps which make the model less than good for all purposes of application.

Firstly, Porter fails to mention what constitutes an industry. This definition of industry can however can be adopted quite well from the concept of 'strategic groups'.

Secondly, as Porter mentions about the threat of substitutes, he fails to objectively provide any framework for assessing the 'extent of substitution' to be considered. Also, though Porter gets into depth of determining importance to be assigned to substitutes based on price-performance levels, he fails to capture the dynamicity of 'substitute products' i.e. a distant substitute of today can be a more direct threat in the future and vica versa.

Thirdly, entire Porter's model fails to consider the 5 forces from a constantly changing level. A 'scenario planning' tool used by Royal Dutch Shell is the only currently widely accepted tool for aid in developing strategies based on future possible scenarios.

Fourthly, Porter's model tends to serve only at the 'firm' level ( to be more precise..for individual product / specific product business unit) but is not replicable at the Corporate level. This limits its use for most of the companies in today's world as they are in more than products.

Last but not the least, though Porter's 5 forces model takes encapsulates 'substitutes', on prima facie atleast, there is no mention of 'alternatives' which pose a significant big threat compared to substitutes. An 'alternate' as I define, is an outright change/ vanishing of a particular need of the consumer, either voluntary or not. A complete ban by the government on the tobacco products / liquor products would be a case on involuntary alternative of 'no tobacco/ liquor'. Also, the evolution of alternates creates markets for new and innovative products.

PS - I know its kind of boring to have 3 posts on the subject of strategy...no more strategy now...porter ki kasaam

Strategy - my take on Porter

Porter with his 5 forces model made a lasting impact on the approach towards strategy formulation. His earlier writing regarding IO approach, competitive strategy and competitive advantage have also been well accepted across the academia and industry for quite many years now.

However, there is a significant extent of eclectism among the various theories propounded by Michael Porter, though the same can be said to be consistent with balanced pluralism in terms of drawing from basic economics.

Porter chooses to conceptualize the 'firm' in different ways depending on the actual purpose of its utilization. He conceptualizes 'firm' in the context of 'Production function' when trying to grapple with industry level phenomenon. He uses it as a 'Value chain' when trying to grapple with firm specific sources of competitive advantage and as a repository of knowledge and 'innovating entity while constructing his diamond framework.

Unfortunately, though the integration remains on the levels of loose framework and an absence of any attempt whether his above stated different theories are compatible at deeper levels.

Porter also fails to provide any agruments that the basic IO is consistent with industry evaluation nor does he draw on any basic research.

The underlying resource endowments that allows firms to carry out their strategic plans are not seriously analyzed, and an analysis of how and why the specific resource endowment should be there is missing from Porter writings.

Though there aren't as well accepted models in the field of strategy as that of Porter's, focussing only on what I may take the liberty to call ' a figment of Porter's imagination' underlines the need for a more balanced and integrated approach to the subject and practice of strategy.

someone listening....????

PS - Strategy is not an art. Neither is it a pure science. They say its an assortmenet of different streams, but I differ. It is still a concept, a figment of one's imagination. And accepting someone's imagination ( read Porter's) indicates lack of imagination on the part of strategist.

Penny wise, Pound foolish

Well, the title aptly suits the NHAI which comes out with creative bidding guidelines for its BOOT projects. World over, as the project development companies try to bring more objectivity into their bidding documents and guidelines, NHAI seems to go otherwise. The recently issued bidding requirement for the project undertaking agency to share a proportion of profits ( and the way as mentioend in the model concession agreement) with NHAI is the most absurdest thing possible for a road construction project. The creativity doesn't end here. They intend to make the project company pay higher share of revenue incase of the actual traffic is higher than the projected. In case, the actual traffic is lower than the projected, it may lead to increase in lease period. Probably, NHAI may consider this the balancing act, and I term it 'a grotesque debacle in the making'. My friends at NHAI have 'correctly identified' ( as if they didn't knew it earlier) that the major obstacle was getting land buyouts for the project. So, they opted to lower the ceiling of land requirement before issuing 'notice to proceed' from 80 % to 60 %. Probably, they want to postpone facing the known devil to a bit later stage and make the executing agency incur irrecoverable costs till then.

Was that Monteksingh Ahluwalia shouting ' public private partnership ' ? 'F.O.' is gonna be the reply of private construction companies. Hope the real Dr. Singh roars soon ....!!!!

Golden Rules - II

As I take a career break after spending four years in job, I present here a concise list of my Golden Rules for a sureshot rise in the corporate world, many of which I learned the hard way.

1. Diplomacy always pays.
2. At times, bluntness pays better.
3. Commit honestly. Have courage to back out from commitments, if required.
4. Wasting time isn't a waste always. Even if that means discussing economic policies of Banana Rep. with your boss.
5. Everybody can't be equally talented in all aspects. Let the relevant person take leadership in his area of talent.
6. Appreciate efforts, no matter what the result.
7. Life isn't fair. The best person doesn't always win. Learn to live with it.
8. Take breaks whenever you feel like. Don't wait for the workload to get less. The world isn't going to stop for you to get off.
9. Don't bury things. Admit mistakes tactfully.
10. Money matters.
11. Having a contigency job on hand is always better.
12. Be patient. There are many more people who put up with more crap than you do .
13. Value other people's time.
14. Wear a smile.
15. Bypassing your boss is a high risk - high return strategy. Not for the amateurs.
16. Carry your work home, not the pressure.
17. Don't chase fads.
18. You don't work for the betterment of the organization. You work so that your boss looks best.
19. Having only one godfather in a company can be brutal. Instead have none.
20. Nothing is so important or so urgent to make you tense.
21. Office parties/ picnics are never casual.
22. Two people can keep a secret, if one is dead.
23. Fairer sex is not always preferred.
24. To rise high, 'Smartness may be tolerated. Shrewdness would be demanded.'
25. There are shortcuts to success.
26. You won't stick to all of your today's perceptions tomorrow. Respect people who differ.
27. Prejudices exist. Biases are inevitable.
28. You ought to be good at networking.
29. If not, make close friends with the one who has the biggest network within as well as outside the company.
30. If you keep on doing things you do best, you restrict your chances to improve.
31. Try to get into a comfort zone as soon as possible. Never stay in a comfort zone for long.
32. Hardworking, intelligent, asslicker is as good as it gets.
33. Professional hazards exist everywhere. Don't whine.
34. Its better to be true than humble at times.
35. Take care of your health. You ought to live to reach at the top.
36. Back your men; sun, wind or snow.
37. And the last two things. a) Never share everything you know. b).....

Shadow ESOP

ESOPs have always been an instrumental tool for financial planning and retaining top talent by corporates in the West. Since mid 90s' this financial instrument has made its headway in India too, albeit on a smaller .Though it was Reliance first who thought of implementing it in India, many other corporates took the lead in this regard. ESOP has always been a classic case of deft financial jugglery, and the juggler's improving. The latest on the list is DLF. And they call their brainchild ' Shadow' ESOP.

In a normal ESOP, the company allots you say 1000 shares at Rs. 10 (to be paid later) with a vesting period of 5 years. You sit idle on your 'alloted shares' for five years. If the market value of share is Rs. 50 at end of five years,you just need to pay Rs. 10,000 ( 1000 X 10) to the company and get those shares.

In case of a shadow ESOP, you'll pay nothing, but the company will pay you Rs. 40,000 ( the diff. between market value and value offered to you) or the option to continue your 'shadow' stock. Direct benefits of this method is that it doesn't lead to any further issue of shares and hence no equity dilution. Also, your EPS remains intact. The other side of the coin, it results into a direct cash outflow from the company. Well, the accountants are sure in for some restless nights as they try to figure out the appropriation methodology for this potential outflows.

PS : DLF stands for ..'Damn Lucky Fellow'..(c'mon i m not kiddin this time, sacchi....ask K.P. Singh, the real DLF)

Advertising for B-2-B

Branding through means of mass communication was something unheard for companies primarily in B-2-B transactions. Their limited and almost predefined customer base made it unsuitable and unworthy to resort to such exercise. Rather their advertising campaigns were limited to having stalls in ‘meets’, promotions at related conferences, ads in business magazines and pink dailies and direct mailing to selected potential customers. Nothing much has changed till date. However, suddenly there have been quite a few advertisements of some B-2-B transactional corporates. Though there aren’t pouring cats and dogs at the time, they are significant enough to indicate a trend, if not to reach a conclusion. Birla Group ads have been quite eminent across channels since last few months. Recently, Jaypee group and HCL are flooding the channels. (Though I personally find HCL’s adv. very unnerving. There is a thin line between self esteem and ego, and the commercial to a greater extent tends to be on the wrong side of the line ). L&T’s Imagineering campaign posters had occupied significant space in the print media and on hoarding in metro cities, though they haven’t raided the TV media after their highly emotional ‘ yeh mere papa ne banaya hai’ campaign. There are many other corporates who have resorted to such mass communication in the past one year. But in terms of creativeness, freshness of concept and subtly putting the message across, I think Accenture steals the show.

The core question for crore is then, why are companies involved in pure B-2-B transactions resorting to such full scale public advertising and that too through means of mass communication. Having worked on detailed financials of two major corporates purely in B-2-B transactions, I can safely assert that the proportion of advertising expenses to sales weren’t more than a quarter of a percent about a couple of years back. The same I assume would traditionally be the trend across all sectors and B-2-B companies. May be, the brand awakening and brand building is going to set things to change. However, such corporates aren’t much benefited by brand building if their ads are being viewed by non target customers. Their advertising and marketing campaigns were always deeply influenced by segmentation theory and would remain the same for years to come.

A closer look at the corporates meting out these ads would make you understand that almost all of this have a diverse customer base across sectors, and it would therefore not be absolutely out of place to use mass advertising as a tool to open up new potential customers. Though there are corporates purely in B-2-B transactions, which have thought otherwise. No means to know, whether they are more wise.

However, I feel the real reason lies somewhere else. A booming economy and a talent crunch have resorted corporates to vie for the available talent. A better branded company would find it easier to retain and attract people, other things (i.e. Location, salary, profile, company size) being same or equivalent. People would prefer working with say, Punj Lloyd (their adv. Stinks) than with Patel Engineering (nearly same sized companies). A brand name of a company also commands more loyalty from its employees.

A subordinate reason may be the effect a brand recognization of an organization has on its share price. (For its assumed that brand recognization leads to sustained monetary benefits in the long run). In the race to uphold shareholders’ wealth, several indirect measures are being resorted to ( and why not !) and addressing masses through advertising could be one of the motives.

Anyways, how successful this advertising campaigns have been would not be very discernible. So, just admire Tiger Woods forgetting to consider the rotation of ball(Accenture), enjoy the cuteness of the little boy impressing his baby 'girlfriend'. by operating the Hydro Plant(Jaypee) and helplessly watch the idiotic 'computer guy' talking crap till the innocous investment banker decides to buy out his firm (HCL). :)

Metamorphosis

A few days back, I was a part of the audience at 2 day business enclave, where the topic under scrutiny was “Metamorphosis of Indian Industry. Is it for real ?” The dignitaries present to express their views included a motley of famed personalities from academia and industry. The list included CMD of GEB, MDs of GACL, GSFC, Director of L&T, CFO of Suzlon, CEOs from Thermax, Microinks and prominent IIM professors. All the speakers from the industry gave an elaborate account of the turnaround of their respective organizations and sounded very optimistic on the coming of age of the Indian Industry in general. Bottlenecks in infrastructure, government policies /intervention (read interference) and lack of sufficient talent pool notwithstanding. Having a chance to witness the flow of such positive vibes from corporate chieftains gave me a high.

I was enchanted by the title of the subject discussion, specifically the term ”Metamorphosis”, and I tried to delve deeper into it. So, what is Metamorphosis ? The dictionary gives the definition of the subject term as “ a transformation, as by magic or sorcery” and “a marked change in appearance, condition, form and character”. The most oft quoted examples of Metamorphosis are the changing of tadpole into a frog and caterpillar into a butterfly. But, what about the transformation of a small seed into a giant tree. Is it not metamorphosis? What about a spark of heat energy turning into a fire? Is it not metamorphosis? What about the transformation of a thug called “Valiya” to Valmiki rishi? Is it not metamorphosis ?
At times, this transformation, literally and metaphorically is chaotic and sudden. Sometimes, it is silent and long drawn. But usually, it is painful. The caterpillar turns blind, loses its limbs to emerge more beautiful. Is corporate India ready to take the dare of undergoing massive radical transformation. I believe Yes. The pain and risk of exploring unchartered territories abroad, optisizing, rejuvenating business models, aiming sky high and giving an all out effort to achieve those has been the storyline of many Indian corporate over last decade. But still, I feel the party is yet to begin and there is some time for champagne to flow. Cheers to Corporate India..!

20 Golden Rules for Workplace

1. Rule 1. - The Boss is always right.
2. Rule 2. - If the Boss is wrong, see rule 1.
3. Those who work get more work. Others get pay, perks, and promotions.
4. Ph.D. stands for "Pull Him Down". The more intelligent a person, the more hardworking a person, the more committed a person; the more number of persons are engaged in pulling that person down.
5. If you are good, you will get all the work. If you are really good, you will get out of it.
6. When the Bosses talk about improving productivity, they are never talking about themselves.
7. It doesn't matter what you do, it only matters what you say you've done and what you are going to do.
8. A pat on the back is only a few centimeters from a kick in the butt.
9. Don't be irreplaceable. If you can't be replaced, you can't be promoted.
10. The more crap you put up with, the more crap you are going to get.
11. If at first you don't succeed, try again. Then quit. No use being a damn fool about it.
12. When you don't know what to do, walk fast and look worried.
13. Following the rules will not get the job done.
14. If it weren't for the last minute, nothing would get done.
15. Everything can be filed under "Miscellaneous".
16. No matter how much you do, you never do enough.
17. You can do any amount of work provided it isn't the work you are supposed to be doing.
18. In order to get a promotion, you need not necessarily know your job.
19. In order to get a promotion, you only need to pretend that you know your job.
20. The last person that quit or was fired will be held responsible for everything that goes wrong

Foresight

I enjoy reading forwarded mails, but do not forward forwards. However, can't resist the temptation for sharing this one. This quotes reflect the foresight of so-called logically inclined intellectuals at a point of time.

"There is no reason anyone would want a computer in their home."- Ken Olson, president, chairman and founder of Digital Equipment Corporation, 1977

"I think there is a world market for maybe five computers."- Thomas Watson (1874-1956), Chairman of IBM, in 1943

"The concept is interesting and well-formed, but in order to earn better than a ‘C’, the idea must be feasible."- A Yale University management professor, in response to student Fred Smith’s paper proposing reliable overnight delivery service (Smith went on to found Federal Express)

"640K ought to be enough for anybody."- Bill Gates (1955-), in 1981

"We don’t like their sound, and guitar music is on the way out."- Decca Recording Company, rejecting the Beatles, in 1962

"Who the hell wants to hear actors talk?"- Harry Morris Warner (1881-1958), co-founder of Warner Brothers, in 1927

Distinction Between Merger and Acquisition

Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Mittal Steel's bid for Arcelor though was an acquisition in intent, the detailed workout made it look an merger of equals. In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal as a merger, deal makers and top managers try to make the takeover more palatable. A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition. Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.

With Extracts from George Carell's paper. And yaa, a post on Leveraged Buyout (LBO) and Management Buyout (MBO) soon...

10 Business Trends

I give here a list of 10 happenings/ trends during 2006 in Indian Business arena, which are different from previous years ( for better or worse) and 10 happenings which were the same, trends which in my view had a significant impact on the economy.

Economic policies and path correction by RBI has not been listed, as its impact has yet not been felt. I also exclude the Outbound deals in Steel sector as the same took place outside the territorial waters of India.

So, here is UPS’ list of things, which appeared afresh on the businessfield in 2006
1. Abnormal rise in realty sector.
2. Retail Plans unveiled by all biggies.
3. Oil touching 78 $ a barrel, to again stabilize at 55 $.
4. Nuke deal gets through. Defence open for private sector
5. Cement prices shooting through the roof.
6. Sensex scaling record Sustainable Highs.
7. Non-volatility in steel prices for the entire year.
8. The SEZ euphoria starts and continues.
9. VAT implemented. No hiccups yet. What say PC ?
10. Orders for two Ultra Mega Power Projects issued thru competitive bidding

Things which haven’t changed from previous two years.

1. Sluggishness in Reforms, Insurance, mining & labour laws specifically.
2. IPO flurry continues.
3. Failure to meet electricity generation capacity targets.
4. Corruption and procedural delays in Business dealings with Government org.
5. Teledensity continues to grow.
6. Salaries continue to rise.
7. Refining capacity increases. New oil and gas finds.
8. Big Ticket M&As made and felled.
9. Double digit growth rate in Services.
10. Agriculture again laggard. (Food deficit occurs)

Views and counterviews anticipated.

Corporate Social Responsibility

Why do organizations do business ? The only two motives for any private organization do undertake business activity are - I: to make money today. II : To make more money tomorrow. All actions, decisions for a business unit are / have to be directed keeping these two motives in the central frame. This has been so far, the unsaid, yet widely acknowledged fact in the business world. From erstwhile “tradesman” to Carnegie and Mittal, generations have been doing the activity of business based on the “selfish” motive of wealth generation. Means for disbursement of this wealth has had contradictory policies in capitalist and socialist economies, however will pursue that topic sometime later.

But, currently, thanks to a bunch of corporate jokers and mediapersons, a CSR (Corporate Social Responsibility) dimension to business is attached. Almost all organizations in India and abroad do indulge in such CSR initiatives. Such acts of charity by organizations is being taken by one and all in a positive spirit, and hordes of CEOs and MDs, donning the Who’s who list have been talking about “their” CSR activities with pride. Too much an emphasis is nowadays being laid on the CSR aspect of an company, with many organizations including my earlier and current companies, specifically recruiting “experts” for the same. From Sankaralingam to Ratan Tata, Narayanmoorthy to Roongta, from A.M.Naik to Ambanis and even Mallya, all have openly stated their CSR intiatives as a part of “their” duty to pay back to the society.

Should Organizations resort to CSR ? My take : NO, Absolutely NOT.
Most of the intellectuals would dismiss my take as idiotic or foolish, but as I have been many a times accused of both, I do not mind of stating my conviction once again to earn that pedigree.

The duty of an organization towards the society, is to make available goods and services, in which it has expertise in the best form in terms of price and quality to the society. It is during the pursuance of this selfish motive of earning profit by providing goods and services, that an organization fulfills its duty towards the society. It is also through the taxes it pays the government, which is responsible for social and economic upliftment of the society. It need not indulge in direct upliftment of society through philanthropic projects. It would be an unjustice to the stakeholders (shareholders included) to have their resources divested in areas not yielding profits. Instead, that money should be invested for furthering business prospects.

There has been a growing parade of top-notch billionaires in US, who undertake CSR intiatives by “their” own share of money, and hence the impact of such activities does not reflect in their organization books. Warren Buffet, Rockfeller, Gates being the prominent examples of such philanthropic pursuits.

Of late, some marketing gurus, have linked CSR to brand image of a company. Being a novice on the subject yet, I feel too little to question them, but utterly fail to understand any logical equation between CSR and a company’s brand image. Examples are in plenty, but I prefer not to get into that. The point is, even if there is any indirect benefit to an organization through its CSR programmes in terms of brand image building, then its just a form of marketing expenditure by an organization, and no philanthropic trait should be attached to such programmes either by the organization or the media. Such activites should be redefined and be classified as “business as usual” by all concerned.

I wish : Let Business be business, and charity be charity. Multiple hats do not yield optimal value addition. Let there be an utmost clarity of roles between corporate and government, and the tact of fruitful implementation on part of both, to deliver the best to the society.

But alas !...if wishes were horses, men would ride.