CFO India - June 2012 by Bhupinder Sharma

case study RAYCHEM-RpG’S TURNAROUND p. 34

in practice THE BUSINESS OF COMMUNICATION p. 18

travel STUNNING SRINAGAR p. 50

VOlUME 03 ISSUE 06 75 JUNE 2012

MASTERS

OF THE

GAME Four years after they acquired their erstwhile parents and 18 months after their IPO, VA-Tech Wabag is on another mission: become a €1 bn MNC by 2017

S. varadarajan, CFO, VA Tech Wabag rajiv mittal, MD, VA Tech Wabag

A 9.9 MEDIA pUBlICATION

CFO june | 2012

in practice 18 social tech: the next frontier

Inside

12 COVer story

CFOs have to understand the most critical concepts of social technology for business which is much more than just networking

23 financial reporting complexities Should business reporting, including financial reporting be globally standardised?

26 MOBILE IS DRIVING CLOUD TESTING David Taylor, President APAC, Micro Focus talks about the mainframe business in India

MASTERS OF THE GAME

INSIGHT 37 THE SOCIAL SIDE OF STRATEGY Crowdsourcing can boost organisational alignment as some companies which have adopted this technology, have shown. Should you join them?

i think

ANUJ AGGARWAL

The CFO of Canon India on why the depreciating Indian Rupee, managing liquidity and controlling costs are top of the mind issues for him today

Four years after they created history by doing the unthinkable—acquiring their erstwhile parents in a €70 million liability deal, VA Tech Wabag, now a listed `1,400 crore entity, is on the verge of a quantum leap in terms of growth and expansion

CASE STUDY 34 A MINDSET CHALLENGE Deepak Harlalka, CFO of Raychem-RPG tells us how he tackled the challenge of changing the company’s focus to profitable growth and made the finance department a key player in this transformation

Cfo lounge 46 ON WHEELS | MERCEDES E350CDI

leader’s world

49 M&E | LAGERBAY, MUMBAI

44 A VIEW TO DIE FOR

50 TRAVEL | SRINAGAR

Congitive biases may cause a disaster, even while climbing Mt Everest, says David Lim

Regulars 04 LETTERS TO THE EDITOR 52 NOT JUST THE LAST WORD

case study RAYCHEM-Rp TURNAROUNG’S D p. 34

in practice THE BUSINESS COMMUNIC OF ATION p.

travel STUNNING p. 50

SRINAGAR

CFO I ndIa

VOlUME 03 ISSUE 06 75

JUNE 2012

Case study: RayCHem-RPG

MAST O ERS

Cover design atul deshmukh

GAMHEE Bharti Airtel IFC AD index lOunGe:

sRInaGaR

I tHInk:

anuJ aGGaRWal

vOlume

Issue

Four years after they acquired their erstwhile parents and 18 months after their IPO, Wabag is VA-Tech on another mission: become a €1 bn MNC by 2017

rajiv mittal, MD, VA Tech Wabag

S. varadarajan, CFO, VA Tech Wabag

A 9. 9 MEDIA

pUBlICATION

from the

managing editor

dhiman chattopadhyay dhiman.c@9dot9.in

Managing Director: Dr. Pramath Raj Sinha

A Brave New World

It is not everyday that you hear about a company acquiring its erstwhile parents, going public and becoming a `1,000 crore listed organisation—all within a span of four years. It takes a special kind of financial genius to do so much so quickly. For the better part of the last ten years, the two co-founders of VA Tech Wabag in India, Rajiv Mittal, MD and S Varadarajan, CFO have been proving their detractors wrong by succeeding in successive ‘mission impossible’ ventures. Now four years after they acquired VA Tech Wabag’s global business and 18 months after a 36 times oversubscribed IPO, the Indian MNC with a presence in 19 countries is embarking on ‘Mission Impossible-III:’ to make another strategic acquisition abroad, grow at a fast clip and become a € 1 bn company by 2017. The story of their past is the stuff novels are made of and speaks volumes of the financial strategy and thinking put in by the founders. Their future plan, detailed out by Mittal and Varadarajan, also makes compelling reading. Their story reflects the brave and confident face of corporate India. We hope you enjoy reading the article (Masters of the Game, Page 12). This month is special for us at CFO India in more ways than one. By the time this magazine reaches you, our new-look website would have been launched. Please do check it out at www.cfoinstitute.com and leave your feedback. CFO100 Winners of the past two years can also let us know their views on the LinkedIn page created just for them—the CFO100 Roll of Honour Alumni. Those winners who haven’t yet become members of the group, please do so now. The other big news: We are proud to initiate a unique CFO Compensation Study, a first-of-its-kind survey of the CFO community in India, in partnership with Towers Watson. The study focuses on taking the CFO perspective on their engagement quotient vis-à-vis their organisation and employment practices and in its next phase, extends itself to compare prevailing compensation and benefits trends at this level. An email from us with an attached questionnaire will reach you in a few days. This will not take more than 10 minutes for you to fill. Participate in the study and get an opportunity to share your assessment of the organisation’s practices and articulate concerns, without being quoted. Also hear back from your peers about how they are feeling in the role and what’s keeping them rolling!

Editorial EDITOR: Anuradha Das Mathur managing editor: Dhiman Chattopadhyay Assistant Editor: Purva Khole SUB EDITOR: Radhika Haswani Design Senior Creative Director: Jayan K Narayanan Art Director: Anil VK Associate Art Director: Atul Deshmukh senior Visualiser: Manav Sachdev Visualisers: Prasanth TR, Anil T & Shokeen Saifi Senior Designers: Sristi Maurya & NV Baiju DesignerS: Suneesh K, Shigil N, Charu Dwivedi Raj Verma, Prince Antony, Peterson, Midhun Mohan & Prameesh Purushothaman C chief photographer: Subhojit Paul SENIOR photographer: Jiten Gandhi The CFO Institute Executive Director: Deepak Garg Assistant Brand Manager: Nisha Anand ASSISTANT MANAGER: Dr Leena Narain Assistant Manager - Corporate Initiatives: Deepika Sharma Sales & Marketing VP SALES & MARKETINg: Krishna Kumar KG (09810206034) ASSISTANT REGIONAL manager (sales): Rajesh Kandari (+91-9811140424) National Manager (Events & Special Projects): Mahantesh Godi (+91-9680436623) Assistant Brand Manager: Arpita Ganguli South: Vinodh Kaliappan (+91-9740714817) West: Sachin N Mhashilkar (+91-9920348755) For any customer queries and assistance please contact: help@9dot9.in Production & Logistics Senior General Manager (Operations): Shivshankar Hiremath Manager Operations: Rakesh Upadhyay Asst. Manager - Logistics: Vijay Menon Executive Logistics: Nilesh Shiravadekar Assistant Production manager: Vilas Mhatre Logistics: MP Singh, Mohamed Ansari officE addrEss Nine Dot Nine Interactive Pvt Ltd Office No. B201-B202, Arjun Centre B Wing, Station Road, Govandi (East), Mumbai 400088 INDIA. Published, Printed and Owned by Nine Dot Nine Interactive Pvt Ltd. Published and printed on their behalf by Kanak Ghosh. Published at Bungalow No. 725, Sector - 1, Shirvane, Nerul, Navi Mumbai - 400706 Printed at Tara Art Printers Pvt ltd., A-46-47, Sector-5 NOIDA (U.P.) 201301 All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.

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CFO india

june 2012

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Letters

CFO INDIA

june 2012

This is to let you know that I will be taking over as the Managing Director of Gujarat Gas Company effective July 1, 2012, as announced to stock exchanges recently. The company is a part of the BG Group, UK as you know and is also listed in the Indian stock exchanges. Needless to say it will be my pleasure to remain engaged with many of your activities at CFO India and CFO Institute. — Sugata Sircar, MD, Gujarat Gas Company, Ahmedabad

KUDOS TO CFO100 Thanks to CFO India and CFO Institute for an excellent CFO100 event and the recognition 4

CFO india

june 2012

p. 58

volume 03 issue 05 75 may 2012

MANAGING THE NEW INVESTOR New age investors will not accept short-term returns as a substitute for longerterm stability. What are their demands and how should CFOs tackle them?

Issue

CONTINUED ENGAGEMENT

travel chilling in tasmania

p. 36

vOlume

While CFO India continues to give us great content every month, it would be even better if you can do some pertinent surveys and share the results of the research with CFOs and other readers. You have the means and the amazing network to go ahead and do such surveys. I hope to see a few good research papers or studies in the coming issues. — Pragya Sainath, VP Finance, Montago Chemicals, Bangalore

I thInk: sugata sIrCar 10

MORE SURVEYS PLEASE

lOunge: tasmanIa 58

06.12

Case study: nIIt 42

I started subscribing to CFO India recently after hearing good things about the magazine from colleagues. I am impressed with the content of the magazine and I must compliment your team for their efforts and hard work to create a platform like this for CFOs. I would be happy to contribute and be a part of the community. Once again my best regards and continue the good work. — Deepak Harlalka, CFO, Raychem-RPG, Mumbai

in practice look before you leap

p. 42

CFO IndIa

Great Content

case study the niit-morris jv

a 9.9 media publication

Your voice can make a change: Share your viewpoint on what’s happening in the community and your feedback on the magazine at editor@cfo-india.in

given to me along with others. I indeed enjoyed the powerful sessions as also meeting many old friends and making new ones. My feedback on the event can be summarised in two words—simply excellent. Thank you once again. — Pramod Gupta, CFO, Novartis, Delhi

NEW ASSIGNMENT I have recently joined L T Foods as the CFO. I used to receive regular issues of CFO India during my previous assignment and I look forward to receiving my copy in my new assignment. I would like to request you to kindly make the necessary changes in your records. — Anil Khandelwal, Director-Finance & Strategy, L T Foods, Gurgaon

ARTICLE ON ECONOMY PLEASE The Indian economy is going through very trying times and given the state of affairs politically, things are not going to get better anytime soon. Given the circumstances, it may make sense for CFO India to come out with a special issue on the state of the Indian economy with articles focusing on the way ahead, ideas for speedier growth and what CFOs should be looking at. — Anil Balasubramaiam, GM-Finance, DSQ Engineering, Chennai

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06.12 BUZZ

Tackling the ‘Airplane Headache’

The next time you get that splitting headache just as the aircraft begins its descent, seek some consolation in the fact that you are definitely not alone. So is there indeed such a thing as ‘plane headache’? It would certainly seem so based on a recent research result. Flying is a headache for many people, but for some that figure of speech becomes literal with ‘plane headache’, a form of pain that flares up during landing, researchers said. The unusual, specific head pain—severe usually on one side of the head and near the eye—was first reported in medical literature in 2004, with several dozen more cases documented in the following years. 6

CFO india

june 2012

Now, Italian researchers writing in the journal Cephalalgia argue that ‘plane headache’ should be considered a new subtype of headache and suggest a list of criteria doctors can use to diagnose it. “The ‘headache attributed to airplane travel,’ also named ‘airplane headache,’ is a recently described headache disorder that appears exclusively in relation to airplane flights, in particular during the landing phase,” wrote lead researcher Federico Mainardi, of Giovanni e Paolo Hospital in Venice. Mainardi’s group describes the cases of 75 people with symptoms suggestive of plane headache. Those individuals had contacted the doctors after reading about plane headache in a piece Mainardi published in 2007. Researchers had all of them complete detailed questionnaires to describe their symptoms. Overall, they fit the features of past cases of airplane headache: severe pain on one side of the head that was usually limited to the time the plane was landing. The headache was almost always short lived, less than 30 minutes for 96 per cent of the people. Only a minority consistently had headaches during landings, and for most it happened on some flights but not on others.

What’s AROUND ZONE CFO Book: Urmil Khurana.................................. Pg 08 Jargon Decoded: Move the Needle....................... Pg 08 CFO Movements...................................................Pg 09 Govt. Goes Tech Savvy..........................................Pg 09

THE CFO POLL result

Will Indo-US trade relations improve following Hillary Clinton’s visit?

25% Maybe 65% Yes 10% No

current POLL question

Do you agree with S&P that India could lose its investment grade rating? Vote now at www.cfoinstitute.com/poll

ENVIRONMENT

A Grim Picture

Cyber Crime

On LinkedIn? Change Your Password Acknowledging that passwords of some of its members were compromised, LinkedIn has asked all its users to change it to help protect their account security. Earlier LinkedIn started investigating claims that 6.5 million of its users’ passwords have been stolen and published on a Russian computer hacking forum. Security experts said the passwords are circulating in the form of a cryptographic “hash”, which converts text into a seemingly random string of numbers and letters using a mathematical formula, The Telegraph,UK, reported. Users were warned by experts to change their passwords as soon as possible. “It would seem sensible to suggest to LinkedIn users that they change their passwords as soon as possible as a precautionary step,” said Graham Cluley of British internet security firm Sophos.

The UN Environment Programme has issued a warning that the earth’s environmental systems are being pushed towards their biophysical limits beyond which there may be sudden, irreversible and potentially catastrophic changes. According to the report released by the program, with increasing human pressures on the earth, several critical global, regional and local thresholds are close or have been exceeded, and once these have been passed, abrupt and possibly irreversible changes to the life-support functions of the planet are likely to occur, with significant adverse implications for human well-being. The kind of implications that we all will have to experience are rising sea levels, increased frequency and severity of floods and droughts and collapse of fisheries. As per the report, about 20% of vertebrate species are under threat of extinction, coral reefs have declined by 38% since 1980, greenhouse gas emissions could double over the next 50 years, and 90% of water and fish samples from aquatic environments are contaminated by pesticides. “This is an indictment,” said, UNEP, Executive Director Achim Steiner at a news conference in Rio De Janeiro. “We live in an age of irresponsibility that is also testified and documented in this report. june 2012

CFO india

O-ZONE cfobook

JARGON BUSTER

THE PHRASE: HiPo

Urmil Khurana Wall

Info

Boxes

What’s on your mind? Attach

Share Urmil Khurana Is keen to take Starwood Hotels & Resorts to greater heights this financial year June 19 at 19.35 · 4 people commented · 2 persons like this

Personal

Urmil Khurana looking forward to being part of upcoming events of CFO India, including the leadership conclave

odiac: Pisces Z Views: Liberal

June 15 at 19.22 · Comment · 3 people like this

WORK

Urmil Khurana loves the mesmerising voice of Zila Khan June 09, at 22.45 · Comment · 14 people like this

Regional Director Finance, South Asia, Starwood Hotels & Resorts. 2006 to present VP-Finance, North, Tata Teleservices. 2001-2006 GM-Finance, Indian Hotels, 1984-2001

EDUCATION

I Read...

Books on music, meditation and travel 3 people commented · Like

I Listen... Timeless classics

Lady Irwin College, Delhi Mothers International School, Delhi

Comment · 2 person likes this

CFO IndIa

Recent activity Urmil Khurana likes CFO India and 2 others case study the niit-morris jv

in practice look before you leap

travel chilling in tasmania

p. 42

p. 36

p. 58

volume 03 issue 05 75 may 2012

Case study: nIIt 42 lOunge: tasmanIa 58

MANAGING THE NEW INVESTOR

I thInk: sugata sIrCar 10

New age investors will not accept short-term returns as a substitute for longerterm stability. What are their demands and how should CFOs tackle them?

vOlume

Issue

a 9.9 media publication

Nithya Shanti, CFO India, Current Employers May 18 at 11.55 · Comments · 2 people Like this

TECH

Up Next: Ultrabooks? Though Apple has captured a considerable amount of the tablet market, Intel is gearing up to unveil the next-generation ultrabooks in a bid to stave off the stiff challenge from Apple’s tablet. Ultrabooks by Intel were announced at the previous Computex. These will be sleeker, lighter and have premium finish compared to normal laptops. Intel said that this year it is adding a number of new features like voice controls, instant boot, touchscreens and near field communication chip, which allows instant file transfer between devices, to ultrabooks to make them more appealing to users. Intel said that in the coming months its hardware partners will launch over 110 ultrabooks. 8

CFO india

june 2012

THE MEANING No! This does not refer to a person’s girth. This is a cute short form for ‘High Potential’, usually referring to a colleague, new joinee. THE USAGE Did your HR colleague just tell you: “This new guy went to Wharton and has great ideas. Maybe he is a HiPo”? So now you know what she meant.

O-ZONE

PEOPLE movement HEALTH

Coffee delays Alzheimers Coffee may bring you more cheer than you figured. A recent study shows drinking three cups of coffee daily could help keep Alzheimer’s disease at bay. The findings indicate caffeine, the source of which was mainly coffee, offers some protection against the onset of Alzheimer’s disease.Scientists at the University of South Florida and the University of Miami monitored 124 people aged between 65 and 88, testing their blood caffeine levels and their cognitive ability for two to four years, reports The Telegraph, UK. Caffeine levels among those who developed dementia were 51 percent lower

than those who did not. “Coffee would appear to be the major or perhaps only source of caffeine for such stable MCI (mild cognitive impairment) patients,” the authors of the study wrote. Simon Ridley, head of research at Alzheimer’s Research, added: “I think we’re still at the point, to use the jigsaw metaphor, where we’ve got a lot of pieces but we still don’t know how they fit together. Many people say we are where cancer was 30 years ago with the level of knowledge and investment. What is needed is a sustained and significant investment into research over a long period of time.”

Sugata Sircar is New Md of Gujarat Gas Gujarat Gas Company has announced that Sugata Sircar has been appointed as Additional Director and Managing Director of the company with effect from July 01, 2012. This is pursuant to the completion of the term of Shaleen Sharma as Managing Director of the company on June 30, 2012. Sharma will continue as a Director on the board of Gujarat Gas Company. Mr Sircar is currently the CFO of the company.

Icsa Changes Cfo ICSA (India) Ltd has informed BSE that the company has appointed Mr. Chinna Gurappa as the Chief Financial Officer of the Company with effect from May 23, 2012.

BUREAUCRACY

Govt. Goes Tech Savvy Websites of all government organisations will move to the new Internet Protocol (IP), IPv6, by the year-end, the communications and information technology ministry has announced. “A direction has been issued to all the government organizations to migrate their websites to IPv6 by December 2012,” the ministry said in a statement. “As IPv6 is not backward compatible with IPv4, the transition to IPv6 is likely to be a complex, mammoth and long-term exercise during which both IPv4 and IPv6 will co-exist,” it added. Internet protocol is a set of methods by which data is sent from one computer to another on the Internet. Currently the websites run on Ipv4. “For India this transition is not only urgent but also very important,” said R. Chandrasekhar, secretary, department of telecom, at an event organised to mark World IPv6 Launch Day here. Currently India has 35 million IPv4 addresses against a user base of about 360 million. In addition, the government is planning to target 160 million and 600 million broadband customers by the year 2017 and 2020 respectively.

India Tv Gets New Cfo India TV today has appointed Mr Gulab Makhija as its Chief Financial Officer. Mr Makhija will be responsible for financial management and control systems in the company’s growth plan. Prior to joining India TV, Makhija served as the CFO at TV Today Network where he was instrumental in cost optimisation across the network. India TV has announced several other key appointments.

Khandelwal Joins LT Foods as CFO Mr Anil Khandewal has quit Ranbaxy to take up a new assignment as CFO of the Rs 1700 crore LT Foods. He will be based in Gurgaon.

june 2012

CFO india

cfo

i think

Facts & Trivia QUALIFICATION: Chartered Accountant LAST JOB: AVP Finance, Genpact LLC First job: Usha International Ltd. This is his second stint at Canon India

The Indian economy is going through one of the toughest times in its history. The present state of economic affairs is due to many factors namely a weak global scenario (especially the European crisis), political paralysis and last but not the least a less-than-active bureaucracy. It looks as if there is no immediate solution to this problem. These issues however, are forcing us to rethink the India growth story. The job of the CFO in such troubled times becomes more difficult because on the one hand he/she has to make sure foreign investors continue to have faith in India’s growth story and on the other hand they have to ensure their own house is in order and keep the morale of the team high. One of the biggest challenges is dealing with Rupee depreciation. The Indian Rupee has depreciated more than 20 per cent in the last six months. Such a big fall a few years ago would probably 10

CFO india

june 2012

ANUJ AGGARWAL The CFO of Canon India on why the depreciating Indian Rupee, managing liquidity and controlling costs are top of the mind issues for him today

have been managed by passing on the burden of increased cost to consumers. However, in the present competitive environment it is very difficult to pass on this increase to consumers. I am sure many of my peers and fellow CFOs have sound treasury policies in their organisations to manage forex

“We need to have a very balanced and prudent forex policy in place which can take care of business and also visualise a ‘whatif’ scenario”

risk but I am not sure that such a policy is equipped to manage these extreme situations. So we need to have a very balanced and prudent forex policy in place which can take care of business and also visualise a ‘what-if’ scenario in case a similar situation arises again or uncertain times continue for long. While deciding any policy, we should have a long term view so that it takes care of all ups and downs. Rupee depreciation for instance will lead to an increase in cost of products being sold and also operating losses. Another related area of concern is liquidity. With mounting losses every month due to increasing gap between cost and revenue, there is always going to be pressure on the cash situation. Although as head of finance we may not have any direct control on the Indian economy but we certainly have a say in areas directly under our control. Cash is indeed king and we should try

and ensure sufficient cash balance by working on our current assets. We need to make sure we are collecting our debts in time to complete the sales cycle and also to ensure that inventory levels are just right. Higher inventory may lead to higher payable thus more exposure to currency volatility. By generating more cash from management of inventory and receivables we can pay our vendors and cut down on our forex liability.

Another area of focus is cost control. While exercising cost control, one needs to be very cautious. Should cost control be at the cost of expansion or should we look at hidden costs which are an undue burden for our organisation? This is a very important question that needs to be answered by all Finance Heads in every organisation. All new areas of investments should be thoroughly examined and

we should always maintain healthy liquidity in the business. Also we should focus on cost saving rather than cost control in the organisation. Another way to work on cost is to improve efficiency and productivity. With the same resources we should try to improve productivity thus reducing per unit cost and making organisation more competitive in the market place. june 2012

CFO india

cover story

MASTERS

OF THE

GAME

Four years after they acquired their erstwhile parents and 18 months after the IPO, VA-Tech Wabag is on another mission: become a €1bn MNC by 2017

t’s a blazing hot day in Chennai but despite the stifling heat there is a buzz of excitement at the global headquarters of VA Tech Wabag—the Chennai-based Indian MNC and India’s largest water treatment technology firm. Employees go about their work with an almost missionary zeal. It is as if all of them have a train to catch, in a state of perpetual

CFO india

june 2012

hurry. What’s up we wonder. It is only later that we realise the employees are merely reflecting the overall way the company’s top management itself thinks and acts—fast and furious, with a clear end goal in sight—to be masters of the game. The excitement at Wabag’s headquarters is not without reason. The `1,400 crore company is on the verge of com-

mitting itself to a five year plan that would not only make it a billion euro conglomerate by 2017 but also a leading player in the water treatment technology sector across three continents. When a listed company with a turnover of well over `1,000 crore makes a formal commitment to its shareholders that it plans to grow by nearly 50 percent in the next financial year, almost

jiten gandhi

Dhiman Chattopadhyay

cover story double its size by 2015 and touch the billion dollar mark by 2017—people do sit up an take notice. That is exactly what happened when Rajiv Mittal, MD and S Varadarajan, CFO, co-founders of India’s largest water treatment technology firm VA Tech Wabag went to the Board and then to its shareholders recently, with such a stated policy. VA Tech Wabag is no stranger to the limelight though and sceptics who are sharpening their knives, particularly given the current slowdown in the Indian economy as well as across Europe where VA Tech has a significant presence, would do well, to check the record books just once. Why?

DOING THE UNTHINKABLE: A BUYOUT, A HISTORIC M&A AND AN IPO Consider these facts: Circa 2005: VA Tech Wabag India was just the domestic arm of the Austrian Multinational VA Tech AG, when the latter wanted to offload or shut their water treatment technology business, including the entire Indian operations, since it had ceased to be a core business for them. Most CXOs would have simply looked out for newer and hopefully better prospects elsewhere. Instead Mittal, aided by Varadarajan went for broke and created a flutter by sealing a ‘management buyout’ which made the Indian arm of VA Tech Wabag an independent entity, fully owned by the new Indian management.

Circa 2007: VA Tech Wabag India

rajiv mittal, MD, VA Tech Wabag

S. Varadarajan, CFO, VA Tech Wabag

was facing numerous challenges post the management buyout. Siemens, the new owners of VA Tech Wabag (the holding company) wouldn’t allow Mittal and Varadarajan to use the ‘VA Tech Wabag’ name and wanted them to change the company’s name. They also demanded a 100 percent bank guarantee if the Indian company wanted to june 2012

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cover story use references of successful projects carried out by their erstwhile owners. The Wabag India management was also sorely missing the skilled manpower that their erstwhile European owners boasted of. “Also we dreamt of becoming an Indian MNC and the buyout deal of 2005 denied us the rights to expand into areas where VA Tech Wabag Europe had interests. We wanted to grow fast, become an MNC, retain our brand name and get access to all the references which are crucial for any infrastructure firm. It called for some very bold steps,” recalls S Varadarajan, Co-Founder, ED and CFO of VA Tech Wabag, as we sip coffee and chat at the company’s global headquarters in Chennai. ‘Bold’ would be an understatement to describe what Mittal and Varadarajan did next. In a €70 mn liability deal, they acquired their erstwhile owners! Overnight, from being a small Indian company, VA Tech Wabag India now became a leading player in the water treatment engineering sector with 65 projects in 19 countries across Asia, Africa and Europe and the owners of over 100 patents. And... hold your breath...the same Austrian and German executives who would be their reporting authorities till 2005, now started reporting to Mittal and Varadarajan! “Nothing like this had ever been done in Indian corporate history. People were shocked and there were many experts who figured we would never be able to succeed with such a huge deal. After all our former parentcompany was twice our size then. Even ICICI Venture, our principal VC, were not convinced initially. Clearly we had to once prove again our detractors wrong,” says Mittal as he recalls those heady days.

Circa 2010:

The country was still recovering from the economic

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“The future of every country will be in desalination, reuse and reclycling of water and we are determined to play a lead role.” — rajiv mittal MD, VA Tech Wabag

slowdown and much of Europe hadn’t yet overcome the global recession of 2009. Yet in the midst of such uncertain times, VA Tech Wabag led by Mittal and Varadarajan decided to take on the odds yet again and go for an IPO. Hectic activity began once again and the entire finance team under Varadarajan stepped up several gears to make this dream come true. The IPO was valued at `475 crore and stocks priced at `1,310 at ` 5 face value. The issue opened on September 22 and closed on September 27. The result? The issue was oversubscribed by 36 times with some segments being over-subscribed by 100 percent! On the day of the listing, the stock prices took precisely three minutes before showing a rise of 33 percent from where it began.All those saptics went into hibernation for some time. On the way the employees-turnedentrepreneurs have touched and crossed several key landmarks and milestones. “When we touched `100 crore in 2003 we were the first in India in the water treatment area to touch the mark. When we started, way back in 1996-97 we grew rapidly and for three consecutive years we doubled out growth,” recalls Varadarajan. The fact that they could get bankers and venture capitalists on their side from Day 1, also speaks volumes for the never-say-die spirit that these two gentlemen and their senior colleagues showed, even in those early days. “Overnight we had become start-up entrepreneurs! Our story was very new. No management buyout has happened before. We managed to convince banks with our plans and they extended a line of credit. We set up `225 crore of credit lines with banks withing a month,” recalls Varadarajan. True, there initial feelings of insecurity and uncertainty amongst employees, some of whom feared that losing the ‘MNC’ tag would hurt business, while others were not sure initially whether

a change of management would also mean Mittal and SV would no longer be there. But those fears were allayed early. “We were apprehensive since it was not clear whether the MD and the CFO would remain or sell out. But once Mr Mittal addressed us and assured us that they would be buying out the Indian arm, it came as a great relief for us. In fact we started working twice as hard since then,” recalls CR Pradeep, AGM-Projects who has been with Wabag since 1997. Pradeep now heads one of Wabag’s most prestigious large projects—setting up a sea water desalination plant in Chennai. Others like TV Gopal the Chief PR manager of the company who has been here for over 14 years, agree that Mittal and Varadarajan’s caliming presence has helped all of them. “Eralier in 1998 we were going through a tough time. I still remember Mr Mitta’s mail to all of us. The subject line read: ‘Relax’. It left such a deep impression on us.” But challenges remained in several areas. “Our growth opportunities were limited by some strangling clauses in the 2005 buyout agreement. For one, we were not allowed to take our business beyond South Asia. We were already present in 15 Indian states, so further growth within India looked unsure at the time,” recalls Varadarajan. The VC (ICICI Venture) had also made it clear that they would ideally look at an exit plan in three years. So, in a 2006 workshop, the co-founders (there were four of them initially) made a commitment to themselves to become a listed company, reach a turnover of `1,000 crore, acquire an European company and get an export order of $50 million—all by the next five years. “All the four targets have now been reached. The last of them was reached when we touched `1,000 crore for our Indian operations in FY 2012. Overall we are now close to `1,500 crore,” says Varadarajan. This basically means the The company has grown five-fold since 2006.

READY FOR THE UNKNOWN But clearly the world is not enough from this enterprising duo and their team from Chennai. So, four years after the landmark acquisition of its erstwhile parents and 18 months after the IPO, VA Tech Wabag is set to take the next step: launch a fiveyear plan to become a one billion euro Indian MNC with a leadership position in three continents. Ambition has never been a weak point with Mittal and Varadarajan. The company is sitting on a `400 crore cash reserve as it readies to move into its state of the art plush new ninestoried office in suburban Chennai— not a small achievement. “We want to use the cash reserve to make a strategic acquisition. We would probably look at a company with around `700 crore turnover and based somewhere in Europe,” Varadarajan says matter of factly. These are not idle dreams. “Between March 2005 and March 2011 the company grew almost 600 percent, from `230 crore to a `1,230 crore company. By 2015 I expect this figure to touch `2,500 crore. I expect to close FY 2012-13 at around `1,700 crore,” says Varadarajan. The present is as rosy as the planned future. Just recently, VA Tech signed a €100 million order book through its Austrian subsidiary. And though a `300 crore project in Libya had to be put on hold after war broke out in the African nation, VA Tech is hopeful that 2012-13 will be a major year in its journey, nonetheless. “Libya is almost back on track and work for us should resume soon,” says Varadarajan.

“We wanted to grow fast, become an MNC, retain our brand name and get access to all the references.” — S. Varadarajan CFO, VA Tech Wabag

strong second line of leadership. Count r y managers are now

i n

A KEY ROLE FOR FINANCE Another significant step the company has taken is a concerted effort to train and create a june 2012

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cover story

“We will prove people wrong again”: rajiv mittal The visionary MD of VA Tech Wabag has been with the company, along with CFO S Varadarajan, ever since the organisation arrived in India in 1996. Here he talks of the past and the way ahead.

Q What was the main reason you decided to go for the high risk buyout of your erstwhile parents? The main objective of the acquisition was to get the technology, the patents, the R&D facilities, the references and a significant presence in fast growing regions of the world. Of course the additional skilled manpower that we acquired was a big plus.

Q Do you think you have used the acquisition to its fullest potential till now? Yes, I believe we have milked it well till now and the benefits are there for everyone to see. It also shows in the growing numbers doesn’t it? Of course I can never say we have used it to the full. It’s never enough.

Q Why were there issues regarding acceptance of the Indian ownership initially? Did you face integration challenges post the M&A? Our business would not have grown without the acquisition. That is for sure. But it is also true that by design, we did not integrate the two organisations initially. It is only in the last two years, post the IPO that we have started the integration and cultural assimilation process. Till recently, we allowed the Austrian unit to pretty much function independently.

Q You are looking at refocusing your global growth strategy. Will you elaborate? Historically Austria has been the centre of Wabag’s work. However, given the long term outlook for Europe, our aim

place and even SBUs are now taken care of by senior personnel and not just the founders! Clearly, Mittal and Varadarajan are planning for the future by training future leaders from senior employees—always the sign of a company that is forward looking. Still, if indeed Wabag has to reach that magic billion euro mark in 2017, where is the main growth going to come from, we ask? The finance team led by Varadarajan, would play a crucial role in this transformation, as critical as the role they played in the 2007 M&A. “Our 16

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is to reduce costs and Austria is and will remain a high cost centre. So we are consciously reducing costs there and increasing our infrastructure, manpower strength and overall presence in comparatively low cost areas such as Turkey, Romania, Tunisia and Algeria. All of them have become profit centres in recent months.

Q India operations continue to get you a lion’s share of revenues, even though you are present in 19 countries. How do you plan to change that and become a true MNC? Going forward we are looking at global operations bringing in 50 percent of the revenues, by 2017. Right now the ratio is 70:30 in India’s favour. It is a declared plan that we will be a 1 bn Euro company by 2017. This drive will come from several areas. We are looking at decentralisation (multiple domestic units) and the directive to all units are clear: each of them should grow as fast as the India operations did. The future of every country will be in desalination, reuse and reclycling of water and we are determined to play a lead role in this. Significant growth will also come from our services business through our EPC on standalone contracts and long-term 20-year contracts.

Q This sounds like a tall order, even by your remarkable standards... Even when we came to India in 1996, many people discounted us. In 2005 when we did the management buyout and later after the acquisition, even a lot of stakeholders were skeptical. Every time we have proved all our detractors wrong. In the last five years we have grown five fold. Five years from now we will again show five times growth and we will prove people wrong again.

operation maintenance business has also gone up from a mere `15 crore in 2005 to over `130 crore in 2012-13 and this will be a key driver of our growth,” says Mittal. The company is also consciously trying to reduce its costs in Austria—a high cost centre. The result? A sharp increase in presence in comparatively low cost areas such as Turkey, Romania, Tunisia and Algeria. All of them have become profit generating centres in less than two years since the management turned their focus on these nations. “Going forward we want

to see our revenues coming equally from our Indian and global operations. Right now its loaded in favour of India at 70: 30. We want that to change by becoming a leader in emerging markets of Europe and Africa,” say Varadarajan and Mittal in unison. The final word too comes from Mittal when he says that water “Clean drinking and pure water will become the world’s greatest need in the years to come. The future lies in desalination, reuse and reclycling of water and that is where we will play a lead role.”

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in practice

Business of communication

SOCIAL TECHNOLOGY:

THE NEXT FRONTIER Social technology for business is much more than networking on Facebook, LinkedIn or Twitter. Understanding its most critical foundational concepts, and how to integrate them into a business strategy, can be a game-changer for 21st century companies Scott Klososky

hy care about the much-talked about Initial Public Offering of Facebook, LinkedInâ&#x20AC;&#x2122;s IPO last year or the potential 2013 IPO for Twitter? Or that in January YouTube was getting four billion hits per dayâ&#x20AC;&#x201D; an increase of 25 percent in only eight months, as reported by Reuters? Why care? Because social technology in 2012 is not a subject for any business to ignore. The phenomenon of these abilities to connect seamlessly across the world is much more powerful than most people understand at the moment. And it will not be going away. This expanding social tool box is more powerful than Facebook, Twitter, LinkedIn or YouTube. These are merely tiny pieces in the wider view, applications of a larger picture that promise to tremendously empower those willing to learn and experiment with new concepts.

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in practice The good news is that the cost of putting these tools to work is quite low, so leaders of organisations small and large have a fair shot at stardom. The bad news is that many will disregard the information as not yet relevant. But the reality is that some of the ideas are already making a big difference for early adopters.

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The World of Social Technologies To really understand the world of social technology, a primer on its terminology is helpful. • Social networking refers to the tools that allow companies or individuals to communicate, collaborate or be in community with each other—Facebook, Twitter and other leading providers. • Social media refers to sites that allow the uploading of videos, documents, graphics/photos or presentations and share them with the world, by way of YouTube, Scribd, Flickr, Slideshare.net and others. • Social relevance refers to a company or individual online reputation or brand. This covers all of the methods by which a searcher would form an opinion online. In addition, there are a number of new tasks that have the word “social” bolted in front: SocialCRM and Social Recruiting are good examples. The umbrella term for all of these is ‘social technologies.’ Social technologies are beneficial to all areas of an organisation, not just for driving revenue. Outside of marketing, there are many techniques being used in the world today to lower costs and help organisations get smarter. Social tools can be compared to the web itself, as much much as there are benefits for every department. An “eWord of Mouth” marketing campaign can help deliver new prospects through the front door, and a crowdsourcing process can save companies thousands of dollars on a new Web user interface design. Social technolo-

gies are most well known for their ability to help drive revenue in new ways as they fit into the larger marketing. To truly understand what is going on in digital marketing, it’s important to understand the five-element formula comprising digital marketing: 1. Building productive websites These are the destinations for people to gain access to archived information or to conduct transactions. They will not come to these properties unless they have a specific reason, and websites are not optimised to create ongoing connections.

step, such as traditional advertising, search engine optimisation and payper- click campaigns. 5. Measurement systems It’s true that what gets measured gets done. Once the first four elements are in place and integrated, create a full suite of measurements to understand exactly what is working and what needs improvement. Important points to bear in mind are that social technologies are just one of the three legs of the stool, and they play a critical role in that they create the ongoing conversation with a company’s con-

Social technology tools are multi-faceted, and have the ability to change an economy that is in chaos to one that is manageable and predictable 2. Providing social technologies These tools create the conversations that build ongoing relationships with clients and establish trust with prospects, for the purpose of sharing valuable information. 3. Mobile tools For the first time in history, there exists a method for businesses to connect 24/7 with clients geographically and from anywhere in the world. For most businesses, the ability to connect through a mobile device is essential, as clients will want to connect at random times and from random points of origin. An organisation must be ready to make that connection. 4. Driving online traffic After integrating the three elements above, it’s time to drive a much larger volume of traffic than currently exists into a relationship net. There are many tools available for accomplishing this

stituents. No other elements have the ability to build an ongoing relationship like social tools. All businesses must build trust and value-filled ongoing relationships in order to grow and prosper, and the combination of social tools along with web properties and mobile applications provide powerful tools for augmenting a firm’s ability to do this. Applying a sophisticated and wellconsidered digital marketing campaign to the company’s market will result in a change in the sales process that is more profound than it first sounds. The organisation will change from one that asks, “Where can I find new clients?,” to “How can I enable clients to find me?” The world of the 21st century is a highly searchable recommendation economy, one in which it is much more difficult to hunt for new clients without the backing of a digital marketing net. june 2012

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in practice Companies must learn to use digital marketing to create an environment where individuals can close more sales. It will not be unusual for colleagues to ask for recommendations on business firms through friends on LinkedIn, and then to verify the credentials of the recommendations by doing a search online to see if their own firm is expert and well-regarded by its current clients.

The Organisational Voice and Reputation The first foundational social tool to apply in creating the company’s selling environment is to create and master the delivery of an ‘organisational voice.’ There are many channels

through which to deliver this voice, such as Facebook, Twitter, print and video blogs. In many cases, a combination of these should be used to reach diverse audiences. Building an organisational voice provides a method to communicate with constituents on an appropriately regular basis. Providing real value to clients will produce for the company an ‘earned media’ relationship with its constituents. This replaces many of the ‘interruption marketing’ methods used in the past, such as advertising. In other words, this approach moves to more conversation and less shouting at clients and prospects. The other benefit of creating such content will be the boost to the firm’s online reputation as it provides digital proof that it is an expert in

its field—a key attribute for clients who want to deal with industry experts. In addition, delivering a useful organisational voice channel tightens the perceived relationship between a company and its clients. This, of course, if the company’s blogs, Twitter streams and podcasts, among other outlets, are truly interesting to read and full of valuable insights and information. Provide valuable content and clients will feel that the company is ‘talking’ to them regularly and thus building a value-based relationship, which will serve to augment in-person meetings that must continue. The next step will provide a number of benefits through one critical technique—the social media campaign. Once the conversation has started, it should be augmented with a large

The Crowdfunding Provisions of the JOBS Act David M. Lynn Over the past year, various legislative proposals directed at easing regulatory and financing burdens on smaller companies have been discussed by legislators, business leaders and commentators. These proposals were brought together under the Jumpstart Our Business Startups Act (H.R. 3606), or the JOBS Act. The bill was signed into law by President Barack Obama on April 5. Title III of the JOBS Act addresses ‘crowdfunding’, a relatively new outgrowth of social media that provides funding for a variety of ventures. Crowdfunding is based on the ability to pool money from individuals who have a common interest and are willing to provide small contributions toward the venture. Absent an exemption from US Securities and Exchange Commission registration (or actually registering the offering with the SEC), crowdfunding efforts that involve sales of securities may be illegal. 20

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To address this issue, the JOBS Act amended Section 4 of the Securities Act of 1934 to add a new paragraph (6), which provides a new crowd - funding exemption from registration under the Securities Act. The conditions of the exemption are that: • The aggregate amount sold to all investors by the issuer, including any amount sold in reliance on the crowdfunding exemption during the 12-month period preceding the date of the transaction, is not more than $1 million; • The aggregate amount sold to any investor by the issuer, including any amount sold in reliance on the crowdfunding exemption during the 12-month period preceding the date of the transaction, does not exceed: • the greater of $2,000 or 5 percent of the annual income or net worth of the investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; or

• 10 percent of the annual income or net worth of an investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000; • The transaction is conducted through a broker or funding portal that complies with the requirements of the exemption; and • The issuer complies with the requirements of the exemption Among the requirements to exempt crowdfunding offerings is that an intermediary used for the offering must register with the SEC as a broker or a “funding portal.” Funding portals would not be subject to registration as a broker-dealer, but would be subject to an alternative regulatory regime, subject to SEC and selfregulatory organisations (SRO) authority, to be determined by rulemaking at the SEC and SRO.

in practice inventory of online assets. Thankfully, there are very inexpensive ways to communicate with millions of people in an instant. Start by creating custom channels on YouTube, Slideshare.net, Flickr and Scribd. The setup is free, so there is little rationale to delay. Once the accounts are established, create unique and interesting content for each one that would appeal to the client base. Think in terms of 100 or more assets spread across all channels. Be clever with what is created—creativity and innovation are critical to standing out and attracting lots viral uplift when these assets are sent out. For example, if it is a financial services company: • Videos that show financial best practices for retirement plans, college savings plans or retirement rollovers;

A funding portal is defined as an intermediary for exempt crowdfunding offerings that does not (1) offer investment advice or recommendations; (2) solicit purchases, sales or offers to buy securities offered or displayed on its website or portal; (3) compensate employees, agents or other persons for such solicitation or based on the sale securities displayed or referenced on its website or portal; (4) hold, manage, possess or otherwise handle investor funds or securities; or (5) engage in other activities as the SEC may determine by rulemaking. An intermediary also must register with any applicable selfregulatory authority and provide specified disclosures to investors. Further, intermediaries must take other steps related to the offering that are oriented toward investor protection, such as ensuring offering proceeds are only provided to issuers when the amount equals or exceeds the target offering mount, allowing for cancellation of commitments to purchase in the offering, monitoring the amounts invested, protecting privacy of information and avoiding conflicts of interest. Issuers also must meet specific conditions in order to rely on the exemp-

Instead of fretting about the internet’s rise as a force in business decision-making, learn to manage the firm’s online reputation to reap benefits... • PowerPoints that highlight specific instructions and steps for teaching young people financial literacy or what it means to have a balanced portfolio. • Pictures and infographics that provide helpful or fun facts about the successful management of money.

tion, including that an issuer file with the SEC and provide to investors and intermediaries information about the issuer— for example, financial statements, which would be reviewed or audited depending on the size of the target offering amount. Other information would include its officers, directors and greater than 20 percent shareholders, and risks relating to the issuer and the offering. In addition, it would disclose specific offering information such as the use of proceeds for the offering, the target amount for the offering, the deadline to reach the target offering amount and regular updates regarding progress in reaching the target, as well as ongoing reporting after the offering as the SEC may determine pursuant to its rules. The SEC must issue rules to carry out these measures not later than 270 days following enactment. The dollar thresholds applicable under the exemption are subject to adjustment by the SEC at least once every five years. David M. Lynn (dlynn@mofo.com) is a partner with law firm Morrison & Foerster who chairs the firm’s Public Companies and Securities practice.

• White papers that outline everything someone might want to know about possible investment strategies in different economic climates. There are millions of clever ideas for creating digital media assets that will help with business clients and prospects. Those who are especially clever can go viral on the Web and get large amounts of views. Instead of feeling as though expertise is being given away for free, think of it as proving industry expertise to prospects. Once these assets are uploaded and ready to distribute, there are many ways of reaping the benefits. They can be sent to individual prospects and clients for individual use. Assets can be included in sales proposals and sent to online magazines and newspapers for placement in their online properties. Embedding links to a company website, or having a business partner do the same, can help drive inbound traffic. All of these efforts can go a long way toward building a superior brand. In addition, consider the eWord of Mouth marketing method. Identify the top 50 bloggers and Twitter users who already have thousands of followers in the relevant market and enlist them in distributing the company’s digital assets. Bloggers and Tweeters are always looking for exceptional content to send to their readers. Once Web traffic increases, maximising reputation is the next step in closing deals. A company could do everything else right, and still lose it all by failing to build a positive online reputation. As mentioned, the social networking world june 2012

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in practice

A New Way To Tap Into Capital The power of the crowd has always been around, but the difference for today’s organisations is their ability to tap into the power of the “Internet herd” to get work done less expensively, faster and with more innovation. It’s also a way to tap into the capital markets for launching new businesses or expanding on existing businesses. For more than a decade, companies have been moving certain types of work overseas in order to take advantage of educated workers who have a lower wage base. Crowdsourcing has the ability to dwarf the volume of work that is currently being outsourced. The difference is that tasks can now be performed by nearly anonymous workers who compete to impress virtual employers with their output. That competition is what raises the bar over traditional outsourcing as workers from around the world join online competitions with the goal of winning. Crowdfunding can be used to raise money online—for a not-for-profit organisation or to raise money for a startup idea (Kickstarter.com). Crowd Accelerated Innovation provides the ability to dramatically speed up the innovation process by leveraging ideas and observations from the crowd. In addition, the Jumpstart Our Business Startups Act allows crowdfunding, in some cases, thus permitting groups to contribute relatively small amounts of money to a pool of funds to be used by a small or startup company for further growth or other objectives. Other uses for crowdsourcing are growing. For example, the wisdom of crowds is tapped by sites like Quora.com and Jig.com, which allow a person to ask any question of the crowd and get answers. Crowdscribing is the process of leveraging the internet herd to build a book project. The list of new crowd dynamics will certainly grow over time and savvy leaders are investing resources in learning how to apply these new tools.

is a recommendation economy, where people make the bulk of their decisions based on what their friends—or the ‘internet herd’—says about a product or service. That might seem unfair, or potentially problematic because of the chance of fraud. But instead of fretting about the rise of the internet as a force in business decision-making and reputation-building, learn to manage the firm’s online reputation to reap benefits, rather than losing out to others who take advantage of it. Ratings systems and online commentary about products, services and skills will form the basis of a company’s online reputation. Managing reputation should include having a plan for responding to any online comments— negative or positive. Learning to thank people for complimenting performance 22

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and products, for example, is a positive reputational step. Analysing monthly how many times the company is mentioned is also important.

Just Scratching the Surface Once the ability to drive more revenue is enhanced, it would be wise to focus on lowering costs and improving the IQ of the team. This can be done through applying crowdsourcing and building rivers of information. Crowdsourcing is the process of leveraging internet readership to do work on the company’s behalf—less expensively, faster and with more creativity. There are now more than 150 websites that specialise in various forms of crowdsourcing. Examples

include sites to help produce any creative design (new logos, website design or brochures) and sites that do everything from helping to raise money to doing research. Many organisations today are using crowdsourcing to cut thousands of dollars from their monthly bottom line. All of the social tools that allow people to publish information have created an explosion in the volume of information available on any subject. For example, the financial space is a knowledge economy and the smarter players win, as do the smarter teams. Yet with the huge quantity of this information flying around in real time, most people are wasting the opportunity to harvest and digest it. That’s a shame because it costs nothing to access this information. For lack of 30 minutes a day and knowing how to use tools such as Netvibes.com, Google Reader, Flipboard, Twellow.com, and blogs.com, people could dramatically improve their financial intelligence. In case the volume of information seems too great to sort out, just remember—it is not information overwhelm, it is filter failure. The reality is that today’s capabilities are just scratching the surface. The social tool box is vast and growing rapidly. There really is not a choice to just opt out of learning to use the tools. Competitors will be using them and the advantage will be exponentially greater going forward. Social technology tools are multi-faceted, and have the ability to change an economy that is in chaos to one that is manageable and predictable.

Scott Klososky (scott@klososky,com) is Founder and Chairman of the board of Alkami Technology, a technology startup. He is a much sought-after speaker and former CEO of three startup companies who specializes in looking out over the horizon to describe how technology is changing the world. He’s also authored three books including Enterprise Social Technology (Greenleaf Book Group Press, 2011).

in practice

Financial REPORTING

Indian Multi National Corporationsâ&#x20AC;&#x201C; Financial reporting complexities Should business reporting, including financial reporting, environmental accounting and CSR reporting be globally standardised? If so, how? Pankaj Chadha

ptimising multiple aspects of a business, including capital value for wealth creation for shareholders, human capital capability through acquisition of trained resources, technology framework so as to be globally competitive, product and service penetration across global markets and information resources to stay aligned with global competitors are the key reasons why Indian corporates continue to invest in and expand their businesses, overseas. These strategic business decisions require a careful consideration of various post set-up/acquisition integration challenges arising from many processes relating to people, regulatory, tax, financial reporting and systems and processes. A company expanding its international footprint is required to speak in different financial reporting languages as investors want to be able to read financial statements june 2012

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in practice in a format they are familiar with. The group management has a compelling need to address challenges that arise early in the course of integration. The dynamic accounting and regulatory framework that global companies need to contend with makes it necessary for them to establish a mechanism to ensure periodic monitoring of such processes/systems with a view to continuously update and improve their processes. In the financial reporting space, challenges arise with regard to considerations, including: • Knowledge of differences in reporting accounting standards for group consolidation, accounting standards applicable to local entity overseas, tax accounting requirements in the local country • Speed of reporting considering the regulatory requirements of each country and the parent company of the group • Quality and reliability of reporting—to be presented in a manner thats understandable to various stakeholders Financial statement closure process to ensure timely filings for quarterly reporting as well as other compliance filings. Further, the MIS reporting needs to be aligned to ensure that performance improvement parameters are periodically reviewed and acted upon in a timely manner.

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Acquiring knowledge Often, companies setting up/acquiring businesses overseas, delay sharing of knowledge and imparting of training to their teams and sometimes don’t take any action at all regarding these aspects. The most widely accepted accounting standards in the world include IFRS and USGAAP. However, many countries have developed local GAAP, after having taking into consideration the maturity of the local businesses, which vary (quite significantly in certain countries) from IFRS/ USGAAP as well. Deferring introduction of Ind AS in India has resulted in 24

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Leading companies understand the importance of financial reporting considerations and take steps to establish and implement an effective methodology significant differences between Indian GAAP/IFRS and USGAAP, which still remain. In order to prepare a process for integrating financial information from its overseas entities, it is imperative for the management to develop a training calendar, reassess the skills of the team and realign it with a view to ensuring an effective process to produce reliable financial reporting.

Speed of reporting The regulatory environment specific to a country drives the financial reporting in those countries. Most often, a formal review and assessment of the reporting timelines is required so

as to ensure that these timelines are aligned with those of the parent entity. It helps address the additional workflow related to conversion of financial information into Indian GAAP. This workflow is sometimes further impacted by multiple GAAP conversions. For example, a company having a subsidiary registered, for instance, in Canada, where the local reporting is carried out under Canadian GAAP ( similar to USGAAP), needs to be converted to IFRS (using IFRS as a common base GAAP) and thereafter IFRS financial information of all group entities needs to be converted to Indian GAAP. In addition, there would be requirements from external and internal auditors to

in practice review financial information and the processes to enable the Group obtain auditor’s clearance. These additional reporting requirements need to be understood well in advance of the financial information being reported externally and also needs to be properly leveraged through the annual reporting calendar of the Group’s parent entity.

Quality and reliability of reporting Accounting standards in India do not have any transitional provisions related to its being consolidated for the first time. The companies are required to review their conversion process, assuming all its overseas businesses have been following Indian GAAP since commencement of operations. It requires a careful assessment of the position at the opening date and identify any differences that might impact the opening retained earnings, goodwill and deferred taxes, amongst other things. The standards also require that financial information should be prepared using uniform accounting policies unless a justifiable reason exists for the Group not to align its accounting policies across its various entities. There are many other differences in accounting for foreign exchange transactions and translations which require a careful assessment with a view to enhancing the quality and reliability of reporting associated with overseas entities in the Group. A good way to address these challenges is to develop a group accounting policy manual which provides guidance on appropriate accounting treatment for each item in the financial statement, with a separate section for convergence from other countries’ GAAP. A group accounting manual is not merely a handy guide to assist companies to prepare its financial information but also acts as a reference guide to address doubts arising from accounting treatment of complex transactions. Fur-

ther, such a manual is a live document that needs to be reviewed periodically to address any changes in the accounting policies chosen by the Group that might occur either due to a change in

ic quarterly reporting but also reporting to regulators including from tax, indirect tax and stock exchanges etc. • Deal with multiple currency translation requirements

The dynamic accounting and regulatory framework that global companies need to contend with makes it necessary for them to establish a mechanism to ensure periodic monitoring of such processes... the underlying accounting standard or on account of the Group opting for an alternative accounting policy, where such an option is permitted under the related accounting standard.

Financial statement closing process The overall goal of the consolidation process is to collect and transform data into a financial statement. This can be done when the group defines a common chart of accounts, develops consolidated group instructions and combines process and technology for consolidation. Information technology has a crucial role in enhancing the quality of periodic closing of financial statements. Investment in enhancing the IT capabilities allows a Group to address many aspects that can impact the quality and timeliness, some of these key aspects include: • Developing a common chart of accounts where a diverse chart of accounts exist • Different reporting requirements to address not only the annual and period-

• Deal with inter-company elimination requirements • Enhance data integrity The above activities, if not automated, severely constrain the time dedicated to accounting and finance functions as the absence of automation creates a situation where the management spends more time collecting, aggregating, inspecting and reconciling rather than analysing and strategising data. Leading companies understand the importance of financial reporting considerations and take appropriate steps to establish and implement an effective methodology that is backed up by talented people with the right skill sets, processes and tools to help them in smooth financial reporting and address multiple GAAP reporting and conversion challenges.

Pankaj Chadha is a Partner in a member firm of Ernst & Young Global. Views expressed here are personal june 2012

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in practice

technology

Mobile is Driving Cloud Testing In a conversation with CTO Forum, David Taylor, President of Asia Pacific & Japan, Micro Focus talks about the mainframe business in India and how COBOL is no more restricted to the platform

Do you see new COBOL deployments in India, apart from upgradation and migration? Yes, but a lot of the time it gets done by our partners. For example, TCS’ banking application, which is written on Micro Focus COBOL is earning new customers not only in India but globally and customers are running working on the COBOL platform without even realising. We are seeing a lot of work where we are upgrading customers from all versions of COBOL to new versions. So it isn’t dying. It is mainly expanding but through other applications. And at the end of the day those customers in most cases never realise they are running COBOL, nor do they really need to know.

How big is cloud testing for you and how big is the market shaping up especially in India? We have a solution called CloudBurst where we can basically test extremely large volume virtual servers globally. That service is doing very well for us. The growth in that is coming from the growing use of mobile devices in the enterprise.

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Many of our customers are trying to offer their users, mobile access to enterprise applications and therefore, they need to be able to test those applications effectively. In India we are seeing a lot of development work being done on mobile applications. I think companies will allow mobile access to applications where it makes sense. However, I am not sure that they will run them on Cloud. At this stage, I see there is a lot of talk in around Cloud adoption in India but I don’t know how many companies are really running mission critical applications in Cloud. I am not familiar with any. What we are saying is that we work with other applications to be able to provide services to the end-users. We always have discussions with our customers, and we put in a lot of focus in their ability to modernise their applications to be able to do what they want and we are seeing a lot of values there. Cloud really at the end of the day is just another platform, another deployment. So, from a Micro Focus perspective, if I migrate from the Mainframe to Windows, I am not seeing a lot of demand to do that for critical application where we

see the mobile applications coming in from an enterprise perspective. We see a lot of banks already providing their customers with mobile applications that can be used to view account details, transfer money and so on. They develop a mobile application which ultimately connects to customer data that lies on the bank’s mainframe. The customer doesn’t have to worry whether it is delivered through a mainframe or a Cloud that is using mainframe.

Considering most of your customers in India are in the banking and financial sector, what specific applications do you see moving onto the mobile and to the Cloud? I do believe mobile applications being deployed over Cloud. If I think of myself as a customer, I need to access my account on the go. So what customers are now doing is to tailor in those applications so that they perform much better in terms of mobile devices. And we think a lot of that is taking place in many organisations. One of the important thing that is happening now includes insurance data applications.

in practice recognition in different banking organisations as it is easy to deploy and there are many companies which are offering competitive services to the financial organisations. Cost is the primary thing that comes to your mind when you think of migrating to Cloud. Today, storage of data has become critical for financial organisations and I think people will have no option but to migrate to Cloud if they would like to keep their recurring costs at the lower side. Eventually, we would witness different models of Cloud being adopted. The type of adoption would vary from customer to customer according to the need and the assets of the company.

Cloud has lot of advantages as it allows an individual to work on the go and not be stuck on their desktops. In terms of security, there has been a lot of work which is happening but a lot still needs to be done so that people can get confident about migrating to the cloud. In terms of financial institutions running their applications in the cloud, I am not sure much of this is happening in India but we think that things will change in the coming years as people will eventually shift to the Cloud environment.

According to you which model of Cloud is the best for the banking customers and how do they get the optimum benefit from that? It is quite difficult to answer that because different banks have different approaches. When we have to provide any kind of installations we have to first visit the location and understand the structure of the organisation. There can be a lot of complexities which we need to address and we have to customise our technologies for different banks. I think private Cloud is getting

How do you see the economics of cloud working for smaller banks in India that cannot afford to set up their own data centres and host their own applications? Yes, the economics of it absolutely makes sense. However, at the end of the day from a broad perspective, that is going to be a risk. It then boils down to the risk appetite of the bank and whether or not they want migrate to the cloud environment. I do see risk is associated with migrating to Cloud. But the other thing is if you just think about migration the next logical extension of that would be to be able to sell those services outside of India? But then you have another issue in terms of storing data outside of a country. Now for example, we recently did a migration in Standard Chartered Bank in Singapore. We did it because they were processing the accounts from Hong Kong and the Chinese government introduced the legislation that said that financial data of a Chinese citizen cannot be stored outside of China. So the company had a choice to buy another mainframe or run the application on a different platform which obviously is what we did. So you are going to get a lot of government regulatory compliance implications coming in when you start looking outside of borders. So I donâ&#x20AC;&#x2122;t know what Indiaâ&#x20AC;&#x2122;s june 2012

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in practice what we have is an analytical technology which enables a person sitting at their business to do their job perfectly. When there is a person sitting at a desk answering multiple support issues from multiple customers and maintenance issues from multiple customers, he needs technological solutions to make his task easier and we are offering just that which makes us acceptable to the customers. We have technologies that can very quickly analyse the code that any person is working on and that makes the job of that person easier.

rules are in that area right now, you will have to store the data outside of India for Indian companies and that is one of the tricky things.

What percentage of your COBOL install base in India or even globally is on non-mainframe environment? It is huge. It is massive. We would probably have to do some research. Our COBOL does not run on the IBM mainframe. We have developed a COBOL compiler, which basically is perfectly compatible with the IBM mainframe COBOL platform. So what that enabled us to be is to built COBOL compilers through different platforms. For example, we could run any mainframe application on different platforms including Linux and Windows. Windows and Linux are the most common platforms today apart from some of the proprietary UNIX environments. I use the word proprietary because they are also on a different base from the hardware vendor. So, we have never run on the IBM mainframe itself, but we can. So, we can do development on these platforms because our COBOL compiler is very compatible that has enabled us to offers different types of development. And when you send them back to the mainframe, it just runs perfectly, you don’t have to do anything. Growth for our business comes from two main areas. The first is our migration business. Migration means that we take an application from the mainframe and run it in the distributed world. So we expand the footprint of COBOL as a result of that. And then second area is actually the people who have developed their applications in and around COBOL platform and run it on the variety of different platforms. TCS’ banking application is an example, Oracle’s People Soft is written on our platform, and literally there are thousands and thousands of applications that have been written in Micro Focus COBOL that is sold around the world

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“We see a lot of banks already providing their customers with mobile applications that can be used to view account details, transfer money and so on. They develop a mobile application which connects to customer data that lies on the bank’s mainframe” and so that is what expands the footprint of COBOL.

What are your plans in India when it comes to migration business as well as Cloud testing? With the business, we are seeing a lot of growth. We are seeing more companies developing on our platforms to take products to market. The mainframe business as you know is not big in India as there are not that many accounts. But what we are doing is instead of talking to those customers about unnecessary migrations we are trying to help them in terms of lowering their cost of ownership of mainframe applications. We are doing a lot of work with the system integrators around their mainframe capabilities. India dominates that market globally as you know. And so

The testing business in India is very strong, providing services globally. We interact directly with the end users and our business model is always to work with our partners. At the end of the day we are a software company and our partners are the ones who provide the services to the customers, to the end users. We have a very strong technical team here to provide high-end technical support to assist our partners in delivering their services. So while we are not going to double our business next year, but I am confident we will have a very good year in terms of growth and our business will keep on increasing as we have a very strong focus for India as a country. We also do specific promotional activities which ensures that we add new customers and also retain the existing customers.

in practice

TECH WISE Samiron GHOSHAL

Building an Intelligent Enterprise – the CFO’s role With a host of analytical data present to help CFOs do better business, it is probably high time technology was used to build intelligent enterprises. How exactly can this be done though?

ABOUT the AUTHOR: Samiron Ghoshal, Partner and Leader, IT Advisory Services, Ernst & Young. The views expressed herein are the personal views of the author and do not necessarily represent the views of Ernst & Young Global or any of its member firms.

he unprecedented expansion of analytic data today, while it presents challenges, also presents an opportunity to investigate and view the business in ways you never could before. We are living in a time of pervasive risk and high uncertainty, making it mandatory to look beyond our immediate business to measure and manage both risk and opportunity. The global economy is still highly volatile, requiring agility to quickly and strategically respond as volatility shifts. We live in a business environment with broad and demanding government regulations that require attention at a time when resources are scarce. False steps today are met with swift and adverse reaction, leaving little or no room for error and a greater need to intelligently monitor risk. Today, while data expands and investment in data analysis decreases, we are required to do more with less, which amplifies our need to focus and become a more agile, intelligent enterprise.

What differentiates an intelligent enterprise? In short, it is the ability to perform fact based analytical decision-making, focused on what

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matters. The following are the factors that differentiate an intelligent enterprise: • Improved steering capabilities with a deep understanding of outcome drivers • More insight to drive execution, with less need to view detail • Uses agile analytics for clearer focus on performance opportunities • Doing analytics on what matters • Managing analytics as a portfolio • Directing activities to enhance performance and deal with risk • Reduced reliance on intuition • A culture of decision making and commitment • Declares victory when the culture changes not when the reports are delivered • Practices driver-based decision making to align execution and strategy

Case study of a global pharma major’s analytics enabled transformation We would like to illustrate this through the following case study of a global pharma major. The organisation was looking at achieving the following objectives through its analytics programme:

in practice • Optimise cost structure through revision of policies that drive spend behavior • Leverage SAP-enabled data and innovative analytics techniques and tools to create knowledge capital and lower risk Their goal for 2011 was to achieve US$50 million in tangible cost savings. In response to these needs, the organisation established a collaborative and innovative ‘Agile Analytics’ program that stressed on teaming, speed, flexibility, and scalability and aligned with a key objective of achieving cost optimisation in a rapid response manner. By building an agile analytics solution on a technology platform that included SAP, Spotfire and Tablaeu, the organisation analytics models, reporting and visual analysis enablers which collectively allowed the organisation was able to achieve striking results. These included: • 450% ROI exceeding the annual reduction target of $50 mn in three months • Agile analytic model to identify irregular activity in the Employee Expenses area • Identified opportunities for control and compliance improvements in addition to achieving cost reductions benefits • Enabled ongoing realisation of cost savings by transforming one time analytics to continuous and real time process • Enabled Shared Services to proactively identify and create value propositions in emerging business topics that rely on analytics knowledge capital

The road to becoming an Intelligent Enterprise The journey starts by asking the right questions; then focus analytics on what matters. The key steps to doing so would include: • Attend to fundamentals and manage analytics as a portfolio (See Illustration – 1) • Manage existing company data, targeting the information that addresses your most important questions. • Improve business steering capabilities. Understand and develop business driver trees then build key performance and risk indicators into key decision systems. • Enable strategic scenario thinking. Do not rely on linear planning but take a more holistic view on the future

Illustration The intelligent advantage Illustration 11--The intelligent advantage Managing analystics a portfolio Managing analytics as as a portfolio Business objectives Grow revenue

Improve cash flow

Operational Effectiveness

Manage Risk

Reduce Costs

Industry sectors Sales

Marketing

Contact center

Supply chain

Order management

Human resources

Campaign scorecard

Churn propensity

Finance

Vendor scorecard

Order linearity

Employee productivity

Product sales detail

Spend analysis

Customer satisfaction

Spend analysis

Orders vs. available inventory

G/L analytics

Compensation analysis

Profitability analysis

Sales force effectiveness

Market analysis

Resolution rates

Inventory management

Cycle time analysis

HR compliance reporting

A/R credit

Pipeline analysis

Campaign ROI

Service rep effectiveness

BOM analysis

Backlog analysis

Workforce demographics

SGA expense analysis

Sales conversion

Loyalty and attrition

Service cost analysis

Fulfillment statistics

Fulfillment status

Turnover trends

Cash flow analysis

Market analysis

Marketing cost/ revenue

Service trends

Scrap analysis

Customer receivables

Return on human capital

A/P analysis

Illustration 2 - driver based decision making

Illustration 2 – Driver based decision making The approach begins with identifying outcome metrics, then identifying the The approach begins with identifying outcome metrics, then identifying internal and external drivers of those outcome metrics the internal and external drivers of those outcome metrics Outcome metrics

Strategic objectives

Drivers 

Market share

 

Grow market share and revenue



Revenue

  

Operating margin

 

Profitable growth and efficient use of capital



Cash flow



Capital efficiency Be employer of choice

Employee engagement

 

  

Distribution coverage Marketing spend by media type

Total market size Trade promotion Quality rankings



Customer adds Customer churn New product launches



Average list price / relative price points (indexed)

Operating costs Distribution cost per unit Direct COGS per unit



Fuel costs Productivity improvements



Working capital change (e.g., CCC days) Capital expenditures Net tangible assets Invested capital

 

Investment initiatives Capital spend and run rate

Diversity Retention of top talent Favorable % in survey

Illustration 3 - Next steps – participate in an EIQ workshop Illustration 3 and - nEXT STEPS PARTICIPATE IN AN enterprise eiq WORKSHOP Evaluate your EIQ learn more- about the intelligent evaluate your EIQ and learn more about the intelligent enterprise Overall score: 1.73 developing 1.30

Information governance

1.95

Information design

2.22

Information framework

1.81

Analytics

1.74

Information quality

2.05

Enable and sustain

1.03

Information usage

Initial

Developing

Defining

Establishing

Increasing maturity

Optimizing

Best In class

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The approach begins with identifying outcome metrics, and internal and external drivers of those outcome metrics. Constantly align stakeholders and decision makers • Implement driver based decision making systems (See Illustration – 2) • The approach begins with identifying outcome metrics, then identifying the internal and external drivers of those outcome metrics • Design and implement highly flexible, integrated business planning and analytic processes that speed decision making • Foster a culture of decision making and commitment • Constantly align stakeholders and decision makers • Manage change to secure adoption of new processes and solutions

Evaluating the Enterprise Information Quality (EIQ) - how the CFO can help Ask yourself the toughest questions to find the best answers. A checklist could be as follows How does my organisation handle its data? • Do we have multiple silos that lack integration? • Is there strong governance and stewardship to manage and secure our data? Are we storing the same type of data multiple times or creating issues because we change it too often? • Are we managing the right kinds or data? Too much? Not enough? What information is available to the people that need it most? • Do my business leaders have the best information (not just data) to make decisions and capitalise on opportunities in a timely manner? • Do they spend more time compiling the data rather than leveraging actionable information? For example, do we spend extensive amounts of time creating forecasts and budgets, 32

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only to disregard them when a shift in the business environment renders them useless? • What types of people consume various types of information? Do people have access to the right kinds of data and information? Are we creating risk by not restricting access appropriately? • How well do we strategically drive our business with the data that we collect and store? Is it really worth the cost and risk? Can we be more efficient with a leaner approach to how we craft our strategy and manage against it? • Do we leverage agile analytics to measure risk and performance in various functions and operations? For example; do we pay invoices too early or too late? Is there a positive cash flow impact or monies available for recovery if we were to leverage analytics on a regular basis? An illustrative EIQ score card when answered could look like the one depicted below. (Illustration – 3)

Conclusion Agile analytics and driver-based decision-making improve performance, helping you see your business differently and achieve excellence in execution. CFOs would need to focus on the following four areas to drive their organisations towards becoming an Intelligent Enterprise. • Information strategy and management of data needed to execute business strategy • Risk and performance analytics to analyse process and business performance, identify opportunities for improvement and manage risk • Business intelligence to build repeatable solutions that can predict their business performance • Enterprise performance management to integrate strategic execution, planning and reporting

Case

Study

Project Map The challenge: To turn around the finance function as well as the overall focus of the company towards profitable growth TIMELINE: 2007 to 2011 People Involved: Top management, finance function and all SBU heads KEY CFO TAKEWAYS: Learn to be patient; be a team player but lead by example

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Case Study

The Raychem turnaround

A MINDSET

CHALLENGE

The finance function had ceased to play a strategic role at Raychem-RPG and business units were just showing growth numbers without focusing on profitability, when Deepak Harlalka joined as CFO in 2007. He spent the next four years changing the mindset of SBU heads towards profitability while ensuring finance became played a leading role in this change Dhiman Chattopadhyay

fter spending close to two decades in senior finance roles, when Deepak Harlalka joined Raychem-RPG, a 50-50 Joint Venture between the then undivided RPG Group and T.E Connectivity (the US headquartered producer of engineered electronic components), he quickly realised that he had taken on more than a handful of challenges.

jiten gandhi

THE CHALLENGES The key challenge was two-fold. To begin with, finance was not considered as a strategic function at Raychem but seen more as a support function. From this arose the second challenge: without

proper guidance from a finance leader, the five SBUs and 13 mini business units at Raychem were focusing more on sheer growth instead of profitable growth. “The last year had seen two successive finance heads come and go in quick succession. The finance function clearly needed some leadership and more importantly, the organisation itself needed a CFO who could play a leadership role. I had to get the five SBUs and the 13 mini business units within them, on track. It was not going to be easy to first make finance an integral part of the business and then, to make all the others come around to discussing every step with the CFO before taking a financial decision,” recalls Harlalka as we sit in his office inside at RPG House.

HOW THEY WERE TACKLED The first step, says Harlalka, who spent the previous two decades at L&T Power, Indo Rama and Sterlite Industries, was to sit with the head of all 13 mini business units to understand the problems each of them were facing. “It was clear that many of them were not making any money and worryingly enough, did not seem to know that,” recalls Harlalka. With the finance department taking a backseat, too much decentralisation had happened as well. One of Harlalka’s early decisions was to create a structured system whereby authority and responsibilities were clearly assigned to each business unit head. Spending caps on various areas June 2012

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Case Study

One of Harlalka’s early decisions was to create a structured system where responsibilities were clearly assigned were also enforced to check wastage of money. Next, he set up a three-member internal audit team and a structured audit programme in place. “Soon we had a system of checks and balances. We also employed a consultant firm to do external risk management and came up with a plan on how to make the SBUs profitable once more,” he recalls. Next up, the existing MIS process went into overhaul mode. “I realised that the SBUs did not know what their own SBU’s actual contribution to the overall profits of Raychem were. With the help of our IT department, we rejigged the MIS. Suddenly all business units could see their PBT (Profit Before Tax) numbers. This meant we could now plan separately for each unit, to make them profitable—something which had never been done before,” Harlalka says. Every strategic decision now started passing through finance hands. 36

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“Finance became a central cog in the wheel,” Harlalka smiles. Today all SBUs are concerned about profitability and talk about profitable growth instead of just talking about growth numbers. “Yes, we managed to turn around many SBUs. But most importantly, we managed to change the mindset of the people. Profitability became the new buzzword,” says Harlalka, the pride evident in his voice. New benchmarks were set for taking up greenfield projects and a financial model created so that projects would only be touched if they passed through all the filters. “It took close to four years to achieve this entire turnaround in the mindset and action plans, but it was worth the effort. The results will be evident soon. In March 2007 we had a net investment of `30 crore on fixed assets. Today that number stands at a little over `200 crores,” says Harlalka.

Along with these twin changes, came other relatively minor changes, which, nevertheless, made the entire business operations at Raychem more process driven. “Employee reimbursements were computerised. Earlier payment vouchers would be manually created and couriered to employees spread across three stares in five plants. Now it is done locally and e-payments are the order of the day. Capex and employee benefits are all IT driven. It has saved us huge amounts of time, manpower and money,” Harlalka reveals. The nature of the change sounds monumental, and we wonder why Harlalka hasn’t talked about internal resistance. After all any change would lead to some form of internal resistance as a rule, won’t it? As the coffee arrives, we pop the question. Harlalka smiles and admits that there were “pockets of resistance initially,” but says they were “solved because I believed in being the change I wanted to see in others.” Every business unit head was made to feel responsible for his team, given leadership roles and every decision communicated to all stakeholders. The fact that Raychem also set up an audit committee (not a mandatory requirement for unlisted companies) under an independent Board member, also sent across a message to the entire staff that things would be a lot more process-driven from now on.

LESSONS The ‘learnings’ says Harlalka are ‘ongoing’ since his work is far from over. Raychem has just about turned the corner and the next two years will show how successful his moves have been. Yet some lessons he picked up from this experience are valid for all time. “Finance and indeed businesses cannot go anywhere without constantly upgrading their IT infrastructure these days. It saves time and ensures greater controls,” he says. His other big learning: “if you want change, learn to be patient. Be a team player but also lead from the front.”

insight

SOCIAL STRATEGY

The social side of strategy Crowdsourcing your strategy may sound crazy. But a few pioneering companies are starting to do just that, boosting organisational alignment in the process. Should you join them? Arne Gast and Michele Zanini

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n 2009, Wikimedia launched a special wiki—one dedicated to the organisation’s own strategy. Over the next two years, more than 1,000 volunteers generated some 900 proposals for the company’s future direction and then categorised, rationalised, and formed task forces to elaborate on them. The result was a coherent strategic plan detailing a set of beliefs, priorities, and related commitments that together engendered among participants a deep sense of dedication to Wikimedia’s future. Through the launch of several special projects and the continued work of self-organising teams dedicated to specific proposals, the vision laid out in the strategic plan is now unfolding. Wikimedia’s effort to crowdsource its strategy probably sounds like an outlier—after all, the company’s very june 2012

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insight existence rests on collaborative content creation. Yet over the past few years, a growing number of organisations have begun experimenting with opening up their strategy processes to constituents who were previously frozen out of strategic direction setting. Examples include 3M, Dutch insurer AEGON, global IT services provider HCL Technologies, Red Hat (the leading provider of Linux software), and defense contractor Rite-Solutions. While such efforts are at different stages, executives at organisations that are experimenting with more participatory modes of strategy development cite two major benefits. One is improving the quality of strategy by pulling in diverse and detailed frontline perspectives that are typically overlooked but can make the resulting plans more insightful and actionable. The second is building enthusiasm and alignment behind a company’s strategic direction—a critical component of long-term organisational health, effective execution, and strong financial performance that is all too rare, according to research we and our colleagues in McKinsey’s organisation practice have conducted. Our objective in this article isn’t to present a definitive road map for opening up the strategy process; it’s simply too early for one to exist. We’d also be the first to acknowledge that for most organisations, ‘social’ strategy setting represents a significant departure from the status quo and should be experimented with carefully—whether that means trying it out in a few areas or creating meaningful opportunities for participation in the context of a more traditional strategy process. (For more on intelligent experimentation, see sidebar, ‘Collaborative strategic planning: Three observations.’) Nonetheless, we hope that by sketching a picture of some management innovations under way, we will stir the thinking of senior executives eager to benefit from experimenting with such approaches. If you’ve ever wondered how to inject 38

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more diversity and expertise into your strategy process, to get leaders closer to the operational implications of their decisions, or to avoid the experiencebased biases and orthodoxies that inevitably creep into small groups at the top, it may be time to try shaking things up.

Lessons from the fringe The best way to describe the possibilities of community-based strategy approaches is to show them in action. Two examples demonstrate the lengths to which some companies have already gone in broadening their strategy processes, as well as the degree to which the executives who participated are convinced of the benefits.

Rethinking planning at HCL Technologies HCL Technologies, the Indian IT services and software-development company, had enjoyed rapid growth since its founding, in 1998. With growth, however, the company’s business-planning process had become unwieldy. Vineet Nayar, HCL’s Chairman and CEO, along with his top team, were providing input to hundreds of business unit-level plans each year. Nayar realised that he and his team had neither the expertise nor the

time to deliver all the detailed feedback that each business plan deserved, so he challenged his colleagues to use three key principles to revamp the planning process, make peer review a core component of strategy evaluation, create radical transparency across units and open up the conversation to large crosssections of the company. The solution was to turn the company’s existing business-planning process—a live meeting called Blueprint, which involved a few hundred top executives—into an online platform open to thousands of people. The new process, dubbed My Blueprint, was launched in 2009, with 300 HCL managers posting their business plans, each coupled with an audio presentation. More than 8,000 employees (including several members of the teams that had submitted plans) were then invited to review and provide input on the individual blueprints. A surge of advice followed. The inclusive nature of the process helped identify specific ideas for cross-unit collaboration and gave business leaders a chance to obtain detailed and actionable feedback from interested individuals across the company. This exercise quickly began yielding business results. One HCL executive we spoke with credited the new process with a five-fold increase in sales to an important client over two years. The

The inclusive nature of the process helped identify specific ideas for crossunit collaboration and gave business leaders a chance to obtain detailed and actionable feedback from interested individuals across the company

insight key, the executive explained, was the detailed comments—from more than 25 colleagues, ranging from junior finance professionals to software engineers—that together highlighted the need to reframe the business plan away from an emphasis on commoditised application support and toward a handful of new services where HCL had the edge over larger competitors. The employees provided more than good ideas; several even helped to assemble the materials that the executive needed to deliver the successful proposal. The high degree of transparency increased the quality of insights, not just their volume. As Nayar notes, “Because the managers knew that the plans would be reviewed by a large number of people, including their own teams, the depth of their business analysis and the quality of their planned strategy improved. They were more honest in their assessment of current challenges and opportunities. They talked less about what they hoped to accomplish and more about the actions they intended to take to achieve specific results.” At the conclusion of the inaugural of My Blueprint process, there was broad consensus that participatory business planning had been far more valuable than the traditional top-down review process.

Red Hat’s new road map Red Hat is the leading provider of opensource software. In 2008, its leadership team began taking a new approach to strategy development. After defining an initial set of priorities for exploration, Red Hat’s leaders formed teams devoted to each priority. To boost the odds they would stretch toward new solutions, the company ensured that the team leaders—all members of the company’s C-suite—were far removed from their areas of responsibility. The company’s chief people officer, for example, was tasked with analysing its financial model, while the CFO explored potential operational enhancements.

“Because the managers knew that the plans would be reviewed by a large number of people, including their own teams, the depth of their business analysis and the quality of their planned strategy improved...” The teams used wikis and other online tools to generate and organise ideas and made these “open” so that any Red Hat employee could respond with comments or suggestions. The idea generation phase lasted five months and included company-wide updates and online chats with the CEO. Over that period, the best ideas coalesced into nine strategic priorities. To ensure accountability for developing the priorities further and for making them actionable, the company tasked a new group of executives to lead teams exploring each of the nine areas. These leaders were senior functional ones whose responsibilities put them a level or two below the C-suite. Each of their teams fleshed out one or two of the most important strategic initiatives and was empowered to execute the plans for them without further approvals. This effort has reshaped the way Red Hat conducts strategic planning. Instead of refreshing strategy yearly on a fixed calendar, the company now updates and evaluates strategy on an ongoing basis. Initiative leaders use customised mailing lists and other tools to receive input continuously from employees and communicate back to them via town hall–style meetings, Internet chat sessions, and fre-

quent blog posts. The company maintains its annual budget process, which is informed by the evolving funding needs of the initiatives. The fresh perspectives generated by the new planning process have been instrumental in spurring value-creating shifts in the company’s direction. For example, a respected Red Hat engineer used the new process to make the case for a significant change in the way the company offers virtualisation services for enterprise data centers and desktop computer applications. The changes led to the acquisition of an external technology provider—a move that would have been unlikely in the days when the company used its old, less inclusive planning process. Red Hat’s Vice President of Strategy and Corporate Marketing, Jackie Yeaney, cites three key benefits of the company’s new approach: first, the process generated more creativity, accountability, and commitment.” Second, “By not bubbling every decision up to the senior-executive level, we avoided the typical 50,000-foot over simplification” of issues. And third, “We improved the flexibility and adaptability of the strategy.” With the responsibility for planning and execution now in the hands of the same people doing the work, responsiveness to june 2012

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Collaborative Strategic Planning: Three Observations Social-strategy tools can provide real value to a company whose executives know how to use them Olivier Sibony There are some fascinating interdependencies between the experiments described in “The social side of strategy,” the challenges inherent to strategic planning, and the impact that cognitive biases have on decision making. Because the latter two issues are central to my own research and work, I would like to hazard three observations about the role that community-oriented strategy tools can play.

Rounding out 1tool the strategist’s kit Social-strategy initiatives represent valuable tools, but they’re not a replacement for the entire strategic-planning edifice. As the examples in the previous article show, the crowdsourcing of strategy can be particularly useful for activities such as generating ideas, prioritising them (through prediction markets, for example), and challenging operational plans. On the other hand, social-strategy tools are less likely to help the strategist identify the need for radical shifts in direction, wrestle through difficult trade-offs between options that seem similarly attractive, or develop plans for working through intensely competitive circumstances. Most importantly, a strategist—not a tool—should decide, at the end of the day, what to do. One of the main gripes people have with strategic plans is that they are not strategic enough. In the words of one chief strategy officer I know, “Our strategic sessions are budget meetings with the word ‘strategic’ thrown in here and there to add emphasis.” There are also significant confidentiality issues around strategy—most companies believe that keeping a plan shrouded 40

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in secrecy until it gets implemented is critical to its success. Consider the implications these two issues have for social-strategy tools: leaders concerned about confidentiality might well limit the use of these tools to more operational planning—which in turn could reduce the likelihood of their leading to real strategic breakthroughs and breed disenchantment with them. The wise leader will look for steps in the strategic-planning process that can be tackled in unconventional ways, without pretending that taking those steps implies wholesale replacement of the process or that it will magically transform their strategy.

2Killing bad ideas

The old brainstorming adage “There are no bad ideas” does not apply to strategy. Terrible ideas abound for new markets to explore, acquisitions to make, products to invest in, and the like. Prediction markets and other similar mechanisms hold the alluring promise of pinpointing bad ideas before companies invest too much in them. The objection I have heard most often to prediction markets is that they place sponsoring executives in a very difficult position. Asking large numbers of employees for their input on strategy ideas already requires a healthy measure of humility. Doing so by asking them to vote through a public mechanism that will price ideas and make transparent— perhaps even amplify—collective sentiment about them calls for extraordinary courage. Simply put, it is extremely embarrassing to float the stock of an idea (a new product launch, for instance) and see its price fall to zero. One company I know had exactly this experience and subsequently recognised

that prediction markets were the best prediction mechanism they had—but decided to drop them for that reason! That decision may seem irrational: if a product is going to fail, wouldn’t you want to know sooner rather than later? But the CEO believed that success does not depend solely on the product’s intrinsic appeal; it is also a function of how convincingly people will sell it—which in turn requires them to believe in it. This point of view may sound oddly paternalistic (“let some people fail trying to sell something they don’t believe in, because making that disbelief transparent would demoralise others who are foolish enough to believe in it and who will try harder based on that belief”). But it is widespread, and, at least in industries where the sales process plays a key part, it can be justified. What this experience suggests to me is that strategists hoping to embrace market-based mechanisms should investigate not just the mechanics of those approaches but also how the leaders employing them muster the courage to do so.

Avoiding 3 anchoring and groupthink An important problem to keep in mind for leaders considering the application of social-strategy tools is how to improve the odds of generating productive debate instead of group think. Certainly, these approaches hold the potential to promote dissent. For example, it’s easy to imagine them helping to overcome one of the trickiest problems in strategic planning: the inertia that often keeps capital, people, and other resources ‘stuck’ in similar allocation patterns year after year (for more on

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this problem, see “How to put your money where your strategy is”). On a small scale, I have seen executives break such inertia by using poker chips to simulate reallocation across businesses. The same should be possible—arguably even easier—on a larger, more anonymous basis. But one could also argue that crowdbased mechanisms are a powerful engine to produce group think on a grand scale, encouraging people to stick to predefined anchors that become more and more powerful as other contributors appear to confirm them. Consider, for instance, a couple of the most common crowd-based

feedback mechanisms: reader comments on online articles and product reviews on e-commerce websites. Empirically, some turn into heated debates, while others result in massive agreement. The explanation for this could simply lie with the facts of each case: some articles and products are universally liked or hated; others are polarising. But the outcome could also be influenced by the way you orchestrate the debate. Amazon.com, for instance, highlights the ‘most helpful favorable’ and ‘most helpful critical’ reviews. Intuitively, that seems like a sensible way to stimulate debate and dissent rather than conformity.

new opportunities or shifts in the market has increased dramatically.

responders (such as fire departments), is pioneering a game-based strategy process whose foundation is an internal stock exchange it calls Mutual Fun. Would-be entrepreneurs at RiteSolutions can launch “IPOs” by preparing an Expect-Us (rather than a prospectus)—a document that outlines the value creation potential of the new idea—as well as a Budge-It list that articulates the short-term steps needed to move the idea forward. Each new stock debuts at $10, and every employee gets $10,000 in play money to invest in the virtual idea market and thereby establish a personal intellectual portfolio. The money flows to ideas that are attracting volunteer effort and moving steadily from germination toward commercialisation. A value algorithm revalues each stock, based on the number of Budge-It items completed, inflows and outflows of employee money, and opinions about the stocks expressed in an online discussion board. When an IPO gains momentum and breaks into the company’s Top 20, the initiative is funded with seed money; more is awarded depending on the ability to meet various stage gate milestones. What’s more, when ideas help RiteSolutions make or save money, those

Closer to home Some leaders may wonder about borrowing approaches from Red Hat, Wikimedia, or other companies that consider crowdsourcing a part of their institutional DNA (and for which confidentiality issues may be less pressing than they are for many organisations). For these executives, we would note the experiments of more traditional companies, such as 3M, AEGON, and RiteSolutions. A look at how these organisations are introducing a social side to strategy can help senior executives determine how much further they want to go in their own companies.

Market-based strategy at Rite-Solutions One way of experimenting with more open strategic direction setting is to create internal markets where legacy programmes and new perspectives compete on an equal footing for talent and cash. Rite-Solutions, a Rhode Island-based software provider for the US Navy, defense contractors, and first

More broadly, for each mechanism that would-be social strategists consider employing, I suggest they think carefully about whether the intent is to generate dissent or build alignment. You are either mobilising people toward something a large majority will agree on, or asking them to generate new ideas and challenge existing ones. Most companies, in their strategy process, aim to build consensus and to shake up the status quo. But at any given time, it should be one or the other. Olivier Sibony is a director in McKinsey’s Paris office.

who have invested intellectual capital and contributed to the idea’s realisation receive a share of the benefits through bonuses or real stock options. The internal market for ideas has bolstered the company’s pipeline of new products, and the 15 ideas the company has thus far launched as a result now account for one-fifth of Rite-Solutions’ revenues. Some of the blockbusters were generated in unexpected places— including Win/Play/Learn, a Webbased educational tool licensed by toy maker Hasbro. The source of the idea– an administrative assistant.

Improving market analysis at 3M In April 2009, 3M decided to reinvigorate its Markets of the Future process— a critical input to the company’s strategic planning. Previously, says Barry Dayton, the company’s knowledgemanagement strategist, this process had “consisted of a small group of analysts doing research [about] megatrends and resulting markets of the future.” The company invited all of its sales, marketing, and R&D employees to a web based forum called InnovationLive, which over a two-week period june 2012

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insight attracted more than 1,200 participants from over 40 countries and generated more than 700 ideas. The end result was the identification of nine new future markets with an aggregate revenue potential in the tens of billions of dollars. Since then, 3M has held several additional InnovationLive events, and more are on the way.

The alignment advantage Spend a few minutes talking with the senior executives involved in any of the initiatives described earlier, and it’s immediately apparent how powerful it is when thousands of people are deeply engaged with a company’s strategy. Those employees not only understand the strategy better but are also more motivated to help execute it effectively and more likely to spot emerging opportunities or threats that require quick adjustments.

Reviewing the data The research we’ve conducted using McKinsey’s organisational-health index database suggests that none of this should be surprising. That database, which contains the results of surveys collected over more than a decade from upward of 765,000 employees at some 600 companies, facilitates analysis of the nature of organisational health, the factors contributing to it, and its relationship with financial performance. One thing we and our colleagues have seen over and over again through our work is that many organisations struggle with strategic alignment: even at the healthiest companies, about 25 percent of employees are unclear about their company’s direction. That figure rises to nearly 60 percent for companies with poor organisational-health scores. Similarly, we have found that the actions companies can take that are most helpful in aligning individuals with the organisation’s direction are moves like “making the vision mean42

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ingful to employees at a personal level” and “soliciting employee involvement in setting the company’s direction.” If that’s right, it suggests that making more employees part of the strategy process should be a powerful means of aligning them more closely with the company’s overall direction. The payoff for such cohesion is significant: companies with a top-quartile score in directional alignment are twice as likely as others to have above-median financial performance.

Mobilising middle management Of course, adopting social-strategy tools doesn’t automatically create alignment. Companies must create it actively, particularly among middle managers, who as the guardians of everyday operations bear the brunt of making any company’s strategy work. One airline saw its efforts to mobilise the workforce impaired by the silent non cooperation of middle management in several departments. Closer inspection revealed that middle managers didn’t disagree with the discussion that was under way but felt they deserved a bigger voice in it—and should have been included earlier. They also felt uneasy with the level of transparency in a dialogue involving some 2,000 people, accustomed as they were to managing on a need-to-know basis.

The Dutch insurer AEGON sidestepped problems such as these by breaking its strategy discussion into manageable topics related to everyday operational practices. That allowed middle managers to assume responsibility for the discussion and contribute their expertise. In the words of Marco Keim, CEO of AEGON The Netherlands, “We started a digital-networking platform called AEGON Square and got the conversation going. People gathered in communities of practice and started sharing ideas on how to make the new strategy work. Dialogue really helped in fostering organisationwide alignment.” Ultimately, middle managers were among the effort’s most enthusiastic supporters—both as contributors themselves and as active recruiters of participants. (In the end, 3,000 employees, 85 percent of the total, participated over 12 months.) Keim acknowledged, though, that building this alignment required a significant cultural change toward more openness, which took time to take hold and required regular reaffirmation by senior executives.

The evolution of strategic leadership It takes courage to bring more people and ideas into strategic direction setting. Senior executives who launch such initiatives are essentially using

One way of experimenting with more open strategic direction setting is to create internal markets where legacy programmes and new perspectives compete on an equal footing for talent and cash

insight their positional authority to distribute power. They’re also embracing the underlying principles—transparency, radical inclusion, egalitarianism, and peer review—of the web-based social technologies that make it possible to open up direction setting. Taking these principles to their logical conclusion suggests a shift in the strategic-leadership role of the CEO and other members of the C-suite: from “all-knowing decision makers,” who are expected to know everything and tell others what to do, to “social architects,” who spend a lot of time thinking about how to create the processes and incentives that unearth the best thinking and unleash the full potential of all who work at a company. Making this shift doesn’t imply an abdication of strategic leadership. The CEO and other top executives still have the right—indeed, the responsibility—to step in if things go awry, and of course they continue to be responsible for making the difficult trade-offs that are the essence of good strategy. But it also may be increasingly important for strategists to lead in different ways. For example, to convey the message that the contribution of employees is of vital importance, top executives should constantly confirm that it is and set the example themselves. This approach requires a more direct, personal, and an empathetic exchange than a traditional town hall meeting allows. For a mass digital dialogue to succeed, people need to express themselves openly, which may leave some participants feeling exposed. Leaders can help by demonstrating vulnerability as well—peeling off the layers of formal composure. Another important element of socialstrategy leadership is honestly assessing the readiness of the organisation to open up and, in light of that, determining the best way to stimulate engagement. This sounds simple, but overlooking it can be costly. As part of a new strategy dialogue, the leaders of one mutual insurance company enthusiastically called

Enabling employees to communicate through ambient signals instead of relying on words and elaborated opinions is an effective way to lower the threshold and still catch the prevailing mood upon its workforce to share reflections on an innovative, soon-to-be-launched life insurance product. Despite the leaders’ expectation that the open call would generate a torrent of endorsements, it was met with a deafening silence. Closer inspection revealed that people were acutely aware of the strategic importance that senior management attached to this innovation. And nobody wanted to wreck the party by openly sharing the prevailing doubts, which were widespread. The doubts proved well founded: within a few months of being launched, the new product was declared a failure and shelved. This cautionary tale points to a final element of strategic leadership: figuring out ways to encourage dissenting voices. Enabling employees to communicate through ambient signals instead of relying on words and elaborated opinions is an effective way to lower the threshold and still catch the prevailing mood. Familiar examples of ambient dialogue include polls, “liking,” and voting—simple functions that allow participants to express an opinion without being exposed. More powerful and sophisticated forms of ambient dialogue include prediction markets (small-scale electronic markets that tie payoffs to measurable future events) and swarming (the visually aggregated representation of the emergent mood or motion within an organisation).

Consider how a prediction market might have helped the mutual insurer. The opening market quotation for the new life insurance product would probably have taken a steep dive, revealing the negative assessment of the internal market. This would have immediately alerted managers to potential weaknesses, without exposing the employees who had the courage to reveal the problems. While these are still early days for social strategy, its potential to enhance the quality of dialogue, improve decision making, and boost organisational alignment is alluring. Realising that potential will require strategic leaders to flex new muscles and display real courage.

Arne Gast is a principal in McKinsey’s Amsterdam office; Michele Zanini is a consultant in the Boston office and cofounder of the Management Innovation eXchange (MIX), a Web-based open-innovation project dedicated to reinventing management. McKinsey is a knowledge partner of the MIX. The authors would like to offer special thanks to Raul Lansink for his advice on and contributions to this article. This article was originally published in McKinsey Quarterly, www.mckinseyquarterly.com. Copyright (c) 2012 McKinsey & Company. All rights reserved. Reprinted by permission. june 2012

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leader’s

world

View to

Die For: How Cognitive Biases Cause Disaster on

Mt Everest

Cognitive biases have often led to costly errors for mountaneers. India Inc would do well to pick up lessons from these experiences David Lim

ABOUT THE AUTHOR David Lim, Founder, Everest Motivation Team, is a leadership and negotiation coach, best-selling author and two-time Mt Everest expedition leader. He can be reached at his blog http:// theasiannegotiator. wordpress.com, or david@everestmotivation.com

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THE AUTHOR ERNEST Hemingway once said that there are only three true sports in the world, the rest being merely games; and these sports were motor racing, bull fighting and mountaineering. Where Everest is concerned, India has not been a slacker, especially when it was one of the first nations to lead a team up to the top. This was in 1965, 12 years after one of it’s own nationals Tenzing Norgay, stoop on top of the world on Everest’s first ascent. But each year, like a part of a tick-list of driven people, Everest has hundreds of climbers swarming its flanks, almost all of them attempting to scale it from either its standard routes from the south in Nepal or the North, from Tibet. I still applaud anyone who wishes to take on the personal challenge of the peak, as it is still not an easy accomplishment. In it’s purest form, the sport of mountaineering is about freedom of expression. It’s about self-determination, route finding, working as a team, and challenging yourself in a pristine, harsh and remote arena. And yet, climbing Everest has lost most of the elements that make mountaineering what it is. For Everest at least, the aim of the game is summiting, and sometimes at all costs. Ask those this season who were asked to turn around, but did not; and then died on their descent, largely from exhaustion and mistakes made in a hypoxic state.

leader’s world Veteran mountain guide, Dave Hahn, told me more than a decade ago on my second Everest expedition, “There is the sport of mountaineering, and then there is this thing called Everesting”. Dave Hahn should know. He’s climbed Everest an amazing 14 times. In ‘Everesting’ it seems, more and more people want to get to the top, at the expense of investing in a long, often rewarding apprenticeship of, and love of mountaineering. Even as recently as 1998, when I led the first Singapore Mount Everest Expedition, our aim was to climb the mountain with more than the minimal experience, clocking up significant time in the mountains prior to tackling the peak. That year, from the standard route from Nepal, 45 people summitted. This spring season on Everest, nearly 400 people have done so. None, in Nepal, died in that spring season in 1998. Ten died during this spring season. Leaving aside the classic and more recent mountaineering risks like overcrowding, a key factor is cognitive biases at work. These are tendencies to make mental shortcuts in a decision-making process where normally, you will get it right, most of the times. The most common ones are: ‘Sunk cost’—the most wannabe Everest climbers have saved up the US$40,000-65,000 to have their once-in-a-lifetime shot, and are loathe to turn back even when wisdom dictates that they do so. More experienced climbers are invested in their sport and lives—and often make the better decisions. Another, which can affect anyone, is ‘confirmation bias’. The well-reported 1996 tragedy happened when two major teams’ expedition leaders looked at the weather reports and chose to interpret the facts to merely confirm what they wanted to do—go for the summit on a specific date, when that date was just far too close to a change for the worse in the weather. Eight climbers died in this single incident. Three members of the Indo-Tibetan Police Border Police force also died on the north side of the peak in that storm. But their deaths were due largely to an expectation that the weather would not turn as vicious as it did. Another cognitive bias at work was the ‘anchoring effect’. One of the principle teams involved in the tragedy was led by a very successful expedition leader who had previously summitted with his clients three times in previous years on May 10th. His belief that May 10th would still work out that year may have been influenced by the anchoring effect the

Leaving aside the classic and more recent mountaineering risks like overcrowding, a key factor is cognitive biases at work date had with him—even if the weather reports clearly stated that weather would start to deteriorate slowly from May 8th, until a full blown storm on the 11th. By compartmentalising weather (which does not behave this way), he assumed the 10th was a workable summit day, and he could get his team down before the 11th. In reality, the first part of the storm arrived by the afternoon of the 10th, creating havoc amongst the teams that day. In the business world , what kind of cognitive biases are at work, and how can we spot them? British Petroleum’s collective leadership, for example, may have been lulled into a ‘belief bias’ that things would not be too disastrous in the early stages of the 2010 Gulf oil spill as there had been thousands of drill sites in that area without a single major disaster. Look at some of your own beliefs, and constructs and check if you are being affected by any of these cognitive biases that colour your decision making adversely. For those on Everest, these mistakes truly make the peak one with a view to die for.

David Lim is a leadership and negotiation coach, and a leader of two Mt Everest expeditions. Reach him at David@everestmotivation.com—for a subscription to his leadership e-zine. June 2012

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Test drive the new Mercedes E350CDI this month. Feel the thrill. If you missed going on a trip this summer, do so now and plan a quick break to heaven on earth—Kashmir. Or if you are in the mood to try out a new kind of restaurant, try Mumbai’s first Tapas & Wine bar Vinoteca by Sula

Mercedes-Benz E350CDI

A Palatable Punch

The E350CDI gets you high with its perfect blend of performance and refinement. We just savored the delectable cocktail Amit Chhangani Mercedes cars have always been synonymous with luxury, class and sophistication. The E-class, in particular, which also happens to be the largest selling Mercedes globally has been known as the car which epitomises the essence of a Mercedes-Benz car. We recently drove E350CDI Blue Efficiency to experience what this mid-size Mercedes feels like.

The Looks Though the previous E-class versions had a more curvaceous look, this new entrant has more angular and sharper surfaces and daunts a sporty character. The oval head-

DID YOU

KNOW?

The name Mercedes-Benz first appeared in 1926 under Daimler-Benz but traces its origins to Daimler’s 1901 Mercedes and to Karl Benz’s 1886 Benz Patent Motorwagen, regarded as the first automobile

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on Wheels lamps on the previous machine are now replaced by a teardrop shaped exterior and an elongated trapezoidal inner lamp. The V shaped grille gives it a pointy nose—coupled with the slightly raised boot, the design presents a front-forward stance and exudes dynamism.

the e350cdi has Spacious interiors, an engine that purrs like a cool cat and features that will blow your mind

Performance The E350CDI is propelled by a 3 litre V6 diesel which churns out around 230PS of peak power at 3800 rpm and 540Nm of peak torque within a band of 1600-2400 rpm. The engine is mated to the highly lauded 7 GTronic transmission which makes for absolutely seamless and perfectly positioned shifts. The engine is uncharacteristically silent for a diesel mill and delivers all that power and torque in a linear fashion. There is ample torque available right from the pits of the rev range, and you do occasionally see the car cruising along at 1200-1400 rpm even with the auto transmission at work. The 7 G-Tronic transmission is a beauty too. Although not as quick as some of its dual clutch counterparts, it is quick enough to respond to a situation calling for sudden acceleration. The highlight of this transmission is the smooth and absolutely jerk free manner in which it shifts ratios.

Interiors On the inside, high quality plastics and other tastefully appointed materials abound. Wide, comfortable front seats and spacious and supportive rear seats—all of them draped in perforated leather. There’s a classy feel to the interiors compared to the jazzy interiors available in other cars in this segment. The adaptive air suspension adjusts itself for comfort or stiffness based on the driving style and road conditions. You can turn off the Electronic Stability Programme in case you

MercedesBenz E350CDI Power:

231 PS at 3800 rpm

Torque:

540 Nm

at 1600 -2400 rpm Price:

`52 lakh (Ex-showroom)

Positives • Super smooth engine and transmission • Great ride quality • Good Fuel efficiency Negatives • Tail happy – slides easily • Overly light steering wheel VERDICT If you are looking for a truly luxurious car and you do have a budget of `50 lakh+, go for it!

want the car to slither around a bit, or to let it drift around corners.

The Drive On the move, the E-class feels extremely comfortable on the inside. There is no engine noise within the cabin, though we would have expected a little less road and wind noise. The enormous torque of the car being delivered only to the rear wheels means that the E350CDI slithers a wee bit when you bury the pedal while starting from a standstill. It settles down once on the move, though the suspension is on the softer side in favour of riding comfort. The steering wheel feels light for a car this size, although the car itself always feels assertively planted all the way up to 200km/h, after which it feels slightly nervous to reach its top speed of 250km/h. The E350CDI can go from 0 - 100km/h in a little more than 7 seconds, which is impressive. The E350 CDI is an embodiment of Mercedes-Benz characteristics. It’s classy, luxurious and understated. At a little more than `52 lakh (ex-showroom), it is a luxury to own this one, but a luxury worth owning. june 2012

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Gizmos new launches

NVIDIA GeForce GTX 690

Hot Spot

LG HW300G LED projector Pricey, but that’s the premium for portability Vishal Mathur As far as portable projectors go, it has always been a balancing act between portability and the feature set. The HW300G from LG caters to the same demographic. One look at it, and you’ll see the form factor resemblances with a fat book. Not very big, but isn’t pocketable either— needs the bag that LG provides with the device. Glossy black finish for the top and the sides, while the front has a brushed metal finish to it. The projector lens cap fits nicely, and won’t fall off at all. Connecting it through HDMI is a breeze, and we connected it with a variety of devices—laptop, WD Live and Tata Sky HD. This LED projector has an aspect ratio of 16:10. From a distance of 3-4 feet from the wall, we were able to project around 50-inches, before it started to become slightly soft (less sharp). The rated brightness is 300 lumens, and does sufficiently well in a traditional projector room (dark, with no peeping lights). 48

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Colour reproduction seems a little off though, with the reds being a bit more overbearing than the other colours. Good sharpness though, and we saw only minor motion blur even with fast moving scenes—creditable for a portable projector. The LG HW300G has a USB port, allowing you to plug in a USB drive and watch videos directly on the projector. It read FAT32 and NTFS drives with ease, but no video upscaling though. For `60,000, this projector doesn’t come cheap. But this is one device that will be equally comfortable in your living room and your friend’s living room. Move it around at will! Specifications: Projector type: LED; System: DLP; Resolution: 1280x800; Brightness: 300 ANSI lumens; Contrast: 1000:1; Ports: HDMI, DVI, Component, Composite, USB for playback Price: 60,000

NVIDIA have wasted no time in launching their flaghsip dual-GPU card— GeForce GTX 690. Housing a whopping 3072 CUDA cores and 256 texture units, its maximum TDP is 300 watt. It comes in a premium magnesium-alloy casing, polycarbonate-windows and an LED logo. Damages? Around `65,000!

Samsung Galaxy S III Samsung’s Galaxy line-up has got an upgrade— the Galaxy S III has been just launched in the market. The S III sports a massive 4.8-inch super AMOLED capacitive touchscreen, is powered by a 1.4GHz quad-core Cortex A9 processor with 1 GB RAM. It will set you back by approx. `42,500.

Leica M Monochrom When it comes to range-finder cameras, Leica is an institution. It has come out with a dedicated monochrome camera called Leica M. It houses an 18 MP CCD monochrome sensor, an ISO range from 320 10000. `4.3 lakh. powered by

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M&E

cool NEW MEETING & EATING PLACES

Beer Country A quick meeting over beer and food, meeting an old friend for a drink or simply a lazy weekend evening— Lagerbay in Bandra is Mumbai’s latest hotspot Dhiman Chattopadhyay For about 11 months and 25 days each year, Mumbai’s weather is ideal for beer. Small wonder then that even on 7 pm on a weeknight, Lagerbay was buzzing with activity. Couples crooning in a corner, an office gang celebrating a colleagues birthday, a laptop-wielding trio engaged in animated conversation about a business plan—it was all happening. Finding Lagerbay is not tough. It has come up at exactky the same spot on Waterfield Road where the iconic Zenzi restaurant stood till recently. The large

LAGERBAY LOCATION: 183 Waterfield Road, Bandra, Mumbai PHONE: +91 22-67369900 TIME: Noon to midnight USP: Great selection of beer, single malts and cocktails. Good food to go with it

lagerbay on waterfield road in Mumbai offers a delectable array of main courses as well as finger food to go with their impressive beer and single malt menu

screen TV sets were the centre of attraction as young and old alike knocked back pint after pint of Asahi, Hoegarden, Fosters or whetever brand they chose, as two titans of European football clashed at Euro 2012. We began by ordering a bottle of Stella Artois beer (we later asked for a Hoegarden just to get a taste of the famous Belgian wheat beer) and a signature Watermelon Caiprojca to go with the prawns & calamari ajilo and the parmesan crusted grilled chicken. A friend at the next table vouched for the vodkabased peach cranberry slush and the blueberry cosmopolitan (blueberry liquor, cranberry juice and lime vodka) as well. The food was tsaty and served with a flourish. Try the oven-roasted beetroot and carrot salad, with an apple cider dressing. Vegetarians could go for vegetable quessadila or the herbed gnocchi. We tried grilled ham mozarella sandwiches, grilled kingfish and a simple and tasty lamb stew. For dessert we tried the hazelnut tart and the blueberry cheescake—both of which were sinful. Diners also have a choice of several other desserts such as the chocolate mousse. Lagerbay also serves a selection of classic mocktails for those who do not consume alcohol. Yes it is a bit noisy. Any place that has a dozen different variety of beers and an equally tempting list of single malts and cocktaiuls, is bound to get a bit noisy. But if its a classy place that you are looking for to meet up with a friend or even do a quick meeting, this could just be it. june 2012

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travel

Srinagar

Highway to Heaven With peace returning to the valley, Srinagar is seeing a tourism boom again. Right now its great to go visit one of the most beautiful places on earth Anil Mulchandani Breathtaking Himalayan mountain sceneries, beautiful lakes, grand gardens, historic architecture, rich textiles and handicrafts, the quaint experience of staying in houseboats and delicious Kashmiri food combine to make Srinagar one of India’s most beguiling cities for tourists. In the summer of 2012, I had the opportune moment. In June, Srinagar’s weather is mild, with the mercury climbing to mid-20s in the afternoon and dropping to about 10 degrees at night. There are hundreds of houseboats on the Dal Lake and the Nagin Lake. The houseboat I selected was part of a fleet called Welcomheritage Gurkha Houseboats, owned by a family that has a huge textiles and handicrafts business in Kashmir. Our houseboat was really palatial with a lobby, a dining room, living room and two bedrooms—all beautifully done up with wood paneling and khatamband (wooden patchwork). There was a stairway leading to the rooftop and a deck facing the lake where we could sit and enjoy the panorama of mountains and the Nagin Lake. In the morning, a shikara ferried us to the opposite shore where our taxi was waiting to take us around Srinagar. The day began as we first drove to Badamwari, the almond orchard and garden laid out in the 19th century by a Dogra king 50

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of Kashmir. We enjoyed walking around the gardens. From Badamwari, we were taken to Shalimar Bagh which is a stunning ornamental garden—a legacy of the Mughal emperors Jehangir and his son, Shah Jehan. Birds and butterflies flitted among the flowering plants, and on one of the taller trees we saw a crested eagle at its nest. We drove to Chasme-Shahi which has a natural spring as its focal point. The botanical gardens, though not as historic

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travel (left) Houseboats are an integral part of the kashmir experience. (below) river rafting is a big attraction if you are headed towards pahalgam

Gurkha Houseboats

fat left: the beautiful nagin lake looks resplendent on a glorious summer morning. left: trekkers and tourists on their way to sonmarg

as the Mughal Gardens, are also attractive. Closely located to the gardens was the Dal Lake, we walked along the boulevard. As we walked, we enjoyed the view of the Pir Pinjal mountains that reflected in the Dal Lake. The day began with the ‘shikara ride’ to see the floating gardens and floating fruit, vegetable and flower markets on Dal Lake. This activity in Srinagar is as significant as the Gandola ride in Venice A little later we proceeded for lunch at the Mughal Darbar on Residency Road where saw locals enjoying the local cuisine which included gostabas and pulaos. We enjoyed kebabs, chicken rista, lamb gostaba, nadru yakhni (lotus-stem curry), saag (a Kashmiri green vegetable dish), haak (spinach) and pulao. After this we picked freshly baked

almond and plum cakes from the adjacent bakery. Post lunch, we witnessed a fine example of Kashmir’s wooden architecture in the form of Jami Masjid. The 14th century wooden mosque was destroyed by a fire, it was then rebuilt with brick walls during Aurangzeb’s reign. The next day began as started for Pahalgam. This destination is known for white-water rafting, trekking, trout fishing, pony riding, indulging in a fish lunch and enjoying views of flowerstrewn meadows and snow-capped peaks from June to August. Gulmarg is a winter favourite for skiing and enjoying the snow. Apart from this, Srinagar also makes a good base for beautiful spots like Yousmarg and Pathari Dodh. The road to Leh also offers delightful sights around Somnath. The Pahalgam drive was interesting as it went past saffron fields (best in October), apple orchards, walnut groves and historical monuments like the 8th century Martand Sun Temple and 9th century temples of Avanitpur. En route, we bought Kashmir willow cricket bats, saffron, saffron-flower honey, apple jam, kehwa tea mix (kehwa tea is made with saffron, cardamom and cinnamon) and spice mixes for Kashmir Wazwaan meals. HOW TO GET THERE: Most domestic carriers have regular flights to Srinagar from Delhi and Mumbai. WHERE TO STAY: Welcomheritage Gurkha Houseboats (www.welcomheritage.com). Among hotels, Vivanta by Taj Dal View has a stunning view of the Dal lake and the Lalit Garden Palace Hotel is a beautiful heritage hotel. june 2012

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not just

the last word

Fingers crossed… permanently!

grew up believing that with time, you would have a superior understanding of things and therefore do them better, quicker, faster… But with time, all that has happened is a humongous increase in my use of ‘crossed fingers’! Whether it is about the next President for India, the impending elections or indeed quarterly results. This is not necessarily due to my ‘not growing up’ or because I am less smart than many of those reading this column—its just that the unpredictability of the environment we operate in and the ever-changing rules of the game— ensure that history doesn’t dictate the future. You have to figure it out as you go along. This came home more acutely than usual when I read a report on enterprise security in the context of social media and its business uses last week (Websense White Paper: Securing the social enterprise). Here are some facts: • Over 1 bn people are active on social media today and growing at an astounding pace. Facebook touts over 500 million active users who share more than 30 billion pieces of content every month. LinkedIn claims 60 million users. Twitter estimates 175 mn registered users and 95 mn tweets per day. • The social Web is the new web - not a teen or consumer fad anymore and almost every modern enterprise is using it in some form for its rich applications 52

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with real-time interaction and user-generated content. Expectedly, this creates risks around enterprise security. For example: • Social networking has become the primary target of hackers and fraudsters since there are so many users, and so many vulnerability points. The stakes are high and the payoffs are large. • The Web is typically where threats are being delivered. 52 percent of datastealing attacks occurred over the Web. Close to 80 percent of websites with malicious code were legitimate sites that had been compromised. • New threats are a mix. Some are old methods being modernised for the new social Web. Phishing has moved to Facebook; fraudsters are mining sites like LinkedIn for private data; and SEO poisoning attacks are gaining momentum. Here’s what hit me! One of the newest threats is due to the craze around blog-

ging. Blogs aren’t designed with security in mind, but WordPress, the most widely used platform by bloggers was recently the focus of an injection attack. In about 2 weeks 250,000 injections occurred with over 37,000 URLs in the wild continuing to be injected, according to Websense Security Labs. That’s a lot of potentially tainted blogs exposed to a large number of unwitting visitors! As these threat models develop, attackers are getting better too. They increasingly target the most broadly popular brands for maximum exposure; and their content looks more believable. Blocking all access to these sites is simply not feasible. The social web is a critical, new business tool with too much potential to pass by. And at the same time, going into it blind is far too risky. So how does one lock down the social Web? Is real-time protection against this ever-evolving onslaught of threats even achievable? I don’t have the answers, but I think as the ‘ultimate keepers of assets’ of a company, CFOs must begin to ask the right questions. And of course keep your fingers crossed! What do you think? Anuradha Das Mathur, Editor, CFO India