Owner/President Management Program by Cross Section Interactive Private Limited

Tips from OPM* I & II

By Prof. Hersh Chadha ARPS

Owner President Management Program conducted by Harvard University for successful entrepreneurs, owners of family businesses, and leaders of growing corporations around the globe- basically business owners actively engaged in the day-to-day management of their companies.

OPM I was focused on the customer.

OPM II is focused on profit.

â&#x20AC;˘â&#x20AC;&#x2C6;The important thing is not what you can afford to do, but what you cannot afford to do.

INTRODUCTION

Information Technology & Communications

ÂŠ Prof. Hersh Chadha ARPS

 The marketplace will change due to the influence of Information Technology playing a leading role over its products.  The component of Information Technology will be important and relevant to profit in all companies in the future.  Due to excessive information available on the Internet price secrecy of competition has become a challenge.

 The computer depersonalises sales techniques as the face making the sale is missing during Internet sales.  The Internet market is called a commando market.  Internet shopping is interactive shopping as compared to traditional shopping which is passive shopping.

 60% of people in USA bought more credit cards, mortgages and mutual funds through the Internet rather than the direct sale method.  In the virtual world 1 minute equals 1 hour as compared to the real world. At McDonald’s 1 minute equals 15 minutes in the customer’s mind so the relative patience levels for customers using the Internet for your products is very low.  America On-Line creates a minimum of 10 million confirmed customers per year in every business sector.

 Computers in 2012 will be sold for cents and not dollars.  1998 was the implementation stage for computers.  A computer in 1962 cost a whopping 10 million USD but now the cost is an average of 2000 USD per piece. There is no other field where the prices have been slashed so much so fast for the same product.

 600 billion USD is estimated to be the lowest figure to fix the millennium bug. Merrill Lynch has paid 250 million USD to fix the bug this year alone.  COBOL programmers’ salaries have moved from USD 38,000 to USD 85,000 to fix the millennium bug this year.  USD 1.3 trillion is expected in lawsuit settlements related to the millennium bug.

 We are currently in the networking era where the inception costs have been taken care of and we will see the operating costs come down soon.  The future costs of telecommunications will are expected to be per second and not per minute. This alone will save the consumer billions of dollars.  The future of communications is Internet telephony, which is more cost-effective.

• Web TV is expected to replace billing technology, which will make it more cost-effective. The average money wasted per year per US house is between USD 500 to USD 2000 on bills. The Web TV will be given at 250 USD a piece as the savings will help Manufacturers/ Cable Operators etc. • All future laptops are expected to have video conferencing and intranet telephony capabilities. • Information architecture is the key component to Information Technology.

Employer/Employees and Attitudes

ÂŠ Prof. Hersh Chadha ARPS

 Every company has two sets of procedures, one is formal and the other is informal. The informal procedure always emerges and management lays down the formal procedures. Every employee must know the dividing line between formal and informal activities and interactions leading to sentiments within the company as a whole.  There are three types of employees: employees who follow regular norms, renegades and isolates.

 Regular employees lead to forming. Renegade employees lead to storming. A combination of regular, renegade and isolate employees leads to naming a new environment, which in turn leads to the final stage of performing.  The formal sentiments of a company would involve mission, vision, policies and the informal sentiments of a company would be feelings and friendship.

 When humans in a company perform better, the operations perform better. This leads to better financial performance for the company.  Excitement in a company is as important as profit. Actually it is one of the ingredients that lead to profit in a company.  No functional department in a company makes money by itself alone. It is always the collective efforts of all the departments in a company.

 Golden rule of a company: People should work with each other and not for each other.  On any board of a company learning to disagree rather than learning how to agree should be given prime importance.  There are people at the heart of every problem and at the heart of every solution, we should know-how to find these people.

 If you tell people to do something better repeatedly they will soon lose interest in it.  Remember your boss in the company is not like a parent. The boss’s love is not unconditional. You have got to remember this even if you work closely with him.  Every employee in a company should get what he or she deserves.

The Organization & Business Tactics

• Nothing happens in a company without any reason.  Sometimes certain things in a company can be shaped and sometimes certain things can shape a company too.  Some say winning in a company is everything, some say losing in a company builds character, but playing it the right way in a company is what counts especially in the long run.

• You can get nine women pregnant, but you cannot have a baby in a month, always pace things in your company.  Most great ideas in a company come from isolation and not from a homogenous atmosphere.

Management Style & Methods

ÂŠ Prof. Hersh Chadha ARPS

 In any company the strategy, structure, process and people are very important and the sequence of these steps is equally important.  Management by walking around is also a modern technique of management.  Management of information and data is also an important asset of a company and should not be overlooked.

 The future of management is the evolution of management. What is valid today may not be so tomorrow, we must recognise and accept change.  Priority management of time is very important in a company.  Most senior management in a company spends more time on improving their logos rather than improving their products.

 The most foolish way of doing business is “my way” or “high way”. Flexibility is a must. You cannot afford to have an attitude problem.  To change from a propeller plane to a jet plane you have to land or you will crash, remember this in your company too.  Just like a ship has a compass to stay on course a strategy of a company is its compass to keep it on course.

 The mission statement of a company is its accuracies meter. Try to follow it.  No department in a company makes money alone; the key word is system integration.  Every company has a virtual value chain, we must always try to recognise it and top it.  A company will be dependent on you to the extent to which you have power over the company.

Problems & Solutions

ď&#x201A;§â&#x20AC;&#x2C6;One day a very upset man went to his preacher and complained that his house was too small for his family and his mother-in-law. The preacher advised him to get a goat, place the goat in the house and come back a month later. A month later when he returned he was even more upset and asked the preacher what he should do. The preacher told him to throw the goat out and return the following day. When the man came back the preacher asked him what had happened and the man replied that the problem had been solved. The main point of this story is do we really identify and relate to problems even if they really exist in the environment of a company.

 Common sense is the best sense to all solutions of a company’s problem.  Problems in a company always have expenses attached to them. Don’t forget their impact.  In business the most complicated problems generally have the simplest solutions.  In every business situation, there is always a reasonable possibility that the best answers have not been found - even by the teachers of this business.

Success & Failure

 In every company there are many questions but only a few right answers. Finding them is the solution to the success of that company.  A losing business and a profitable business have identical problems and the trick is to know the difference.  If you empower the dummies in a company you will get bad decisions faster.

• If things work in your company then they are obsolete, you have to keep developing in your company. • Past performance of any company is no guarantee of future performance of the company.  In any business you should look for what you are doing wrong, what you are doing right will take care of itself.

 A company’s success is known by constantly recognising what can make it fail.  No company keeps losing money and keeps surviving except the government.  The heart and the brain are two vital components of the body. You cannot do with only one of them, as they are both critical in the human path. The most critical aspect in a company is to make money, without this the company will die.

 No company lasts forever, no empire lasts forever. We are all destined to end. Look what happened to Pan Am. After all we are all mortal. Not immortal.  A company runs through an evolution cycle where there is a beginning and an end, we all know the beginning but what we really want to know is where is its end and keep trying to avoid it.  Resurrecting a company is more difficult than creating a company.

Profit

 For a business with fixed costs any revenue big or small becomes a significant contribution to it.  To understand what drives profit in a business is the heart of the business.  The value of a company depends on the income it generates.

 A Pepsi when served is for 89¢ of which the syrup costs 2¢ and then the water. What costs the most is the ice. Amazing marketing of hidden profits.  Some businesses are driven by the mind, some by the stomach but what really drives all companies is: profit.  The two sides of a company’s coin are people and profit. People leading to profit.

Customers, Competition & Marketing

 It is dangerous to remain a one-product company for the entire life of the company, it maybe necessary at the start of the company during inception stage but it must change quickly to a group of products to enable the company to spread the risks.  In the absence of value that a company gives to its customers the price of its products will always become an issue.  A smart CEO not only writes a strategy for his company but more importantly also writes a strategy for his competitors company.

 Today Intel is a bigger company than IBM. Ancillary industries at times can overtake main industries and this should not be overlooked.  The rule of holes is that when you are in one you stop digging. Look out for the holes in your company.  What the customer requires is an important element in what you deliver to him from your company.

• The most important point in a business is to understand the nature of your business. This is very important in planning your company strategy. It is equally important to identify the customers’ needs too. The correct integration of these two vital components leads to success in a company.  When you subtract your competitor’s performance from your performance you should always come to a positive figure. The day this figure becomes negative, the red flag should go up in your company.

 If Rome were built in one day I would hire the contractor. Remember that is the case in your company too.  Orders are the essence of any business and the customer is very important to the company to give these orders.  The more money we make in a company the more chance of competition walking through the door exists.  80% of the market is driven by fear and not by opportunity.

 Surface etiquette is a must for marketing especially in sales and does reflect in the profits of a company. Do not ignore it.  The market makes the rhythm, keep in pace with it and be flexible to change along with it.  20% of books that are sold are really read - the others are not.

Management Witticisms & General Observations

ď&#x201A;§â&#x20AC;&#x2C6;The definition of a financial expert is a tie, a briefcase and numbers.

 The asset business is smaller than the information on assets business and the trend in the next century is going more towards the information on assets business.  Techno-stress is the buzzword for the 1990s and 2000.  One of the reasons for techno-stress is due to information fat.

 Too much information in today’s world leads to the state of mind called brain-cramps.  Over capacity is one key factor that leads to deflation.  It is more difficult to save money than to earn it.

 There is no problem with money till you start spending it.  The burden of money is a burden you have got to live with. You cannot throw it out of the window, even if you want to.  Because you make money does not mean you cannot make more.

 A positive anything is better than a negative nothing.  It is better not to have opportunity and money than to have both and lose them.  We all learn from our mistakes but what is important is at what cost.

 Warren Buffet was refused MBA admission at Harvard and Bill Gates was a Harvard drop out - both immensely successful people in today’s world.  All successful people have the capabilities of recognising other successful people quickly.

...and in conclusion there is no perfect employer nor is there a perfect employee in any company. You have got to work towards it.

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TIPS FROM OPM* III

By Prof. Hersh Chadha ARPS

FAMILY BUSINESSES

• There are three priorities for every businessman: family, business and wealth. • It is more important to have a successful family than a family of success. • Do you want to be a business family or a family business? • 44% of all entrepreneurs are first born. • The richer you get the less personal guarantees you give.

• If money is wisely managed it could unite a family and if it is managed badly it could even divide a family. • It is harder to discuss wealth than to discuss sex in some families. • They never publish your balance sheet with your obituary. • There are 36 years in every generation.

• Immortality is one of the biggest misconceptions of rich people. • The important question is when I die and not if I die. • Nepotism is the main enemy of all family businesses. • Very few successfully ruled from the grave than managed their money.

Kids and the Business

• It is very hard for successful people to raise successful children. • Don’t sell a myth to your kids, they must realize the importance of their success. • It is important to set a timetable for your kids so that they will know when things will happen. • How do we build our kids expectations with respect to wealth?

• Hard times are irrelevant to rich kids. • Kids always overestimate their parent’s wealth. • Children don’t feel the difference between your money and their money. • 25 million gives fast cars and slow horses to your kids.

• Kids are better at buying cars, than their parents. • Rich kids generally don’t need to choose. • When you are home and don’t complain about the business, it makes children realize that business is fun.

Government Businesses

• Every government’s aim should be to tax the people when they have maximum cash during the year. • Australia and New Zealand will follow suit on the Latin American economies. • Foreign aid is the people’s money from rich countries to aid the poor countries rich people. • No countries economy starts with a blank slate, they always have an inheritance or a legacy to follow.

• None of the high-income countries are in the Tropics. • The British were the first to introduce the private property concept in India. • Capitalistic economies must allow earnings on interest. • Governments can either mobilize a country’s resources or accumulate the resources.

• One of the key factors responsible for the Asian crisis was leverage. • Communism leads to an environment where people do not have to work for a living. • World GDP is growing faster than individual GDP of countries. • The future of natural wealth of countries is going to come out of its universities. • The Bank of Japan has been given too much power. It is the world’s most powerful bank.

Businesses

â&#x20AC;˘â&#x20AC;&#x2C6;My cousin Chuck wanted to buy a car. He went to a car dealer who promised him that if Chuck bought this car the mileage was so good that it would pay for his first installment. When the time came to pay the first installment he did not have the money. So Chuck drove more and more to save on the gas to pay the installment. He then realized that he still did not have the cash. So he went back to the dealer. The dealer then told him to buy a bigger car which would save even more mileage on gas and that the depreciation of the smaller car was enough to pay off the payment for the large car. Poor Chuck! Depreciation does not always lead to raising cash.

• People make mistakes no matter who you hire. • The main objective of management is not to manage people in a company, but for the company to make money. • It is much worse for a company to stop paying dividends than never to pay any dividends. • The most important factor in a business is whom you do business with. • The creator of change in a company, must also be a beneficiary of that change, both in the internal and external world of that company.

• Strategy must always determine the structure of a company. • You cannot manipulate a cash flow statement because it deals in cash. • Good is the fundamental enemy of best in a company. • We must not spend money on those things that our customers don’t care about in our company. • It is better not to win a contract than to lose a contract.

• For a company to succeed we must always have a common consensus with a shared vision and a common strategy with a smooth implementation plan at all levels in the company. • Price is an important communicator of quality for a company’s products. • A danger meter is an important meter in taking decisions in the company and should not be overlooked, because if it is, it would be very expensive and not necessarily in terms of money but also in strategy.

• Profit moves with revenue in the same direction as long as the volume remains the same. • In the beginning money is the most important resource in a company, but then time becomes an even bigger resource for the company. • Making money in a company is very important, but having fun while doing it, is even more important. • Getting your company to become a market leader is tough but it is even more tough staying the market leader.

• Never think that tiny little businesses are stupid, they are statistically the most profitable ones. • Sometimes it is not price but attitude that makes a business succeed. • I love this company because it is family. One of the biggest mistakes. Family and company are two separate things. • You always build your companies strategy based on its advantages. • For every David who wins in a market, there is a Goliath who has gone to sleep.

• A suggestion box in a company is like a chimney in a factory and basically a vent to the company. • In every crisis there is an opportunity to learn. • It is easier to handle a thousand minor cuts over time in a company, than to handle a major blow. • Knowing what you know is the best tool to deal with what you don’t know to face unpredictability, which is an issue in every company at all levels.

• The crucial thing in a company is when to say no. • An important factor to be considered is to always study the alternative to your decision. • Foolishness in the private sector generally grows out of proportion in the public sector. • Remember when dealing with a CEO, you are dealing with his ego. CEO’s don’t generally work for the money.

• The CEO is the one who sets the structure of the company to achieve the goals of the company and its’ not the company who sets the structure for the CEO to meet its goals. • Things get lost and misinterpreted in print in a company. It is always better to meet and resolve matters. • Most losing companies either make unsaleable products efficiently, or make saleable products inefficiently. A profitable company makes saleable products, efficiently. • The ideal manner, in which a boss must ask his employee to quit, is one where he uses the employee as an asset outside the company, rather than a liability.

• In any company it is important to know how much time people spend in getting a business as it all adds up to the hidden costs of a company. • In the beginning most companies’ weaknesses become their strength and in due course become their weaknesses again. • Succession of a company and its assets is very important, especially to see to it that the smooth flow of order is never lost.

• Getting external capital in a company, always reduces control. • As a habit we first do monthly balance sheets to raise cash and then we do it to know if it is a good or bad month. • The more you invest in your business the less dividends you can pay. • The new word for research is called data mining.

• One of the key ingredients required to make a business profitable is sheer hard work. • Production leads to consumption. • In a company if the jobs are small the selling price is always high.

• There is no ideal control system for any company, each company follows its own control system. • There is always an end to the story of a company, but OPM has taught me the way in which I can change the ending to suit my purpose. • If the lion and the lamb were to lie down together in a company, make sure that you are the lion.

Sales and Customer Service

• A good sales person should have an ego drive to win and empathy to understand people and to have ego toughness even if you are repeatedly being dropped. • The best salesman is generally not the best manager in the company. • Knowing your customer is more important than knowing your boss. • The customer pays all the salaries in a company ultimately.

• The customer gets educated much faster by himself, than when we try to educate him. • The customer always decides whether I succeed or fail. • Your customer relationship is not only important to you, it should also be important to him. • All managers in a company especially in the sales force must compete outside but must always co-operate inside. • Some customers are too expensive to keep even if they are big.

INVESTMENTS

• To be a sophisticated investor, you need to be rich. • The rich are always the furthest away from reality. • One percent in a 5 million saving is equivalent to USD 50,000 in a year. Check the rate of return! • When markets mature people begin to understand their needs better.

• An analogy to the downside risk that a Life Insurance sets is like placing a bet in Las Vegas wherein it is the maximum that you could lose. • “Merchant of Venice” is a true example of interest. • Diversification of wealth is the key to capital preservation. • 17% return gives 2.4% money that you can spend.

LESSONS FROM LIFE

• Markets don’t reward low-skill people. • People don’t develop common property the way they develop private property. • Creditors always monitor the firms better than investors. • Print is more expensive than bytes. • Most of the time when people have power they give power.

• The proper name of trust is mistrust. • If you want a friend, buy a dog. • Choose your race and set your pace. • The road to success is always under construction.

• In every grain of sand there is a story of earth. In the same way every person in his company has a story to tell. From all the cases I studied at Harvard I have learnt that there is one mistake that both the persons and the company make and that is to believe that the company is immortal. • If we believe in the truth that just like us the company is also a mortal entity we could steer our ways according to the path we choose. Yes, the assets of a company never die, they only move from one line of command to another. If we define our line of control we will always work realistically to ultimately gain more happiness and that is what OPM has taught me.

OPM is great stuff and I recommend it highly. A big thank you to all the staff and fellow OPMers.

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Tips from OPM 27 Floating Summit 1999

By Prof. Hersh Chadha ARPS

â&#x20AC;˘â&#x20AC;&#x2C6;All entrepreneurs are in the business of taking risks, but it is prudent to always look at the downside first, before the upside.

â&#x20AC;˘â&#x20AC;&#x2C6;It is more important to spend time making the pie rather than splitting the pie.

EBITDA Earnings Before Interest Tax Dividend Amortize

â&#x20AC;˘â&#x20AC;&#x2C6;Banks merge to save on technology.

â&#x20AC;˘â&#x20AC;&#x2C6;To create value in a company you have to invest in high value people and high technology at the right time.

• Buy low sell high.

â&#x20AC;˘â&#x20AC;&#x2C6;Hire the best Finance guy, if you have to, before it gets too costly.

• If you don’t plan to train people, then hire experienced people.

• Hire people who are more intelligent than you are but don’t be afraid of them.

â&#x20AC;˘â&#x20AC;&#x2C6;Make more money than less money and make money today instead of tomorrow.

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TIPS FROM HBS REUNION ZERMATT

By Prof. Hersh Chadha ARPS

* Owner President Management Program conducted by Harvard University for successful entrepreneurs, owners of family businesses, and leaders of growing corporations around the globe- basically business owners actively engaged in the day-to-day management of their companies.

Emphasis on Vision • Establishing the vision. • Communicating the vision within and outside the organization. • Willingness to take risks as part of the vision.

In periods of Change • Conceiving ideas, using your imagination, establishing a vision creates the value.

• Part of leadership is “doing things right”.

• More important now to “do the right thing”.

• Strategy has power.

Leadership Fundamentals have not changed • Develop the vision that establishes the direction of the firm. • Create the culture of the firm that defines and shapes the organization. • Align the organization and people by putting in place the necessary systems. • Motivate and inspire the organization.

Evolution of Industries • First: conception, imagination. • Second: shaping the industry, setting standards. • Third: competitive stage when market share is stable. • Where can managers have the most impact? • Where do managers spend most of their time?

Vision has become More Important • Need to implement a strategy over greater distances. • Emergence of new business models Business is conducted over Greater Distances. • The view of businesses must be wide spread – Selling to more distant customers – Obtaining resources from distant suppliers • Not just a technology story. • But technology and communications play a key role.

Changing Business Models • Partly an old phenomenon – Open hearth furnaces vs. mini-steel mills.

• But, more opportunities for change now – Internet (Amazon.com). – Outsourcing (Contract research organizations/Kendle).

Successful Leaders of the 21st Century

• Will not be those that just managed their business effectively.

• They will be the leaders who – Develop a vision in the face of new business models. – Communicate that vision well within the firm and to outsiders. – Who are willing to take some risk within their vision.

My Personal Views • Small number of competitors in suppliers leads to profit. • Pricing Power = Profit – If in the customer’s hand, it leads to profit for the customer. – If in the manufacturer’s hand, it leads to profit for the manufacturer. – If in the broker’s hand, it leads to profit for the broker.

• Profit in a company is not always a mathematical solution.

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