GO_February

Final Cover February_09 CTC.indd 1

2/11/09 12:58:29 PM

CONTENTS VOL. 3 NO. 2

Editor-in-Chief Amitabh Taneja President & Publisher R. Rajmohan Editorial Contributors Red Tree Convergent Media Sunaina Anand Sahana Ghosh Kavita Kukday Alok Pandey Sridhar Raman Advisory S. P. Taneja/ R. S. Roy/ Anjali Sondhi Art Director Pawan Kumar Verma Design Mohammad Shakeel Rohit Juneja Photo Coordinator Deepak Jha BUSINESS OFFICE VP - Advertising Deepa Gopinath GM - Advertising Rajeev Marwaha (Delhi) Kirishnanand Nair (B’lore) GM - Circulation Anil Nagar Branch Managers Waseem Ahmad (Mumbai) Piyali Roy Oberoi (Kolkata) Sr. Manager - Circulation Shrish Mudgal Manager - Advertising Anirban Sarkar (Kolkata) Manager - Circulation R.P. Singh (Mumbai) Dy. Manager - Marketing Ravindra Kirti PRODUCTION DGM Manish Kadam Deputy Manager Manoj Soni SERVICES DGM - Logistics Rajeev Mehandru DGM - Customer Relations Hemant Wadhawan Manager - Subscriptions Aparna Johri

Britannia has grown strongly and maintained profitability. What did it do, could it do more?

04

29

50

12 GLOBAL TRENDS

DOSSIER STRATEGY SECTOR WATCH FINANCE

Growing Britannia Food Commodity markets

04 10 12

C-SUITE LEADERSHIP ENTREPRENEURSHIP ACADEMIC FORUM CUTTING EDGE

Leading in troubled times 40 Shaadi’s success 44 Executive compensation 50 Organisation redesign 54

GO is Published in the Middle East by Corporate Publishing International.

ASIA

MARKETING BRAND EXTENSION: Leveraging the brand FINANCE UNDER THE HOOD: Satyam OPERATIONS LINGERIE: Inside underwear MANAGEMENT CHARTS: Visual intelligence

18 22 24 32

MISSION STATEMENT GO magazine is a management magazine for young, ambitious managers. GO magazine covers marketing, finance, operations and general management, the core disciplines of business administration.

Trends: Advertising on cars Entrepreneur: Electronics

16 17

AMERICAS Entrepreneur: Anti-poverty VC 29 Trends: Container homes 30 Academia: Internal corporate venturing 31 EUROPE

Entrepreneur: Swiss drugs 37 Trends: Driving software 38 Academia: Responsible procurement 39

MIDDLE EAST AFRICA

Entrepreneur: Algerian phoenix Academia: South African BPO Trends: Nollywood

CASE STUDIES

GO magazine thanks the European Case Clearing House (www.ecch.com) for granting access to its case studies, which are most helpful in preparing some of the editorial material.

Founder & Editor Christopher Fodor fodor@quantummedia.net Editorial Director Michael Fodor Design Rey Delante Denis Fuentes

66

59 60 61

OTHER FEATURES TECHNOLOGY: BOOKS DOING BUSINESS IN: Frankfurt

64 62 66

GO magazine's mission is to help managers, across all industries and functions, as well as business school students, to improve their management skills and knowledge, and thus their career opportunities. We welcome all comments and feedback.

GO magazine gladly sends free sample copies to qualified managers and readers. Send an email with your name, job title and phone number to sub@go-magazine.biz.

All material printed in this publication is the sole property of Christopher Fodor or Images Multimedia Pvt. Ltd. or both and each of them have copyrights on their respective materials. Reproduction in any manner is prohibited.

All printed matter contained in this magazine are based on information from those featured in it. The views, ideas, comments and opinions expressed are solely of those featured and the Editor and Publisher do not necessarily subscribe to the same.

Printed & Published by R. Rajmohan on behalf of Images Multimedia Pvt. Ltd; printed at G.H Prints Private Ltd, A-256, Okhla Industrial Area, Phase-I, New Delhi 110 020 and published by R. Rajmohan from S-21, Okhla Industrial Area Phase-II, New Delhi 110020. Editor: Amitabh Taneja For feedback write to info@go-magazine.biz For subscription related enquiries, please write to sub@go-magazine.biz

Go India February 2009

3 Contents_Feb09.indd 3

2009-02-11 17:32

DOSSIER - FOOD

STRATEGY

TOO RISK AVERSE?

Although Britannia biscuits is growing healthily, using a strategy of incremental innovation, there is little risk-taking, unlike other food giants in the world

ndia’s big and growing biscuit market is dominated by three players: two old timers, Britannia and Parle, and one new kid on the block, ITC Foods. Britannia and Parle each command over 30% of the total market, while ITC Foods comes in at around 10%. The three players account for some 75% of the market. Britannia has grown at over 15% over the last three years, posting sales increases of 13%, 28% and 17%, in the fiscal years of 2006, 2007 and 2008. The 2009 year-to-date growth rate is 24%.

Profitability, under pressure from raw material cost inflation, has been more volatile, but return on sales has nevertheless been a respectable 8.5%, 4.9% and 7.4%. So Britannia is a leader in terms of market share and has appreciable momentum in the form of strong revenue growth while maintaining a respectable return on sales.

To reach this position, Britannia’s strategy has been one of incremental rather than radical innovation. From a branding standpoint, their recent strategy has been to leverage well-established brands, rather than establish new ones.

I

Rather than venture into new product categories, Britannia has used line extension, staying within existing categories and introducing product variations (often around nutritiousness).

One recent visible area of innovation has been packaging, with the introduction of lowprice, small-quantity packs, known as nano packs. By and large then, the strategy has been a conservative one, building on existing strengths, rather than creating new ones from scratch.

Before jumping into that 21st century strategy, a bit of 20th century background. Britannia was created in Kolkata in 1892.

A strategic move occurred in the 70s when it took over biscuit distribution from Parry’s (1975). In 1993 the Wadia Group acquired a 44% stake in Britannia and subsequently, became an equal partner with the French food giant Group Danone in

Associated Biscuits International, which holds a controlling stake in Britannia. Today, Danone is trying to exit the partnership, but an acceptable compromise has yet to be negotiated. Sunil Alagh served as Managing Director of the company until 2003, when he was sacked over allegations of financial irregularities. Chosen for her marketing expertise acquired at Cadbury and CocaCola, Vinita Bali, the current Managing Director, took the helm in 2005. Analysing Britannia’s current position is thus a matter of examining Ms Bali’s strategic initiatives, some of which build upon Mr Alagh’s legacy.

Branding There are three segments in the Indian biscuit industry (see box). Britannia’s objective has been to be present in all three segments, in the number 1 or 2 market share position. Jagdeep

Biscuit production (2008, tonnes) Year founded

1892

Headquarters

Bangalore

Employees Tonnes of biscuits 2008 Sales 2008 (Rs billion) PAT 2008 (Rs billion)

2,000 442,000 25.8 1.9

Kapoor, Managing Director of Samsika Consulting notes their success in this regard: “Britannia’s major strength has been to build presence across all price segments. They have succeeded in doing so in a wellbalanced manner, each segment contributing approximately a third of revenues.”

Britannia approaches the high-volume, low-price category, through its Tiger brand, which it launched in 1997. Competition in this glucose segment is fierce.

Two other major players are in competition. One, an old presence in the segment and the market leader, Parle through its Parle G brand, controls 67% of the segment. Britannia runs a distant second with 19%. The third player, ITC Foods, with its Sunfeast brand, is a recent entrant. ITC’s massive foray into this market is an intriguing one as it is not a product-centred one, b but an advertising-and distrib distribution-centred one. ITC is not leveraging any particular baking experience but is using cas for massive advertising its cash campa campaigns and its ubiquitous distrib distribution system, to offer consum consumers biscuits the way offer them cigarettes. The it offers

Go India February 2009

4 Dossier_Strategy_Feb09.indd 4

2009-02-11 10:43

OVENS CHURNING

Indians love their biscuits. That makes for a huge market, third in the world, at some Rs 75 billion n 2007 the Indian packed food market was estimated at Rs 600bn.

Within that, the biscuit market constitutes about 13% or some Rs 75 billion in sales. In the hierarchy of world biscuit producers, India stands on the third step of the podium, behind the US and China. The biscuit market is a growing one: 15% in 2005, 22% in 2006, 17% in 2007 and 2008 is projected at close to 20%, by AC Nielsen. Production rose from 0.8 million tonnes in 2004 to 1.3 million tonnes in 2007, a 50% increase in 4 years. And those sorts of growth rates are sustainable – despite the famed Indian love affair with biscuits, consumption is a quarter of European consumption and half of Southeast Asian countries. That means that a doubling of Indian biscuit manufacturing in the medium term, is not an outlandish target. ■

I substantial cash at the disposal of the cigarette behemoth has allowed it to build up a 10% market share in this segment.

Given the fierce competition in the low-end segment, Britannia has adopted a strategy of continuous product introduction – witness Tiger Coconut (2001), Tiger Creams (2002), Chota Tiger (2007), and Tiger Banana (2008). Several of the product introductions have been centred on increased product nutritiousness. These efforts have allowed it to maintain that near 20% market share (which contributes a third of its revenues) and also brand equity.

Testimony to the brand equity is the legal wrangle between Group Danone and Britannia, in which Britannia is accusing Danone of selling the Tiger brand in some of its overseas markets, without seeking prior permission. Such intellectual property protection problems are the price of branding success – build a successful brand as Britannia has with Tiger, and you are bound to have to deal with imitators, if not counterfeiters.

In the non-glucose, mid-price segment, Britannia is present through its Marie Gold (over

50 years old), 50:50 brands (1993) and Milk Bikis (over 40 years old) brands. This segment contributes around a third of revenues for Britannia. Jagdeep Kapoor underlines the success of the 50:50 brand: “Britannia has succeeded in developing this well named brand, thanks in particular to astute advertising around game shows and World Cup cricket.”

Another third of revenues is generated in the premium-price segment through the brands Good Day (1986), Nutrichoice (1998) and Treat (2002) brands. As in the lower-price glucose segment, its non-glucose strategy is to bring about new product variations, often centred on improved healthiness. Overall, in the nonglucose segment, Britannia has constructed a clear market leader position, with over 40% share, while Parle and ITC control only 17% and 8% respectively.

But here too, Britannia can not rest on its laurels. Just as in the low-price segment, new competitive entries pose a menace. In the low-end segment, it was ITC that entered the fray in a big way. In the higher-price segments the threat takes the form of Rajmohan Pillai, younger brother of the late biscuit baron

Rajan Pillai and head of the Europe-based Beta Group. Pillai has been keeping his eyes on the top end of the biscuit market (evaluated at Rs 400 crore). A former chief operating officer of Britannia, Nikhil Sen, is also attentive to this segment as managing director of the Indian arm of the Australian company, Unibic Biscuits.

Within all three segments, the strategy is one of continuous leverage, rather than radical innovation – use the strong brand names and introduce safe product variations. Here is how it is summarised by Nikhil Vora, Managing Director – Research at IDFC-SSKI: “Britannia introduces

product variations within its brand families, more than it attempts to create blockbusting novelties. It is leveraging its brand equity rather than entering into new food categories. Rather than a strategy of innovation, it is better to speak of a strategy of continuous renovation.”

Jagdeep Kapoor believes likewise: “The strategy has been one of tweakings and tunings, one of incremental innovation.”

Advertising The success of Britannia’s brands has been the result of sound product quality and astute advertising. In the food business, marketing is a key to

Go India February 2009

5 Dossier_Strategy_Feb09.indd 5

2009-02-11 10:43

DOSSIER - FOOD

STRATEGY BRITANNIA BRAND TIMELINE Launched

Over 50 years Old

Over 40 years Old

1986

1993

1997

1998

2002

Marie

Milk Bikis

Good Day

50:50

Tiger

Nutrichoice

Treat

Brand Name

BRITANNIA PRODUCT LAUNCHES 2003-04 ■ GoodDay ■ Timepass

Choconut Nimkee

2004-05 ■ Duet

Treat Strawberry & Vanilla ■ Duet Treat - Orange & Chocolate ■ Jam Treat - Orange ■ Cup Cake ■ Pineapple Cake ■ Chocolate Cake ■ Rusk

success as Nikhil Vora insists: “The major competitors in the biscuit market all have good distribution systems and there is no major difference in product manufacturing technology. Those are not real differentiators; marketing is.”

Various brand rankings attest to Britannia’s marketing success.

Brand Equity compiles a list of most trusted Indian brands – Britannia is one of only five brands that has been in the top 10 each year for the past five years.

In 2007, it ranked 7th, while its rival Parle was 10 places back at 17th. In a survey of food brands (the 2008 Economic Times, Brand Equity ranking), Britannia

2005-06 ■ Tiger

Cream - Kesar Kulfi ■ Tiger Cream - Rose Milk ■ MarieGold Doubles ■ 50-50 Pepper Chakkar ■ Greetings

was in second place, behind Tata Salt, but ahead of its archrivals Parle (3rd place) and Sunfeast (8th place). When you have that sort of brand renown, the sort of brand leveraging practised by Britannia does make sense.

The company spends about 7% of its revenues on advertising and it appears to spend it to good effect. Memorable tag lines, innovative campaigns, (linked to World Cup cricket or TV shows for example) a mix of more functional and more emotional advertising spots, have fostered brand recognition.

“Britannia has done a good job of mixing up functional and celebrity campaigns, to reinforce the corporate brand and build distinct images for its various biscuit brands,” holds Harish Bijoor, CEO of Harish Bijoor Consults. Jagdeep Kapoor confirms Britannia’s advertising savvy but worries about the recent emphasis on functionality: “Because of the emphasis on health, the advertising has more recently been aimed at the head.

2006-07

2007-08

■ Chota

■ Tiger

■ Tiger

■ GoodDay

Tiger Cream Chocolate ■ 50-50 Chutkule ■ NutriChoice Digestive ■ NutriChoice SugarOut

Banana Classic Cookies ■ GoodDay Jumbo ■ Pure Magic Cookies ■ Daily Fresh Dahi ■ Cheese Slimz

It might be time to target the heart again. To get at impulse buyers in particular, you need to get at their emotions.”

Health and Delight Back in 1997, a two-year market research campaign led to a repositioning of the mother brand, in an attempt to attract health-conscious customers. That repositioning was summarised in a new motto: ‘Eat healthy, Think better’. The strategy was to introduce new, more nutritious biscuits in the various price segments. A new premium price brand was created, appropriately baptised Nutrichoice. Over the last years Britannia has Developed that health-based strategy by introducing products with nutrients and without trans fats. One focus has been high iron biscuits, such as Tiger Iron Zor. Another area has been highfibre biscuits, such as Nutrichoice 5 Grain. A third is biscuits with no trans fat. Britannia is the first Indian biscuit player to enter this arena. Were Indian

2008-09 ■ Tiger

Cream Butterscotch ■ Tiger Cream Strawberry ■ Tiger Cream Pineapple ■ NutriChoice 5Grain ■ Cheese Garlic & Multigrain Bread ■ Berry Cherry Cup Cake ■ Eggless Cake

food regulators to imitate their European and American peers, the company could leverage this first player advantage.

Britannia has also used its turn toward nutrition to build a reputation for corporate social responsibility. This reputation has spread outside India’s borders, perhaps creating something of a self-reinforcing feedback loop. In its most visible initiative, Britannia partnered with the Global Alliance for Improved Nutrition (GAIN) and the Naandi Foundation to supply its iron-fortified Tiger biscuits for mid-day meal programmes in Indian schools.

This initiative has earned it international attention. In a case study on ways of combating malnutrition, the World Bank Institute mentioned this effort.

Britannia was also invited to join the Clinton Global Initiative which brings together global leaders to invent and implement solutions to the world’s nutrition problems. In this way, Britannia has promoted its brand through

Go India February 2009

6 Dossier_Strategy_Feb09.indd 6

2009-02-11 10:43

DOSSIER - FOOD

STRATEGY

THE TRINITY OF BISCUITRY The most common segmentation of the biscuit market is by price point, giving the mass, popular and premium segments basic way of looking at the biscuit market, and therefore also at Britannia’s strategy, is by price point. Adopting such a perspective, there are three categories: the mass segment with a low-priced biscuit (the Rs 40/kg range), the popular or mid-priced segment (the Rs 50/kg range) and the premium segment (the Rs 60/kg and above range). In terms of value contribution, the three segments are fairly balanced (around the Rs 25 billion range), with the popular segment ahead of the mass and premium segments.

Parle is the clear leader in the mass segment, with 67% market share. Britannia is the leader in the other two, with 40% market share. The urban/rural divide is fairly pronounced. Urban markets account for at least 60% of biscuit sales.

Rural penetration varies from a high of 55% in the low price segment, to a low of 22% in the high-price segment. ■

A

social consciousness.

Jagdeep Kapoor comments on the health-based strategy: “The shift toward nutrition was a smart one. The development of the health-based products has allowed Britannia to maintain their visibility.” Now that the health-based strategy has succeeded in solidifying nutrition-centred brands and products, Britannia is attempting to differentiate and maximise the benefits of the two poles of its biscuit business, the newer nutritiousness pole and the older indulgence pole. Accordingly, the product portfolio has recently been divided into two categories, Health and Wellness, and Delight and Lifestyle, with senior marketing executives assigned responsibility for each of them.

This portfolio structuring is accompanied by a new slogan which brings together the two categories: Zindagi mein Life or adding life (style) to life (longevity). To use a metaphor from the baking business, Britannia is now organising itself to have its cake (Health and Wealthness) and eat it too, (Delight and Lifestyle).

Outside of biscuits?

Britannia remains first and foremost a biscuit company.

The two other divisions, dairy and bread, cake and rusk (BCR), contribute only some 10% of revenue. Britannia entered the dairy business in 1997 and then spun it off as a joint venture with the New Zealand giant, Fonterra Group, in 2002.

The division has become cash positive, but provides less than 6% of revenues. The BCR division has more potential. As Harish Bijoor points out, “There is little synergy between the milk and the biscuit businesses.

BCR however, like biscuits, is all about baking and baked products. There is synergy.” The BCR has doubled in size over the last two years but from a very small base – in 2008 – it provided only 5% of revenues.

Jagdeep Kapoor assesses the BCR strategy as follows: “It is good to see management pay attention to bread and cake, after years of relative neglect. Rusk should continue to grow for three reasons: it fits the Indian palate, the Britannia product is of good quality, and the price points and

distribution system are suitable.”

As Nikhil Vora points out, the inability to enter and grow in other food categories is worrisome: “The one disappointing thing about Britannia’s performance has been its inability to extend the strong mother brand into new

food categories. Britannia has not been able to scale up in categories outside of biscuits.”

Jagdeep Kapoor also points to pusillanimity: “Britannia’s major strategic weakness has been the inability to try out two or three breakthrough concepts in different food categories. They

Go India February 2009

7 Dossier_Strategy_Feb09.indd 7

2009-02-11 10:43

DOSSIER - FOOD

STRATEGY

Distribution and Operations

need to be more risk-friendly and fear failure less. One success will eclipse a couple of failures.”

The absence from new categories may not be so much a matter of strategic choice as the result of other management preoccupations. Here, Nikhil Vora points to the ownership dispute between Wadia and Danone: “Danone would like to exit from the partnership.

Management is naturally distracted by the wrangling over the terms of the exit and the legal disputes over Danone’s use of the Tiger brand. Ideally, Wadia would become full owner quickly and then management could devote its full attention to leveraging the strong Britannia brand, over new categories.”

Packaging In products, the strategy has been a relatively conservative one, of line extension; in packaging, Britannia has been more adventuresome. In 2007 it introduced low-price smallquantity packs, known as nano packs. Depending on the brand, these retail for Rs 2, 3, 4 and 5 and contain as few as 2 and as many as 10 biscuits. The low

price and low unit count are destined to attract the on-the-go urban consumer, as well as the more budget-constrained rural consumer.

Harish Bijoor views this as one of Britannia’s most successful recent strategic moves.

First, it should be an important revenue generator. Bijoor can imagine the proportion going up to a quarter, in the medium-to long-term. He notes that the opportunity given the consumer to purchase very small quantities is actually a sort of return to the mid-20th century, when biscuits were sold in loose form at the retail level, and could therefore be purchased in quantities as small as a single unit. “These small packs are a way of building rural penetration. Rural consumers currently generate only about a quarter of Britannia’s sales – the nano packs should drive that percentage up. What’s more, rural markets can be more resistant than urban ones in times of reduced growth, such as today,” he explains. The nano pack strategy should therefore feed both Britannia’s growth and its rural market penetration.

There have been no major strategic innovations in distribution in the last few years.

Harish Bijoor notes: “The current management team inherited a good distribution system and is maintaining it reasonably well.” Jagdeep Kapoor concurs while pointing out the urban tilt of Britannia: “Britannia’s distribution in urban areas is excellent. However 72% of India’s population still lives in villages and Britannia needs to worry more about tapping and therefore distributing to that market.”

Operations is not a major strategic focus, though there has been a recent emphasis on cost control. Britannia has three factories (Delhi, Kolkata and Rudrapur) which contribute 25% of production, while more than 35 outsourced units contribute the rest. All told, some 440,000 tonnes of biscuits came out of all these factories in 2007.

Recently, wheat and cooking oil price inflation in the 20% area affected raw material costs, and crude oil inflation weighed down on distribution costs. This explains that operating margins and profit margins have not followed as strong an upward trend as the sales curve. But the price rises have triggered a management effort to control costs and thus prevent margins

from plummeting.

To help reduce costs, Britannia has improved oven utilisation, increased packing machine speed, and installed energy-saving equipment. One possible competitive benefit of raw material price inflation for Britannia is that it might function as a Darwinian selector.

The smaller players often have a more difficult time surmounting such margin pressures than the bigger, cash-heavy players.

So while the cost inflation has created headaches for Britannia, it can carry long-term benefits in the form of a pruning of the competitive landscape.

At this end of the tour of Britannia, how can their strategy be summarised? It has been one of first building brands through product quality and astute advertising, and then leveraging those brands through line extension. Judging by sales growth and profitability, it has been a safe and successful strategy. Some onlookers though, might prefer to call it a successful, but safe strategy.

Might it soon be time for brand extension, that is to say, bold forays into new food categories using the Britannia banner? ■

NEXT ISSUE: AUTOMOTIVE

Go India February 2009

8 Dossier_Strategy_Feb09.indd 8

2009-02-11 10:43

DOSSIER - FOOD

SECTOR WATCH FOOD ON THE TABLE India is an agricultural giant, but just a small player in world agricultural trade. Of its production, less than a fifth is transformed into upper-scale branded products.

And the big Indian food companies are specialists rather than global conglomerates

ndia produces $190 billion of agricultural products every year. Of that, only about 15% (roughly $27.5 billion) goes into the organised (usually packaged) food industry.

The remainder is sold as raw materials for direct cooking, for example fresh vegetables, bulk pulses or cereals, or

I

unpackaged meats.

When the rest of the world thinks of India, it thinks of software and Bollywood. Because India accounts for little more than 1% of global agricultural trade , the rest of the world tends to ignore its agricultural gigantism.

But according to the Food

One big belly

Eating three times as much

Total world food spending in 2008 was approximately $ 4.6 trillion. Western Europe (500 million people) led with some $1.2 trillion, 27% of the world total. Asia and North America follow with 23 % ($1.0 trillion) and 21% ($ 950 million). Food spending was about 17% of world consumer spending. North Americans spend only 9% of their budget on food while transition economy consumers have to devote over 33% to food.

India’s 1.1 billion inhabitants consumed a total of $190 billion in food in 2007, meaning only $175 per person on average. Although the growth since 2004 has been very strong, there is still room to grow, especially in rural areas, where inhabitants grow their own food instead of purchasing it in stores. At constant (i.e. adjusted for inflation) prices, Indian food consumption increased by approximately 6% on an annual basis.

Big American stomachs

Specialist players remain dominant

Worldwide top ten food producers

India’s top fifteen listed food companies

Company

Country

Speciality

Cargill Inc Nestlé SA Unilever Pepsico Inc Kraft Foods Inc Tyson Foods Inc Groupe Danone General Mills, Inc Kellogg Company ConAgra Foods,Inc

US Switzerland UK US US US France US US US

Agricultural produce Food products Food and hygiene products Food and beverages Food products Foods Dairy and foods Foods Foods Foods

Revenues 120.4 94.1 52.2 39.5 37.2 26.9 15.7 13.7 11.8 11.6

Notes: Revenues in USD billions, Rankings vary based on exchange rates (from CHF and Euro), Source: Seeking Alpha.com

Everybody eats. So there are big food companies spread around the world. They usually come from the larger agricultural countries, such as USA (7 companies in the top 10), France, and UK. The presence of Swiss company Nestlé is worth noting: an example of how good product positioning and strategic savvy can build a giant. Nestlé built itself on the world’s sweet tooth for chocolate. Maybe Tata can strike gold with tea!

Company name

Headquarters

FY 2008 Revenues (Rs crore)

Main product

Ruchi Soya Inds. Ltd.

Mumbai

11,020

Soybean products (oil, etc.)

Nestlé India Ltd.

Gurgaon, Haryana

Adani Wilmar Ltd.

Mundra, Gujarat

3,402

Edible oils

Britannia Industries Ltd.

Bangalore

2,679

Biscuits

Gokul Refoils & Solvent Ltd.

Ahmedabad

3,647

Confectionery, Maggi

2,057

Edible oils, vanaspati

Triveni Engineering & Inds. Ltd. Deoband, UP

2,048

Sugar

K S Oils Ltd.

Morena (MP)

2,045

Edible oils

Rei Agro Ltd.

New Delhi

1,854

Rice

Bajaj Hindustan Ltd.

Mumbai

1,848

Sugar, ethanol

Gujarat Ambuja Exports Ltd.

Ahmedabad

1,839

Edible oils, wheat flour Source: Prowess. CMIE

Most of the top Indian food companies have a focused product portfolio. Some concentrate on rice, others on edible oils, others on baked goods, and others on dairy. There are still relatively few food conglomerates such as one finds in USA or Europe (think Nestlé, Danone or Kellogg’s). Tallying revenues of roughly $2.2 billion, India’s top food company, Ruchi Soya, is about one-fiftieth the size of Cargill, the world’s largest food company.

Go India February 2009

10 Dossier_SW_Jan09.indd 10

2009-02-10 17:31

and Agriculture Organisation (FAO) figures, India ranks first or second in no less than 40 commodity categories! In such key commodities as rice, wheat, sugar and tea, it is the world’s second producer. No surprise then that production exceeded $10 billion in four categories: rice, buffalo milk, wheat and cow milk.

Their are two areas for increases in agricultural efficiency. The first is improved storage and transportation facilities (an estimated 30% of produce is wasted, for lack of proper facilities). A second area is mechanisation. Machinery constitutes only 8% of India’s agricultural assets, as compared to 18% for a Latin American

country like Argentina, or 32% for a European country like Spain.

With branded foods constituting less than 20% of the market, there is room for major growth as middle class food consumption increases. McKinsey projects food and beverage spending to grow annually at 4.5% (6.3% in urban areas) over the next two decades. ITC has

jumped on the bandwagon in a massive way. Well established brands, such as Britannia, Dabur and Amul, should also prosper in such an environment. But, perhaps given the size of the various Indian markets, India’s players tend to be specialists.

A global conglomerate like Switzerland’s Nestlé, or the US’s Kraft has yet to emerge. ■

Second in command

Rice beats wheat

Only China produces more agricultural output than India’s estimated $190 billion. That places India well before other agricultural powerhouses, such as USA or Brazil. Yet look at the figures from Japan: how can a country with so little land produce so much? Smart crop choice and high efficiency are part of the answer, and perhaps something that India should emulate. That could help place India in the same league as China.

India’s largest crop is rice with over 95 million tonnes produced in 2008. Just behind is wheat, at 78 million tonnes. Bronze medal goes to the various pulses that go into the different dal dishes. This agricultural production reflects India’s need to feed its mouths first and foremost; export is still a small proportion of agricultural output. This contrasts with countries like Brazil, where enormous soybean exports help the trade balance.

How the packaged goods stack up

Some tuna with your tea?

According to the data compiled by the EIS, the top three sectors of organised food sales are marine products, edible oils and the sugar & confectionery segments. Together these three behemoths account for almost 75% of the organised food sector. The remaining 25% includes the higher-value food segments, such as biscuits, tea and coffee, fruit juices, and sauces and ketchup. Only tea and coffee seem somewhat saturated – maybe their low growth rate reflects the encroachment of healthy fruit juice.

Marine products are the largest segment of packaged foods in India, due to their organised distribution. Edible oils, as well as sugar and confectionery, are also traditional big segments, benefiting from the need for industrial facilities for their production. Some of the highest growth segments are traditional staples – rice and poultry – which reflects the increasing size and wealth of the Indian middle class.

Go India February 2009

11 Dossier_SW_Jan09.indd 11

2009-02-10 17:31

DOSSIER - FOOD

FINANCE

HOW FARMERS BECOME ENTREPRENEURS Trading in agricultural commodities has been a boon for farmers, providing far better information and transparency than had been the case in the days of spot trading or Rajesh, a small farmer in Uttar Pradesh, most concerns revolve around his small plot of land, where the stalks of green chana (gram) dictate his livelihood. In good years, he can expect a crop of 56 quintals. In bad years, it can drop to 28. And then he has to deal with the fluctuations in prices, which in 2008 varied by 10% around a base of Re 1, per quintal.

Rajesh sighed; the weather was unpredictable, but at least he could gather good information on the commodity prices, thanks to the Mumbai Multi-commodity Exchange (MCX) blackboard hanging on the wall of the post office in the next door village, 10 kilometres away (see box).

F

Thanks to regular updates sent from Mumbai to the larger post office in the taluk, and then printed and mailed to the local post office, he had access to data from the Mumbai MCX and other exchanges in India. He might not know what exact quantity he will end up with, but he will know at what price he can sell it.

History India’s first exchanges for trading commodities started over 135 years ago, when cotton was traded in about twenty regional exchanges spread around the country. These exchanges were so-called forward markets, wherein the sellers typically carried the physical goods with them. These were pit-based

facilities, with buyers and sellers shouting their bids. These trades were almost always accompanied by physical delivery of the goods.

Cotton was handed over for hard cash – although in those days the cash was often gold, or silver coins, or guaranteed bank drafts.

The Bombay Cotton exchange was founded at the same time as the Chicago Board of Trade, which is now one of the largest commodity exchanges in the world, with an annual volume of transactions of a staggering 153 million lots, about 1.6 times the volume of the Mumbai MultiCommodity Exchange. But these exchanges had no technology, which is what sets these exchanges apart nowadays.

In 1960, the Indian

government banned the regional trading centres, in order to reduce the role of speculators, who were perceived as parasites living off hard-toiling farmers. But the liberalisation and globalisation path adapted by the government during the last decade or so prompted a re-thinking. The government realised that it had to transform the farmers into entrepreneurs if India were to become self-sufficient in food.

The question that arose was how to make the proper tools available to the farmers? Should it be via a return to the creation of more formal commodity exchanges, to dampen the volatility that exists in a spot market?

In 2002, the government issued a tender for the creation

Go India February 2009

12 Dossier_Finance_Feb09.indd 12

2009-02-11 10:52

BLACKBOARD TO RICHES MCX earns its money by charging traders a trading fee. It re-invests in its core stakeholder: farmers n the mid-2000s, the board of the Mumbai Multi-commodity Exchange (MCX) was in session, and one of the topics on the agenda was how to increase the social contribution of MCX, namely how to help the millions of Indian farmers.

The conditions in the countryside could not have been further from those in Mumbai: irregular power supply, inexistent Internet connectivity, low technological access. So a programme called Gramin Suvidha Kendra (GSK) was conceived, with ambitious targets, yet low-tech needs.

MCX’s chief economist, V Shunmugam explains the basics: “Our thinking was to link up with the network of about 155,000 post offices dispersed throughout India (of which about 89% are in rural areas).

Because there is a legal obligation regarding the distribution of the mail, there is at least one post office for every five villages. We started in 2006 with just one post office. We now have 250 to 300 boards set up.”

GSK uses a very simple principle: install a large blackboard on the outside of a post office, and have the current prices for agricultural commodities chalked up every day. In order to provide the up-to-date prices to the local post offices, MCX cannot rely on direct communication.

Instead, MCX communicates the information to the taluk level, and it is there that printouts are made and dispatched, along with regular mail, to the local post offices, using the faithful bus service trundling along the back roads and dirt paths of the deepest Hindi hinterland. Naturally, the prices that end up on the blackboard might not be as fresh as those on a Reuters or Bloomberg screen, but they are still miles better than last season’s actual prices.

“We provide prices for about five to ten products,” pursues Shunmugam, “and we make sure that both locally-grown products and good potential products are included. It is what we call the ‘sell and sow’ portfolio: what is being produced in the vicinity of the post office, and also which products might be good for the near future of the farmers.”

Although GSK is still in its infancy – and is still a ‘cost centre’ for the MCX – the objectives of the project are to be financially self-sufficient. “We hope to attract funding sponsorship from corporates that are interested in reaching the farmers. Think weather insurance companies, or water purification companies for example,” explains Ms Sarita Bahl, Vice President, CSO/MCX. She also explains that the project has caught the eye of the Bill and Melinda Gates Foundation. ■

I of a proper commodity exchange, modelled on those existing elsewhere in the world following global best practices. The groundstone of this policy shift was to have a national electronic exchange, so that buyers and sellers nationwide, would have access to fully transparent data. MCX was actually the second commodity exchange to be created (the first was the National Multi-Commodity Exchange of India Ltd, or NMCE and the third was National Commodity Exchange of India Ltd. or NCDEX).

Basic definition A commodity exchange is a virtual (or financial) marketplace for specific commodities. The transactions occur between members of the exchange, on their own initiative, or at the request of buyers and sellers.

Each transaction involves contracts (more on that below) for a specific commodity. Many of the transactions traded every day are purely for investment purposes; but many of the transactions actually involve the actual sale of physical goods and their actual physical delivery.

Transactions of both natures have their roles within the life of a commodity exchange.

Contract characteristics On any commodity exchange, each transaction is defined by its underlying contract. The first fundamental characteristic of each contract is whether it is a buyer’s or a seller’s contract. This is important since the contract determines point of delivery, and transport costs can be substantial (transporting, say, 10 tonnes of chana is not necessarily cheap).

Each contract will also include other important elements: ■ a standardised commodity (defined from an established list, e.g. 7mm cardamom, or soybean, or gold biscuit).

■ a delivery date (or maturity date).

■ a delivery place (for example north India or south India).

■ the amount of the commodity, called the lot size (usually the minimum amounts are quite high, for example 500 kilograms of cardamom or 10 tonnes of chana or 8 grams, 100 grams and 1 kg gold coins and ingots).

■ the value, or price of the contract.

Contract types There are three basic types of contracts in commodity trading.

1. Spot contracts 2. Futures contracts 3. Forward contracts

Spot contracts Spot contracts are the smallest part of the market, since they include compulsory delivery of the goods, whereas futures and forwards are purely financial contracts and do not require delivery of goods if they are

resold before maturity. Typically spot contracts are for delivery in less than 11 days, and are usually for two or three days.

Futures contracts This is the main instrument traded on the MCX. Futures

Go India February 2009

13 Dossier_Finance_Feb09.indd 13

2009-02-11 10:52

DOSSIER - FOOD

FINANCE

Cardomom from India to Saudi coffee drinker Production Cost

A Auction Price (Rs/kg)

Export Price (Rs/kg)

Spot price (Ri (Riyadh, Saudi Arabia) (Rs/kg)

N.A.

638

659

798

Note: Actual production producction cos cost not available but would include seed, fertiliser, and labour cost of farmers. Cardamom quality: extra bold, 6-7 MM, Source: MCX

contracts, like forwards, are financial transactions, i.e. usually without trade of physical goods.

Although futures are somewhat similar to forwards, there are some substantial differences: ■ a counter party is specified (if traded at an exchange), and so the exchange will penalise the defaulting party, ■ the contractual terms are public, ■ the commodity covered in the contract is standard (e.g. 7mm cardamom and also 6mm cardamom is deliverable at a discount).

Forward contracts A forward contract is a financial contract, i.e. usually without trade of physical goods. It is a private, unregistered transaction, where only the two parties to the deal know the terms. A forward contract will specify price, quantity, and terms of delivery (date, location). Forward contracts are non-standardised, so they can also cover ‘unusual’ (i.e. non-standard) commodities.

Since these are confidential contracts without a counter party, there is no formal guarantee, for example, in case of non-delivery by seller, or delivery of goods not

conforming to the contract.

At the maturity of the contract (when it expires), both forwards and futures contracts can be rolled over, upon mutual agreement between the parties.

effective functioning is its market operations department, which is divided into surveillance, clearing and settlement divisions. These divisions manage the market operations in a more effective manner. To support the traders, How the commodity the exchange services quality exchange functions department constantly monitors Like stock markets, commodity the effectiveness of various exchanges are ‘market platforms’ exchange functions and provides wherein only paying members can feedback in order to improve them. trade directly and others would The business development have to become their client to trade department helps to expand the on. The Mumbai MCX counts exchange business. It is split about 2,000 members. In turn, into marketing and product each of these members reaches knowledge management, both out to hundreds or thousands needed to develop the business of clients – banks, food industry by empowering the traders. The giants, wholesalers, other actors membership, compliance, and in the agro/food business, and the legal department manages myriad speculators and daytraders the daily communications – who wish to have transactions with the traders, pertaining carried out on their behalf. The to their issues, or requests on MCX members then act as brokers the exchange platform. This to fulfill the requested deals. All ensures a stream of innovations the transactions are carried out in the MCX offerings, and this on a server which is connected helps the exchange maintain its seamlessly to the competitive edge.

SIMPLIFIED computer terminals MCX’s research ORGANISATION of the members, and development CHART using dedicated department h screens. helps to create Chairman & CEO a develop new As a self and p regulating entity products (i.e.

MD & CEO the key to MCX’s contracts) for

the exchange. This is done by intensive interaction with the physical market participants to decide on new contract specifications.

MCX revenues derive from commissions on each transaction (trading fees), from membership fees paid annually, and from license fees. The approximately 2,000 members of the MCX include speculators, arbitrageurs, hedgers, jobbers, farm cooperatives, large agro/ food producers, food wholesalers and retailers.

Every day, at the MCX, more than 314,000 transactions are completed, covering a basket of 55 tradable commodities. The most actively traded goods are gold, crude oil and silver. The top agricultural commodity is refined soybean oil.

The vast majority of trading on the MCX is in futures contracts. Only about 1% of the transactions are on the electronic spot market as it exists on National Spot Exchange Limited – sister concern of MCX. “Our spot activities are the new kid on the block,” explains V Shunmugam, the chief economist at MCX. “It was launched in October, 2008. Spot trading is always more complex to set up, since one needs to deliver the goods.”

The advantage of an exchange is that it can cut out intermediaries that normally add to the end-user price. Typically, there is a 30% to 40% price difference between the price to Source: MCX

Chief Technology Officer

Sr VP Economic Analysis

Chief Business Officer

Chief Market Oper. & Legal

Chief Membership & Compliance

VP Research & Planning

Go India February 2009

14 Dossier_Finance_Feb09.indd 14

2009-02-11 10:52

DOSSIER - FOOD

FINANCE

CARDAMOM’S LONG JOURNEY

Take cardamom as an example of how agricultural commodities go from field to kitchen cabinet, and how commodity exchanges help along the way ndia is the world’s second largest producer behind Guatemala. Some 40,000 farmers produce anywhere between 9,000 and 12,000 tonnes, depending on the disposition of the weather gods.

Cardamom grows on bushes in the southern areas of India (Kerala, Cochin). After the harvest, the capsules are dried and graded, that is sorted into homogenous categories. The diameter of the capsule typically, serves as the criterion, with capsules of 7mm or larger being the best category. MCX for example trades the 7 mm category and 6mm cardamom is also deliverable at a discount. The 5mm graded cardamom is sold in the southern market. The damaged or undersize capsules go into processing for the production of masala.

The first step in the sale process is that cardamom is physically taken to areas where it is sold in auction. After the auction in the hills, the buyer (who is a wholesaler, or spice trader) takes direct delivery of the goods and has them shipped to his warehouse. At most, the cardamom can stay in the auction area for one week to 10 days, before it starts deteriorating.

The traders can then sell their cardamom directly to traditional buyers, or on exchanges, like the MCX. Large agro/food companies purchase directly from the producers (or their cooperatives) which ensures that they get lower prices, since no intermediary has been used.

MCX handles perhaps 1% of the total cardamom market, so it has not replaced the physical trading that is still the bulk of the sales for farmers.

Its futures contract, sized at 100kg and launched in 2006, offers a hedge against cardamom price volatility (a range of Rs 350 to Rs 650 per kg). ■

I the end consumer and the price on the commodity exchange.

Another important function of a commodity exchange is to insure market transparency and fluidity. The MCX recently carried out a ‘dipstick’ survey among farmers, and this showed that farmers used the MCX prices in order to decide when to sell their goods, and thus benefited from better returns.

The MCX futures and spot prices are displayed outside the village post-offices and updated daily and freely available to anyone.

Commodity exchange actors The traders on the MCX are a motley bunch, including hedgers, arbitrageurs, speculators and jobbers. How their roles vary is loosely defined, but here are some guidelines.

Hedgers are participants in the futures market who are interested in transferring the risk associated with the underlying commodities they would be carrying in the physical market.

A hedger establishes a position in the futures market that is equal and opposite to a position in physical market, so that a loss in one market, is offset by a gain in the other market. By doing so, the hedger streamlines the information available in the system, and thus improves the efficiency of commodity pricing.

Arbitrageurs are interested in making transactions in two different markets simultaneously, to profit from price differentials/inefficiencies in these two markets, thereby hoping to gain profit out of it.

Arbitrageurs therefore provide

FOOD FIGHT Comparison of top worldwide commodity exchanges Name

MCX (Mumbai Commodity Exchange)

NCDEX (National Commodity & Derivatives Exchange)

NMCE (National MultiCommodity Exchange)

CME (Chicago Mercantile Exchange)

Mumbai

Mumbai

Ahmedabad

Chicago

Location Year Founded

2003

2003

2002

1898

Number of members

2,015

2,097

n.a.

3,138

Lots traded FY2008 (millions)

94

27

22

3,300

Source: Company websites, GO analysis

pressure to smoothen and equate the prices of commodities and negate the differentials.

Speculators accept the risk from other players in the market and pass on the information about the fundamentals into the markets. They benefit as much with increased prices, or decreased prices, based on their positions on the exchange. Informed and regulated speculation is useful for developing an efficient marketplace/exchange, and helps in developing liquidity.

Jobbers operate (buy or sell) on every price tick movement, creating market depth. They

provide positions for others to take up, while entering or exiting market to minimise their cost of transactions.

So, while to some it may appear that a commodity exchange is a hotbed of parasitical speculation (with smarter-than-thou traders hoping to outbet other ‘lesserbrained’ traders), in fact the liquidity and price efficiencies that the exchange provides, are key to increasing the wealth of the producing farmers as well. ■

NEXT ISSUE: ISSUING BONDS

Go India February 2009

15 Dossier_Finance_Feb09.indd 15

2009-02-11 10:52

GLOBAL TRENDS Hit the Road & Get Paid A 23-year-old techie launches an innovative advertising programme: register your car as an advertising medium and get paid to drive it

C

ASHurDRIVE introduced India to its first private onvehicle advertising medium. The big idea was born when founder Raghu Khanna was whiling away time in a traffic jam.

Serendipitously, the jam allowed him to indulge in a pastime of his, looking for humourous truck slogans, when it suddenly struck him that he could use private cars in a similar ‘commercial yet entertaining’ manner, for advertising. The idea attracted investor support from VC Hunt Global. Revenue projection in the first year is around Rs 2-2.5 crore and for the second year Rs 18-20 crore, as the company plans to become pan-Indian.

CASHurDRIVE is actually in a line called Permission Marketing. Specifically, it is an on-vehicle advertising company that enables vehicle owners to allow the placement of ads on their vehicles and, in return, earn petrol redemption coupons. It’s CASHurDRIVE that emplaces the ads for the vehicle owner,

covering the four doors but leaving free the boot, bonnet and fenders. It also installs an electronic vehicle tracking system (VTS) by which clients can check where and at what time of day their advertisements have been exhibited.

To be sure, this form of advertising has been in use for a long time on truck fleets run by companies like, say, CocaCola, or Shell. But using private cars for the purpose is new and introduces the element of quiet personal persuasion, in contrast to Coca-Cola’s big-voiced and livid come-on. Besides, there are many more private cars than there are trucks, and therefore many more potential carriers of advertising. So it will come as only a small surprise that CASHurDRIVE, along with its long list of individual motorists who participate in its scheme, now also has a growing list of companies that have a couple of hundred cars fitted out with their

advertisements. The companies of course pay CASHurDRIVE for this service.

Raghu Khanna’s company was launched in August 2008 and started up in Chandigarh, in the first week of September.

It spread to Himachal Pradesh, Mohali (Punjab), Panchkula (Haryana) and some parts of Rajasthan, and at present, has about 13,500 participating cars. With companies hurrying to avail themselves of this new advertising medium, CASHurDRIVE already has biggies like Reliance and Virgin Mobile advertising with it. In its next phase of expansion, the company plans to offer its services in various other parts of the country. As companies handling advertising on commercial vehicles are the only major competitors at present, CASHurDRIVE is also in the process of entering this line.

CASHurDRIVE follows a simple working process.

Interested car owners register their vehicles on the company website, in the process furnishing information about the rounds they normally

drive. Cars are then selected, based on the kind of market the advertiser wants to target.

On the participating car itself, advertising, in the form of big vinyl stickers, is emplaced for the

length of the specific advertising campaign (which may last anywhere from three months to a whole year). Depending on the kilometres the car travels, the places it parks, the areas it goes through regularly, and the amount of space on the car apportioned for advertising, car owners can earn anywhere between Rs 1,200 to Rs 1,500 per campaign. The company has tied up with Hindustan Petroleum and Bharat Petroleum to pay the car owners with their redeemable fuel coupons. At the beginning of a campaign, participating car owners are advanced coupons. At the end of it, accounts are settled on the basis of kilometres covered.

In order to ensure that advertisers can track their campaigns, the participating vehicles are fitted with Vehicle Tracking System (VTS) and Near Field Communication (NFC).

This is done at the time that the advertisements are emplaced. A firm specialised in the relevant electronic field, BlackBox, oversees installation and maintenance of equipment.

As we have seen, CASHurDRIVE was born in a traffic jam. It is now growing because of the mounting number of them. Currently, the annual growth in private vehicle registrations in India is close to 30%.With drivers becoming ever more captive viewers of advertising displayed in the resulting jams, it must be comforting to them to be rewarded in petrol coupons for their inconvenience. As for Mr Raghu Khanna—well, would you believe that he’s laughing all the way to the next gridlock? ■

Go India February 2009

16 GT_Asia_Feb09.indd 16

2009-02-10 17:33

Asia Low cost manufacturing, high proximity support with design and development capabilities. Through this acquisition, ESCATEC gained advanced competences and the enviable position of being able to offer its European customers the convenience of local support.

The Asian manufacturing teams and Swiss design teams soon etched out a new identity for the

to $200 billion, but EMS providers will have to counter increased competition from Original Design Manufacturers (ODMs) and Original Brand Manufacturers (OBMs) - ODMs perform design functions on top of manufacturing functions and OBMs, such as Acer, manufacture machines under their own brand. As Professors Mads Christoffersen and Zoran Perunovic of the Technical University of Denmark show in their case study, ESCATEC: Building a Global EMS Company, the primary issue at present for ESCATEC is whether to expand through acquisitions, consider

company – a tier-2, verticallyintegrated electronic design and manufacturing service provider with international reach. Thanks to this acquisition, ESCATEC was able to offer its Western customers high-proximity support (through Europe) and low-cost manufacturing (through Asia).

The EMS market is forecasted to grow through 2010 to close

alliances/ joint ventures, or shift strategies to grow as an ODM. Since its inception, ESCATEC has continuously striven to expand their portfolio of services.

Albin’s vision has been to make ESCATEC a one-stop EMS that could offer a full range of manufacturing services usually characteristic of tier-1 EMS providers, but with the focus and flexibility of a medium-

ESCATEC, an electronic manufacturing services provider, is combining manufacturing in Asia and support in Europe

A

Swiss engineer, Christophe Albin, started his life as an entrepreneur in 1983 in Penang, Malaysia when he created ESCATEC. Realising the huge opportunity to manufacture power supplies for HP calculators, he borrowed money from investors and set up a small operation, which gradually grew into a tier-2 electronic manufacturing services (EMS) provider (a tier-2 EMS is defined by sales between $100 million and $1 billion). EMS providers manufacture products based on designs provided by original equipment manufacturers (OEMs), and sold by OEMs under the OEM brand name.

Over the years, the company added manufacturing facilities in Indonesia and China. Still headquartered at Penang, ESCATEC generates 40% of its sales in the industrial electronics sector and another 14% in high-end consumer goods (Bang&Olufsen of stereophonic renown is a customer); roughly three-quarters of their sales are to European customers and the remaining to North American customers. Its 2006 revenues were $176 million, making it 50th in the world ranking of EMS providers.

Through a highly strategic move in January 2003, ESCATEC acquired Swiss-based Wiltronic, an electronics manufacturer

sized company. Another unique quality of ESCATEC is that in a manufacturing-driven industry, the company has always considered itself to be a customerfocused organisation. To keep abreast of a changing industry scenario, ESCATEC is considering the strategic option of becoming an ODM, in order to be wellequipped when the OEMs get to their next level of outsourcing, outsourcing processes previously considered to be too close to OEMs’ core competences. In Professors Mads Christoffersen’s and Zoran Perunovic’s opinion, “The most logical route to expansion would be to develop design and development competences through acquisitions in Europe, as a majority of their customer network is made up of European companies.”

The ESCATEC case illustrates the gradual metamorphosis of the outsourcing business. The EMS industry was all about manufacturing and therefore about the manufacturing competences of cost, quality and delivery. But with changing times, the emphasis has shifted to managing customer relationships and processes.

Today, the competences that make a customer choose and retain an EMS provider are total customer satisfaction, account management, and design and development. With its Asian manufacturing base and European support base, ESCATEC is not falling behind the curve. ■ Reference: ECCH 308-044-, Technical University of Denmark, Associate Professors Mads Christoffersen and Zoran Perunovic

Go India February 2009

17 GT_Asia_Feb09.indd 17

2009-02-10 17:33

CASE STUDY

MARKETING

EXTENDING THE BRAND Extending an existing brand into uncharted waters is a profitable yet delicate task. Marlboro has done it with clothes.

Kingfisher is trying with air travel ompanies introduce new products all the time, many of them within the company’s existing product categories; some outside of those categories. In both situations, companies have the option of using existing brand names or creating totally new ones. If the company already has products in the category, it will often use the same brand. CocaCola does this. When it introduced a cherry cola, it did so by creating Cherry Coca-Cola, not by inventing some totally new brand name. This is line extension, where you extend the brand to a new product in an existing line.

Otherwise the company can create a new brand within the product category, a practice commonly called multi-branding. This is what Procter&Gamble does in detergents, where it has several

C

different brands.

If the product category is new to the company (no existing line), it can create a new brand. When Coca-Cola moved into the new category of bottled water, it did not use the Coca-Cola, brand, but created a new one, Dasani. Or else the company can adopt an existing brand, which is being used for products in other categories. For example, Marlboro moved into a new product category, clothing, but stuck with the Marlboro brand name. This latter practice of extending an existing brand to a new product category is known as brand extension. Why would one and when should one resort to brand extension?

Branding and brand extension David Aaker, the branding guru has said, “A company’s brand

is the primary source of its competitive advantage and a valuable strategic asset.” A brand is a name, term, sign, symbol, design, or a combination of all of these intended to identify a product of a company and differentiate it from competitors.

It converts a commodity to a product, creating an identity for a marketer’s goods or services.

It creates an image, identity and personality that are essentially rooted in the perception towards the product, or even the idiosyncrasies of the consumers.

For example, two of the world’s best-known brands, Coke and McDonald’s, are associated with the American way of life, even when they are adapted to various local conditions in the markets that the products are sold in.

In the fiercely competitive consumer markets, it is necessary

to differentiate one’s products.

Products’ physical characteristics might be relatively easy to duplicate, so something else is needed. It is brands that give them the differentiating personality, says Tridibesh Bandopadhyay, professor of marketing, at United World Business Schools. A powerful brand is one which has high name awareness, perceived quality, or loyalty. And a powerful brand, that is to say high brand equity, allows a company to protect itself against price competition as well as demand volatility.

Once you have succeeded in building a powerful brand, you can leverage that brand equity. Brand extension is just that process of leveraging brand equity across a number of markets. Rather than trying

Which brand name is used?

Situation

Branding strategy

Type of brand expansion

Examples

Brand is the Company Name

Brand is used to extend into new segments

Brand extension

Virgin, from music into airlines, cola, etc.

Kingfisher, from beer into airlines Tata, for a variety of products

Brand is the Product Name

Existing brand is used to add new product variations

Product line extension

Coca-cola adds Light, Cherry versions Dabur’s Vatika (hair oil, then shampoo)

Neither (brand is not linked to existing brandnames)

New brand is launched a new product/service

New brand, multi-brand

Nestle with Nescafe, Maggi, Knorr, etc.

Procter&Gamble in detergents with Ariel, Dreft and Tide

Go India February 2009

18 CS_Marketing_Branding_January_09.indd 18

2009-02-11 10:46

to build up a new brand from scratch, brand extension seeks to use the power of an existing brand. Rather than incur the heavy marketing expenditures associated with a new brand, brand extension limits the expenditures to publicising the new category. In times of rising media costs, brand extensions are an inexpensive way to enter new categories. Besides, brand

BRAND VALUE RANKING Brands are as important to the survival of companies as credit facilities. Consequently, brand rankings which follow in the footsteps of credit ratings now exist rand Finance, the company that values global brands, analyses the top 500 companies listed in the Bombay Stock Exchange annually. Using a rating system similar to that of credit rating companies, Brand Finance rates these brands on their capacity to generate income, but also on the likelihood that the brand will continue to do so. The analysis considered a number of objectively verifiable key indicators of brand performance. All brands in the market were scoured to arrive at the relevant ratings.

Brand Finance used four parameters marketing actions, customer attitudes, customer behaviour and market performance. Various brand performance factors considered to arrive at a brand’s value are: M&A activity, new product launches, R&D efforts, sales growth, market share growth, distribution, and consumer awareness and behaviour.

David Haigh, Chairman of Brand Finance, recently said that Indian companies have, over the recent past, worked on branding quite aggressively. This is why most of the leading brands in the country are new and only a handful of the leading brands of the 1970s continue to exist. In the financial downturn, the brands that are capable of tiding over, are the ones that take their branding strategy seriously.

The Tata brand, in that sense, is the strongest. ■

B

Brand Power Rating Rating

Rating

Brand

Brand 2007

2006

2007

2006

RIL

BBB+

A

Jet Airways India Ltd

AA+

AA

TCS

AA

A+

Grasim Industries Ltd

BBB+

BBB+

IOC

BB

BB+

Dabur India Limited

A

SBI

A

BBB+

Housing Devel. Fin.

A+

A

Wipro Ltd

A+

A

HDFC Bank Ltd

A+

A

Tata Motors Ltd

A+

A

Dr. Reddy’s Lab.

BBB+

BBB

ICICI Bank Ltd

A

A

Idea Cellular Ltd

BBB+

Bharti Airtel Ltd

AA

A+

Indian Hotels Co (Taj)

BBB+

A

BPCL

BBB

BBB-

PNB

A

BB+

ITC Ltd

A+

A

Videocon Ind Ltd

BBB

BB+

Infosys Tech Ltd

A+

BBB+

Tata Comm. Ltd

BBB

HP Corp

BB

A

Pantaloon India Ltd

BBB-

Rel. Comm Ltd

BBB

BBB+

Axis Bank Ltd

BBB

BB+

Tata Steel Ltd

AA+

AA-

Bank of Baroda

BBB+

BBB

Larsen & Toubro Ltd

A+

A

Bank of India

BBB

BB+

United Breweries Ltd

BBB

i-Flex Solutions Ltd

A

BBB+

Maruti Suzuki Ltd

A

BBB+

JSW Steel Limited

BB

BBB+

M&M Ltd

A

BBB+

DLF Limited

BBB

Ranbaxy Lab Ltd

BBB-

BBB+

Kotak Mah. Bank Ltd

BBB+

BB+

Bajaj Holdings & Inv.

AA

-

Essar Oil Ltd

BBB-

BBB+

Suzlon Energy Ltd

A

BBB+

Jaiprakash Asso Ltd

BBB

HCL Tech. Ltd

BBB+

BBB

Tata Power Co Ltd

BBB+

BB-

Satyam C. Ser. Ltd

BBB+

BBB-

GMR Infra. Ltd

BBB+

BB-

Hero Honda M Ltd

BBB-

BBB

Reliance Infra. Ltd

BBB

BB-

Tata Tea Ltd

A-

ACC Limited

BBB+

BBB-

HOW TO READ POWER RATINGS AAA Extremely Strong

BB Under Performing

AA Very Strong

B Weak

A Strong

CCC Very Weak

BBB Average

CC Extremely Weak C Failing

Source: Brand Finance Survey, January 2008

extension results in immediate recognition and faster acceptance as consumers are familiar with the existing brand.

When successful, brand extension increases brand equity.

Some companies, faced with advertising restrictions, have actually used brand extension as a way of maintaining strong brand visibility. For example, restriction on surrogate advertisements on tobacco products could not drive the successful Marlboro brand to extinction as the brand was extended to Marlboro Jeans.

Similar was the case in India as ITC’s Wills cigarettes brand was extended to Wills Sport and United Breweries’ Kingfisher beer brand was extended most successfully to Kingfisher Airlines.

A classic example of brand extension involves the Tata brand. This brand has for years been one of the most trusted brands in India. So, over the years, as Tata entered new and unrelated product categories, it has used the same brand and practised brand extension.

However, in the early 2000s, it was found that the Tata brand was ageing and did not connect with the youth. A massive brand development exercise was initiated so as to ensure the success of brand extension in youth-oriented product categories, like telecommunication, software and automobiles.

Similar has been the case with Wipro. The 40-year-old company had operated in a number of sub-brands (Camel biscuits, Sunflower edible oil, Santoor and Mysore sandalwood soap, Baby Soft talc). In the 1990s, the

Go India February 2009

19 CS_Marketing_Branding_January_09.indd 19

2009-02-11 10:46

CASE STUDY

MARKETING Brand extensions Virgin

HOW DABUR DOES IT The fourth largest Indian consumer goods company puts together a balancing act of line extension, brand extension and new brands s a 120-year-old company, Dabur has had time to position its brand around the an image of herbal health. It has been successful in creating various subbrands under the Dabur umbrella.

Chyawan is an example. The oldest and the most successful product is Chyawanprash, a granular ayurvedic health supplement that was launched as long ago as 1949 and can serve as an example of success in brand name selection. As the story goes, Chyawan, the son of Bhingu and Puloma, was physically weak. He was rejuvenated

by Ashvini Kumar, who offered him a divine medicine, Prash.

Other sub-brands under the umbrella brand of Dabur include Vatika (personal care), Hommade (cooking paste), Gulabari (personal care), and Hajmola (digestives). These sub-brands benefit from the positive equity of the Dabur brand. Within those sub-brands, the company practices line extension. For example, when launching a granular diabetic, Dabur used the Chyawan sub-brand: and launched Chyawanprakash (stress reliever). When introducing a new shampoo, it did so in the existing Vatika line.

But it also uses brand extension. For example it wanted to enter the kid’s health drink category. Rather than create a new brand, it decided to leverage the well-known Chyawan sub-brand (associated with granular health supplements). It felt that the association of Chyawan with health would carry over well in this new category. Another example from the drink category. It wanted to enter the fruit juice market. Since the juice was to be positioned as a natural drink and not specifically as a health drink, Dabur forsook the Chyawan sub-brand and created an entirely new one. The Chyawan attributes did not fit well with the values of the target market, so Dabur invented a new brand, Real. ■

A

company expanded and used the same umbrella brand of Wipro, associated with the growth of Wipro Systems, for engineering products like hydraulic cylinders

for construction machinery, medical equipment, lighting and computer hardware and software.

Retail players like Café Coffee

Virgin Music

Virgin Airlines

Virgin Resorts

Virgin Cola

Original concept (1970)

Brand extended (1984)

Launched in 1988

Launched in 1994

Launched in 2005

Music retail chain

Using same target group

More upscale yet successful

Failure

Space tourism

Day and Barista have extended their brands to products that typically attract the coffee-shop youth crowd. Under their brands, Café Coffee Day has launched mineral water, t-shirts, mugs, potato chips, while Barista has launched a range of cookies, chocolates, mugs, candles and soft toys.

Similarly, Mahindra & Mahindra, the trusted automobile manufacturer, has succeeded in building the Scorpio brand, associated with a rough-and-tough driver image.

It extended the Scorpio brand to lifestyle merchandise with the slogan ‘Scorpio Spells-Nothing Else Will Do’. The range of accessories include Polo neck & round neck T-shirts, coffee tumblers, stylised key chains, stylised caps, and miniature Scorpio model toy cars – all playing to the rough-and-tough driver image. Other global auto majors, like Audi and Mercedes, have extended their brands to bicycles, clothing and other forms of merchandise.

Market research agency, IMRB, has recently reported that Indian consumer goods companies have resorted to brand and product line extension to counter the present financial crisis. As new product launches based on existing brands are relatively less costly,

Virgin Galactic

many leading consumer goods companies – Coca-Cola, Nestlé, PepsiCo, Dabur, Marico and Godrej – have launched such extensions. In 2008, the Maggi brand was extended to Maggi Pichkoo (a tomato ketchup pouch pack) and Maggi Bhuna Masala (a readymade cooking aid).

Marico, which owns Saffola, the edible oil brand, extended its brand to Saffola Functional Food, cereal additives for diabetes management.

Criteria for Brand Extension The most important criterion for brand extension is that there must be a fit between the personality of the mother brand and the new product category.

There must be synergy between the brand attributes and the segment requirements. Take the case of Raymonds. Since the 1940s it has been the most valued textile fabric brand in India, associated with premium and prestigious fabric. When the Singhania-owned company wanted to diversify into readymade garments for men in the 1980s, it chose to extend the same brand. The company launched ready-to-wear men’s trousers, Raymonds Double Barrel. It promised ‘no hassles with tailors’ and ‘great fit’.

However, the brand extension did not work with customers who

Go India February 2009

20 CS_Marketing_Branding_January_09.indd 20

2009-02-11 10:46

CASE STUDY

MARKETING

this brand image home. But the new product categories did not trigger high levels of child appeal or convenience. The fit between existing brand and new product category was insufficient.

Various studies have analysed customer feedback to brand extensions. Typically, it is

casual menswear brand to sunglasses. It was found that not only is fit the most important determinant of brand extension, but it also affects the attitude towards the parent brand. Good fit trumps good brand, according to most research.

So for brand extension to work, it is essential that it fits in with the value perception of the brand. In the absence of such fit or of favourable market conditions, brand extension may actually be destructive, by distracting the customers from the core qualities of the brand.

You run the risk of confusing the customer and thus cannibalising

believed that consumer evaluation of brand extension is formed on the basis of attitude towards parent brand as well as the perception of fit – or similarity – between the parent brand and the extension. A very powerful brand increases the probability of brand extension success; a very strong fit does so too.

But it seems that the strength of fit counts for more. A recent study by researchers at Griffith University surveyed 250 male students of a New Delhi college on the extension of an Indian

the brand. Poor performance in the new product may ruin the mother brand. For these reasons, careful research should be performed before engaging in brand extension.

Examples of companies with strong brands that are wary of brand cannibalisation are Coca-Cola and Pepsico. They do not use their trademark Coke and Pepsi brands outside the carbonated soft drink field. When they entered the snacks, noncarbonated drinks and water fields they created new brands,

Line extensions Coca-Cola Coca-cola

Coca-cola Light (Diet Coke)

1886

1982

Original concept

First product line extension

equated Raymonds with good fabric but not with great fit, as they did for Levis and Wrangler.

The brand managers were forced to re-brand the product and launched Park Avenue, which was accepted as a sophisticated product that embodied style and fit. From losses on account of Raymond Double Barrel in 1983, the company earned profits of $2 million in 1986 and double the amount in 1988. The Park Avenue brand has become associated with fashionability and has now been extended successfully to a range of men’s toiletries, including shaving creams, after-shave lotions, deodorants and talcum powders.

Looking back at the Raymonds saga, the first brand extension failed for lack of fit. But the extension of the second brand has succeeded on the basis of sufficient fit.

Nestle has had some difficulties extending its highly successful Maggi brand. The company attempted to extend the Maggi brand to a range of pickles, ketchups and soups but the extensions were not all successful. Some products, like pickles, had to be withdrawn.

The brand was associated with convenience and child appeal.

The slogans Fast to Cook Good to Eat, Mummy, bhook lagi hai (Mom, I’m hungry) and Bas – do minute (Only 2 minutes) drove

Coca-cola Cherry 1985

Coca-cola Vanilla 2002

Coca-cola Zero 2005

rather than use brand extension.

The Coke and Pepsi brands were too precious to be mobilised in risky extensions.

Perhaps the most obvious case of potential brand dilution is Virgin. The brand was developed aggressively by Richard Branson, the maverick chairman of the company, using several marketing stunts. The brand was extended from records to airlines, resorts, telecommunications, financial services, rail service and other product/service categories, harping on the parent brand, targeted at the youth market.

However, since the 1990s, some of the brand extensions have performed poorly, for example in beverages, train services, and mobile telephony (in Singapore).

Virgin may qualify as a case of brand over-extension.

This reinforces the fact that new brands can sometimes be a preferable alternative to brand extension. One very successful FMCG company, Hindustan Lever, does not hesitate to develop new brands when it enters new product categories, and use multi-branding when it introduces new products within an existing category.

Such a strategy carries two benefits: it avoids the risk of brand cannibalisation and it allows for finer segmentation.

Well-differentiated brands can be aimed at well-differentiated segments. Brand extension is a blunt instrument compared to the sharper one of new brands. The advantage of brand extension, of course, is saving on brand launch cost. ■

NEXT ISSUE:

SALES INCENTIVES Go India February 2009

21 CS_Marketing_Branding_January_09.indd 21

2009-02-11 10:47

UNDER THE HOOD

SATYAM COMPUTER SERVICES LTD.

TRUE LIES

Despite checks and balances, creatively unscrupulous corporate leaders can still take investors for a ride. The Satyam debacle proves that corporate governance in India still has a long way to go O, what a tangled web we weave, When we first practice to deceive!

Sir Walter Scott, Marmion

id Sir Walter Scott have a premonitory dream about Ramalinga Raju? From criminal investigators and serious fraud investigators to forensic accountants, the accounts of Satyam Computers remain a puzzle. Most people in India and other countries agree that this is the moment for investors, regulators and lawmakers to take decisive action.

D

How could this have happened?

Satyam’s sales grew consistently over the past ten years, as did its reserves. Why did no one –

namely the auditors – question such consistency in the face of the Indian Rupee appreciation against the US Dollar in 2007 and 2008?

Another issue was the growth of cash balances that were extremely high. Yet again, this did not draw much attention. A quick look at the key financial ratios given in Table 1 shows that this was a company with very high returns and profit margins with very strong cash levels and unusually high efficiency of asset utilisation.

Then, what really went wrong?

In his confession on January 7, 2009, Raju said that the audited financial results as declared on September 30, 2008, contained “inflated (non-existent)” cash

and bank balance of Rs 5,040 crore (as against Rs 5361 crore reflected in the books), an accrued interest of Rs 376 crore which is non-existent, an understated liability of Rs 1,230 crore on account of funds arranged by him and an overstated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books).

He further claimed that the reported revenue in September quarter (Q2) of Rs 2,700 crore and an operating margin of Rs 649 crore (24% of revenues) was untrue. The actual revenues and margins being Rs 2,112 crore and Rs 61 crore (3% of revenue) respectively. He further said that this resulted in artificial cash and bank balances going up by

Brief History of Satyam Computers Satyam Computer Services Ltd was incorporated as a Private Limited Co.on June 24, 1987, for providing software development and consultancy services to large corporations. The company was founded by B Rama Raju and B Ramalinga Raju. The company has set up two software technology parks: one at Mayfair Centre, Secunderabad and the other at Qutuballapur of Ranga Reddy district (AP). The company also has a large software development centre in Bangalore.

Satyam was converted to a publicly held company on 26 August 1991.

Rs 588 crore in Q2 alone.

According to him the gap

Go India February 2009

22 UTH_Feb09.indd 22

2009-02-10 17:35

Forensic Accounting: Meaning & Tools

Mar-07

Mar-08

Gross Profit Margin

26.69%

24.79%

Net Profit Margin

22.20%

20.39%

Return on Equity

24.58%

23.32%

578.93%

509.20%

Forensic accounting is the integration of accounting, auditing and investigative skills. According to the Webster dictionary forensic means ‘belonging to, used in, or suitable to courts of judicature, or to public discussion and debate’. Forensic accounting provides the financial analysis that is suitable to the court, which will form the basis for discussion, debate and ultimately dispute resolution. Forensic accounting includes both litigation support and investigative accounting.

Forensic accountants, utilise accounting, auditing and investigative skills, when conducting an investigation. They also are responsible for communicating financial information clearly and concisely in a court room setting. Forensic accountants are trained to look beyond the numbers, in order to examine evidence regarding an assertion. They then ascertain its validity vis-a-vis established criteria, in a manner suitable to the court.

For further information, consult www.forensicaccounting.com

Business profitability

Financial stability Current Ratio Debt/Equity Ratio Quick Ratio

18.23%

19.98%

578.93%

509.20%

90.99%

92.18%

Resource utilisation Total Assets Turnover in balance sheet was purely on account of inflated profits, over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). He says “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts, continued to grow over the years. It has attained unmanageable proportions (annualised revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs8.392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing

the costs.

After Raju’s arrest, investigative agencies swung into action. The investors got a severe jolt when initial investigations revealed that Raju’s confession was nothing but a pack of lies. The fact that the company had overstated the cash balances was true, but how it was done wasn’t clear.

Raju’s claim that he along with his relatives wasn’t a beneficiary, also turned out to be false.

Initial investigations revealed hundreds of fictitious bank accounts and records of land deals running into thousands of crores. Several politicians and senior executives came under suspicion of abetting Raju’s was deeds. What was shocking that the number of employees of the company, along with its

list of clients, turned out to be incorrect. The company claimed 53,000 employees and over 600 clients, including 185 Fortune 500 companies. It is turning out that much of this data was fudged and used to inflate expenses and revenues. Fake bank Certificates of Deposits known as Fixed Deposits (FDs) of different maturities, were included in the firm’s assets; interest reaped from these fake FDs was included in income statements.

The investigations are on and there are several versions of the exact modus operandi of Ramalinga Raju and his associates. The initial versions have pointed to inflating expenses by increasing headcount of employees and diverting the salaries to fictitious accounts.

Another tactic employed was to increase the asset size of the firm (and hence the book value of the firm’s equity) by using faked FD receipts. This led to a sharp increase in Satyam’s share price, which Raju could then leverage to fund the planned acquisition of Maytas Infra Ltd. A third hypothesis advanced by some experts is that several companies were floated by Raju and his relatives, allowing

the movement of equity capital between them. Bogus transactions between these firms could help disguise balance sheet shortcoming. Another version says that the most of the international transactions of Satyam Computers were with fictitious clients and these were used to transfer wealth from India to foreign accounts, or back to India, through fraudulent foreign exchange transactions.

Whatever may be the modus operandi, what clearly emerges is a tacit approval of all such practices by the auditors.

Fingers are pointing to some of the biggest auditing firms of the world, and the role of their local partners in examining and certifying the financial results of Satyam and its affiliates. Another issue is the tacit support provided by local politicians provided Maytas Infra Ltd and Ramalinga Raju for their land deals. Some experts say that both the Institute of Chartered Accountants of India and Securities and Exchange Board of India have been too lax in framing guidelines for auditors and disclosure norms for companies which allows unscrupulous elements to exploit the investors. ■

Go India February 2009

23 UTH_Feb09.indd 23

2009-02-10 17:35

CASE STUDY

OPERATIONS

INSIDE UNDERWEAR Lingerie is light, small and dainty. But there’s more to lacy underwear than is allowed to meet the eye. There’s a business that produces and sells it... so let’s take a peek alentine’s Day is around the corner and there are ladies who would argue that the present of some lacy lingerie beats a bunch of prickly roses, hands down. Even outside the season of Valentine, lingerie lures... the buyer. Times have changed for Indian women. No longer do they refer to these articles of wear in hushed tones–or lower their gaze as they instruct the salesman to scour the racks for a size-36 bra. The generation x woman marches, chest out, into the costliest lingerie shop and picks the fanciest ‘brand’ sleepwear, or underwear, she can find.

There is nothing dainty about the size of the Indian lingerie market. It is a 1,700 crore affair.

Indian manufacturers supplying that market have their plants

V

process is tied to fashion trends.

Hence, a lot of time and thought is put into styling. Here is how Nidha Adheni, Brand Manager for Enamor, an up-market brand summarises the process: “First and foremost our designs for the season are based on the latest fashion trends. Once the designs are approved, the technical team starts the fitting process. All our products are fitted on actual women to ensure that the end result is the best-fitting bra.”

At Groversons designing is done three times a year. A new line is created on the basis of the designer’s forecast, marketing feedback on the new product requirements, and, of course, the season in which the product is launched. The importance of the design process to final success drives recruitment policy. “We

mostly in Mumbai, Bangalore, Delhi and Tripura. Groversons and BodyCare are based in Delhi.

Vanity Fair and Daisy Dee are based in Mumbai. Foreign brands tend to set up in Bangalore and Mumbai -Enamor, Loveable and Jockey, have established units in Bangalore. So how are these various manufacturers supplying the naked masses with bras and panties? Psssst, wanna take a peek at a lingerie factory?

Design In the lingerie business, as in apparel more generally, R&D is more simply known as design.

There are peak times for design, typically in rhythm with the seasons. The fancier the lingerie, the more the business morphs, from a commodity business into a fashion business. The design

only hire designers from the National Institute of Fashion Technology, or other experienced designers with a masters degree,” says Rakesh Grover, the Managing Director of Groversons.

Once the designs are selected, the sampling begins. Groversons has a sample room with fifteen machines and the same number of skilled operators. Prototypes of different fabrics and different patterns are sewn and tested on models. Designers, along with marketing staff, then order adjustments for the final sample. “All the final samples are then presented to the senior management and marketing team for the final selection. The approved samples are then fitted on models and modified, until they become a perfect fit,” reports Grover.

HOW TO MAKE A BRA Fabric is first cut according to pattern and sizes

Bra cups are then attached and stitched inside the fabric

The underwire is put in

The bra is stitched

Depending on the style of the bra, laces are put on

The elastics are attached to the bra

Size adjustable straps are attached

Yes Lose threads are trimmed

The pen marks are removed

Any other accessories/ designs are added at this time

The final product goes in for ironing

Ribbons and bows are attached

The labels are attached

No

Adjustments?

The bra is then measured to see if it fits well

Hooks are put on to the elastic

The product is packed in cartons

Go India February 2009

24 CS_Operations_Lingerie_Brapanty_February_09.indd 24

2009-02-11 12:06

Raw materials and inventory control The raw materials that go into lingerie are, in order of volume, fabrics, elastics and accessories.

Lingerie manufacturers in India buy fabric either in India, South East Asia or Europe. In South East Asia, China and Thailand are the main suppliers. Chinese imports are favoured by Indian manufacturers as they are forty per cent cheaper than European imports. While India still rules the market as far as cotton is concerned, China beats India’s prices by a large margin, when it comes to blends of fabric.

For example an Indian-made polyester blend would cost about Rs120/metre, whereas the Chinese fabric will cost only Rs95/metre. All the high-quality fabric for lingerie in India comes from European countries.

Companies like Carvico SpA, Jersey Lomalina and Simplex Knitting are known for their warp knit, circular knit and simplex fabrics, respectively.

Groversons’ mix seems to be typical. “We use both domestic and imported fabrics. Domestic fabrics are bought from Arvind Mills, Krishna Lifestyle (Mumbai), Komal Tex Fab (Ahmedabad) and others. We buy imported fabrics from the likes of Bischoff (Swiss), Carvico (Italy), Femina Laces (Bangkok),” explains Grover. The fashion nature of the business also means that there must be many different colours and patterns. In a season Grosvenor will typically use 30-40 fabrics in different colours and patterns. At a given point of time, it keeps stock of about 18-22 different fabrics in an average quantity of about 2,500 metres each.

There is not only the matter of colours and patterns, but also of material types. In other words, it is not only fashion, but also technology, in the form of fabric innovation, that complicates the life of the lingerie manufacturer.

Here is how Ujwal Khanna, partner of Golden Hosiery puts it: “There has been great innovation in fabrics. Today there are several fabrics that include lycra, satin, hosiery, net, etc. Viscose fibre is another fabric that is extremely comfortable and makes for a snug fit. For the mass-market brands, lycra lace is by far the most difficult to produce. It is also the most expensive. Woven tricots rank amongst the cheapest. Lycra is difficult to produce because of its instability; it is a flimsy fabric and has to be stitched and cut by experienced workers, or the size may go wrong.”

After fabrics, there are elastics. A wide variety is available, costing anywhere between Rs15 to Rs100 per metre, depending on the finish, shine, feel and durability. “We procure elastics from India, Sri Lanka as well as China.” Reports Vineet Nagpal, GM Production at Groversons: “Some of the companies selling elastics in India are Ginza Industries, Lion Tapes, Juliet and Sachinam Elastics; in Srilanka we buy from Stretchline.” Lingerie

consumes kilometres of the stuff. For example, a 30-inch panty requires about 20 inches of elastic. So 1 million Indian panties would require some 500km of elastic. Prior to its researches GO had not thought of panties this way.

A more recent development is the proliferation of accessories.

The bras now come complete with plastic and metal rings, underwire, side bones, laces, knitted fabric, crochet elastics, ribbons, transparent straps etc.

Sounds almost like accoutrement worn by jousters in medieval tournaments. Grover points out the importance of accessories to the business: “We deem it essential to store accessories such as bra cups-silute, ring slides and hook eyes, which we buy from China. Underwires are mainly bought from S and S Industries in India.”

All these raw materials are stored in a warehouse in the manufacturing unit. The fabrics are held at the ready, on racks or on pallets, while the elastics and accessories are stored in boxes. The number of stock keeping units (SKUs), and hence the complexity of managing the inventory, depends on the market segment served by the manufacturer. The highend, fashion-driven segments require more fabrics and more accessories and make the

HOW TO MAKE A PANTY Yes Fabric is first cut according to pattern and sizes

Elastics are attached (on top or inside the fabric)

All sides of the panty are stitched together

The panty is measured to see if it fits well

The product is packed in cartons

No Adjustments?

The labels are attached

Accessories are added according to the style

The final product is ironed

Go India February 2009

25 CS_Operations_Lingerie_Brapanty_February_09.indd 25

2009-02-11 12:06

CASE STUDY

OPERATIONS LINGERIE MANUFACTURERS Company Name

Year Founded

Main Brands

Production (Units)

Price Range (Rs)

Groversons Apparels Pvt Ltd

1956

Paris Beauty / Sparsh / Miss T / Poems

Manesar, New Delhi, Karnal Road Industrial Area, Tronica City(National Capital Region)

300-1500

Golden Hosiery

1971

Prince, Princess

Delhi, Kolkata, Tirupur, Coimbatore

50-1500

Bodycare International Ltd

1992

Bodycare

Delhi

Major Brands (India) Pvt. Ltd

2001

Mango, Aldo, La Senza, Promod, Nine West, Charles & Keith, Okaidi, Aldo Accessories and Inglot

Abroad

390-3940

Gokaldas Intimate Wear Pvt Ltd

2002

Enamor

Bangalore

500-2500

Etam Future Fashion Pvt Ltd

2007

Etam Lingerie

France

100-250

395-1695 Source: GO research

manufacturer’s inventory control task more arduous.

Many companies use computerised inventory control systems. For basic items, when inventory falls below a margin known as the reorder level, an order for an amount calculated by the computerised system is automatically sent out. Only seasonal or highprice item orders will be calculated manually, rather than automatically, by the system. This is now the case at Groversons as Nagpal explains, “On an average we have about 30,000 pieces of each accessory.

Of course the numbers differ from product to product. We might have about 50,000 pieces of elastics stocked, but only 10,000 pieces of underwires at a given time. It was becoming too time-consuming to figure out manually when to reorder all the different types of items we have. Hence, we have recently installed a software system which

tracks inventory levels, and at a given minimum level suggests a reorder.”

Production Lingerie is a batch manufacturing business. Batches of a certain product are created in response to customer orders. A master scheduling process determines which batches to produce on what day, based on delivery dates, and on machine and operator availability. A work order specifying the item type, operations, quantity and due date will accompany the batch

through the three major stages– cutting, sewing, finishing and packing.

Looking inside a factory, Golden Hosiery’s for example, the division of labour looks as follows. There are twenty sewers, eight workers on finishing, six employees each, assigned to ironing and packing. About ten helpers assist in the whole process, and three masters who ensure that the pattern cutting, sewing and finishing is done correctly. Five employees are responsible for dispensing of stock and finally, two quality

controllers ensure that the product has no defect and pass it on to the five delivery personnel.

The first stage in the manufacturing process is cutting. Fabric is pulled from the warehouse (fabric inventory records will be updated at that time) and laid out on a table; paper patterns are positioned on top of the fabric and cutters, using high-powered cutting machines, follow the patterns to create the various pieces that will then be sewn together. As you can imagine, the patterns are designed to minimise fabric wastage. Ujiwal Khanna summarises the process at Golden Hosiery: “Cutting is done completely by hand. There are about five cutters in our unit who cut through five layers of fabric at a time when the fabric is fine and two layers when it is thicker.”

The cut pieces are then gathered together to form the batches. The batches will go from one sewing work station to the next in a pre-ordained sequence.

Different types of product will require different types of stitches and will therefore go through different stitchingmachine workstations. A very basic panty will require only a half-dozen operations. A more complicated item, such as a bra, will call for a dozen, or more,

LINGERIE MARKET BREAKDOWN Bridals sets 15% Fancy collection 20%

Basic 65%

Sleepwear 15% Bridals sets 15%

Panties 40%

Bras 30%

Basic

Fancy collection

Bridal sets

Panties

Bras

Bridal sets

Sleepwear

Go India February 2009

26 CS_Operations_Lingerie_Brapanty_February_09.indd 26

2009-02-11 12:06

CASE STUDY

OPERATIONS operations. Among these are the attaching and stitching of the cups, sewing of elastics and straps, attachment of hooks and all of the accessories (see charts for panty and bra operations). A more sophisticated item, think sleepwear, can require several dozen operations.

There is nothing demure or romantic about a lingerie factory.

There are dozens of machines whose operation composes a deafening racket. Here is how Ujiwal Khanna describes the inventory of machines at Golden Hosiery: “The ones used for cutting are the band knife, straight knife and round blade cutting machines. We use Italian moulding machines. For sewing there is the lock stitch-single needle/double needle, zigzag single-and three-steps and the edge cutter. There is also the chain stitch, over lock, flat steaming stitch, and bar tuck.

Steam irons are used for the finishing process.”

While high-end lingerie brands like Enamor import their machinery from abroad, the mass-market brands believe in keeping their costs down.

“We buy our machinery in India. All metropolitans in India have shops that sell good quality machinery. The popular companies are Brother, Yo Motto (a Japanese firm). A few Chinese companies have entered the market and are selling machinery at reasonable prices,” explains Khanna.

Machinery to manufacture lingerie can cost anywhere between Rs 3,000 to Rs 80,000.

It just depends on where you purchase it and what type of machine you are buying. Buying from abroad would obviously

mean it’d be more expensive; buying locally would cut cost.

A sewing machine for Rs 3,000 would have only one style of stitch, but the imported machine for Rs 80,000 can manage different types of stitches at a higher quality level.

As for the workers running all this machinery, the labour is paid according to the wage structure in India. Minimum wages in India are about Rs 3,850 a month. But most workers are paid according to experience.

An employee who has no prior experience will obviously be hired at the going minimum.

“Most of our employees are talented and able workers. Hence we pay an average of Rs 5,500 a month,” says Khanna.

At Groversons, workers are paid per piece (rather than by time worked) and for skilled workers pay comes up to Rs 5,500 per month.

As in other businesses, quality is of key concern in lingerie. Being a popular brand in India, Enamor has to ever keep it in mind. “There is a quality checker assigned to every major step of the manufacturing process. During the process of cutting, it is checked by a cutting supervisor. The process of stitching is supervised on the line and each production line has a supervisor, with responsibility for quality. Once the production is completed the product goes through quality control. Once past it, it moves into the finishing process consisting of attaching hangtags, etc. and then it is packed. As soon as the final product is ready, it is checked again on a random basis, by a quality checker,” explains Nidha Adheni, Brand Manager.

CANADA’S GIFT TO HUMANITY Here is a quick peek at the Wonderbra, this planet’s most famous lingerie item Canadian by the name of Moe Nadler is responsible for the development of the Wonderbra brand. He licensed the trademark in 1939 (from the American patent holder, Israel Pilot) and built it up, so to speak, for the next thirty years. In 1960 he developed a lacy, half push-up bra, called the pigeonnant (meaning “pigeon-breasted” in French). A few years later his company came out with a deeply plunged, laced, push-up design, known as the model 1300. It was this model that took off in the UK in the 1990s (by that time Nadler had sold his company to Sara Lee).

While there is no consensus on the cause for the take-off, one line of retro-reasoning attributes it to the impetus given by the French designer Jean-Pierre Gaultier, who began promoting underwear as outerwear.

In any case, by 1994 Wonderbra had grown into a full-range lingerie fashion label.

The science-minded will be served by the fact that a state-of-the-art bra has 54 design features that make for lift at the peak, and support at the base of the mammaries, while also creating a curvaceous and gorgeous concavity. The fuselage, as it were, of Wonderbra, has five main construction elements. Starting with a three-part cup construction, where each cup is made of three separate pieces, it proceeds to precision-angled back and underwire cups (the key to Wonderbra’s unique, persuasive cleavage). Then there are the removable contoured pads for lift and mass (Wonderbra gives maximum uplift and lateral control; its gate back and full power netting keeps the bra cups in place– -much as the skeleton frame of a Zeppelin supports and keeps in place its hull). Finally, the adjustable non-stretch straps keep the construct in place, much like a Zeppelin’s mooring lines.

Rakesh Grover, Managing Director of Groversons, summarises the odyssey as follows: “Thanks to Wonderbra, bras went on to become an aspirational, luxurious beauty product, rather than just a utility product.

This development has completely changed the contour of the brassiere world by providing a vast range of designs, colours, and styles.” ■

A

Go India February 2009

27 CS_Operations_Lingerie_Brapanty_February_09.indd 27

2009-02-11 12:06

CASE STUDY

OPERATIONS DAINTY BUT HARROWING The life of a lingerie plant manager is made of lots of styles and sizes, lots of work orders and lots of glitches ince product quality is the first concern of a plant manager, the first requirement is thorough knowledge of the raw materials (fabrics, elastics, accessories) and of industrial sewing. The plant manager functions as a virtual chief quality inspector and must be fluent in the product and process to foster a quality mindset, and deal with all the raw material and mechanical glitches as they arise. “It is an extremely challenging job. To be a manufacturing manager in a lingerie plant not only do you need to have the managerial skills that one can learn in school but you also need sufficient knowhow about the specific product and process,” says Rakesh Grover, Managing Director, Groversons.

Lingerie is a batch manufacturing process and the fancier the product, the more styles there are, and the smaller the batches. The mind of a lingerie manager therefore needs to have many compartments for all the different products he has to master and all the requirements of the different in-process work orders he has to remember.

Master scheduling, the art of scheduling work orders to meet delivery dates under the constraints of machine capacity and worker skills, can never be perfect. When there are insufficient lead-times, management cool needs to come into play. “Insufficient lead-times result in high pressure. This makes it even more difficult to be able to manage and maintain the quality of production. Hence it is essential for us to be calm and see the production through,” says Vineet Nagpal, GM Productions, Groversons.

Machine breakdowns are a major concern, as without proper working machines it is impossible to produce quality garments and maintain high productivity. Some factories have the machine equivalent of safety stock, one or two spare machines which can be used in case of a breakdown.

But if extra machines aren’t available, the manager may need to juggle work order flow so that workers do not remain idle. Or, he may need to organise overtime to make up the lost time. It is all these glitches, combined with the daunting number of work orders, that make the plant manager’s job such a pressure-laden one.

The fact that workstations are typically cramped together and that the machines are noisy, makes for an enervating environment no matter what.

Think of a lingerie plant as the antithesis of a sterilised and humming chip plant. Given the numerous small glitches, mechanical or human, that necessarily happen, plant managers need to be Zen masters. ■

S

Another aspect of quality control occurs up front, at the time of fabric ordering. Ujiwal Khanna of Golden Hosiery explains: “We have a long procedure in testing the fabric.

We employ a manual process of tumble-drying the cloth, dip drying and then sun drying, to assess for shrinkage, quality of the cloth, and other parameters.

Many a time, vendors selling fabric claim that the fabric has five per cent elasticity. But after we test the fabric it turns out that it was only one per cent,” says Khanna.

Despite all this testing, it sometimes happens that the customer is not satisfied. “Even after all the care we take to

manufacture a quality product, there are occasions when the retailer rejects it. This happens purely due to poor quality of the fabric, but we have to incur the loss. We then take the product back and wheedle a place in our production schedules to produce a replacement lot,” adds Khanna.

Another, more pleasant, case of unplanned production is the rush reorder. To handle such situations, “we normally keep back-ups of raw material and stitching, and put in extra work shifts at the factory,” explains Rakesh Grover of Groversons.

And so, after having spent the first part of its life in the humming, buzzing and frenetic

confines of the factory floor, the bra, panty, slip, or negligée makes it to the subdued and elegant shelves and racks of the lingerie store–and thence to madame’s boudoir. Hopefully, from there the industry’s labour of love

proceeds to some place rendering merely human pleasure. Happy Valentine’s Day! ■

NEXT ISSUE:

LEAN MANUFACTURING

Go India February 2009

28 CS_Operations_Lingerie_Brapanty_February_09.indd 28

2009-02-11 12:06

GLOBAL TRENDS Venture Capitalising for Feed, not Greed Through her philanthropic venture capital firm Acumen Fund, Jacqueline Novogratz is trying to finance those who can make sustainable development more than a buzzword

“T

he very definition of an entrepreneur, whether for-profit or non-profit,” says Jacqueline Novogratz, “is a person who is most determined to make a change.” She should know. Eight years ago she founded the Acumen Fund, based on a venture capital (VC) model, which focuses on solving tough problems of global poverty, and has thus far made a difference in millions of lives.

Today, with offices in the US, India, Pakistan and Kenya, Acumen Fund has total investments of over $35 million. Because the individual investments vary in size, from $500,000 to $1 million, the model differs dramatically from microfinance. Acumen invests substantial amounts in already existing firms that specifically sell things aimed at improving the lives of large numbers of people.

Working in South Asia and East Africa, it concentrates on four areas: health care, water, housing and energy. It has created over 20,000 jobs and provided millions of people products they had never had before. By 2011 Novogratz aspires to touch the lives of 50 million of the world’s poorest people.

Acumen distinguishes itself from charities in two ways. First, it avoids grants, preferring equity and loans. Entrepreneurs adopt financial controls that create

more efficient organisations.

Loans force recipient organisations to manage their cash flow more tightly, not only to build their ability to repay on time but more importantly, perhaps to take care of dayto-day activities. And market response tells Acumen whether it has bet on the right companies and the right goods and services.

Second, Acumen tries to focus on what destitute populations really want, instead of imposing their own concept of what poor people need, as some traditional charitable organisations do.

Focusing on dignity rather than charity, maintains Novogratz, is important. “We listen to the poor to understand who they are, how they make decisions, what they prefer when it comes to basics like safe water,

Americas healthcare, alternative energy.

We regard low-income people as individuals, as customers, even if they have no means to pay, rather than as passive recipients of charity. In the end, it’s about allowing people to make their own decisions and solve their own problems.”

“Since our inception in 2001,” says Novogratz, “the model has been revised, based on our learning about the world, especially around how we structure our investments, measure change, and focus on talent and knowledge, in addition to capital.” One revision has been the institution of more stringent financial reporting and planning methods. Novogratz and her team work with each enterprise to determine the most important financial milestones for their business—say, customer retention, or total product sold—and then ask for quarterly reports based on those metrics.

Acumen has also set up a measurement system to compare their VC approach to the grantbased method of charities. Called the Best Available Charitable Option, it evaluates how much

it costs Acumen to support an enterprise and compares that to the expenses that an appropriate charitable organisation might incur. In 2007, of 20 active investments, 10 had come up positive, four undecided, and two negative.

After graduating from college, Novogratz worked in international banking for Chase.

Disturbed by the lack of credit available to poorer people, she joined Women’s World Banking, where she worked on micro-finance projects in Africa. Having found her vocation in development, she studied public management at Stanford Business School and building on that base, started a philanthropy workshop for the Rockefeller Foundation, that exposed high-net-worth individuals to underprivileged communities. When she founded Acumen Fund, the Rockefeller Foundation provided $5 million of the seed capital.

In these troubled times Novogratz’s advice is to persevere. “The poor need solutions that work now more than ever, and we know that there are indeed viable ways of using markets to solve poverty.

It is possible to build successful businesses that include social impact as an output – in India, for example, Water Health International now sells safe water sustainably, to hundreds of thousands of rural people, while creating hundreds of jobs.”

The battle between self-interest and sympathy is known in the dismal science as the Adam Smith problem. Jacqueline Novogratz’s application of venture capital to development, might turn out to be part of the solution. ■

Go India February 2009

29 GT_Americas_Feb09.indd 29

2009-02-10 17:33

GLOBAL TRENDS Container Home, Sweet Container Home!

Recycled shipping container houses are costeffective, environment-friendly and nearly indestructible

T

he first two-storey shipping container home in the US was designed by Southern California architect Peter DeMaria, in 2006 and subsequently recognised as an approved structural system, under the strict guidelines of the nationally-recognised uniform building code (UBC). The concept of shipping container architecture may be defined as ‘a form of architecture, utilising steel shipping containers as structural element, because of their inherent strength, wide availability and relatively low cost.’

Shipping containers are an ideal construction material, as they are designed to carry heavy loads and resist harsh environments. They are made to the same standard measurements (a 40-ft container is 40 feet long, 8 feet wide, 8 feet 6 inches tall, and so provides 320 square feet of floor space) and as such, they provide modular elements that can be combined into larger structures. This simplifies design, planning and transport. Used shipping containers are easily available across the globe, as shipping back used containers to their places of origin is a cumbersome and expensive affair (in 2007 some 7 million containers arrived in the US, but only 4 million were needed to ship American exports!). Construction involves little labour and used shipping containers, requiring only simple

modification, can be purchased from major transportation companies for $900 for an older one, $2,500 for one that is essentially new.

Container houses might pose a problem in an environment with extreme temperature variations.

But this can be overcome by spraying two coats of a ceramic

powder additive in spray paint, thus negating the requirement for traditional insulation.

Availability of specialised labour for welding and cutting steel can prove to be a disadvantage and increase construction costs.

Yet, overall costs are still lower than conventional construction.

Though steel has been used before, in industrial construction, it has not been prevalent for residential structures. Hence, obtaining building permits might be problematic in some regions.

The Southern Californian firm, De Maria Design Associates Inc., has been one of the pioneers in the realm of recycled steel shipping container construction. Managed

by Peter DeMaria, the company believes that the traditional permit and construction process, compounded by spiraling construction costs, has necessitated a re-birth of the design/build approach to creating buildings, and so has turned to alternative construction

methodologies and reinterpreted building components. Their Redondo Beach House has been a path-breaker in this respect.

This project is a shipping container-based building, where prefabricated assemblies result in an end product that is affordable and nearly indestructible. The modified containers are mould proof, fire proof, termite proof, and structurally superior to wood framing. This project received the 2007 AIA Honor Award for Design Excellence/Special Innovation, and gave birth to a new residential product line, called Packaged Architecture™. Another striking example is the Keetwonen student housing project in Amsterdam.

This is on a whole different scale as it uses 1,000 containers for a 1,000-unit project.

Container homes are an environmentally friendly option to traditional construction.

Countless numbers of empty, unused shipping containers around the world are just sitting on the shipping docks and taking up space. Moreover, using containers can drastically reduce the consumption of trees, used to build wooden houses. Any steel removed from the container is easily recycled. As the containers are built to specifications and are consistent every time, they are delivered on site, times required for building is much reduced as the architects and crew have the luxury of working with known and reliable specifications. So save some money, conserve a forest, and clean up a port: consider a container home! ■

Go India February 2009

30 GT_Americas_Feb09.indd 30

2009-02-10 17:33

Americas Internal Corporate Venturing How Corning, following a corporate neardeath experience, revamped its research and development to foster new ventures, from within

C

orning Incorporated, a company reputed for its long-standing commitment to innovation and technological prowess, was established by Amory Houghton Sr. in 1851 and was renamed Corning Glass Works in 1875. Corning was one of the first companies in the United States to establish its own corporate research centre, in 1908, to fuel further innovation within the company.

Manufacturing commercially feasible light bulbs for Thomas Edison in 1879, inventing heatresistant glass and the much famed ‘ribbon machine’, making affordable TV picture tubes, are just some of the major inventions that came out of the famous Corning Labs.

In the 1990s telecommunications became Corning’s golden egg. As a

manufacturer of optical fibre, it rode the wave of the mobile phone and Internet. But when the telecoms bubble burst, Corning nearly did too. Its sales plummeted from $5 billion to $1.6 billion in 2002!

As part of its rebuilding effort, Corning revamped its research effort, with a view to diversifying its product portfolio.

An outsider from Dupont, Dr Miller, was brought in to head S&T (Science and Technology, the name of Corning’s research and development wing). Miller created a new department, called Strategic Growth with the following mission: “In partnership with research, fuel the strategic renewal of Corning Incorporated by identifying and developing new, profitable, large ($0.5 billion) business opportunities.” In other words,

Strategic Growth was made responsible for internal corporate venturing (ICV).

The ICV process was broken down into five stages, associated with the following actions: build knowledge, determine feasibility, test practicality, prove profitability, and manage lifecycle. The first three were managed by the Strategic Growth department. As of stage 3, once the new product was born, the new business unit or division within Corning would take over.

To prevent an overload of ICV projects in the first two stages, Corning needed to develop filters.

It eventually arrived at, what it called its seven questions. For entry into stage 2 these filtering questions were: What, if any, are the megatrends driving the opportunity? Is the opportunity large? Is there clear customer pull? Does it have clearly articulated value proposition?

Do we have opportunity for substantial differentiation/ strategic control? Does it fit Corning’s materials and process expertise? Do the size of the opportunity and the investment required appear to be in balance?

As Professor Robert A Burgelman of Stanford Business School points out, one of the difficulties with this sort of internal corporate venturing (ICV) is cyclicality. He explains how Corning’s head of S&T, Dr Miller, proceeded: “To avoid the pitfalls of unmanaged ICV cyclicality, Dr Miller took three key actions. First, he developed the Corning Technology

Council (CTC), to oversee the selection and management of early-stage projects. Second, he recommended the formation of the Growth Strategy Council (GSC), which included CEO Wendell Weeks and other top executives within the company, to direct later-stage projects (as they became more resource intensive and had greater potential to affect the overall corporate strategy).

Third, he actively sought to inform and engage the board of directors regarding the company’s ICV efforts. In combination, these three vehicles worked together to ensure that there was adequate visibility within the organisation to ICV activities, that they had a better chance of being sustained, and that they would also play a role in helping shape corporate strategy.”

As Professor Burgelman sees it, the transparency of new business development to senior executives is key to strategic success: “Perhaps the most critical lesson of the Corning case is that new business development should be considered the responsibility of all top and senior executives, which helps reduce ICV cyclicality, by giving them a vested interest in the portfolio.

Executives, who help guide and sponsor innovation projects as well as shape their linkages to the corporate strategy, are much more likely to work to sustain them, over time.” ■ Reference: ECCH SM-167A, Stanford Graduate School of Business, Prof. Robert A. Burgelman with Lyn Denend

Go India February 2009

31 GT_Americas_Feb09.indd 31

2009-02-10 17:33

CASE STUDY

MANAGEMENT

CHART ART Charts help prevent text-heavy boredom and present certain types of information more simply, more vividly, and therefore more memorably

ay it with a chart. Why use 1000 words when you can say it visually!

In fact, mastery over creating pertinent and interesting charts can turn a ‘bored’ meeting into a more meaningful endeavour, or a boring text into a memorable read. They act as a hook, offering detail and clarity, for fast and memorable understanding.

Some types of information lend themselves well to forms other than charts. For example chains of reasoning are best presented in text paragraphs or in bullet points. If there is an emphasis on presenting a large amount of statistical data, then a statistical table will be in order. But for other information, such as trends and breakdowns, charts are the most vivid and memorable, therefore the most effective format.

S

The three basic chart types In plain terms, a chart is nothing but a visual representation of data. It is some type of diagram, or graph, or map, that organises and represents a set of numerical or qualitative data.

There are three kinds of

fundamental charts: pie chart, bar chart and line chart. Pie charts are circular charts divided into sectors which typically represent percentages. They are effective in displaying information when you want to represent the magnitudes of different parts of a whole. For example, if you want to present market share of different players, then this is the chart form that you need to employ. Simplest of the lot, it can represent only one data series.

As for comparing values across categories, try bar or column charts. For example, a histogram is a bar chart which shows frequencies for different categories. The columns can be of different widths and heights to portray the different frequencies.

If the columns in a histogram are all the same width then you can compare the frequencies of the classes by comparing the heights of the columns. The tallest column indicates the modal class. If the columns are of different widths then you must compare the areas of the columns to compare the frequencies.

Last of the fundamental lot, line charts, are used to track changes of some variable,

typically through time. The line allows for easy visualisation of the evolution. A typical example would be growth in profits over time.

2. A flowchart represents an algorithm or process, showing the steps as boxes of various kinds, and their order, by connecting these

Other charts But the fundamental charts aside, there are several other types of charts: 1. An organisational chart is a diagram that shows the structure of an organisation and the relationships and relative ranks of its parts and positions/jobs, or in other words the hierarchy (see example p.33)

Go India February 2009

32 CS_Mgmt_Feb09.indd 32

2009-02-11 17:17

with arrows. Flowcharts are used in analysing, designing, documenting or managing a process or programme in various fields. (see example p.34) 3. A funnel chart is a stacked per cent bar chart. It can be useful in identifying potential problem areas in an organisation’s sales processes, for example (see example p.34) 4. An area chart or area graph, based on the line chart,uses areas to show evolution of quantities. The area between axis and line is commonly emphasised with colours,

textures and hatchings.

Commonly, one compares with an area chart, two or more quantities (see example p.35) 5. A scatter chart shows behaviour with respect to two variables. It typically contains many data points and exhibits correlations among the two variables (see example p.35) 6. A bubble chart is a twodimensional scatter chart, where a third variable is represented by the size of the bubbles. In a scatter chart the points have no varying size; in a bubble chart they do (see example p.35)

7. A radar chart, or spider chart, is a two-dimensional chart of three or more quantitative variables represented on axes, starting from the same point.

They are used to compare performance of different entities on a same set of axes (see example p.35).

8. A waterfall chart aka the Walk Chart, is a special type of floating-column chart, that shows how an initial value is increased and decreased by a series of intermediate values, leading to a final value.

9. A timeline is a chart representing chronological sequence of events i.e. a schedule, or progress of an animation from the first to the last frame, or a chronological outline of certain historical events.

10. A cartogram is a map in which some thematic mapping is substituted for land area. An area cartogram is sometimes referred to as a value-by-area map, while a distance cartogram is typically used to show relative travel times and directions from vertices in a network.

11. A tree diagram showcases probabilities and permutations. It shows all the possible outcomes of an event.

12. A pedigree chart is a more scientific version of the family tree. It identifies and slots a family according to their birth details and genetic details.

13. A polar area diagram is an enhanced form of pie chart.

It differs in that its sectors are all of an equal angle (the pie chart sectors will be of different angles unless the pie is divided into equal parts) but the sectors extend at different lengths from the centre of the circle. Those distances enable multiple comparison.

In addition to these, there are several other field-specific charts, or popular constructed charts.

Perhaps the most widespread field-specific chart is the openclose/high-low chart, with a traditional bar chart of volume at the bottom, used to track stock market prices.

One of the fathers of visual intelligence, Edward Tufte, has promoted sparklines.

These are lines that depict the evolution of some variable (say a

ORGANISATION CHART

Go India February 2009

33 CS_Mgmt_Feb09.indd 33

2009-02-11 17:17

CASE STUDY

MANAGEMENT temperature) and also include a minimal amount of quantitative information (say the maximum temperature). A sparkline is characterised by its minimalism, and amounts to a chart reduced to its essence.

Get, set, chart? No wait Charts typically contain little text.

At the very least though, there will be a title. Either you can have a self explanatory heading, or else you can be adventurous with the title and have a sub-head, with a succinct description of what the data in the graph refers to.

Other than the pie chart and its select variants, any chart has a horizontal and a vertical axis, typically referred to as the x-axis and y-axis, respectively. Each axis will have a scale, denoted by periodic graduations and usually accompanied by numerical or categorical indications.

Each axis will also have a label displayed outside or beside it, briefly describing the dimension represented. If the scale is numerical, the label will often be suffixed with the unit of that

CORE IMPROVEMENT

Validate Ideas

scale, distance m (metre), time hr (hour) etc. One more important point, while creating a chart, is to be responsible enough to mention the source of the data, located at the bottom of the chart, horizontally or along the side, vertically.

When labelling or placing the text, it is important that you consider the end result of the chart. If it is to be placed in as a text in a printed publication, then check for the space allotted.

Any form of clutter will spoil the layout and turn out to be disadvantageous. You can choose to incorporate more details in the charts that are to be projected for the meeting, but you should keep in mind the average attention span of the group you are presenting to. Although a detailed grid of lines can mar the appearance, well-chosen grid can help in the visual alignment of data.

While most spend hours to cull accurate data, a few spend as much time thinking about how to structure the charts that will present those data. Too often,

The three charteteers Edward Tufte, Stephen Few and Nancy Duarte are three leading authors and bloggers who can help in the art of chart making dward Tufte is arguably the father of the field of visual intelligence.

An emeritus professor of statistics, information design, interface design and political economy at Yale University, he has written a half-dozen key works including: ■ The Visual Display of Quantitative Information (1983) ■ Beautiful Evidence (2006)

E

Stephen Few, a teacher in the MBA programme at Berkeley and consultant, is a more recent author in the field. His two works are: ■ Show Me the Numbers: Designing Tables and Graphs to Enlighten (2004) ■ Information Dashboard Design: The Effective Visual Communication of Data (2006) Finally, Nancy Duarte, the founder of Duarte Designs, is becoming a name to reckon with. She belonged to the team behind Al Gore’s widely publicised An Inconvenient Truth and has just published the well-received book: ■ slide:ology: The Art and Science of Creating Great Presentations (2008) All three authors have websites with their blogs: Tufte: www.edwardtufte.com (this site is notable for some of the useful comments that the blogs generate) Few: www.perceptualedge.com/blog Duarte: blog.duarte.com ■

FUNNELCHART Customer Experience

FLOW CHART

Scale Ideas

Type of Idea?

GOOD NEW GROWTH

Iterate and Shape Ideas

Fit with Core?

POOR

Create Separate Business

Source: MIT Sloan Management Review

Go India February 2009

34 CS_Mgmt_Feb09.indd 34

2009-02-11 17:18

CASE STUDY

MANAGEMENT the division of time tends to be 80% on data collection, 20% on data presentation. Work on reversing that proportion – avoid two pitfalls. One is an attempt to present the maximum of all those hard-to-get data on the chart. An effective chart is one that presents a point strikingly and memorably. A busy chart will turn the viewer off. Keep it simple to make it memorable – more often than not, less is more.

A second pitfall is insufficient resort to more advanced chart making tools. Settling for default templates – be it in Excel chart or any other format – isn’t going to make your charts stand out. But if you are proficient at customising

with Excel 2007, then you will be able to make some good charts.

If you have charting software experts around you, use them to help you modify the chart draft, select and insert objects for a given effect.

Sachin Joshi, Executive Director at the Indus Entrepreneurs (TiE) Seattle Chapter gives an example of some more advanced charting: “When you need to put forth data, as linear as it may be, it helps if you deviate a bit from the standard bar chart format, go for chart that has more elements to it. Take the chart on Browser Wars (see p.36) for example. While the figurines add to the fun, they convey the

estimated time lines. The chart with its smart use of colours manages to show the business enjoyed by the browsers over a period of time, and even the platforms – all in one glance.”

But remember that better charts are not just ‘prettier’ charts. Better charts are the ones that the audience understands and remembers. The audience has to identify with the presentation, so the data needs to be tailored according to their needs. Make your audience’s question: “What’s in this chart for me, What can I take away from it”. If you are to present the same data to a different set of audience, make sure you tweak it

to suit their demands. Do not rest on your past laurels.

Sometimes, people go to great lengths to incorporate the ‘wow’ factor, to make the graphs visually overwhelming, but it is dangerous to sacrifice all analysis or data. Yet, that doesn’t mean that you label each data point. A good chart shouldn’t be a work of abstract art, or a weighty document. Highlight the significant data only. When you go about doing it, keep it simple.

Edward Tufte, the father of the sparkline, says, “Every ornament in a graph should be eliminated.

Every object must serve a clear purpose. Efficiency should be maximised.”

Go India February 2009

35 CS_Mgmt_Feb09.indd 35

2009-02-11 17:18

CASE STUDY

MANAGEMENT If there is an overload of information, all you do is deter the audience from understanding the pertinent data. If you think audience might want to see the underlying data, and then link it to a table incorporated elsewhere.

If the data cannot be prioritised, then divide the chart – for example, if you need to share the complete details of a yearly progress of the business, divide it into bi-annual charts, or even quarterly. Just as one chart may be better than a hundred words, two charts may be better than one.

A visual extravaganza that is often crammed in any chart is colour. Sai Gundavelli, Founder and CEO Solix Technologies, says, “A rule of thumb is to avoid creating a chart where it looks like a rainbow got sick.” Ideally, you should tone down the use of primary colours on the large surface. It is rather harsh on

THE BROWSER WARS

eyes and you can’t focus on the complete picture. Everything stands out; or nothing stand out.

You should pick a softer shade for the largest surface area and boldest for the smallest.

A good option is to use gray for non-data elements like grid lines, and pale colours for colourcoding. Ideally, colour should carry some meaning. Take the Tele-Geography chart (p.38) for instance, with its contrast of gray and colour. In a bid to be on the safer side, you might be tempted to go in for softer hues of pastel colours. But be careful about that as well; when doing overhead projections the pastel colours will get lost. In such a case, you will need to use the bold palette.

Software solutions As mentioned above, Excel 2007 is capable enough software to handle regular chart making

needs. Two chart specific packages are Rich Chart and Smart Draw. Single user fees for these packages are in the $100 range. For the fanciest customised effects you can create charts in programming languages like Flash, JavaScript, or pure CSS. These offer fancier effects, but unless you are comfortable with the languages, or have a trusty source to guide you, won’t be able to get much headway. Flotr (an updated version of Plotr) is a free, Javascript-based application.

There are several flash-based solutions that you can use with a little help. Take for example FusionCharts. A website, it offers a variety of different charts which can be generated once the data is provided. amCharts is another website that offers a flexible and easily customisable solution for generating charts instantaneously.

If there are no interactive elements, you might as well lay off flash. “Simplicity is by far the most important principle,” says Nancy Duarte, author of slide:ology: The Art and Science of Creating Great Presentations.

“If visuals aren’t simple, they aren’t clear. We need to guide audiences to where they are supposed to start to process the information and in what order. Many presentations today create visual vertigo by too much complexity, too many visual vantage points and annoying animations. Remove anything that isn’t adding value to the message,” she says.

In the end then, chart making is a valuable but difficult art.

There is no one ideal solution when it comes to the issues of data density, of textual explanation and of aesthetic design (colour choice, font type and size). And there is no ideal software solution – the userfriendly packages do not permit very sophisticated customised solutions, while highly original charting requires advanced programming skills. But remember, even an imperfect chart can be better than 100 perfect words. ■

NEXT ISSUE:

MANAGING LAYOFFS

TELE-GEOGRAPHY CHART

Go India February 2009

36 CS_Mgmt_Feb09.indd 36

2009-02-11 17:18

GLOBAL TRENDS

Europe

Heart doctor turned hearty entrepreneur

Pulmonary Arterial Hypertension (PAH) Facts

At first a cardiologist, then a pharmaceutical research head, Dr Jean-Paul Clozel gave it all up to set up his own pharmaceutical company

J

ean-Paul Clozel is a French doctor-turned-Swissentrepreneur. After receiving his MD in cardiology he practised medicine for eleven years, from 1974-1985. He was then recruited by the Swiss pharma giant, F. Hoffmann-La Roche, to become head of drug discovery in the cardiovascular department.

At La Roche, Clozel’s passion became discovering, developing and marketing highly innovative drugs, through which he could reach tens of thousands of people (as opposed to the few hundreds of patients a cardiologist treats).

With biotech growing in the 1990s, Clozel decided to venture out and make the best use of the breakthroughs in biotech and combine them with the search for small molecules. With a couple of colleagues, he founded Actelion Pharmaceuticals in Basel, Switzerland in 1997.

With funding being a huge roadblock initially, Dr Clozel, along with his colleagues, mortgaged their homes to fuse in the required capital, but after a few initial hiccups, he convinced the risk capital managers to invest in the new ventures.

Actelion’s biggest achievement came when Dr Clozel and his team successfully developed a drug, Tracleer, for a previously untreated disease, pulmonary arterial hypertension (PAH).

Actelion has ridden Tracleer to success. In just ten years it has succeeding in crossing the $1 billion threshold in revenues.

In 2007, Actelion posted $1.23 billion in revenues (Tracleer provided 89% of those revenues) and an operating profit of $133 million (for an operating margin of nearly 11%). At the end of last year, Actelion became one of the component shares of the Swiss

Market Index (SMI), an index of the twenty largest and most liquid shares on the SIX Swiss exchange. As befits a biotech firm, Actelion re-invests a large part, around 25%, of its product revenues back into research, thus assuring consistent funding options. Says Dr Clozel, “It is this combination of generating significant revenues and utilising them to finance the broadening of our product portfolio that has attracted many investors.”

Dr Clozel’s work has earned him both scientific and entrepreneurial recognition, a rare combination. On the entrepreneurial side, Dr Clozel was named the Ernst & Young World Entrepreneur of the Year in 2008. On the scientific side, he was nominated as a professor at the Collège de France in Paris, France (Chair of Technical Innovation) in 2007. This chair

■ PAH is a disease marked by consistently high blood pressure in the pulmonary artery in the lungs, which results in the enlargement of heart and adversely affects its pumping— and could ultimately lead to heart failure ■ It is caused either by extreme stress, genetic inheritance, or as a part and consequence of other illnesses, like HIV, chronic liver disease, scleroderma and sickle cell anaemia ■ There are 146,000 people in the US, Europe and Japan suffering from PAH, according to a 2006 Datamonitor report ■ The United States alone has 800-1000 new cases of Primary PAH reported every year

only requires a set number of public lectures per year and so allows Clozel to maintain his CEO activities at Actelion.

In the francophone world, an appointment to a chair at the Collège de France is arguably the topmost achievement for a scientist, or an academic in the humanities.

Ever the practical scientist, Clozel worries about the difficulty of attracting young people to biological research. He would like to see more young people as excited about discovering a new drug as they are about creating a new video game. In his view, biotech is ultimately about helping people and leaders in the biotech sector, such as himself, need to foreground that helpfulness to make the biotech career attractive. ■

Go India February 2009

37 GT_Europe_Feb09.indd 37

2009-02-10 17:33

GLOBAL TRENDS

Are you a good green driver?

Fiat’s eco:Drive system uses the car’s sensors, a USB drive, and software on your personal computer to make you consume less fuel and emit less CO2

W

ith environmental concerns gaining momentum, governments, NGOs and individuals across the world have all been endorsing the principle, Save the planet! Yet, many people are committing the environmental crime of driving a car. The Italian car maker Fiat has taken some constructive steps towards saving the Earth.

At the October 2008 Paris Motor Show, Fiat launched the eco:Drive programme, a freeof-charge tool that helps drivers understand the impact of their driving style on fuel consumption and CO2 emissions. eco:Drive is an innovative, easy-to-use computer application that helps the driver to drive efficiently. It analyses driving style in an effort to reduce fuel consumption, thus reducing carbon emissions and saving money. The driver’s driving data (in-car telemetry data)

is recorded on a thumbdrive, plugged into Fiat’s Blue&MeTM USB port. The USB drive in turn is plugged into the driver’s personal computer.

The eco:Drive software, which users access from their personal computers, analyses acceleration, deceleration, gear changes and speed. It then awards marks out of 100, according to how efficiently the driver has driven. Step-by-step tutorials have been provided which help improve one’s score and offers practical advice on how to perfect one’s driving style, in order to become more fuel efficient. To make it more user-friendly, the application’s interface features bright colours, and cartoon cars and people.

This application has been developed by AKQA in conjunction with Fiat’s Engineering and Design Department in Turin, and

NEWS BRIEFS: is available for download in English, French and Italian. eco:Drive is currently available in the Grande Punto and the Fiat 500 models and should be available across all Fiat cars and commercial vehicles by next year.

Drivers who start eco:Driving can expect to reduce their carbon emissions and fuel costs by 15%.

According to Fiat, drivers using eco:Drive have already saved 163,000kg of CO2 in their efforts to be responsible drivers. As Lorenzo Sistino, Fiat Automobiles CEO, commented at the Paris Motor Show: “eco:Drive is only the first step of a revolution; in fact, for the first time ever, a standard vehicle is connected with a PC and with the Web. It is also an innovative technology, but with an important social and educational objective: this is the first time that an automotive brand has launched an interactive technology that helps its customers improve their style of driving in order to save and to respect the environment.”

Fiat has also launched eco:Ville, an environmentally friendly online community where users participate and help Fiat improve the system. In this way, Fiat is availing itself of the groundswell, using customer input to improve a product.

Based on user opinion, Fiat has already launched four different versions of the application.

So you thought you were a good driver? You have never had an accident, you say. But until you’ve put yourself through an eco:Drive test (which admittedly, for the time being, requires that you drive a Fiat) you won’t know whether the environment considers you a good green driver. ■

■ Digital Britain:

broadband for all The digital and communications industry in UK contribute more than £50bn a year to the country’s economy. The soonto-be-released interim Digital Britain report is expected to set a minimum broadband speed, push for universal broadband coverage by 2012, besides examining illegal file-sharing of movies, music and TV, and appraise ways of tackling it. The report will also look at protecting children, as millions, many of them under-18, visit social networking sites and play games online.

■ EU for global carbon

market

The European Commission has called for a global carbon trading market as part of a plan to tackle climate change. It plans to expand its Emissions Trading Scheme (ETS), include all emerging nations by 2020 and also link ETS to other carbon trading systems. It also aims to boost its use of renewable sources to 20% of total energy use and achieve a 20% cut in energy consumption, by 2020.

■ Spain’s economy enters

recession

According to figures released by Spanish Central Bank, Spain’s economy, which in recent years has been one of the healthiest in Europe, has been hit hard by the global financial crisis and its economy is now in recession for the first time since 1993. Its GDP has fallen by 1.1% in the final quarter of 2008, following a 0.2% decline in the third quarter.

The bank also forecast that it will further shrink by 1.6% during 2009.

Go India February 2009

38 GT_Europe_Feb09.indd 38

2009-02-10 17:33

Europe A responsible supply chain E.ON UK set out to integrate corporate social responsibility into its large-scale procurement process

E

.ON UK, the UK’s largest integrated power and gas company, is part of the E.ON group, the world’s largest investor-owned power and gas company, headquartered in Germany. In 2007, E.ON UK recorded $25 billion in sales. The company, which has the second largest distribution network in the UK, employs 20,000 people, at 75 offices across the country. It features centralised procurement which makes purchases of some $2 billion a year. Approximately 80% of the spending goes to 250 suppliers.

One of the company’s five core values is corporate social responsibility (CSR). Yet it did not have a standardised approach to monitor whether its suppliers were behaving in a socially responsible way.

The company was running the risk of negative publicity that could damage the brand. So in 2005, E.ON UK launched its Responsible Procurement Initiative. The goal was to structure a procurement policy which could ensure that social responsibility was embedded in the inbound section of the supply chain. Joanna Kinson, who had worked for a company known for its CSR processes, was recruited as the strategy & analysis manager for the procurement team, with responsibility to oversee the change process and

ensure successful execution of the initiative. She now needed a place to incubate the initiative.

E.ON UK had already established a partnership with IMD to provide education and training for its employees.

Kinson thought that an IMD Booster programme, a weeklong collaboration between a corporate team and IMD staff, would be ideal. She prepared a project proposal which highlighted the major features of the Responsible Procurement Initiative: setting supplier standards; measuring compliance; assisting with improvement when standards are not met. Using this document as support, Fiona Stark, corporate counsel, board member of E.ON and corporate sponsor of the initiative, helped secure corporate funding. The next step was for Kinson to select the eight programme attendees – she opted for a mix of attitudes, passionate believers and cynics who saw the procurement initiative as just one more initiative.

IMD’s 2006 week-long booster programme provided an opportunity for the eight attendees to spend full-time on problem resolution, to do so with the help of the experience and networks of the business school staff, and to build team spirit. Under the guidance of

Professor Corey Billington, the programme days for E.ON participants were devoted to exercises facilitating innovative thinking. In particular, Professor Billington used what he calls the knowledge brokering technique. This technique scours for old ideas used in other industries, which might find a new application in the target company. Billington views the technique as more efficient than trying to come up with new ideas from scratch. IMD faculty dipped into their network of partners to present the best knowledge brokers in the area of responsible procurement. As important as what the participants learnt, was building the right attitude. It was not enough for the team to just follow Joanna’s lead; they had to share responsibility with her – they were to be with her; not just behind her. The booster week ended with a list of deliverables and a drafted code of conduct, input for a final presentation to the corporate sponsor, which would determine the availability of funds required for the future success of the initiative.

The entire team’s efforts

were a success, as the proposals presented by them were accepted and Kinson received £250,000 for the execution of the Responsible Procurement Initiative. For continued success of the initiative, a new role was created and one of the booster programme participants, Kayzi Ambridge, was named procurement manager. Ambridge has built consideration of three factors into the procurement process: environmental factors (such as recycling and transportation), social factors (such as decent working conditions) and economic factors (such as local employment, SME development).

Though responsible procurement at E.ON UK is on its way, the procurement manager acknowledges that it will take the company about three years to achieve all their responsible procurement goals (most notably the audit and improvement of supplier practices). ■ Reference: ECCH IMD-3-1951, IMD (Switzerland), Professor Corey Billington and Michèle Barnett Berg

Go India February 2009

39 GT_Europe_Feb09.indd 39

2009-02-10 17:33

C-SUITE

LEADERSHIP

A PROFESSOR FOR TRYING TIMES Meet professor Manfred Kets de Vries, who uses psychoanalysis and psychology to help top managers understand themselves better, and therefore lead better companies. Here is his advice on leading in troubled times

he office of Professor Manfred Kets de Vries lies in a remote corner of one of the buildings on the sprawling INSEAD business school campus, carved into a nook of the Fontainebleau forest, 60 kilometres south of Paris.

From the 12th century on, this is where French kings used to hunt, and where Francois 1, a warrior king not notably emotionally intelligent, erected his famous château. Kets de Vries has taught at INSEAD for some thirty years and, among other things, has put more than 5,000 executives through group sessions heavy on the psychoanalytical approach to management.

Considering the office’s fraught setting, it comes only as a mild surprise to find that Kets de Vries has on his desk a large prehistoric skull, with dauntingly sharp teeth. The other tell-tale object in the office is the couch (de Vries is a schooled psychoanalyst)–the couch being notable for being covered with reports, books, papers and other emotional intelligence.

Knowing what the professor is about, one interprets the scene thus: the skull is that of raw

T

needs to be cured.

Professor Manfred FR Kets de Vries is a psychologist who has some twenty books attesting to his highly specialised expertise.

He teaches at INSEAD, the leading European business

capitalism; the cluttered couch an attempt to provide it a cure.

You see, the professor’s clinical studies in matters of human behaviour – and his upbringing in conservative Holland – have taught him that greed is sick and

school, where he is the Raoul de Vitry d’Avaucourt Professor of Leadership. He is also the recent recipient of an award, as leadership scholar of the year, by the International Leadership Association. That passes as the

WHAT IS EMOTIONAL INTELLIGENCE AND HOW TO DEVELOP IT? Traditional intelligence tests verify a manager’s logical and mathematical abilities.

Yet without the emotional intelligence to understand the needs and aspirations of colleagues, a top manager will have leadership shortcomings. That is why professor Kets de Vries recommends developing one’s emotional intelligence.

INTELLIGENCE HAS MANY FORMS The seven types of human intelligence: 1. Spatial intelligence: these people think using patterns and forms quickly. They think in images and pictures. Examples: architects, computer graphic designers 2. Physical intelligence: they have good motor coordination and movement control 3. Musical intelligence: good with their ears 4. Linguistic intelligence: they are sensitive to the meaning and use of words.

5. Logical-mathematical intelligence: knowhow to solve logical problems and deal with numbers. This intelligence is what is traditionally measured in IQ tests.

6. Interpersonal intelligence: can empathise with others and understand how they feel; get along well with others.

7. Intrapersonal intelligence: have a good understanding of their own feelings, and can be very intuitive Each person’s intelligence is a mixture of the seven spices above, and

one person’s intelligence can be gauged along each trait.

Source: Howard Gardner (Harvard University)

WHAT IS EMOTIONAL W WHA IINTELLIGENCE? NTE Emotional intelligence can be Emo E defin d ned as a mixture of inter- and iintra-personal intelligence. De Vries defines Emotional Intelligence d using the three criteria: u • How well you know and understand your emotions • How well you manage these emotions • How well you recognise and deal with the emotions of others A person’s EQ is measured by administering a series of psychoa ggraphic tests, as well as interviews ((since many of the intelligence ttypes cannot be properly assessed with paper-and-pencil tests). w

Go India February 2009

40 C-Suite_Leadership_Feb09.indd 40

2009-02-11 10:52

equivalent of the Nobel Prize in his narrow line of work. Anyway, it must serve to buttress a soaring claim. “I must be one of the most published management professors,” says Kets de Vries.

“Company chief executives pay top Euros to attend my seminars.”

One of this offbeat professor’s favourite interests is something he calls ‘emotional intelligence’ (see chart). He emphatically regrets that it is not taught at business school. “Without proper emotional intelligence, a chief executive cannot be effective,” he preaches. “For the past years I have been training management

coaches, and emotional intelligence – EQ – is critical to their success.” He recalls an anecdote from his youth to illustrate emotional intelligence.

“One summer, my brother and I were in summer camp for 2 months. After the first month a new batch of scouts arrived and we decided to trick them into believing that the traditional hazing ceremony consisted of taking a bath in the frigid waters of the bathtub we had placed in the middle of a field. After some hesitation the freshlings complied… until the camp master walked by and asked what was

WHY IS EMOTIONAL INTELLIGENCE IMPORTANT? Through his study of hundreds of top executives, Kets de Vries has concluded that emotional intelligence can help managers: • Create stronger interpersonal skills • Improve their ability to motivate (themselves and staff) • Increase creativity, initiative and innovation • Lead more effectively • Perform better under pressure • Handle change • Be at peace with themselves So S o there t is good reason for busy executives to take some time to analyse themselves.

going on….” This yearning to test and understand others’ feelings is the key to emotional intelligence.

Using one’s EQ in professional situations is what defines great executives, according to Kets de Vries.

No doubt, but what is it? Only as the professor happily warms to the subject, it slowly dawns on the unemotional brain that one of the most important elements of emotional intelligence is communicating and listening.

“Especially in these troubled economic times, the CEO must communicate, even overcommunicate,” explains Kets de Vries.

Running an economy, especially a global one that is foundering, must largely rely on tapping the discipline of knowledge management, he asserts. “Knowledge means sharing data, but that sharing does not germinate results unless there is trust between the sharing parties. And, again, that trust can only be established via communication.”

“For communication to flow freely,” the professor goes on, “top managers – especially

CEOs – need to destroy the silos and boundaries that separate the different divisions within a company and which separate people. This creative destruction will help create empathy through shared knowledge and acquaintance.”

Kets de Vries has one point that he emphasises by frequent repetition. Leadership is getting more difficult as teamwork becomes more complex. There is a growing spread in age and background of its members.

Many teams now operate virtually globally dispersed, as opposed to physically in place, yet very much connected by electronic means.

CEOs and other top managers are finding that they must spend an inordinate amount of time communicating with their teams about situations and future prospects. This is due to the daunting exigencies of our present times, which are tough and therefore invite confusion and controversy.

Our time of the Big Bust strikes Kets de Vries as one in search of emotional intelligence.

One emotion that currently requires mass attention is

HOW CAN YOU IMPROVE YOUR EMOTIONAL INTELLIGENCE? H

GETTING TO KNOW MYSELF BETTER G

K Kets de Vries suggests some ‘easy’ ways to improve your EQ: • Active listening, which implies full attention and frequent verification of what one hears (e.g. “Do I understand correctly that you are saying”) This also implies controlling the mental wandering that occurs.

• Active observing, meaning ‘listening with the eyes’, and watching for non-verbal signs. What are the signs from bodyy language?

• Understanding Und and recognising the human emotional spectrum s c spe (for oneself and others). Having the ability to deal with with colleagues’ emotions in a constructive manner helps productivity prod by strengthening the relationships.

Arrow leading to “Deeper understanding of ME” (which would A address the issues of CCRT, mood swings). a

D Developing one’s emotional intelligence does not mean becoming a managerial d Woody Allen – undergoing decades W of psychoanalysis on the couches of shrinks. However, Kets de Vries does sh recommend deeper analysis for top re managers who show strong mood ma m sswings. wi w Matters here become more obtuse, o bt with terms such as bipolar disorder, d iso hypomania, cyclothymia and the core conflictual relationship theme th (CCRT) popping up. Refer to chapter 2 (C of his book The Leadership Mystique (2006, second edition).

(2

Go India February 2009

41 C-Suite_Leadership_Feb09.indd 41

2009-02-11 10:52

C-SUITE

LEADERSHIP the fear of losing one’s job.

Exercising emotional intelligence, Kets de Vries calls the tribulation of being sacked, fired, given the boot, something soothingly honourable, ‘derecruited’, like being discharged after gaining the Victoria Cross.

Communication should keep employees informed about the company’s status. There should be broad knowledge of how the company is doing and what its prospects appear to be. Emotional intelligence seeks to reconcile employees to exigencies. In a heartfelt outburst of emotional intelligence Kets de Vries decries the merchants of doom – “the BBC and CNN should be bombed,” – for their constant peddling of bad news that “hurt people’s mentalities and outlook.”

In outline what does the Kets de Vries therapy for executives in troubled times include?

Do not withdraw Managers should not withdraw under pressure. They should even become more open and available for consultation, for advice, for brainstorming. The present situation calls for managerial creativity. GO find its stuff.

Develop a humane leadership style Seek to act humanely in cutting cost and re-aligning resources. Try not to lay off staff, except possibly as a symbolic act. Being fired should not come unexpectedly.

Regular performance evaluation, or other forms of feedback should have given forewarning. Avoid greed in tough times, when there a fewer resources for staff.

For example, Toyota chose not to lay off workers, but rather to have them work less (at less pay),

and to attend training classes, so that they may return to creative work with expanded ability – or to help the company in a number of guises. Consulting firm BCG (Boston Consulting Group) rerouted some of its consultants to carry out community projects, or do research during down time, so as to remain active. Another example of a company reluctant to fire staff is giant Danish pharmaceutical producer Novo Nordisk. It rejects the ‘rank and yank’ attitude of laying off staff after assessing competencies. It is confident that this attitude is effective in the long run.

Lastly, to put it in a less resplendent way, avoid the Henry Ford method, Kets de Vries advises. That’s where an employee might go to his office and find his desk on fire, the message being that he has been fired. Instead, use emotional intelligence to reduce the guilt of letting people go, and the pain of being let go.

Reflect and change Counselling a troubled Moscow tycoon, a dictatorial type safeguarded by a personal garde du corps, Kets de Vries tried to sell him on a softer style of capitalism. He told him that

he needed to adopt a more inclusive and consensus-building management style. Now that the tycoon was in trouble was the right time to change management style, he told him. Take that as a parable of the Kets de Vries way.

Bad times are the time to focus on what is important Now is the occasion to make sure that the light at the end of the tunnel is not an oncoming train.

Make sure you are acting in the sense of the times and not just by the textbook.

Now, is the time to ponder: “Is this company too big for one man to manage? Maybe we should get smaller.” As an example, this is the time for a Citibank to reassess humanely and creatively its portfolio and its strategy.

Now is the time for talent management. There should be a campaign of probing interviews in a search for the kind of executive who can run a capitalism without fangs. Get to grips with overhanging issues, the kind that have been ignored under the regime of greed.

seen so many bored CEOs, and yet they seem stuck,” reports de Vries.” They sometimes have depressive reactions. It’s as if they were about to lose the universe. They need to ask themselves: ‘Do I want to stay?

Should I stay?’) The ones that stay should have reflected and found in themselves a creative way of dealing with the injured market.

Recovery will need to be led by a quartet of CEO personalities: the entrepreneur, the coach, the deal maker, and the chess player. Troubled times will call on them to apply appropriate adaptive measures. For instance, a turnaround manager might not be able to make himself beloved by his troops. In such a case it will help to have him assisted by someone who is able to act as a buffer.

This is certainly not the time for chief executives to become paralysed. Jack Welch would have said: “I have to do some dentistry now.” And would have gotten on with the job. So, as top managers confront these turbulent times, they need to provide the focus that their organisations need, but they must also remember to motivate managers and staff, and to demonstrate solid integrity.

This is the soft capitalism and attendant emotional intelligence that Manfred Kets de Vries prescribes as a cure for our present troubles. As he does so for GO, his view from the office is upon the small grove of bamboo trees that surround his yukimi, a Japanese stone lantern. ■

Time for self-assessment Recession affords the time for leaders to check whether they are bored with their jobs. (“I have

NEXT ISSUE: ICICI BANK

Go India February 2009

42 C-Suite_Leadership_Feb09.indd 42

2009-02-11 10:52

C-SUITE

ENTREPRENEURSHIP

TYING THE KNOT ONLINE Anupam Mittal has succeeded in transforming Indian marriage customs by creating the People Group and its crown jewel, Shaadi.com

xcept in Bollywood romances, Indian marriages rarely start with ‘boy meets girl’.

That is a detail that comes a long way down the line.

The process starts with the family of an eligible boy and the family of an eligible girl matching compatibilities among a multitude of variables.

These range from religion, caste, astrological fit, social and linguistic background, to education, food habits, tastes in music, entertainment, professional prospects, etc.

Boy gets to meet girl only after the elders of both families have gone through this complex and ritualised matching of checklists.

Every Indian community plays its own riffs and the process can get so convoluted that it requires a 1,500 page door-stopper like A Suitable Boy to describe in detail. Rather than take on such doorstops, families resort to marriage brokers.

The broker maintains a database of eligible boys and girls. Indian matchmakers come with ancillary skills.

Astrological competence is a must, for example, since the process is initialised by matching horoscopes. Also, they need to

E

have complexities of caste and sub-caste at their fingertips.

Brokers are paid commissions when a suggested match fructifies in marriage.

This is no small market.

According to Vivaha Interactive, a wedding organiser, India spends the equivalent of Rs 1.3 trillion per annum on its 12 million-odd weddings. The wedding market is estimated to be growing at about 25 per cent. The demographics of a young population with a rapidly growing middle-class make it likely that it will remain a recession-proof industry.

In Boston he set up a Web company called Satyanet Services and struggled to think up revenue models for it. It was to be a technology-enabler that would provide the expertise to help customers set up their online businesses.

On a brief return visit to India, he bumped into another idea – in the form of a broker, who was trying to negotiate a marriage for one of his relatives.

The man carried some 20 CVs in his briefcase to communicate to customers. The encounter got Mittal thinking – “How many bio-datas can this man carry?

How many people can he visit?

Does this man's physical strength and leg-work determine his success rate? What if someone based in Mumbai needed a soul mate in Timbuktu?”

Mittal was wondering if Satyanet would gain more financial traction if he launched a set of verticals that each had strong USP and branding and together cross-promoted each other. The Timbuktu connection led naturally to the thought experiment, “What if we put all these bio-datas up on the Internet and allowed people from all over the world to interact with one another?

That’s when I knew what the

Entrepreneurial preparation Anupam Mittal, still unmarried, comes from a Mumbai family and started working in the family’s textile business as a high-school student, in 1992.

He even set up a new export division. It lost money. The experience, though chastening, was instructive: “It made me realise two things. One, I didn’t like textiles. Two, I needed to learn a lot about running a business.” So he shipped off in 1997 to Boston College to get an MBA, with a specialisation in Operations & Strategic Management.

Go India February 2009

44 C-Suite_Entrepreneurship_Feb09.indd 44

2009-02-10 17:37

first vertical was going to be – online matrimonials.” Thus in 1997 was the online matrimony site, Sagaai.com (later to become Shaadi.com), born.

Following receipt of his MBA, and while bridging the predictably long wait for the online matrimony site to gain mass, he took work in the US. Between 1998 and 2001, he acquired IT and internet-related management experience, by working first for Lotus Corp, then for IBM, followed by a Silicon Valley incubation outfit, Microstrategy, where he initiated a string of corporate partnerships.

Entrepreneurial takeoff The tipping point for the matrimony site occurred around 2001, probably driven by liberalisation of Internet and broadband service in 2000, and the removal of government monopoly. There was exponential growth in Indian net usage as cybercafes proliferated and surfing costs dropped from Rs 60/hr to Rs 15 and less. As Mittal recalls : “From 1997 to 2001 we did not see much growth.

We would get 100-200 profiles a day and maybe 10-20 success stories per day. Today, we receive over 8,000 profiles daily and close to 50 success stories a day.

PEOPLE GROUP TIMELINE ■

1997 Launch of Sagaai.com. First year 45,000 members

■

1999 Sagaai.com crosses 100,000 members

■

2000 Sagaai.com rebranded as Shaadi.com

■

2001 People Group created

■

2003 Fropper.com launched Mauj.com (entertainment portal) launched

■

2004 Shaadi.com Centres launched - India’s first network of matchmaking centres Flavors released by People Pictures

■

2005 Astrolife.com (astrology portal) launched

■

2007 Makaan.com (real estate portal) launched

■

2008 Shaadi.com Member base 14 million plus Source: Company

We have managed to match close to a million individuals, cutting across boundaries of religion, culture, caste and geography. Also we managed to create goodwill for the brand among South Asians. It helped everywhere else to overcome initial scepticism due of the medium.”

It was also in 2001 that Mittal returned to India and created People Group. It became the umbrella brand for a string of Internet-based businesses aimed directly at consumers. “We wanted to follow the FMCG pattern, wherein they have multiple brands in various segments while using the same core competencies of distributional marketing for every brand. Hence we thought, why cannot we be FMCS (Fast Moving Consumer Services)?”

Eight years into its life, the group now consists of three companies, employing 800 people. Of these companies, People Interactive is the consumer Internet arm and owns the matrimonial portal Shaadi.com. It also owns its bricks-and-mortar counterpart, Shaadi.com Centre, along with a real estate site makaan.com, a friendship and social networking service Fropper.com (Fropper stands for friend hopper), and an astrology portal Astrolife.

A second company, People Infocom describes itself officially as Managed Services Provider to Telecom Operators, MediaEntertainment Companies and Consumer Brands. It extends its services in managing these applications and facilitating content through its brand, Mauj.

A third company, People Pictures, is into media production and was founded to serve the market for

new-age Indian cinema. It is also partnering with Star TV to set up a marriage reality show. In 2008 People Group employed some 800 people and generated Rs 3.5 billion in revenues.

While Mittal’s enterprises largely base on the Web, he himself is not an IT-person by training. Indeed, he says he is uninterested in technology, except as an enabling factor for people-centred businesses. He explains his customer-centrism this way: “I simply wanted to be in the consumer space, offering ways to make life easier for people. My businesses arose from servicing the need to form connections, be it for finding a life partner (Shaadi.com), making new friends (Fropper.com), or zeroing in on just the right home (Makaan.com).”

This customer focus means focus on brands as Mittal attests, “For our marketing, we adhere to classic branding principles in all our communication to build a well-known, trustworthy brand.”

And when it comes to brands, the issue of names can be key. Sagaai was not a happy first choice. But Mittal was willing to divorce from that initial brand name: “In hindsight one of the single most important decisions we took was to grab the domain shaadi.com in 2000, though everybody advised against it. Until then, the site was called ‘Sagaai.com’, a term which is not very widely understood and it can be misspelled in many ways.” Shaadi is a common word for ‘marriage’ across most Indian languages. Received wisdom suggested it was too plebeian to use a vernacular word for a swanky website. But it made search and recall easy, and therefore has stuck.

Go India February 2009

45 C-Suite_Entrepreneurship_Feb09.indd 45

2009-02-10 17:37

C-SUITE

ENTREPRENEURSHIP This episode carries a further lesson. Mittal believes that entrepreneurs who learn things the hard way probably attain more wisdom and maturity.

Mittal’s early errors in the family business had taught him a lesson: “Even if one fails, there’s some learning to be achieved from failing. I made some good decisions and some that haven’t really worked in our favour… but the motto has always been to accept failure quickly and move on.” The name Sagaai had its drawbacks and Mittal moved on, successfully.

While there were mistakes and growth was slow in the initial years, the group managed to get off the ground and survived on internal accruals and funding, from Mittal himself.

There was a revenue model in place from early on. The model was that of subscription – individuals would pay to view a certain numbers of profiles (See box on subscription model). The subscription model was tweaked in response to feedback, and Mittal claims that since 2000, it has grown at close to 200 per cent per year.

It was only in 2006 that People Group started raising funding from outside sources.

By then, the workforce had grown from 20-odd in 2001 to over 400. Sequoia Capital offered $18 million VC funding on undisclosed terms and Intel Capital came up with another $2 million. That cash helped a fast ramp-up of business. In the two years following the capital infusion, employment doubled and the People Group footprint now extends to nine offices, including centres in the US, UK and the Gulf.

People Group’s synergies Shaadi remains the key driver for the group and it clearly is best known on the street. The matrimonial portal claims to have over 13 million members, generating 300 million page views per month. It boasts of over 820,000 success stories in terms of marriages registered and it has won raft-loads of awards. But it has a formidable competitor in the form of Bharatmatrimony (see chart).

Shaadi.com derives pride from having been the first player in the market, as Mittal attests: “We have been around for 11 years now and we definitely enjoy the first-mover advantage, in terms of brand recognition and acceptance, as well as brand presence. We are extremely customer-centric and people-first in our approach. We were first to launch 24x7 Customer Service channels for our users. We have been recognised and rewarded for our efforts by various industry bodies, the latest being PC World Web Awards recognition of Shaadi.com as the ‘Best Matrimony Site’ – and that for the second consecutive year.”

The first-mover advantage translated into distribution deals with the major portals like Yahoo, MSN, Rediff.com, at a time when those deals came much cheaper than at present. It also translated into a free shot at building brands, before competition entered the market, in the form of other e-matrimonial services. “A brand is built on quick moves. What really helps in creating and building a brand is consumer experience, which then leads to word of mouth and buzz.

Creating a buzz is a key factor in

THE MOTHER OF ALL MARKETS The online matrimonial market is a big one, that is growing very rapidly, although there is disagreement on the exact numbers ccording to India Online 2008, an annual survey carried out by online research consultancy JuxtConsult, matrimonial search is the 13th most popular online activity among urban net-users in India.

The survey polled 10,000 households, across 31 cities, with over 14,000 responses, to profile their net use and online preferences. In the online matrimonial market, the 25-35 age group forms the largest base at 40 per cent, followed by the 19-24 age group at 34 per cent. South India accounts for 44 per cent of users of matrimonial Web sites.

India Online 2008 said Bharatmatrimony is the market leader in the online matrimony business with 35.5 per cent users preferring it, followed

by Shaadi, with 28.2 per cent. Jeevansaathi, follows with 5.5 per cent. The study suggests online matrimony is a highly ‘branded’ category since over 80 per cent of users prefer a ‘specialised’ matrimonial portal. JuxtConsult also rated Shaadi as the most ‘user-friendly’ site in India, across all categories.

According to a Wharton Knowledge Report in November 2008, the industry is worth at least Rs 2 billion and growing at between 50-70 per cent compounded. Clearly, the two market leaders are Shaadi and Bharatmatrimony, which control almost 70 per cent of market share between them.

The two competitors are engaged in a battle of numbers over the market size and their market share. In late 2007, Bharatmatrimony, which had over 10 million users by mid-2008, said its internal estimates suggested it held around 50 per cent market share in an industry that it then estimated at around Rs 1.5 billion in size. It also said that the market itself was growing at over 100 per cent. In 2009, Shaadi claims 13 million users and 200 per cent year-on-year user growth for several years in an industry that it says is now around Rs 3 billion in value.

Alexa, which does site traffic analysis, ranks Shaadi at 917, compared to Bharatmatrimony’s 983 and Jeevansathi is 1345. The Alexa rankings are computed on a combination of unique page views, reach (geographical spread) and normalised over time. The higher Shaadi ranking may mean the average Shaadi visitor sees more pages. Shaadi has better ‘reach’ – about 30 per cent of users come from outside India. Bharatmatrimony garners 82 per cent of users from India, and over 50 per cent from South India. Most overseas viewers are from the US, with the UK at no.3.

One thing that the two competitors can agree on is that their profiles ratios are skewed. Male profiles outnumber female profiles by 2:1. This could reflect gender-skewed online presence, or it could also reflect issues of trust. Women users may be more apprehensive about potential harassment though all matrimonial websites carry out some sort of verification routine to ensure that profiles are genuine. Whatever the reasons though, it is clear that the world of marriage sites, like the real world, is a woman’s world. ■

A

Go India February 2009

46 C-Suite_Entrepreneurship_Feb09.indd 46

2009-02-10 17:37

C-SUITE

ENTREPRENEURSHIP

order to build a brand. First, we were present everywhere on the Internet. Second, we have strong word-of-mouth references. Third, we got good PR and last, we did spend on advertising on TV, both in India and in the US. ” Another of Shaadi.com’s tricks is that it’s not just a marriage site but a marriage-site-and-more.

It provides ancillary services for people seeking life-partners.

Just click, and you'll have at your command ten links that offer advice on astrological affairs, customs, rituals, fashion, health, travel planning, legal matter, home décor, and more. Each of these channels is a potential revenue centre, with a panel of experts on tap.

In 2004, the model was translated into an offline, panIndian presence. Shaadi points, or matrimonial bureaus, were launched – these are now called Shaadi.com Centres. Why take the trouble? As Mittal explains it, “Shaaadi.com, our online business, targets only people from the age group of 21 to 35.

The majority of this age group searches for partners themselves instead of having their parents or siblings look for them. In India, most decisions are made

by the parents and the Shaadi. com Centres basically cater to parents. It’s a wonderful solution because it does away with earlier limitations. Our back-end allows us to offer parents access to our vast database.”

There are now over 155 Shaadi. com Centres run in over 87 Indian cities, using a standardised franchisee model. The franchisee finds the space (between 400-800 square feet) and invests between Rs 700,000 to Rs 1.2 million on furniture, décor, computers, etc. People Group trains the relationship advisors (in different Indian languages) and creates the multi-lingual questionnaires that customers have to fill in. It also provides standardised templates for advertising in local media (print, TV and FM radio).

A Shaadi.com Centre customer is charged a nominal fee to register a profile in the Shaadi database (online registration is free) and can upgrade to a full-fledged subscription. Essentially, parents ask the customer service personnel to fill in details of their children, and to conduct searches for suitable matches on the Shaadi database, based on

the criteria they enter. A Centre is therefore, somewhat like a specialised cybercafe for the tech-challenged. For those who are hesitant about online credit card transactions, the centres also provide alternative payment options.

Other extensions have been in the leisure and entertainment sectors. The hook here is that couples married by Shaadi might want to be entertained by the group. Thus in 2003 an entertainment portal, Mauj.com, was created, to deliver mobile entertainment services, games, ringtones, etc. In 2004, People Pictures, a movie production arm, with mission to make films for the New Age Indian, released Flavors, a 2004 comedy about Indians in America. Another film, 99 featuring stars like Soha Ali Khan, Kunal Khemu, Boman Irani and Cyrus Broacha, will hit theatres in early 2009. People Pictures has also recently moved towards TV via a tie-up with Star TV, for a reality TV show on matrimony.

If this show is successful, it would rate as synergetic by providing a potentially big boost to the brand.

Just as couples seek entertainment, they need

SITE COMPARISONS Shaadi Daily Registrations $* Alexa Rank Alexa Page Views/User

Bharatmatrimony

Jeevansathi

8,000

10,000

2,000

917

983

1,345

12

2

12

876

2,658

8,720

70.1%

81.3%

93.9%

US

9.8%

4.5%

1.7%

UK

4.1%

1.4%

0.8%

UAE

1.0%

2.9%

3.0%

9.9%

0.6%

Ranking.com Rank Top Geographies India

Others

15.0%

*: Company estimates, As on Jan 27, 2009

housing. Logically then, Makaan. com, a real estate portal was launched in 2007. In seven years then, People Group has fully positioned itself to accompany couples in the main facets of their lifepath: marriage, home and entertainment.

Lessons and challenges Looking back on the past 11 years, Mittal sees his success as rising from clear vision, and a knack for re-invention. He explains that, “It’s necessary to start with a clear idea of one's goal. Once that is clear, you will have a better idea of the steps you need to take to get there.

Imagine the kind of house you would end up with, if you started building without a visual concept of what you want.” But vision, Mittal emphasises, is not a matter of reaching some final, static destination. It's more like chasing a moonbeam.

And so, Shaadi.com has found it necessary to re-invent itself constantly. It has done so, guided by feedback from customers.

“It helps us understand their needs and to design product enhancements and offerings accordingly,” explains Mittal.

The life of an entrepreneur is one of constant testing, often in adverse conditions. And just as the entrepreneur must have a vision, he must build trust. Mittal's take on running a business is that you can develop trust by making only those promises that you can keep, even in adverse conditions. “You will be tested again and again. What will ultimately matter is your conduct and the sureness of your touch. People tend to trust people who have built credibility by doing the things right.”

Go India February 2009

47 C-Suite_Entrepreneurship_Feb09.indd 47

2009-02-10 17:37

C-SUITE

ENTREPRENEURSHIP One form of this testing is competition. On this point Mittal has this to say: “Our main challenge is to create a distinct identity for ourselves, setting us apart from other players who have entered the online matrimony market. We need to maintain our leadership through focused innovation and based on

a clear understanding of what our customers want.” Mittal's ability to compete is due for testing, since his entry into the mobilenet services line will bring Shaadi face-to-face with a different customer demographic from the broadband users that it currently services.

Proceeding into the fray,

MAKING MONEY OUT OF MARRIAGE Sites allow users to register for free, but make their money from subscriptions which provide access to many additional features round 12-13 million marriages are believed to take place every year in India and the overwhelming majority (over 80 per cent) are arranged. As registration was neither compulsory nor common till mid-2008, this may be a severe under-estimate. The online matrimonial market leverages the reach of the Internet and the power of IT to allow users to search multiple geographies and categories for compatible partners. Most sites, like Shaadi, offer free sign-up and registration, followed by upgrading to paid subscription.

Shaadi’s subscription plans range from ‘Gold’ Rs 1,950 for three months to ‘Diamond’ Rs 2,950 for six months and ‘Platinum’ Rs 4,450 for 12 months. Competitors like Bharatmatrimony and Jeevansathi have similar plans (see chart). Bharatmatrimony top-end ‘Privilege’ scheme also offers the services of a personal matchmaker, who will work with the subscriber to winnow out the most suitable matches.

Any registered user can create a profile, search profiles, display contact details, and contact other users, but only with the site as an intermediary.

Subscribers have access to several extra features. They can initiate direct contact and see contact details while free registered profiles cannot initiate contact or see contact details, though they can reply to any contact initiated by a subscriber. A subscriber can initiate chats and e-mails, access Shaadi on mobile, and personalise listings for better display.

Each subscription category includes a commitment to validate profiles in depth (check on details to prevent bigamy and frauds about employment or education) for a total of up to 200 profiles in the 12-month ‘Platinum’ category.

Shaadi also offers an unconditional guarantee that you will find an interested party within one month of subscribing. An interested party or ‘accepted member’ is somebody who expresses interest in your profile and initiates contact and you respond positively, or vice-versa, in a case where you initiate the contact. If this doesn’t happen within a month, you can get a refund.

A

Mittal's objective is clear. He wants to defend his market share and increase, it by scaling up in the matrimonial business. The same applies to other potential growth areas, such as mobile entertainment services and real estate. Scaling up is to Mittal the equivalent to the old exhortation, Excelsior!

The need to scale up means that the now 35-year-old entrepreneur still works long hours and travels incessantly.

He remains a bachelor and one of the most eligible bachelors in Mumbai, at that. Shaadi. com is not on the lookout on his behalf for a spouse. He says he’s married to his business. ■

SUBSCRIPTION PLANS Duration (months)

Name Shaadi Gold

Cost (Rs)

3

1,950

Shaadi Diamond

6

2,950

Shaadi Platinum

12

4,450

Bharatmatrimony Classic Super

3

2,590

Bharatmatrimony Privilege $

3

14,990

Bharatmatrimony Classic Super

6

4,390

Bharatmatrimony Classic Super

9

5,790

Jeevansathi e-value

2

1,700

Jeevansathi e-value

3

1,950

Jeevansathi e-value

4

2,200

Jeevansathi e-value

6

2,750

Jeevansathi e-value

9

3,500

$ includes personal executive matchmaker, more plans are available and rates are indicative, Source: websites

All members can also access channel services, such as real-time astrology, honeymoon travel schedules, legal services, real estate and home décor services, etc, and ask for value-added services with additional payments. Subscribers have a larger menu of options on offer from Shaadi’s channels, with discount schemes, etc. For these channels, Shaadi ties up with experts and channel partners, such as travel portals, on revenue-sharing basis.

Over 15 million Indians have registered profiles on online matrimonial sites (including duplicate profiles). Bharatmatrimony claims 10,000 new registrations a day, while Shaadi claims over 8,000, with Jeevansathi claiming around 2,000. Extrapolating from market share, there are around 10 million new sign-ups a year. However, online matrimony is a unique onetime transaction and the more efficient the site, the greater the churn.

Most sites are reluctant to reveal details about conversion rates for registered users to subscribers. So despite the undisputed fact that the market is growing fast, ARPU (average revenue per user) is unknown. This is a crucial, but missing piece, of the online matrimony market puzzle. ■

Go India February 2009

48 C-Suite_Entrepreneurship_Feb09.indd 48

2009-02-10 17:37

C-SUITE

ACADEMIC FORUM

PAY HIGH, PERFORM LOW?

One of the prickliest issues in corporate governance remains executive pay. With a raft of recent scandals, shareholder activism has focused on linking executive pay to real and long-term growth

O’s Forum this month addresses a problem that has riled the public because global management seems to have remunerated outrageously. Some of its top losers, but also others, have taken risks so great, as have damaged the world economy.

Despite countless studies and persistent calls from shareholders and investors, the link between a company’s performance and the amount it pays its top executive(s) appears uncorrelated in many cases.

What is the extent of the problem and what are its causes?

Professor Peter Hahn of the Cass Business School in London, is the most vehement in his outrage, perhaps because he specialises in the banking sector, which has seen more than its fair share of bad behaviour: “Executive compensation has popped out of kilter because long-term incentives are being paid to company leaders, no matter what the results of their companies are. Good compensation plans have to be structured so that they link executive compensation with company results.”

Paradoxically, according to professor Dave Larcker of Stanford Graduate School of

G

Business, “The financial press seems to have little influence as a watchdog. If you look at the coverage and examine whether negative coverage had any impact on compensation, the answer is usually that it did not. There seems to be an isolation of the board from public outcries or protests.”

For professor L Gurunathan of the Xavier Labour Relations Institute, located in India’s steel town, Jamshedpur, Indian executive compensation has not yet reached the proportion of developed economies: “The concept of having a top executive in India receive part of his pay in ‘at risk’ options is new.

This is also the case for Asia in general. Why? Before economic liberalisation, pay was always a fixed amount for large companies and public sector managers.

Greed was considered bad.”

Elements of the package How is the compensation package structured? Professor Larcker lays out the six elements of the typical American CEO’s compensation package: 1. Base salary: Salary is kept small nowadays, compared to equity holdings. This is thought to foster a striving for great results.

2. Annual bonus: is cash upon reaching strategy targets. The target may be straightforward financial gain for the company (return on assets, increase of earnings, etc.), or it may be non-financial (e.g. customer satisfaction, low customer defection rate, etc.). Typically, the annual bonus will be one times salary, but may go up to two, or three times the annual salary.

3. Long-term incentives: typically include stock options,

Salary

or restricted stock, where title is only given after the passage of a number of years.

Five years is often the vesting period. The vesting period may also be governed by the quality of the executive’s performance.

4. Performance plans: might include a long-term annual bonus.

5. Perks: include the nonmonetary benefits, such as use of limousines or the company jet, as well as special contracts and benefits. SERPs (Supplemental Executive Retirement Plans) have been the focus of notable recent attention, since they can represent large additional pension obligations.

6. Severance agreements: otherwise known as golden parachutes. These are also very controversial.

Perks Retirement

Bonus Commission

Stock Options

Company

Executive

Position

Reliance RIL

Mukesh Ambani

MD

60

48

19

4,275

n.a.

Reliance RIL

Nikhil Meswani

Director

15

24

5

1,069

700,000

Tata Motors

Ravi Kant

MD

52

42

14

210

0

Airtel

Sunil Mittal

863

5

n.a.

1,088

n.a.

Larsen & Toubro

A M Naik

MD

126

15

175

523

0

ICICI Bank

K V Kamath

Chairman

127

61

34

43

270,000

Notes: All figures in Rs Lakh, Source: Company reports (XLRI analysis)

Go India February 2009

50 C-Suite_Academic Forum_Feb09.indd 50

2009-02-11 10:57

EXPERT PROFILES

L Gurunathan is a professor in the Personnel Management and Industrial Relations department at Xavier Labour Relations Institute (XLRI) in Jamshedpur, India. As part of his research for the Ph.D in International Human Resources Management at IIM-Ahmedabad, he has studied compensation issues. This work led to a year-and-a-half consulting engagement for the Indian government on the 10-year revision of pay scales for government-linked companies (railways, military, other civil service). Among other issues studied for the Indian government, were payfor-performance criteria.

Peter Hahn is an Academic Fellow at the Sir John Cass Business School in the City of London. He specialises in corporate finance, governance and banking issues, particularly at the world’s largest listed firms. During a 20+ year career in banking in the City of London and on Wall Street, he worked on financial strategies, securitisations, structured and corporate bonds. Before joining Cass, he was Citigroup’s Senior Corporate Finance Officer for the UK and a member of Citigroup’s London Operating Committee. He has written articles on corporate governance and banking, for many of the world’s major business publications, including the Financial Times and Wall Street Journal.

Dave Larcker is the James Irvin Miller Professor of Accounting at the Stanford Graduate School of Business. He is also Director of the Corporate Governance Research Program there. Before his appointment at Stanford, he taught at Wharton, from 1985 to 2005. He is on the editorial boards of several accounting journals including the Journal of Accounting and Economics, Journal of Accounting Research, and the Journal of Applied Corporate Finance. He received the Notable Contribution to Managerial Accounting Research Award in 2001. His current research focuses on executive compensation and corporate governance. Two recent publications that he has co-authored are “The Power of the Pen and Executive Compensation,” in the Journal for Financial Economics, and “Performance-Based Compensation in MemberOwned Firms: An Examination of Medical Group Practices,” in the Journal of Accounting and Economics.

“ ‘At risk’ leverage – by which I refer to performance-based compensation,” explains propfessor Gurunathan, “is something that has not yet fully taken root in India. Typically, an Indian CEO or top executive will have about 70% fixed compensation and 30% ‘Cost-toCompany’ (CTC) compensation.

Some Indian companies, notably in high-growth or start-up areas, are up to 50% CTC. The proportion of CTC, or pay-for-performance, has been increasing, although reliable statistics are difficult to find, since disclosure requirements are not as strict in India as they are in the developed economies.

Six or seven years ago the CTC proportion was only 10% to 15%.

Of course, compensation norms are also affected by factors such as the company size, the sector of operation, the reputation of the executive, and other nonaccounting factors.”

Professor Gurunathan also clarifies that at Tata, top executives are still kept at low pay, due in good part to ethical standards that inspirit company strategy: “Tata is very careful.

It seeks ethical growth and avoids the kind of risk that might compromise it. There is more of a focus on processes than on results. Generally speaking, in India it is not that difficult to find ethically-minded CEOs. They would rather be ‘right’ than be ‘successful’...”

Role of the compensation committee The board of a company will appoint a compensation committee to analyse the CEO’s performance and propose the appropriate compensation.

Although the principle is simple,

its execution proves perilous, as explains professor Larcker: “Yes, one of the key problems is that company boards never see poor performance by a CEO as a reason to vote to slim down his package. Nonetheless, nowadays there is very close scrutiny of compensation, and audit committees have become active in regard to compensation.

Indeed, in USA, the drive is on for full transparency. We have now entered a period of clawbacks, in which certain parts of the comp package are simply voided if the need arises.”

In India, professor Gurunathan confirms: “All publicly-traded companies have compensation committees appointed by the board, and these mostly do call upon compensation consultants to provide background information and benchmarking. However whether the recommendations are then followed is another issue altogether…”

But how can the board make sure that the compensation committee is doing a good job in preserving shareholder value?

“The job of the comp committee has become more complicated as the packages grow more complex,” sighs professor Larcker. “They have to go beyond the standard benchmarking.

They need to understand what the company’s strategy is, what the specific benchmarks or key performance indicators (KPI) are, and then build a comp package that takes these specifics into account. In linking compensation to the running of the business, the difficulty is figuring out what data you want to request and then standing in front of shareholders and justifying the pay package.”

Go India February 2009

51 C-Suite_Academic Forum_Feb09.indd 51

2009-02-11 10:57

C-SUITE

ACADEMIC FORUM INDIA EXERCISES RESTRAINT

How do pay and performance correlate?

Growth in company performance (PAT)

250%

Despite some rare excesses, India has, by and large, remained rational in its handling of CEO pay, claims professor Gurunathan of XLRI business school

200% Airtel 150% Larsen & Toubro

100%

Reliance 50% ICICI 0%

0%

20%

40%

60%

80%

100%

120%

Growth in executive compensation Note: Growth from FY2006 to FY2008, Company performance based on profit after tax, Source: GO analysis, XLRI

Pay consultants Have the so-called pay consultants – hired by the audit or compensation committee – been of much use? “Of use, yes, but limited,” posits professor Larcker. “Pay consultants are rarely trained to evaluate performance. Compensation committees – the bodies that normally hire them – should assume only that pay consultants understand what’s being paid in the sector but not that they necessarily understand the client’s business. These are pay specialists, not industry specialists. They also come on-scene bringing with them a problem. Their prime contact with the company is with its human resources department.

(They cannot meet directly with other top executives, as that would engender a possible conflict of interest). Pay consultants have, or want, long-term contracts and therefore tend to march to HR’s fife and drums. This is the most promising behaviour for them, given what they strive for.”

“Even great companies do not necessarily take the importance of well-designed compensation seriously enough,” explains

professor Hahn. “Take Vodafone.

It appeared that its 2006 CEO compensation package may have been triggered to the successful performance of a US subsidiary where it held a minority interest and had no management role.

Furthermore, Vodafone claimed that its C-Suite executives were market rarities, whereas in reality the market was flooded with available executives from competitors, or bought-out companies. That wasted a great deal of money. Investors should have protested, but didn’t bother - and these investors included many of the world’s largest institutional investors. Indeed, the problem is inextricably tied to a lack of investor engagement on pay decisions and this appears a structural problem with few investors willing to engage.”

STEPS FOR IMPROVEMENT Step 1 – Simplify pay packages All of our panelists agree wholeheartedly on this. Listen to professor Hahn: “All in all, compensation packages are too complex now, stipulating in detail, base salary, bonuses, as well as long-term and

lthough India is lagging the Western world in research on CEO compensation (in part because the various components of CEO compensation are not disclosed openly), research is picking up.

Studies using simple correlations have been carried out, but one cannot simply load up compensation data from annual reports (or electronic databases), as is the case in the USA. This means that India remains somewhat cloaked by tradition, in handling CEO compensation.

But that need not mean that Indian compensation management is ineffective. The fate of a CEO of a company where the stock price has dropped is not treated by the most modern of algorithms, but it is nonetheless treated. The compensation committee, or the board, may find ways to ‘bypass’ the actual clauses in the employment contract, if only in order not to penalise the CEO when timing issues affect his remuneration…

Another trend has stock issued to executives as a CTC only, under the proviso that it remains held for an extended period of time. Activists even want shares to be held past the executive’s retirement. The example of Lehman Brothers shows what this can mean – executives of the company that they had bankrupted lost everything. To put it another way: the trend is toward longer vesting period. Among other things, it discourages excessive risk-taking by the CEO. Many out there are asking, where’s the shareholder in all this? The answer for India is, it’s still a ‘low penetration’ shareholder country, with only 2-3% of the population holding shares directly. This also means that shareholder activism is still quite low—which is to say unheeded.

But change seems to be afoot. The recent Satyam blow-up – when shareholders protested against the planned acquisition of two companies belonging to the close family of Satyam’s founder – is a good token for this. But for the time being, the bulk of small investors do not participate in the company feedback loop. Institutional investors are starting to. ■

A

short-term incentives. Perhaps because of compensation consultants, the pay packages have promoted form over substance. But whoever is to blame, the packages have become so complex that I believe most board members probably cannot understand them completely.

We should bring back simplicity and subjectivity. And the pity of it is that much of the complexity derived from, or was stimulated by, academic research!”

Professor Larcker chimes in: “Back in the 1980s to the late 1990s, $1 million salaries sufficed to create public outrage.

As the stock market rose and rose, moral barriers fell and fell. But look at it now: the teeth come out when things fall too far. They certainly went too far in complicating compensation packages. There are so many components. Why does it have to be so complicated? Things should be simplified, to include some

Go India February 2009

52 C-Suite_Academic Forum_Feb09.indd 52

2009-02-11 10:57

C-SUITE

ACADEMIC FORUM short-term incentives, some long-term incentives.”

Step 2 – Encourage shareholder activism “In most markets, small shareholders still exert little influence” explains professor Hahn. “In addition, for the small shareholder even to try to assert herself, there is expense and time required to do the analysis to make this possible. It’s a very discouraging situation. Pension funds and institutional investors should be more influential, but they often invest via intermediaries, and therefore are somewhat removed.”

Step 3 – Reinforce long-term components Above all, compensation packages need to be able to go either up or down, they need to be very closely linked to reallife performance. The accretion of complexity is the result of a successful attempt by executives to remove judgement of their performance as a criterion of compensation.

“CEO pay must contrive to link compensation to the

exigencies of running the business. The complexity makes it hard to stand in front of shareholders and justify the pay package. This is especially so in trying to justify a CEO’s pay package. The standard cop-out is ‘Our CEO is not like everyone else’,” explains professor Larcker.

Step 4 – Regulation?

The panelists appear divided on the need for additional regulation. “If there’s to be regulation, then regulators should definitely take a hard look at compensation; in particular, in cases where companies use riskblind methods to boost earnings.

Here corrective measures need to be taken. For banks, this could mean capital increases in order to counterbalance increased risk.

Regulators should also examine incentive plans,” explains professor Hahn.

As support for his point, professor Hahn cites the 2008 example of the Royal Bank of Scotland’s (RBS) acquisition of ABN’s (Dutch Bank) international banking business.

In the wake of this deal the ratio

REMUNERATING BOARD MEMBERS Much focus is on the remuneration of the CEO and her team; but what about boards? or professor Peter Hahn of Cass Business School in London, “Remunerating executives is one thing, but there is at least one other problem, remunerating boards. Boards should promote change in steps, whereby they do not seek for the company big headlinegrabbing results, but rather do work on progressive, and less risky action plans. In the UK board members receive fixed payments (e.g. GBP 100,000 for a big company, where perhaps 20 days of work are required annually). This relatively ‘low’ pay is considered commensurate for lowrisk work. But it is also the kind of pay that keeps the board independent

F

of capital available for losses dropped dramatically, ramping up risk throughout the financial system. For RBS’ shareholders it has meant virtual collapse while the CEO benefited from a GBP 2 million bonus. In this particular case good regulation was especially needed because compensation in the financial sector drives other sectors.

The road ahead Professor Larcker predicts further difficulties ahead: “CEO compensation will always be marred by the great delicacy of handling the CEO ego. A good CEO will be tricky

to negotiate with, since the results depend on her. A new CEO is also tricky. She needs to be coddled yet also acclimatised to the company’s real-life situation. CEOs are a far rarer commodity than mere executives.” There’s also the problem of relative size: for big companies (e.g. banks) even high CEO compensation seems dwarfed when compared to the bank’s enormous wealth.

GO wishes to thank its Forum participants. ■

NEXT ISSUE: TEAM BUILDING

in its judgements, rather than over-beholden to top management.

By contrast, in the USA, board members are often paid in options.

Options imply that members hang on longer, and make fewer waves in order to survive, so as to finally get to exercise their options. It is a system that discourages making waves or blowing whistles.

Board members would serve their companies better if they were remunerated in shares. They would still hang on, but at least be motivated to manage on the strength of long-term vision. Under such a system the terms of service should be at least 4-5 years, whereas 10 years would be better.

An example of board dependency on company management: Enron board members had consulting contracts with the company, or enjoyed other forms of compensation from management. These payments from Enron to its board members meant that the board was held in fee by the company. ■

Go India February 2009

53 C-Suite_Academic Forum_Feb09.indd 53

2009-02-11 10:57

C-SUITE

CUTTING EDGE

SUCCEEDING IN REDESIGN

Globalisation and technological advances have accelerated the pace of change, including that of organisations. Ashok Som proposes a model for organisation redesign, with attention to human resources at its centre hese days, about the only thing that doesn’t change is the ubiquity of change.

Companies in particular, are led to revise strategies which in turn fosters organisational change. Professor Ashok Som, ESSEC Business School (Paris), studies the dos and don’ts of organisational structuring in his recent book, Organization Redesign and Innovative HRM. According to Som, it is a changing environment that drives strategic change. A firm that functions in an unchanging environment does not need to engage in revision. A changing environment on the other hand, forces change upon the firm. Among key environment changes that will force strategic change, are transformations in the market structure, advances in technology, changes in government policy, and novel competitive pressures. Som summarises the linkage between environment and strategic action as follows: 1) The higher the environmental turbulence, the greater the necessity to emplace redesign mechanisms and adopt innovative human resources management (HRM) practices; 2) the higher the environmental turbulence, the greater the

T

necessity to align redesign mechanisms, with innovative HRM practices to cement the changes.

Som’s view is that competitive strategies, by themselves, tend to fail if they are not accompanied by appropriate redesign mechanisms and innovative HRM practices. Good strategic ideas are no doubt necessary, but they are not sufficient. He argues that executives should be focused on strategic capabilities and that strategic capabilities are not limited to strategic intuitions (however sound these may be). Strategic capabilities can be thought of as those

strategic intuitions brought to fruition by what Som calls an infrastructure of redesign mechanisms and HRM practices.

Strategic intuitions, without that infrastructure, are empty.

In the context of a turbulent environment, low performance is attributable, per Som, to the absence of comprehensive and aligned redesign mechanisms and HRM practices. Managers in the pursuit of high performance are invited by Som to acknowledge the importance of redesign mechanisms and innovative HRM practices.

In Som’s model (see chart), there are three fundamental

redesign mechanisms. The first is uncertainty reduction, which involves reducing the information gap. To reduce uncertainty, organisations will engage in market information collection, forecasting, formal and informal information gathering from stakeholders.

The second is differentiation, which can be thought of as a division of strategic labour.

In differentiation, a large task is segmented and delegated to subunits. Decentralisation, hierarchy reduction, delegation and specialisation, are all aspects of differentiation. The third redesign mechanism is

CHANGES IN THE ENVIRONMENT ■ Market Structure ■ Technology ■ Competitor’s Initiatives ■ Government policies

SOM’S REDESIGN MODEL

ORGANISATIONAL REDESIGN

REDESIGN MECHANISMS UNCERTAINTY AVOIDANCE ■ Market Information ■ Forecasting ■ Industry activities ■ Stakeholder communication

DIFFERENTIATION ■ Decentralisation ■ Delegation ■ Specialisation

INTEGRATION ■ Long-range planning ■ Committees ■ Cross-functional teams ■ Control and information systems

HRM PRACTICES ■ Recruitment ■ Selection ■ Promotion ■ Performance Assessment ■ Compensation ■ Redeployment ■ Rightsizing Source: Som p.20, p.33

Go India February 2009

54 C-Suite_Cutting Edge_Feb09.indd 54

2009-02-11 11:03

TITLE: Organization Redesign and Innovative HRM AUTHOR: Ashok Som PUBLISHER: Oxford University Press DATE: October 2008 PRICE: Rs 545

integration, which relates to the abilities of the company’s parts to communicate and collaborate effectively. Whereas differentiation breaks down strategic tasks to ensure high performance, integration ensures that the different achievements work in unison. Integration mechanisms include longrange planning, formation of committees and cross-functional teams, information and control systems. The tasks of differentiation and integration are complementary and can be thought of as the strategic equivalents of analysis or specialisation (differentiation), and synthesis or harmonisation (integration).

Som’s invites managers to think of the second dimension of his model, not as a cost centre, but as an investment.

He places innovative HRM squarely within the strategic activity by defining it as follows: “Any introduction or change of HRM programme, policy, practice or system, designed to influence the employee, adapt the skills, behaviours and interactions of employees, and have the potential to provide both the foundation for strategy formulation, and the means of

strategy implementation that is perceived to be new, and creates current capabilities and competences.”

In his analysis, HRM has 6 fundamental dimensions: recruitment, promotion, redeployment, performance appraisal, compensation and rightsizing (see chart). A successful redesign will involve innovative practices in at least one, if not all, of these dimensions; similarly, failure to innovate in at least some of these dimensions, will lead to redesign failure.

Som has four reminders for managers worldwide.

They need to be aware of the correlation between innovative HRM practices and superior performance. Top management must be committed to such innovation and must communicate that commitment.

A second implication is that managers should be looking at how other management teams oversee HRM innovation efforts.

They might find inspiration for innovation in their own HRM practices. Thirdly, managers need to remember that strategic intent is the easy part, building the organisational capability to deliver on the intent is the more difficult part, and also the one

where most companies fall short.

Be superior in innovative HRM practices and you will likely be superior, period, Som suggests.

Finally, competitive advantage through people processes is difficult to achieve and sustain, but once it is achieved, it is not easy to duplicate. Superior people performance provides an advantage that is difficult to copy.

Som reminds managers of the linkage of HRM and what are called VRIN resources.

VRIN resources are those that are valuable (V), that enable firms to conceive and implement strategies that are rare (R), imperfectly imitable (I) and non-substitutable (N).

Intellectual resources fall within this desirable category and innovative HRM practices serve precisely to increase the company’s intellectual resources.

In that sense, Som’s vision is to use innovative HRM practices for building intellectual capital that is ‘vrinny’.

While developed country organisations are further ahead in the creation of innovative HRM practices, the gap is closing fast. Emerging country organisations are becoming more agile. India is a good example of this. A study of 11 Indian firms he conducted in 2006, leads him to conclude that, “Indian firms are relentlessly trying to reduce employee turnover through

innovative HRM strategies.”

HRM is also being globalised, as it were.

Apart from presenting his theoretical model, Som presents five cases of companies, four of whom achieved (4) high performance through an organisational redesign, including innovation in the area of HRM. As befits an Indian professor working in France, the cases cover Indian and French companies.

BPCL Strategic changes are linked to changes in the company’s environment. In the case of the petroleum product manufacturer BPCL, the change was one of government policy. In 2002, the state-owned company was to be privatised (the state was divest of 66% of the company’s shares) and petroleum distribution was to be deregulated. Deregulation meant the entry of foreign players, as well as price and margin volatility. BPCL needed to redesign itself, from an SOE operating in a regulated market, to become an agile customeroriented company in a highly competitive market.

Management decided to make customer focus the centre of its redesign. It hired a consulting firm (Arthur D. Little) to assist in the redesign process.

A 30-person project group, drawn from different functions

Go India February 2009

55 C-Suite_Cutting Edge_Feb09.indd 55

2009-02-11 11:03

C-SUITE

CUTTING EDGE and regions, involved 2,500 managers in a broad envisioning exercise. To increase customer responsiveness and to empower the staff to deliver value to the customer, the organisational structure was changed, from a functional one to a divisional one with strategic business units (in BPCL’s case, refinery, retail, lubricants, LPG, and aviation).

The functional structure had made it difficult for senior managers to develop strategies for particular businesses. In the new organisational structure, old functional units (HR, Finance, Information Systems) became support services. Before the redesign, the organisation was totally hierarchical; it became more participative and

team-based with delegation of authority. Furthermore, the envisioning exercise performed for the redesign, was excellent training in the sort of communication that a de-layered organisation encourages.

The move away from a functional to an SBU-based structure, amounted to a new form of differentiation, one that brought the company closer to its customers.

To ensure integration, the redesign created two councils, the Governance Council and the Integrative Council. The Governance Council, consisting of three sub-councils, dealt with company-wide strategic issues.

The Integrative Council worked at a lower level, with the goal

ASHOK SOM How a son of Kolkata and a student of geology came to be a business professor and an Indian point man in France shok Som grew up in Kolkata, the son of an accountant who worked for the Calcutta Municipal Coroporation. As a youth, he enjoyed science and dreamt of travelling. His taste, for exploring and parental encouragement to pursue a scientific career, led him to take degrees in geology from Presidency College and IIT- Kharagpur. Upon graduation he had the choice of working for a mining company, an NGO, and a start-up educational product company. Here his family played a major role–his parents asked him to remain in Kolkata and so he went to work for the educational start-up.

The year spent with the start-up influenced Som’s career in two ways.

First, it increased his taste for the world of education and second, the difficulties of growing a start-up spawned an interest for the importance of people and of organisation in a company’s success. When the start-up folded for lack of further funding, Som applied for a Fellow Programme at IIMAhmedabad in the Personnel & Industrial Relations Area. There he focused on Organisation and Strategic HRM, writing a dissertation on ‘Emerging Human Resource Strategies in Response to Organizational Redesign’.

IIM-Ahmedabad had an exchange programme with ESSEC Business School (Paris, France; ranked 7th in the WSJ’s 2008 International Business School rankings) and Som won a doctoral award for a six-month stay there.

It was during this period that he developed contacts in French companies

A

of coordinating the various SBU councils and the support services.

After the redesign, the support services (in particular HR), were organised into three types of structures: embedded (within an SBU), shared (among SBUs) and corporate (over the SBUs). From the HR standpoint, the major innovation was redeployment.

The consultants advised a 50% increase in the sales force and front line staff, so as to better serve the customer. But this increase had to be achieved without any new recruitment.

The solution was redeployment.

Existing employees were retrained and moved to the front lines of the various SBUs. In this retraining phase the consultants

proposed extensive, team-based workshops, in which more than 2,000 employees participated.

Maruti The change in environment for the car manufacturer Maruti was the same as for BPCL: deregulation. One further policy decision had a major effect on Maruti’s business: the 1998 Supreme Court decision to require environmentallyfriendly technologies. By 2002, Maruti’s market share had fallen precipitously to 52%, from a whopping 84% in 1998. Redesign had become a necessity.

One of the major areas of concern, and of change, was HRM. Historically, Marutis’ HRM had been a copy of its Japanese

such as Lafarge and Renault, which figure prominently in his book. He was first offered a one-year visiting position at ESSEC and then a permanent appointment in 2002. He was the first Indian professor at ESSEC and to this day, remains one of only a handful of Indian professors with permanent positions in French business schools.

In 2004, he set up the India Research Center at ESSEC. As director of that Center he has one of the best views on Franco-Indian relations and summarises the evolution as follows. He notes that it took French firms a while to realise that China was not the only major emergent economy, but over the last three years they have fully awakened to India’s potential and now all the major French players are present in India. President Jacques Chirac’s trip to India in 2006, in which Som participated, served as a symbolic milestone in this regard.

Som notes that the flow from India to France is not yet as intense. He counts about 15 Indian companies present in France, against 200 or so French companies present in India. One major stumbling block, he notes, is the language barrier. While the French will speak English outside of France, they are quite reluctant to do so at home, and this makes life more difficult for Indian firms. Another obstacle is the conflict between the more administrative, regulated French mindset, and the more entrepreneurial, risk-friendly Indian mindset. But Som sees signs of hope. On the occasion of Prime Minister Singh’s recent visit to France, 40 Indian SME heads visited France. Som views, as an omen of more things to come, the recent purchase of a Lyon (France’s second largest city) SME by Syntex water tanks of India. And he also insists on the useful role played by the spread of Bollywood films and Ayurvedic parlours in France. Slowly, but surely, France is opening up to India, and people like Professor Som are there to help things along. ■

Go India February 2009

56 C-Suite_Cutting Edge_Feb09.indd 56

2009-02-11 11:03

C-SUITE

CUTTING EDGE more objective, by widening the evaluation panel, and potentially more frequent, by removing the formal time delays.

Renault

partner’s (Suzuki) practices. The HR department was restricted to administration and timekeeping.

Individual training needs, career planning, job rotation, were all neglected. HRM was not responsible for promotions, or accountable for union negotiations. In summary, its role was limited and largely reactive.

In the new competitive environment, change was necessary. A new manager was hired for the HR function. One of the problems confronting Maruti was that despite comparatively high compensation (15 to 60% higher than other manufacturers in India), Maruti experienced excessive levels of turnover.

Many MBAs and IT professionals left the organisation within a year. To solve this problem, practices were transformed in three HRM areas: training, career planning and promotion.

Prior to redesigning, the organisation had focused on technical training and benchmarking technical expertise with its Japanese partner Suzuki. The redesign involved the hiring for the first time, of a training professional, and a turnaway from an exclusive focus on technical skills, to soft skills. Identifying training needs became a priority of the HR department. In the area of career planning, as in training, the key was to make it an area of concern. Employees whose careers are actively and regularly taken into account are less likely to leave. Lastly, promotion had historically been the result of a complicated evaluation, performed by the immediate boss and unavailable before three years at the old job. The redesign made the promotion process simpler,

The French car giant Renault bears resemblances to the three preceding cases. Like Maruti, it is a car manufacturer. Like Lafarge, it functions in a hypercompetitive market, that of global car manufacturers. Like BPCL, it was a nationalised company, privatised only in 1996. And it was following that privatisation that its CEO, Louis Schweitzer, embarked on the redesign to make Renault a global top performer.

The 1996-2001 five-year strategic initiative involved two major steps. The first involved differentiation. Two new departments were created to deliver better value to the Renault customer. The service department consolidated existing service functions and incorporated new ones, such as e-business. A second department was created, with responsibility for delivery times (a reduction to two weeks within an order) and inventory levels (a reduction of 50%). In parallel to these additions, the redesign involved streamlining. Its old organisation featured three divisions (cars, commercial vehicles and sales financing)

REDESIGN MECHANISMS

with functional departments replicated across those divisions.

The new organisation cut back on the replication of these functional departments. The second step in the strategic initiative was the 1999 RenaultNissan alliance, in which Carlos Ghosn made his name.

HR initiatives played a major role in Renault’s success during this period. As part of the organisational redesign, an executive vice president for HR now oversaw three HR providers: central corporate HR (the more strategic HR functions), the HR platform (the more routine HR functions), and the streamlined divisional HR departments. The recruitment policy was modified to grant importance to language skills and exposure to foreign cultures, key to performance in a global environment. The training programme was rationalised and focused on: job skills (35% of total training hours), retraining (29%), support for cross-functional projects (11%), management skills (9%), quality skills (9%), and foreign language training (7%).

A new performance appraisal system for managers was developed, centred on a 360° review, involving 12 to 20 people. In a move away from traditionally egalitarian French HR systems, Renault

INNOVATIVE HRM PRACTICES

UNCERTAINTY AVOIDANCE

DIFFERENTIATION

INTEGRATION

RECRUITMENT

BPCL

✓

✓

✓

Maruti

✓

✓

Lafarge

✓

✓

✓

✓

Renault

✓

✓

✓

✓

PROMOTION

RETRAINING REDEPLOYMENT

PERFORMANCE APPRAISAL

✓

✓

✓

COMPENSATION

✓ ✓

✓

✓

✓

✓

✓ ✓ Source: Som p.137

Go India February 2009

57 C-Suite_Cutting Edge_Feb09.indd 57

2009-02-11 11:03

C-SUITE

CUTTING EDGE

created systems to identify and compensate high-fliers. A General Careers Committee was created and entrusted with manpower planning responsibility for three sets of managers: the so-called A positions (the 200 topmost positions), a P list of young managers with potential for A positions, and a P1 list of managers with potential to fill the ranks below the A positions.

With regard to compensation, Renault instituted a performancebased component and created a stock option plan. Both these innovations went against the grain of Renault’s more socialistic HR management traditions.

Lafarge The impetus for this French cement manufacturer’s organisational redesign was the competitive environment.

Lafarge was faced with a couple of competitors (Holcim and CEMEX), engaged in worldwide expansion strategies. For the French firm, the alternative was to continue with its existing organisation and limit itself to being a major European player,

or to redesign for transformation into a worldwide leader.

Its redesign, in Som’s analysis, is a classic case of differentiation with integration, that it is to say the attempt to give the parts of the group autonomy, while ensuring that those parts serve the company’s overall goals and culture. Lafarge’s differentiationand-integration model sets it apart from its two major rivals.

Holcim, the Swiss cement firm, believed in maximising decentralisation, whereas the Mexican rival, CEMEX, believed in maximising centralisation and control through an exemplary information system network. In Lafarge’s case, the differentiation was provided by the creation of business units. Each unit was responsible for its assets and returns, and came under the supervision of a regional president. This differentiation made for higher responsiveness to local customer preferences, and to differences in regulations and standards.

Differentiation also meant moving away from the French administrative mindset of

Lafarge. Somewhat like BPCL, needed to move away from a protected public sector mindset, Lafarge needed to move away from an engineering and somewhat autocratic management style. The decision process which had been slowmoving, rule-bound and top-down, needed to become more participative. Following the redesign, the process can be described as a more participative one, involving all those who could contribute to a better decision, while recognising that top management has the responsibility for the final and ultimate decision.

The integration mechanisms appear to have been easier to implement. For example, global coordination of different BUs became an annual exercise.

The strategy department would collect data throughout the year on Lafarge’s regional markets and competitors and prepare a strategic review for each country, with current position analyses as well as forecasts. These annual strategic reviews served as input for decisions on strategic investments, for five-year budgets, and for communication among unit managers.

On the HR side, uniform operating mechanisms were emphasised and communicated worldwide. This is crucial in a company which operates in 75 countries and employs over 70,000 people. It was a special division under the HR department that integrated acquired companies and incorporated Lafarge’s policies into theirs. So the successful integration of acquired companies (the source of Lafarge’s growth) is viewed as in no small part due to

efficient and highly professional HR policies. Recruitment gained a new international momentum –various nationalities were recruited and international mobility in career paths was stepped up. Redeployment was linked to career development.

Expatriation was now understood to be a career-oriented move, a means to gather international experience for future career growth.

Som reminds his readers that studies of the linkage of HRM practices and corporate performance, are rare. International HRM and comparative HRM studies, such as he is engaged in, which adopt the performance perspective are even more rare. Som warns that his study is exploratory in nature, and just begins to scratch the surface. To drive home this point, he concludes his book by asserting that he has taken the less travelled path, quoting the poet Robert Frost to that purpose.

This less travelled path is no doubt a worthwhile one. But one caveat is in order: book editing is a difficult and time-consuming task. Accordingly, book publishers are reluctant or unable to engage in protracted editing processes.

Unfortunately, Professor Som’s book is a victim of this situation.

It is not as pleasurable a read as it could be. GO warns that some readers will need to exercise patience for repetition, and for academic protocol, in the theoretical sections of the book. Editorial redesign, it turns out, can be as difficult as organisational redesign… ■

NEXT ISSUE: GAMES FOR BUSINESS

Go India February 2009

58 C-Suite_Cutting Edge_Feb09.indd 58

2009-02-11 11:03

MEA

GLOBAL TRENDS An Algerian success story

When a terrorist attack narrowly missed him and completely destroyed his factory, millionaire Algerian entrepreneur Issad Rebrab gave up and left the country in distress—only to return three years later, and bounce back to the top

E

very once in a while comes a person who changes the rules of the game. For the Algerian business landscape, that person was Issad Rebrab. His ability to prosper even in dire circumstances saw him through one challenge after another and took him from a simple teacher’s life to that of a millionaire running Algeria’s largest, privately-owned conglomerate, Cevital.

Rebrab was born in French Algeria, in the Kabyle village of Taguemont Azouz, in 1944.

He began his entrepreneurial journey in 1971 (Algeria had achieved its independence from France in 1962), when he decided to invest a 20% stake in a small construction company, Sotecom. Having taught business and accounting, young Rebrab decided it was time to put his own teachings to practice. That first investment paved the way for his entry into the business arena and soon he was a known name in the metal and steel industry—and the person at the helm of the first private enterprise in, a so far state-owned Algerian business environment. Algeria was undergoing economic reforms in 1986 and Rebrab rode that wave with ease. He also entered the media industry with a newspaper called Liberté. Needless to say, Rebrab attracted a lot of attention and built up a reputation of being a maverick at best, and a rogue at worst.

And then, just like that, the bubble burst. In 1995, during

Sugar Industry Overview The aggregate world sugar trade is likely to increase 15.3% from 26.2 to 30.2 million metric tonnes from 2007 to 2017. Here’s a comparative outlook for three countries: Country

Total Increase in Consumption

Total Increase in Productions/Imports

Algeria

Predicted to increase by 30.7% in 2017

Imports to increase to an avg. 1.6 million metric tonnes by 2017

India

Predicted to increase by 25% in 2017

Production to increase by 3.6% to 28.8 million metric tonnes in 2017

US

Predicted to increase by 11.6% in 2017

Production of beet sugar to increase by 33% and of cane sugar by 24% in 2017

Algeria’s undeclared civil war, his Metalsider factor was destroyed in a terrorist attack. Allegedly instigated by a disgruntled former associate, the attack almost cost Rebrab his own life. Devastated and disheartened, Rebrab went on a self-inflicted exile to France.

His entrepreneurial journey, it seemed, had come to a grinding halt at age 51.

Those who know Issad Rebrab well, though, never doubted his return. “Whether they like it or not, I will achieve my dreams,” is the motto he is known to live by.

Sure enough, after lying low and recuperating for less than three years, Issad Rebrab came back to Algeria and set up Cevital in 1997 with an initial investment of 3.8 billion Algerian Dinars (roughly US$ 54 million by today’s conversion). Cevital was founded with a vision to completely satisfy Algeria’s refined sugar and edible oil needs—so far, the country had been importing vast quantities of both and the import duties made these commodities quite expensive. A 600,000 tonne per year capacity sugar refinery and a 570,000 tonne per year capacity

oil processing plant gave Cevital the cost competitive edge over the imports. Once oil production started, producing derivatives, like margarine, followed. Cevital was growing profitably.

Riding high on the success of these products, Cevital has diversified successfully. A glass division produces 700 tonnes per day and satisfies 30% of Algeria’s glass needs. The prefabricated building division has two factories, producing 700 cubic metres per day and five further plants are projected in the next three years. Its retail subsidiary, Numidis, is planning a dozen hypermarkets under the brand Uno. But Cevital’s most ambitious project is the $30 billion Cap 2015 project, comprising a deep sea port (20 km of docks) and a 5,000 hectare industrial zone.

In some 10 years, with the help of his 8,100 employees, Rebrab has succeeded in building Algeria’s largest private group with $ 2.2 billion sales. As Algeria heals the wounds of the 90s, it is to be hoped that the example of Rebrab and Cevital can accelerate the country’s recovery. ■

NEWS BRIEFS: ■ Sudan beckons for new

investors

Philippe Heilberg of Jarch Capital in New York is one optimist who feels that investing in Sudan now is right, given the country’s tremendous potential despite being ravaged by war. His company has leased 400,000 hectares (the equivalent of 70 Manhattans) in the relatively more stable southern part of the country. Sudan is ranked 172nd out of 179 countries in Transparency International’s Corruption Index for 2007, but it is rich in oil, minerals and farmland.

■ Beauty business in GCC

set for phenomenal growth Epoc Messe Frankfurt, the organiser of BeautyWorld Middle East, an annual trade fair for beauty products in Dubai, predicts the cosmetics and perfumery sales in GCC should exceed Dh11 billion by 2010. Reason: almost 60 per cent of the GCC population is under 25 years ensuring a high growth rate in the beauty market.

It is widely believed that people tend not to compromise with their image or grooming, and also require ‘feel good items’ during these unstable times.

■ Opportunities in real

estate in Dubai

According to online property tracker, REIDIN.com, Dubai’s real estate sector exceeded Dh58 billion during the last quarter of 2008. A drop in comparison to the previous quarter of 2008, the economic downturn has thrown up opportunities, and Government is likely to lessen the impact of the global credit crunch and further encourage investors.

Go India February 2009

59 GT_MEA_Feb09.indd 59

2009-02-11 11:52

GLOBAL TRENDS In India’s footsteps The South African government is trying to jumpstart the business process off-sourcing sector, and Yahluma is taking up the challenge

T

he word ‘Yahluma’ in Xhosa means to ‘prosper’ and prosperity for themselves and others was the intention with which Pindiwe Holomisa and Nomaciko Ngoasheng launched Yahluma Solutions Ltd. in September 2007. Initially, they started part-time operations out of a call centre infrastructure rented from a disaster recovery company, with plans to shift in 2008 to their fully-owned contact centre in Buffalo City (South Africa). The case study by Professor Mosala of Wits Business School (Johannesburg, South Africa) examines the challenges facing them, as they move up the contact centre ladder.

With over a decade of information and communication technologies experience behind them, Holomisa and Ngoasheng decided to start their own contact centre when the South African Department of Trade & Industry (DTI) launched the Business Process Outsourcing and Offsourcing (BPO&O) Support Initiative, in March 2007. The South African government named the sector one of three top priority sectors and proposed grants to investors.

According to an industry forecast by Gartner Inc., a technology research and advisory company, the worldwide BPO market was supposed to grow by 8.1% in 2008. Of specific importance to the South African BPO sector was the fact that big companies were seeking a multicountry strategy to minimise

risk and align near-shore and offshore delivery centres with their primary time zones. The major challenge that the South African call centre industry had to overcome was that by the time they entered the international market, India had already captured a large chunk (11.5% in 2007) of the global BPO market.

In 2005, India had 95,000 offshore agent positions compared to South Africa’s 2,200. Dialogue Group was South Africa’s largest player with approximately 1,500 agent positions. Moreover, with India’s plans of becoming the

features three elements: Talent Development Initiative, wherein grants up to $1,200 per agent would be given to develop company specific training and skills; the BPO&O Investment Support, wherein grants between the range of $3,700 to $6,000 per agent would be offered to local and foreign investors; support facilities would be provided for operators running BPOs in depressed areas. The government hoped to attract nearly 50 companies, creating 25,000 direct jobs and 75,000 indirect jobs in the sector.

world’s ‘back office’ and its share projected to touch 15% by 2010, the road ahead for the South African BPO sector was a steep climb. Also to be considered was increasing competition from the Philippines, China, Eastern Europe and even smaller countries like Kenya and Sri Lanka.

The BPO&O Support Initiative, launched by the South African Government,

The two Yahluma business partners were indeed attracted, and budgeted over $ 500,000 to establish the Buffalo City contact centre, setting themselves a target of 100 agent positions in the first year, 400 agent positions in a span of three years. To meet that lofty goal, Yahluma had to avoid some of the traps that lie in a contact centre’s growth path. First and foremost is inadequate human resource

management. Their human resource policy emphasised significance of growing and strengthening human resources as these accounted for 60% to 70% of contact centre operating costs. Yahluma wanted to change the mindset that a call centre job was a temporary position, while waiting for the real career start.

While South African attrition rates were lower than Indian ones, Yahluma was intent on reducing them further.

Yahluma’s goal of providing work for 400 agent positions meant attracting international outsourcers. Those international clients were looking for 30 to 40% cost savings (South Africa was 70% less expensive than Ireland) and quality. For a young and small company like Yahluma, the key to its image was ensuring an excellent reputation among its domestic customers. The fact that Yahluma succeeded in winning the Amathole District Municipalities call centre contract (100 hundred agent positions) could be leveraged to attract other clients. The two partners were already beginning to seek out international clients.

Holomisa had travelled to the UK and they had developed a relationship with a USA-South Africa women in business network. Yahluma was doing its best to make the DTI’s BPO&O Support Initiative a success. ■ Reference: ECCH 808-036-1, Wits Business School, Research Associate Eulalie Metton, with Professor Thabo Mosala

Go India February 2009

60 GT_MEA_Feb09.indd 60

2009-02-11 11:52

MEA Here comes Nollywood!

The Nigerian film industry churns out 2,000 productions per year.

Nollywood has beaten Hollywood in Nigeria and more might be, to come

I

n 1992, while trying to sell a large stock of blank video cassettes he had bought from Taiwan, an excellent idea struck Kenneth Nnebue, the Nigerian trader based in Onitsha. He suddenly realised that his cassettes would sell better if there was something recorded on them. So he shot a film called Living in Bondage, about a man who achieves power and wealth by killing his wife in a ritualistic murder, only to repent later, when she haunts him. The film sold more than 750,000 copies, and laid the foundation of the Nigerian film industry as we know it today.

That industry is considered to be the world’s third largest, after Hollywood and India’s Bollywood. So big that it has its own name: Nollywood. Though the films are made on budgets of about only $15,000, Nollywood has an estimated annual turnover of over 50 billion Naira (about 4.2 billion US dollars), with a growth rate of 8.5%. According to the National Film and Video Censors Board (NFVCB), the industry produces over 2,000 low-budget films every year and employs about a million people in Nigeria, making it the country’s biggest employer after agriculture.

Considering the low budgets, shooting is done at a frenetic pace, typically filmed over several days, with just one digital camera. Nollywood’s most prolific director, Chico Ejiro, directed over 80 films in a 5-year

period and brags that he can complete production on a movie in as little as three days. Most movies are shot on location all over Nigeria, with hotels, homes and offices often rented out by their owners and appearing in credits in the movies. In fact, Nollywood has only one studio, Studio Tinapa in Tinapa, Calabar. Nigerian directors adopt new technologies as soon as they become affordable. All post-production work is done with common computer-based systems. A week or two after shooting ends, the movies flood the Nigerian market, sold for about two dollars a disc, and shown to the public for a few pennies in restaurants, video centres, or private homes operating as movie houses.

Thirty new titles are delivered to Nigerian shops and market stalls every week. An average movie

will sell about 50,000 copies and a blockbuster four times that; daily nationwide movies sales are in the 150,000-200,000 range.

Most Nollywood films have themes that deal with the moral dilemmas facing ordinary Africans: AIDS, corruption, women’s rights, and other topics of concern. Many of them also deal with typical Africa-specific themes, like ritual killings and witchcraft. A maximum chunk of the films produced is made for the masses – they can readily relate with the storyline and characters. Though Nigerian intellectuals have always dismissed these movies as exploitation, their growing popularity has changed the traditional perception of acting in Nigerian society. In the past, actresses were regarded as no better than prostitutes. But with society’s acceptance, aspiring

actors find their dreams of becoming a star turning into reality.

Though the Nigerian film industry is quantitatively considered to be one of the largest in the world, qualitative standards continue to be poor for most productions. Nollywood faces a few challenges. First, producers are accused of making films every other week, without caring much about the standard or quality. Second, amateurs who have joined the industry as actors and actresses, do not have the requisite training. Third, all the money floating about in the industry does not reach the right people, as piracy is rampant.

But despite these problems, Nollywood films are conquering the African market, and the African diaspora (particularly the African-American public) may not be far behind. ■

Go India February 2009

61 GT_MEA_Feb09.indd 61

2009-02-11 11:52

BOOKS Good old apprenticeships

Title: LLeaders eadders att allll LLevels: evells: Deepening Your Talent Pool to Solve the Succession Crisis Author: Ram Charan Publisher: Jossey-Bass; 2007 Price: Rs1168 No of pages: 192

T paraphrase a cliché, some are born that way, To o others are made leaders. Ram Charan, who has rrisen from owning a shoe store in a small village iin Uttar Pradesh to become one of the most ssought-after consultants in the US, has endeared h himself to industry leaders, such as Jack Welch, ffor his down-to-earth practical advice. In this b book, he treats the ‘making’ problem. For Charan, lleadership is something to be apprenticed to, then journeymanned and finally mastered.

He starts, logically enough, by explaining, and demonstrating that there is a shortage of executives who are able to breast the challenges of today's globalisation. Most companies simply do not have enough players in training and on the bench.

Charan blames this on leadership development as practised by companies. As a follow-up, he also criticises their neglect of succession planning.

His recommended remedy is to introduce the Apprenticeship Model, which he says, is the best way to produce good leaders – and to do it fast.

Under this model, those showing good leadership

potential are given challenging assignments and mentored through these. To substantiate his pitch, he offers exemplar case studies from General Electric, Novartis Pharmaceuticals and Wellpoint among others– all companies with which he has had long association.

The book starts with a section on how to recognise leadership potential, before moving on to how then, to develop it. A section follows dealing with the Apprenticeship Model, followed by sections on leadership growth through concentric learning, freedom to fail, and learning to manage Apprenticeship systematically. That leads to the finale–choosing a CEO. The sections are richly interlarded with practical information, like how to rate a company's ability to develop leaders to the highest level, and what it takes to be a good mentor. HR managers will especially take to the section on spotting a leader, where he suggests that evaluation criteria should not only address basic leadership skills, but also cultural fit and business acumen. ■

NBCs: No Border Corporations

Title: Leadership without Borders: Successful Strategies from WorldClass Leaders Author: Ed Cohen Publisher: Wiley India Price: Rs399 No of pages: 240

H How do leaders of global corporations successfully m manage differences between peoples? How do tthey get the best out of technology? What are the k key requirements of a global leader? Stumped ffor answer? Do not fear, for Cohen's here–with a rrundown of skills and characteristics needed to a attain success in the new global marketplace.

His book is divided into two sections – Part I d deals with the Global Leadership Competencies.

C Cohen treats five key qualities which managers n need to have, in order to be seen as global leaders – personal characteristics suggestive of an ability tto cope, business acumen suggestive of ability tto operate in a borderless economy, flexibility suggestive of an ability to take a world view, along with people skills and business leadership skills.

In Part II, we get to hear global leaders give commentary – so for instance, the People Strategy as treated by Booz Allen Hamilton's CEO Dr Ralph Shrader. He describes how his company managed to become global by carefully knitting

and purling business practices of different cultures into one cohesive texture. Insights on worldview come from Standard Chartered's V Shankar, who tells what is needed to make the transition from workaday parochial thinking on business, over to a cosmopolitan, or let us call it global, mindset.

The leadership skills needed in the global environment are discussed by U21 global’s Dr Mukesh Aghi whose practice and practical eye discerns ‘artistry and science’ as a requirement in asserting global-quality leadership. Changes are rung on this, in a piece by Marian Bolmeijer, CEO of Change Leaders and Frank Jurgen, president of Horasis. Others who contribute with anecdotes and examples are Satyam’s Ramalinga Raju and Nike Emea's Geoff Taylor .

Deserving special note is the Vodafone chapter, contributed by Antonio Aleman. It describes how the telecom giant linked many different companies, in order to fill the common needs of customers that have no single culture in common. Quite an SMS. ■

Go India February 2009

62 Books_Feb09.indd 62

2009-02-10 17:38

BOOKS Hospitals show the way Mayo Clinic is arguably the best-known brand in healthcare today, and a $6 billion business, built on spontaneous word-of-mouth endorsements from satisfied patients – whom the authors of this book would call instead, customers. They tell you how a town clinic in Rochester, Minnesota, that started out as a small outpatient facility was made to grow so that it earned a global reputation. Moreover, they tell it as it is, without ...well... Hippocratic hypocrisy.

Healthcare is a very complex business, given certain imponderables of medicine, given, also, the need for patience to satisfy patients, and given the need to retain expensive physicians, while controlling costs. Hearing an inside account – and that from one of the world's best-managed facilities – makes for useful managerial reading, thinks GO. Especially, as this book is not only about the bedside business, but also about incidentals in which hospitals are paradigmatic—take hospitality which not only inspirits hospitals, but shares its semantics.

It also happens to be an incidental that many other business sectors must handle knowledgeably and sensitively–after finding out how to do so.

Authors Len Berry (a services guru), and Kent

Seltman, a former head business manager at Mayo, then describe how Hippocratic do-gooding is morphed into good business. They launch into this by explaining how to handle a 100-year-old brand and thence proceed, slowly, to expatiating on the importance of applying the ‘human touch’ – handling as management tools the warm smile and the amiable hug.

In subsequent chapters, they discuss the operating principles of the clinic – the ‘patient first’ approach; practising team medicine; practising destination medicine. Chapter five gets into leadership – and how Mayo has managed to build bench strength, not in the management sphere alone, but in physician leadership, the importance of recruiting star doctors, and the need to otherwise assure clinical excellence as the fundamental way of earning respect, along with custom.

The authors delve into the hiring practices – Mayo typically hires only those it thinks will stay the length of their career. In the last few chapters, we get insights into how the clinic strives to exceed customer expectations by subtle means, of both medical science and ministration to patient-customers. ■

Title: Management Lessons from Mayo Clinic: Inside One of the World’s Most Admired Service Organizations Author: Leonard Berry and Kent Seltman Publisher: McGraw Hill Price: Rs1870 No of pages: 256

Business as kissiness This book informs the young professional that there are two ways to go – become just another rat, or shun the mould, and strive for the extraordinary.

So counsels Subroto Bagchi, who goes by the title of ‘The Gardener’ at his software services firm, MindTree, and attempts to inspire his young executives to go the latter course.

His book runs along the line of a biography, while actually aiming at another purpose. It is in three parts. The first covers birth and childhood, the second deals with entry into working life (he started as a lowly clerk) and then proceeds with anecdotes about problems encountered and dealt with, as the years passed. The last section talks about his experience at Wipro and at MindTree, which he cofounded in 1999.

Hailing from a small town (Patnagarh in Orissa), Bagchi is sensed to be primarily addressing those who come from the rural hinterlands, endearing

him to a newer readership. Many of the parable-like passages of the book are crafted that way. Bagchi recognises the fears and anxieties of the young men and women who leave their small towns in search of a big-time career. He informs them, by way of attempting to steel them against despair, that a feeling of displacement is inevitable in today's worklife – but follows up by saying how, instead of being discomfited by it, the experience can also energise. “Water in a pool is stagnant,” he writes.

“Only when it flows is it energised.”

Idealistic though the tone is, Bagchi's book mercifully avoids the saccharine quality of the Chicken Soup series. It's touching, real, and very Indian. The sun keeps shining warmly on Mind Tree right from its title, whose derivation is this: During his mother's last few days, when Subroto stooped down to kiss her, she said to him, “Why are you kissing me? Go kiss the world!” ■

Title: Go Kiss the World Life Lessons for the Young Professional.

Author: Subroto Bagchi Publisher: Penguin Books Price: Rs399 No of pages: 256

Go India February 2009

63 Books_Feb09.indd 63

2009-02-10 17:38

TECHNOLOGY PRODUCT PR COMPARISON: DUMMY TEXT

PRINTERS Who’s first among all-in-ones?

Wh

Product

Category

Printing Technology Standard Memory Max Copying Resolution Max Document Enlargement Max Document Reduction Colour Depth Max Copy Size Min Copy Size Fax Machine

HP Photosmart C8180 Ink-jet 64 MB up to 4800 x 1200 dpi (color) 400% 50% 48 bit 8.5 in x 24.0 in 3 in x 5 in None

Canon Pixma MX7600 Ink-jet 64 MB up to 4800 x 1200 dpi (color) 400% 25% 24 bit 8.5 in x 14 in 3 in x 5 in Yes

The HP C8180

Canon Pixma MX7600

The good: Pleasing colour and text prints; dual paper feed trays; best in class WiFi set up; Bluetooth connectivity The bad: Lacks auto-document feeder and fax machine; expensive; very slow prints; grayscale scans lack definition.

The good: New, clear ink cartridge, improves print quality; autoduplexer; dedicated one-touch fax keypad; intuitive photo-printing controls; very fast photo and graphic prints.

The bad: Unwieldy size; text speed hasn’t improved; higher price tag might deter prospective buyers.

Although the HP C8180 is positioned as an all-in-one, it is not a printer for everyone. First, it is not exactly lightning fast. Second, at about $400 it is not cheap. Finally, this printer is for only those who seek a multi-function machine that, at the cost of speed and economy, can churn out high quality pictures and text, double up as a scanner and includes best-in-class connectivity features: Bluetooth and WiFi. If you are in that category of buyers, then be assured there is not a better all-in-one printer in the market, except the Canon Pixma 7600. The C8180 comes with a unique touch screen, which eliminates button clutter and is excellent for controlling all software functions, in including photo editing, wireless and scanning.

Plus, true to HP’s reputation, it is easy to set up the machine and its design and build quality are top-notch.

Price: $400

PRODUCT OF THE THE MONTH

Price: $400

The highs: Large screen; huge solidstate hard drive; decent-size keyboard.

The low: Expensive by Netbook standards Knock down the price of a high-end ultraportable by about a $1000 and what do you get? A high-end ultraportable complete with a 10-inch screen and a solid state drive, this one called Asus Eee PC 1000—not a MacBook Air, or a Toshiba Portege perhaps; but mighty close at less than half the price.

Sure, there are Netbooks (a genre pioneered

by Asus with its first low cost EEE PCs) available at around $350 too. But those are dowdy by comparison. The designers at Asus have secured the brand’s hold on this space with a machine that packs in a

Asus Eee PC 1000 Price: $600

Head to head this Canon will outgun the HP CP 180 on key points.

To start with, in relation to the HP, it is a champion sprinter and more important it has a fax option, although it is not the most advanced in the world. The print quality, design and build are best-in-class and the machine’s intuitive capabilities are next to none. This, coupled with a new proprietary print head system, autoduplexer (automatically prints on both sides of paper), and significantly faster output speeds, make the MX7600 yone in the market for an excellent option for anyone ble all-in-one. The HP a high-grade, photo-capable however, scores over the Canon on user control features owing to its touchscreen technology. On balance, however, the Pixma is the better-rounded of the two machines.

surprising amount Specifications E-Mail, SMS, MMS 1.6GHz Intel Atom of punch, maintains Processor Memory 1GB, 533MHz DDR2 excellent design Hard drive 40GB SSD and makes very Chipset Intel 915GM few compromises Graphics Intel 915GM (integrated) worth writing about, Operating system Linux (customized by Asus) to keep the price Dimensions (WDH) 10.57.4x1.1 inches Screen size (diagonal) 10.1 inches down. Powered by System weight 2.9/3.5 pounds the 1.6 GHz Intel Price $700 Atom processor and backed by 1 GB RAM of memory and a whopping 40 GB SSD hard disk, the PC 1000 from Asus runs hard, thinks smart and stores loads of data without a sweat. And all that ability is packed into a niftily designed 3.5 pound case that may not knock out the Air but will leave many other top-end ultraportables gasping. We will leave you with a word of caution though: if you are planning on buying the Eee PC opt for the Linux version as the XP edition comes with a 12GB cut in the SSD capacity.

Go India February 2009

64 Technology_Feb09.indd 64

2009-02-10 17:38

Do it yourself advertising Video ads can be a good way to reach your customers. AdItAll is a way for companies to make their own ads, without spending a lot of money Video as a means of advertising has started to catch up in the online world. Add to this the naturally-viral characteristics of the medium, further driven by the ease of sharing through sites like YouTube and Metacafe, and the future of video ads looks only brighter. Companies like Cadburys, MSN, and Cleartrip.com have already seen a good amount of success in the viral video advertising world. “We launched video ads on websites like YouTube and Metacafe only recently, in the second week of October, and we already have 2400 views on Metacafe and 1400 odd hits on YouTube,” says Noel Swain, Vice President Marketing, Cleartrip.com.

Unfortunately, the cost of producing an effective video advertisement, even a small 30 seconds slot, can be prohibitive for small businesses with meagre advertising budgets. The ballpark for creating a video ad with an advertising agency can easily run into something like Rs 35-50 lakh, says Swain. But thankfully, a website called AdItAll (www.aditall.com) has come up with a DIY (Do It Yourself) that’s working wonders for business people who have to work with a low advertising budget.

The AdItAll concept is fairly simple.

Rather than pay an advertising company to make a video from scratch, companies can select from a range of short, generic clips, customise a bit, and launch their own video ad campaigns, for a fraction of the cost.

This means the site functions as a place for advertisers and artists to meet. While the companies can come and shop for the clip that suits them the best, artists can simply pick a price, upload their clip, and then split the spoils 50-50 with the site owners.

The easiest way to get started for companies with these sites is to pick from the pre-packaged clips. Just type in keywords of your business such as ‘travel’ or ‘software’ and the search engine will

propose a number of packaged clips.

These bundles come complete with video, soundtrack and text. You can simply buy these off the rack and then customise them with voice-over, or texts, for your particular product, and roll the ads. But if you want something exclusive, you could also begin with creating your own ad in the Ad Mixer tool that comes with the website. The basic starter package comes for as little as $149 and lets you create one video ad and use it for up to 90 days.

There is of course an extensive video gallery you can pick video footage from, or you can work with your own footage.

Next, you get an option of picking music files and sound effects from the library and adding titles and the logo of your company.

You could also add narration or text about your company and the product into the Ad Mixer. Once you have created and edited your video, you are free to download it and launch your own advertising campaign the way you like it.

AdItAll also offers to act as a middle man to help you launch and track your campaign. They will help you set up video campaigns through Google Adwords video advertising, thus helping you distribute your content to a large variety of niche-targeted websites. Though they will charge 10% service charge for setting this up for you, for newcomers this can prove to be a more viable option.

Industry experts are already bullish on this particular model. “This promises to be a spot-on medium for India for sure, with video ads catching up and many small business mushrooming. However, currently one drawback I see is that there is not too much content of Indian origin; but then, as the community grows, I expect to see more such content, says Vivek Bhargava, CEO of Communicate2 a search engine optimisation company.

STEPBY-STEP

AdItAll comes with Ad Mixer which is a powerful tool that turns ad creation into simple click and drag process

Either pick video footage from the extensive library or upload your own video, to start editing your ad in the Ad Mixer

AdItAll has a soundtrack gallery too, but try adding your personal touch by mixing your favourite soundtrack and narration to make a unique looking campaign

To finish off creating a professional looking ad campaign, fill in the campaign details, such as type of campaign, client name etc in the Details page. This way, AdItAll can help with promoting your ad campaign by selling them in the exact category you pick

Go India February 2009

65 Technology_Feb09.indd 65

2009-02-10 17:38

DOING BUSINESS IN

Frankfurt I

have lived in a number of European countries over the past ten years – Ireland, Scotland, France, Belgium.

I moved to Germany about twoand-a-half-years ago for a couple of reasons. One, of course, was my career. But I also wanted to study part-time for an MBA, and Germany offered tax benefits for those pursuing higher education.

I had previously had an offer to move to Germany, but declined it because I had read that foreigners find it difficult to integrate there.

Later, when I had gotten a better feel for Europe and another opportunity to move was offered, I decided to give it a spin.

After living in Germany for over two years, I now find that the younger generation is more accomodating than older people. They help you integrate.

They do so probably because they are anxious to sanitise the lingering perception of Germany, a Germany of the past, whose marred history was none of their doing.

I now also have come to understand why many newcomers to Germany find it so different. For example, facial expression plays a large role in communicating in our culture.

We learn to read it and react to it. But Germans rarely permit their faces to communicate while conversing. It causes some foreigners, especially Indians, to have trouble comprehending.

You find the Irish are very friendly toward foreigners. Or the

French are curious about you and so are helpful. But the Germans stick pretty much to the point. If you ask a question, you’ll get the answer–but that’ll be it. Which is not to say they are hostile, but they don’t have it in their culture to make them want to chat and just be friendly.

The token that I have of their hospitality is that I have managed to survive in Germany for more than two years without knowing much German. I intended to learn the language when I first got here, but what with work and studies, I just couldn’t find the time. Of course, if you do know the language it is much easier to

COUNTRY SNAPSHOT Population: 82 million GDP: $2.8 trillion GDP Per Capita: $34,100 Inflation rate (consumer prices): 2.3% (2007 est.)

Unemployment rate: 9% (2007 est.)

Source: CIA World Fact Book

communicate and integrate. And it is absolutely essential if you live and work in a smaller town.

Most big cities are multicultural and some have considerable expatriate populations. The Rhine region, which includes the erstwhile heart of German industry, the Ruhr, has had ties with Japan from the early 19th century. So you will find sizeable Japanese communities in the region’s larger cities, such as Düsseldorf and Cologne.

Frankfurt, once the site of the

headquarters of the American military government after World War II, retains to this day a big population of Americans –along with as one of their main creditors, the Chinese. There are even active Indian communities in Frankfurt, Munich and Berlin.

People in the scientific field, post-doctorate job seekers, and techies, are always welcome here. Engineers are valued in MNCs. But locals are preferred in many other fields. Small and mid-sized businesses that have lots of interaction with the end customer, need help that is not only proficient in German, but also acculturated in other ways.

Many Indian IT companies are now setting up in Germany.

Indeed, they are on something resembling an acquisition spree.

There was a recent takeover

by Suzlon Energy (the world’s largest wind energy company that is also Indian) that made quite a bit of news. Mind you, the Indian presence in Germany is still in no way comparable to the Indian presence in the UK, but it’s getting there.

Germany is the locus of European trading, the heart of the European Union’s economy. The current economic slowdown has had an impact on it. Unemployment at present is the highest in ten years. The SMEs (Mittelstand) that drive Germany’s export machine have taken hits; finance somewhat less so. And Frankfurt, home to the European Central Bank, is the

financial capital of Germany.

I moved to Germany solo, so I didn’t have too many problems settling in. But I know of others who found it hard. One friend managed the change easily enough, but his wife, a homemaker, found it difficult. She couldn’t make her peace with anything, ranging from the people to the dreary weather (we Indians tend to feel that we hardly get any sun here, even in the summer. I mean real sun, you know).

That apart, the logistics of setting up here is quite straightforward. You need to have a job in hand before you get a work permit. And getting a work permit is your employer’s responsibility. Of course, you will need to provide her with all the

Go India February 2009

66 DBI_Frankfurt_Feb09.indd 66

2009-02-11 11:04

BUSINESS ETIQUETTE

■ Know the difference between

Sie and du. Sie is a formal version of “you” and at the office always use that to address colleagues. Du is more informal and used to address children. With older people, it shouldn’t be used until you are good friends. When in doubt, play safe and go with Sie. ■ Prepare for your meeting and don’t exceed its allotted time.

■ Formal, dark, conservative suits are the norm for both men

and women. They don’t dress casually at the office. Fridays, which fuse into the weekend, can be more casual, but not more laid-back than khakis.

Ties are not shunned, but also not prescribed.

■ When introducing yourself, give your full name along with a firm handshake to the seniormost person in the meeting.

First names are used only after friendships are established. It is better to stick to the formal surname until you are invited to use the first name.

■ While establishing contact for the first time, a small token gift is the norm. Souvenirs, sweets from back home, are good options. Large gifts will make the Germans feel awkward and obligated, so are best avoided.

■ Small talk is rare and Germans would rather you get to the point sooner than later.

requisite documentation. Once you have a work permit, you will need to go the German consulate wherever you reside, to get a visa.

It is the regular Schengen visa, but a sub-category in which you require a valid work permit. The entire process is treacly, possibly taking as long as three months.

Expats are given a week to register themselves at the local city council. The Germans are very particular about registration, for both locals as well as foreigners. Even if you move to a different apartment in the same building, you have to go through the entire quadrille again. The locals carry what is called the Personalausweis, an ID card that is used as reference for all official purposes. For resident

foreigners, the passport with the German visa, or residence permit, serves the same purpose.

There is now talk of introducing an ID card to resident foreigners similar to what the Germans have. I can wait.

The rest of it – driver’s licence, phone connection, bank account, etc. – can be handled by a relocation agency, like what happened with me. My employer is tied up with an agency here, that helps expats to settle down.

If not, you can do it yourself. The Germans do everything by the book. They are very particular about paperwork, but as long as you have all the documents and follow the procedure, it’s easy enough–though there is to it a touch of Kafka.

Go India February 2009

67 DBI_Frankfurt_Feb09.indd 67

2009-02-11 11:04

DOING BUSINESS IN

Frankfurt

BOOKS Frankfurt Insight Guide Lonely Planet Frankfurt Rough Guide: Frankfurt

PLACES OF INTEREST Römer Frankfurt Cathedral St. Paul’s Church Goethe-House Fountain of Justice and Fountain of Myth Fressgass (the food central of Frankfurt) Old Opera House

Housing can be more expensive than in other parts of Europe. An unfurnished 1 or 2 bedroom apartment in the city would cost approximately €600€900 for furnished. Suburbs are about 20% less expensive.

One thing very German about Germany is that when they say unfurnished, they mean unfurnished. Most often, it’s just four walls; even the kitchen is completely bare. Sometimes, there might not even be a sink!

Most people live in apartments within the city to begin with, before moving to the suburbs. For newbies, I would say that living in the city would be an interesting experience, at least for the first year. The suburbs are more isolated and don’t really give you an opportunity to interact with an assortment of people. Before settling on a place you need to speak to others – locals as well as expats – to understand which areas would be the most suitable for you.

In the city centre, it is easy enough to find everything – cleaning services, laundry, delivery etc. But you’ll be living in

an apartment and that will entail certain unusual responsibilities, such as keeping the outside windows cleaned. As a tenant that’ll be your task. As you move in, the landlord will generally give a list of things that the tenant needs to maintain and landlords tend to be very finicky. Everything is written down and signed. But there do exist landlords, here and there, who are more Indian.

All the cities are well equipped with good public transport.

There is the rapid transit system that connects the suburbs to the city (S-Bahn), the underground transit system (the U-Bahn), tram lines and buses. The S-Bahn and U-Bahn compose a network that covers almost all parts of the city and suburbs. Equipment is modern and excellent.

Interestingly, Frankfurt has a system where all modes of transport share the same fare system. So the same ticket will hold good even though you use a mix of modes to get to your destination. Germans believe that you should be responsible enough to ride only with a ticket, so there are no turnstiles or few

checking points. But they do run plain-clothed spot checks, and if you’re caught without a ticket there’s a hefty fine that must be paid on the spot--or else it’s off to Buchenwald. Well, no.

Germans also love their cars. Porsche, Audi, Mercedes and Beamer. Most of them own one and even if they use public transport to commute to work, they take ‘em out over the weekend. The roads are great and the autobahns most often do not have speed limits! So everyone is speeding as if there was to be no morrow, which makes driving auf Deutsch a high in itself. Germans restrain themselves in their offices, but they let it all hang out on the freeways!

In offices, the most important thing is to be punctual. The Germans take it very seriously and even if you are a couple of minutes late for an appointment, you need to give a plausible explanation. You are required to schedule meetings well in advance and in case you want to change the time or location, do so at least 24 hours earlier. And no, there are no rambling, endless

IMPORTANT WEBSITES http://en.wikipedia.org/wiki/ Frankfurt_am_Main http://www.frankfurt.de http://www.magazinedeutschland.de http://www.mondotimes.com/ http://www.airportcity-frankfurt. com/

meetings. You have your points that need to be discussed and the meetings are always wrapped up on time, because no one wants to cause inconvenience to others.

You also have to keep in mind people’s schedules – after-hours meetings are rare and if it is the holiday season (July, August, December and Easter), you check the person’s availability before scheduling anything.

A lot of people feel the Germans are rude, but I think it might just be cultural difference.

We are used to prolonged lunches, with conversations ranging from family to ‘native place’ to previous jobs. The Germans have a quick meal of about half-an-hour and get back to work. Business lunches or

Go India February 2009

68 DBI_Frankfurt_Feb09.indd 68

2009-02-11 11:04

dinners, which are rare, are only slightly more relaxed. Germans are not very comfortable talking about personal matters with their colleagues, unless they are friends. And making friends with Germans can take a while.

The work culture depends on the field – tech MNCs have a more informal environment, but in other lines, like finance, the manner is more formal. In cities like Munich, which have many beer gardens (a large open space, attached to a restaurant or public house, where beer and food is served), people might go out for a brew, or two, after

is normally shopping day. People also take time out for sports on weekends. Spas or Baeder (plural of Bad) as they are called in Germany, are another big thing.

Bad Homburg, Wiesbaden, Bad Nauheim are all within 50 km of Frankfurt. Munich and Berlin are surrounded by Baeder and draw tourists as well as weekenders.

When I first arrived in Germany I had to learn that Bad was not a pejorative, but meant bath. They are places where one takes the baths, as the Raj used to put it.

If you like the arts, Frankfurt is a small paradise. There is the Frankfurt Opera House (Oper

Indian says in greeting ‘How!’ he will be saying in German ‘Guten Tag!’ Satellite, cable and DVB-T are common modes of TV reception. With some cable and DSL service providers, international TV channels, including some Indian, can be added in subscription.

The Germans are fond of their food and drink. Sausages and beer are the two most common orders at meals. But it need not be that simple. There are more than 200 kinds of beer, and knowing the dark from light is just the first step. Pilsner is the typical brew in Frankfurt, Alt

rinderbraten (roast beef), Big Mac… lots of variety. You will have noticed that two of America’s favourite meats originate from the German cities of Frankfurt and Hamburg. If you are a vegetarian and a teetotaller, then life can be hard in Germany.

Which is why you find many Indians carrying their food from home to office. Only very few Germans would be doing that.

And when eating out, you have to specify kein fleisch – no meat – in German.

Nowadays most grocery stores sell Indian groceries. In addition, there are Asian stores

office hours. Still, it is not very common for people to socialise with colleagues outside the office.

If it’s a business dinner, then it will be a little elaborate.

Alcohol is de rigueur and as the host, it is your responsibility to choose the wine and taste it. When you are invited to someone’s house, they don’t expect you to bring a gift. But if you choose to bring one, wine is a safe bet. The other option is to present the wife with some flowers (but not red roses, as they have a romantic connotation).

For evenings and weekends, there are lots of options. Saturday

Frankfurt) and the continent’s largest English theatre (English Theatre). Germany’s financial capital has been a world ballet capital, as one of the world’s most innovative choreographers, William Forsythe, has made Frankfurt his home base for the last 25 years. Last but not least, a stretch along the Main (the city’s river) called the Museum Bank (Museumsufer) houses seven different museums!

It is very uncommon to find cinemas screening English versions of Hollywood movies.

Most are excellently dubbed into German. When the American

in Düsseldorf and Koelsch in Cologne, but there are lots of other varieties–Bock, Dunkel, Lager, Malzbier, Weizenbier.

Beer is not even considered alcohol by most people. It is a national beverage that goes with anything, any time. It is perfectly normal, though perhaps giddying, to have a beer or two over lunch on a weekday.

Oktoberfest is famous for beerswilling, and nowadays draws an awesome number of Australians.

In my experience, Germans like their meat – frankfurters, bratwurst, schnitzel, kasseler, milzwurst (made of spleen)

in many cities. There are some good Indian restaurants in the Frankfurt region – Banjara, Bombay Gate, Indigo, Jewel of India. And these are popular with younger Germans, too.

Hamburg, Bremen, Cologne, Munich, all have excellent Indian food. The lesser variety can be found all over Germany, largely because it’s tasty as well as a bargain.

Apart from food and beer, sports are the other great German preoccupation. The German national football team is more of a national icon than the army.

The captain of the national

Go India February 2009

69 DBI_Frankfurt_Feb09.indd 69

2009-02-11 11:04

DOING BUSINESS IN

Frankfurt Did you know

■

Frankfurt’s airport is by far the largest for passenger traffic in Germany, the third largest in Europe, and the eighth largest worldwide. It is the busiest airport in the world when measured by the number of international destinations served.

■ Frankfurt is the fifth largest city in Germany, but including the larger Frankfurt Rhine Main Region, it is the second largest metropolitan area.

■ Frankfurter Wertpapierbörse is one of the world’s largest trading centres, with a yearly turnover of €5.2 trillion.

■ Frankfurt is one of only four European cities that have a significant number of skyscrapers.

Useful Tips

■

German restaurants are similar to the ones in India, where you find a table on your own. Intervention by a maître d’ is not very common.

■ If you are the host, it is polite to pay the bill at the counter, or bar, rather than at the table where your guests might be obligated to offer to pay.

At restaurants 15% service charge is included in the bill, so it’s OK not to tip in small, or moderate places. But preferably, add an extra tip in more high-profile restaurants.

■ German women don’t take very well to excess chivalry. Be courteous but not patronising.

Some Indian TV channels do air in Europe, but you need to subscribe to them.

■ An inordinately large number of German medicines are available only on prescription. Make sure you have one from your physician when you go to the pharmacy. It is also a good idea to bring a cache of emergency drugs with you from home.

■ You can negotiate some administrative prices: credit card renewal fees, traffic summons…

■ Have a cup of ‘stretched’ tea with condensed milk (the tarik) with a business partner at a Mamak stall to talk turkey and cut to the chase.

team, Michael Ballack, earns his daily pay playing for Chelsea in the English Premier League.

Whenever Chelsea wins, there will be headlines in the German press! ‘Ballack Triumphs!’ That may explain why there are soccer clubs or Fußballvereine in every neighbourhood, where kids are broken to the obsession from an early age. Tennis used to be popular when Steffi Graf and Boris Becker were on top, but not so much now. Golf became big and flossy only when a German player, Berhard Langer, made a name for himself and for Deutschland, playing on the American tour.

On the whole, for anyone planning to move to Germany, they just need to keep one thing in mind – Germans are different... but as long as they accept them as they are and give themselves time to acculturate, every ‘Tag’ in Germany can be a ‘Guter Tag’. Germany is anything but a hardship post.

Rajkumar Ragupathy is the Manager for Product Concept Engineering, Vodafone Group in Germany

Hotels Budget ■

Hotel Atrium ■ Hotel Europa ■ Astoria Hotel ■ Admiral Hotel

High-end

COST OF LIVING A three-course meal for two people without alcohol and tips: €30-40 A movie ticket: €5-15 One cup of regular coffee: €1-2 One hour parking in city: €2 A bottle of beer or wine: €1.5 for a pint of beer and €3 for a glass of wine A ticket on the local transport: day ticket for €5.60 and weekly pass for €20.60

USEFUL NUMBERS Police: 110 Fire Brigade: 112 Ambulance: 115 National Directory Enquiries (in English): 11837 International Directory Enquiries: 11834 HOSPITALS Evangelisches Hospital für palliative Medizin: 49(069) 299879-0 Clementine-Kinderhospital: 49(069) 94992-0 University Clinic Frankfurt: 49(069) 6301-1 Hospital zum Heiligen Geist: 49(069) 2196-0 FRANKFURT INTERNATIONAL AIRPORT: Within Germany: 01805-FRAINFO (01805 3724636)* International: 49(069) 690 0 National Rail Enquiries: 49(0180) 5996633

■

Hotel Hessischer Hof Le Meridian Parkhotel ■ InterContinental ■ Villa Kennedy ■

NEXT ISSUE:

CAIRO

TAXI SERVICES Taxi Frankfurt eG: 49(069) 230001 Taxi Deutschland: 49(069) 24000027 Taxi 33 Echo: 49(069) 230033

Go India February 2009

70 DBI_Frankfurt_Feb09.indd 70

2009-02-11 11:04