Consulting Research Entrepreneurship Strategy
Issue 5
Aug-Sep ’09
Crest
The E-Magazine of CRESCENT, XLRI
This issue Chatting with the Idea Man P.2 Strategy during Recession P.4 Consults Speak P.5 Research in an I‐Bank P.7 Crescent Reporter P.8
Crescent The Committee for Research, Strat‐ egy, Consulting and Entrepreneur‐ ship (CRESCENT) is the result of the endeavor of the student community of XLRI to promote an environment of creative solution building amongst the students of the institute, while reaffirming high ethical standards and values, and fostering personal development in the pursuit of excel‐ lence. It works with the two fold agenda of creating a brand presence of XLRI among the corporate and to help nurture ideas of budding entre‐ preneurs by providing a platform to them to showcase their Ideas
Editorial Team Mandar Kulkarni Manoj G. Kamath Himanshu Saxena Miti Vaidya
Editorial
The month that went by saw books coming out of the shelves for the end terms, marking the end of a time which saw a flurry of submissions, presentations, mid‐term examina‐ tions... But, as always, relief is a sure promise at the end of it! Term break indeed is a time to pack up and relax at home. Some of us have already en‐ joyed this welcome break and others are enjoying at this moment. For those who have returned to the vigour of B‐school life, it’s the lazy beginning of another term. For those still enjoying out there, well, make the most of it while it lasts. This issue of Crest is just another flip through that would keep you occupied wherever you are. So lie down, relax and enjoy what Crest has to offer this time… In the entrepreneurship section we introduce you to Mr. Pratik Murarka who personifies the cliché that innovation is of paramount importance while venturing out on your own. Gaming is serious business for him. The article on Strategy during Recession tells you that it isn’t necessary that its doom for all, some companies use this as an opportunity to prove their mettle and come smartly out of the ramble. In this issue we have included an article on research where Mansi Chandra explains how she went about her research project in an investment bank during her summer intern‐ ship. For the consulting section we have stolen the words out of the mouths of top consulting giants and have listed the key findings that they have released after years of research. Crescent Reporter brings you updates of an exciting event‐ a night treasure hunt in the XLRI campus. It was a sight to watch an enthusiastic group of more than hundred people skimming through the campus to find clues which were connected to the life of an entre‐ preneur. Crescent Consulting Club had conducted a session on Case Analysis: Strategy Tools and Frameworks which received a thumping response. And of course, nothing is complete without a bite of news in News‐watch section and a dose of Fun corner which proves yet again that laughter is the best medicine! Hope you enjoy this issue as much as you enjoyed the previous ones.
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‐ Editorial Team
The Editorial Team of Crest invites articles from readers for publication in forthcoming issues. If you have articles/ experiences/ studies to share in the areas of consulting, entrepreneur ship, research or strategy, please do send them in to crest.xlri@gmail.com mentioning your name and institute name.
ENTREPRENEURSHIP
Chatting with the Idea Man Developing computer games to advertise, educate or train, that’s what Idealabs Interactive does. This month, Pratik Murarka who began Idealabs in December 2007, gives Crest an insight into what it takes to venture out on your own...
What’s Idealabs Interactive all about? Idealabs Interactive is a techno‐creative company that functions much like an Advertising agency, by way of developing customized content for clients. Only in our case, the content is Videogame and Interac tive. What made you foray into this field? “You don’t choose your passion, your passion chooses you” Anonymous I joined the Gaming industry in 2003, more by chance than by choice. My friends immediately congratulated me on having landed the job of my dreams. To them, I’d always been the gamer. That struck me as odd – Yes, I played games, but had never considered myself a gamer. To me, it was akin to a self‐realization event to go home, open the cupboard, and see that I had literally PILES of (original) PC games! I started out at the lowest rung – a Beta Tester, playing video‐games to find bugs – and over the next few years found my way up the ladder, eventually becoming the Studio Head of my company’s European‐focussed studio. By that time, I was done with the retail gaming business. I found it extremely monotonous (shoot this, kill that, turn this, press that...) and wanted to create content that had more than just enter‐ tainment value. In a completely non‐standard way, I resigned before I had a plan of any sort, and spent the three months of my notice period (and a couple of months after that as well) attempting to figure things out. My annual trips to the Game Developer’s Conference (San Francisco) had already awakened my interest in the use of video‐game and interactive technology for non‐entertainment purposes. So all I really had to do was follow that thread, and see where it took me. How was the experience of starting out on your own? My father’s always been in business, so I’ve never known a life where my parents had the security of a job. Everything I’ve done so far has been based on my observation of them, and what I consider com‐ mon‐sense. The only thing I can say, for sure, is that the experience never ends! The services you offer are highly specialized. Was it difficult to form your team? No and Yes. No, because a few of the team are and always will be the pillars of the organization. I met these people early on, and they’ve stuck by me no matter what. Yes, because since I started out, I interacted with several different people before the current team settled in. (Contd. on Page 3) 22
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S T RA T E G Y (Contd. from Page 2) What kind of response have you received to your concept? Was it difficult to convince clients about your services? It’s been almost two years, and we now have a portfolio that helps prospective clients relate their re‐ quirements with what we can do. Before then, a lot prospective clients had no real understanding of our capabilities, or how we could develop a product to satisfy their requirement. Thus, we created a significant amount of demo mate‐ rial to showcase our abilities. Creativity must be the driver for your business model. It was evident when we visited your website and noticed the game on the home page and the content on your blog. How do you keep that alive? I firmly believe that creativity is a group activity. Most of the ideas you mention came from someone other than me. It’s important for the entrepreneur of the group to create an environment where the other members feel free to speak their thoughts out loud. What is the success mantra? Think positive. Always. Instead of simply dissecting problems, look for solutions. What lies in the future for Idealabs? More success! Any advice to budding entrepreneurs out there? Standard logic dictates that you have things at least partially set‐up before leaving your job... Stan‐ dard logic is not always right. Sometimes it’s better not to work with your friends. It’s always advisable to start off with a business plan... But it’s really OK not to stick to it! Remember that not everyone wants to put in their blood, sweat and tears into your vision. You will make mistakes. Deal with the consequences, but don’t forget to learn from the mistake!
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THE IDEALABS LINE-UP CREST Aug-Sep 2009
STRATEGY
Strategy During Recession...
Do all companies suffer during a downturn? Not necessarily. Crest presents a dekko at some companies which swam against the tide during rough times, and used strategic measures, especially M&A, to emerge winners in the long run. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. ‐Warren Buffet In his inimitable style, the investment guru puts down how important it is to keep renewing strate‐ gies than to think on just a single track. This assumes paramount importance during meltdowns. The typical expectation during a recessionary phase would be that strategic measures like M&A’s should take a backseat. However a 2003 study by the The Boston Consulting Group suggests that companies should be doing just the opposite. They found that deals that took place during periods of below‐ average economic growth had a higher likelihood of success. Let’s take a look at some companies that have actually used this in the past recessions. Few know that the Audi logo (four interlinked rings) actually pays tribute to the four German car manufacturers which came together during the Great Depression. In 1932, Audi merged with Horch, DKW and Wanderer to form the Auto Union. The union swiftly capitalized on their collective strength – they established a dominant position by quadrupling their revenues over the next six years. Why did the German manufacturers decide to come together during a pe‐ riod considered the worst in financial history? Because the main banker, Sachsische Staatsbank was not prepared to fund the individual entities. The 1973 oil crisis had a somewhat different effect. As U.S. companies like Shell, faced oil shortage due to the Arab embargo, the company began looking for other ways to move business forward. Shell adopted a diversification strategy by investing in industries like coal, nuclear power and metals. Though later the ac‐ quired businesses were sold off, the strategy shows how different ways can be adopted to make a firm recession‐proof. Another example is that of Sony buying out CBS Records immediately after the 1987 stock market crash. Sony anyway wanted to comple‐ ment its existing infrastructure with CBS’ music library, and valuations would have been much better after a stock market crash. Going back once again to Warren Buffet ‐ It's far better to buy a wonderful company at a fair price than a fair company at a won‐ derful price. Coming to the current times, it is interesting to note what large retailers are doing to beat the recession. Exclusive stores like Macy’s are now focusing a lot more on what customers want. They realise that by making small changes in their inventory and being more attentive to customer needs, they can make their revenue go from lack lustre to robust even during recessions. High‐end stores like Saks are now offering more mid‐priced merchandise. Other chains like Wal‐Mart carry less inventory and fewer brands. So will companies learn to think differently and question their current strategies to make the most out of bad times? A December 2008 BCG survey reports that most companies have not changed their M&A plans for 2009. Whether these strategies will make a difference, only time will tell.
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CREST Aug-Sep 2009
CONSULTING
Consults Speak What are the big brothers saying? Consulting companies not only solve problems for their clients, they also have active research divisions. These reports give an insight into how the world economy and the business world is progressing in the rapidly changing environment. Crest collected a few sample re‐ leases given by top consulting firms in the various areas where their expertise lies. Mercer: Asia and recession Employers in Asia expect a decline in business as a result of the economic tur‐ moil, but most don't anticipate workforce reductions, benefits cuts or other drastic measures. For Asia's organizations, the next couple of years are certain to be a time of tremendous opportunity and risk. Indeed, Asia is the best performing region amid the worst global recession since the Great Depression. In particular, Asia's emerging countries are likely to recover from the downturn faster than the rest of the world. China and India are projected to grow 7.5 percent and 5.4 percent respec‐ tively in 2009 and remain the sole source of fiscal growth for many companies this year. The ASEAN‐ 5 ‐ Singapore, Malaysia, Indonesia, Thailand and the Philippines ‐ is likely to see 3.7 percent growth in 2010 and is expected to outperform Europe and the US. But not all of Asia is in such good shape. With their large export‐dependent manufacturing sectors, Japan and the newly industrialized economies are projected to contract more severely than Europe and the US in 2009; despite this, they are expected to bounce back faster in 2010. Bain & Company: Collaboration in R&D better than M&A for pharmaceutical firms A flurry of major pharmaceutical company mergers and acquisitions got plenty of at‐ tention this spring. Pfizer's (PFE) acquisition of Wyeth, Merck's (MRK) purchase of Schering‐Plough and Genentech's (DNA) deal with Roche all made headlines for their potential to help the resulting entities reduce costs and add new, promising drugs to company pipe‐ lines. But a recent string of quieter agreements that signal collaboration on research and develop‐ ment‐as opposed to takeovers‐point the way to the real future of the industry. Booz & Co: Will the CEO stay? Booz & Company’s annual survey of chief executive arrivals and departures shows that the financial crisis has held down the rate of CEO turnover — for now. With stock prices plummeting, profits evaporating, and millions of workers world‐ wide joining the ranks of the unemployed, one might assume that the chief executives of the world’s largest companies lost their jobs in dramatic numbers in 2008. But that was not the case. CEOs dem‐ onstrated remarkable recession resistance last year. Although CEO turnover rose slightly on a global basis, from 13.8 percent in 2007 to 14.4 percent in 2008, Booz & Company’s annual survey reveals that turnover actually declined in North America and Europe, the regions hit first and hardest by the economic downturn. Succession rates in these bruised economies decreased by 0.5 and 1.9 percent‐ age points, respectively — all the more surprising when one considers that Europe and North Amer‐ ica had led other regions in CEO turnover in the two previous years. Deloitte: On Managing Talent Deloitte’s Human Capital Advisory Services (HCAS) team in India undertook a cross industry dipstick survey on Employee Engagement in Recessionary Times. The aim of this survey was to understand how organizations are reassessing their priorities to manage their talent in smarter and more strategic ways. The output of the survey is intended to pro‐ vide insights into how organizations across are meeting their business and talent challenges with innovative practices. 5
CREST Aug-Sep 2009
CONSULTING (Contd. from Page 5)
Watson Wyatt: Of MNCs As companies grow, so does the risk and complexity of managing their peo‐ ple and financial issues. Multinationals are constantly seeking to balance the desire to implement global strategies that bring cross‐border consistency and being responsive to local market regulations, culture and competition. They are challenged to manage many business issues across their global operations, includ‐ ing effective risk management, global governance, global HR strategy, retirement plan design and funding, global talent development and mobility, and growing, contracting and consolidating op‐ erations globally. McKinsey Leaders in the crisis: McKinsey Global Survey Results Most executives are coping relatively well with the demands and effects of the economic crisis, but people problems loom on the horizon. Executives around the world are working longer hours, taking on additional re‐ sponsibilities, and experiencing higher levels of stress as they struggle to address the economic downturn, according to a McKinsey Quarterly survey. What’s more surprising, rather than feeling as turbulent as the economy, executives say they feel relatively stable and content about their companies, their work, and their performance as business leaders since the crisis began. All is not well, though. Beyond the averages—and the executive suites—middle managers report dramatically lower levels of con‐ tentment than their more senior colleagues do, as well as less of a desire to stay with their current employers. Unlocking the potential of frontline managers Instead of administrative work and meetings, they should focus on coaching their employees and on constantly improving quality. A retail manager responsible for more than $80 million in annual reve‐ nue, an airline manager who oversees a yearly passenger volume worth more than $160 million, a banking manager who deals with upward of seven million questions from customers a year. These aren’t executives at a corporate headquarters; they are the hidden—yet crucial—managers of frontline employees. Found in almost any company, such managers are particularly important in industries with distrib‐ uted networks of sites and employees. These industries—for instance, infrastructure, travel and logistics, manufacturing, health care, and retailing (including food service and retail banking)— make up more than half of the global economy. Their district or area managers, store managers, site or plant managers, and line supervisors direct as much as two‐thirds of the workforce and are responsible for the part of the company that typically defines the customer experience. Yet most of the time, these managers operate as cogs in a system, with limited flexibility in decision making and little room for creativity.
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CREST Aug-Sep 2009
RESEARCH
Research in an IBank
Ever wondered what is it like to be part of a research team in an Investment Bank? Crest invited Mansi Chandra of XLRI, who was an intern in the Research Sub‐Team of the Investment Management Team of a reputed Investment Bank, to give an insight into her experience Mutual Fund is an investment vehicle that is fast gaining momentum in the Indian financial services market. Money from investors is pooled in and is di‐ versified into investment opportunities (equity and debt). A crucial question that thus arises in an investor’s mind is : With the market full of mutual funds from various fund houses how do I decide which mutual fund to invest in? To help the investors, mutual fund rating models are developed which incorpo‐ rate various parameters that impact the performance of funds. Based on these parameters the funds are rated. I worked on two rating models for Equity funds and Debt funds. The objective was to analyze the existing models and refine the rating criteria used in the models. It was a research project that involved extensive use of statistical techniques. A lot of reading was also done to understand the financial ratios incorporated in the existing models as well as other ratios that may be incorporated to improve the efficiency of models. Some insight into the methodology followed is given below: Methodology Explanation Test the existing models for performance (using Kruskal Wallis test followed by Tukey’s test).
Used historical data to test if the bonds with higher rating performed well.
Parameter testing (Correlation, Mann Whitney U test) Evaluation of additional parameters Addition of new parameters in the model
For testing the relevance of parameters used
Multiple regression (using SPSS) and Multifac‐ tor regression (using SAS) for assigning weights to parameters Treatment of multi‐collinearity New weights assigned to parameters for mini‐ mizing error
Studied new parameters that may be incorpo‐ rated in the model For example interest rate perspective and cor‐ porate spread perspective were added in debt fund model To assign weights to parameters used in the model Multi‐collinearity was removed The final model with new weights assigned based on qualitative and quantitative analysis
My summer internship was a great learning experience, not only did I learn a lot while working on the project but also while interacting with the employees. The work pressure there was tremendous and it was difficult for me to get time from my manager. Mapping my work with his expectations was another herculean task which I think I could manage well. The work profile in an I‐bank can primarily be divided into 2 parts: one for research on investment opportunities (e.g. mutual funds) and identifying firms with potential for M&A’s and second for pitching clients (both individuals and firms). For those who are interested in working for I‐bank should think about which division they want to work for. From my experience I can say both are equally challenging and demanding. 7
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CRESCENT REPORTER
XpLore: A Night Treasure Hunt They came, they saw, they…. Looted! CRESCENT held a treasure hunt on 13th August, 2009, which saw gangs participating in large numbers. The lure of booty drew out hordes, who XpLored the entire XLRI campus, hoping to strike gold. The theme of the treasure hunt was entre‐ preneurship, with each stage in the hunt analogous to the stage in the life of an entrepreneur. Finally, the night ended with two gangs splitting up the top prize!
The CRESCENT team after the event
CCubed: Case Analysis Strategy Tools & Frameworks Crescent Consulting Club had a technical session on case analysis and strategy frameworks on 30th July. The response for the session was overwhelm‐ ing. The number of participants who turned up crossed the number of seats in the lecture hall! The session had two parts planned in its agenda—firstly, a session on guesstimates and a second session on strategic analysis that could be used in solving case studies and small management problems. An exciting feature of these sessions was the partici‐ pation of GMP students who made the discussions lively with their multiple years of experience in solv‐ ing real life problems in organizations. The session on guesstimates taken by Abhinav Singhal (BM08‐ 10) was extremely interesting and challenging for the students. It included various problems, like that of finding the market share of diapers in China or wine consumption in USA without any addi‐ tional information, using only a pen, paper and a bit of imagination! The session on strategy frame‐ works was very informative, especially for first year BM and PM&IR club members. Case interview methods of selection was introduced to the partici‐ pants and detailed steps on approaching such questions were given. A challenge was thrown to the audience in the end. They were given an as‐ signment to gauge the market size and annual revenues of a prospective youth magazine planned to be released by MTV. The best solutions would be presented in front of the club members and the solutions would be dissected from every angle. CREST November 2008
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CREST Aug-Sep 2009
NEWS WATCH Start ups awarded at Startup City 2009 Crescent members Mandar and Siddhesh caught up with the latest start ups on show at the recently held siliconindia Startup City 2009
For technology startups across India, siliconindia Startup City 2009 turned out to be a multifaceted platform allowing them to flex their muscles to warn the corporate big‐ gies that they ought to be counted upon and in the process grab some awards. Around 30 technology startups exhibited their products and services and gave live demonstrations in their booths. They also had an opportunity to present their business plans in the auditorium in front of an audience, which com‐ prised of Venture Capitalists (VCs) and entrepreneurs. Best Startups from three IT segments including software, internet and services were recognized. HR based subscription company PlugHR won the best startup award in software segment. Content Syndicate, a company that provides content to media houses clinched the best startup award in internet segment. While marketing solution provider Adoroi won the best startup award in the services segment. Awards were given based on the company overview, market opportunity, the team, solution value proposition, competitive positioning, growth plans, go‐to‐market plan, current status and investment opportunity. The event started with a welcome note by Harvi Sachar, CEO, siliconindia. Venki Nishtala, CTO of Rediff.com, gave an inaugural keynote on the idea of a 'Universal Internet'. This was followed by panel discussions on 'Building a Successful Startup' and 'Opportunities in the Internet space for Entrepre‐ neurs'. There was a one hour session called CEO conclave, where Managing Directors and CEOs of tech‐ nology companies discussed 'Best practices of building technology companies'. The judges who did the evaluation for internet sector included Venki Nishtala, CTO, Rediff.com; Anand Lunia, SeedFund; Sachin Maheshwari, DFJ and Rajesh Jog, WayGate Capital. The judges who did the evaluation for services and software sector included Manoj Gupta, Nexus India; Arvin Babu, GreyLock Advisors; Hemir Doshi, IDG Ventures India and Kartik Srivatsa, Song Advisors. Over 3000 people from different walks of the IT industry thronged Hotel Rangsharda in Mumbai to at‐ tend siliconindia Startup City, which also had the participation of over 250 CEOs, 40 VCs and 500 entre‐
FUN CORNER How many consultants does it take to change a light bulb?
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It depends – “How large is your budget?”
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We don't know. They never seem to get past the feasibility study
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Three - One to change the bulb, one to document the process and one to coach him on how to conform to the process
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Six- One to change the bulb and five to tell him how much better they could have done it
CRESCENT MEMBERS Faculty Advisor Prof. Munish Thakur
Secretary Vishal Agarwal Senior Executive Members Abhinav Singhal Ankit R. Agarwal Anwar Syed Mandar Kulkarni Manoj G. Kamath Sandip Shinde Junior Executive Members Aalok Sanghvi Ajanta Anindita Himanshu Saxena Indrajit Yadav Miti Vaidya Mohammed Quraishi Siddhesh Ajgaonkar
CRESCENT email id crescent@xlri.ac.in
Cover Photo Courtesy Varun Madan
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CREST Aug– Sep 2009