Author: Donald R.Keough
Publisher: Penguin/Portfolio
Pages: 190
Price:Rs.195
Bookstore shelves are full of stories by Management Gurus of how businesses (and companies) became highly successful in a sustained way and also the expositions of how their leaders made those businesses or organizations the envy of others. Or to quote David R.Keough, the author of The Ten Commandments Of Business Failure “the success gurus have paraded their wares across the pages and stages of the world”. Departing from the convention, the author of the book talks about the various negative aspects of the leadership that can lead to business failure. His premise for the forceful arguments is that “businesses are the product and extension of personal characteristics of its leaders” and hence the “ real reflect lies in ourselves, the leaders of business”. And he also confesses that “after a lifetime in business, I’ve never been able to develop a set of rules or a step-by-step formula that will guarantee success in anything, much less in a field as dynamic and changing as business”.
So, Keough has decided to discuss about how to lose and guarantee that anyone who followed his formula would be a highly successful loser .At the top of his list is Quit Taking Risks. Don says that we, right from childhood, have always been prevented from venturing into risk.And he says that the culture in most parts of the world are still in a state of promoting risk averse mindset as “let’s-do-it-like- we-always-did-it-because-that’s-the-way-we-always-did-it” and distinguishes America from the rest as risk taking from the very beginning.The attitude of risk aversion according to Keough makes everybody contented with status quo. He narrates the story of one of the early builders of Coca-Cola, Robert Woodruff who took enormous risk of establishing Coca-Cola Export Corporation to tap the markets beyond America on his own due to stiff opposition from the Board of Directors. Keough says that Mr. Woodruff believed the advise “The world Belongs To The Discontented” by Oscar Wilde and went ahead taking the corporation well beyond the shores of America and was instrumental in making Coca-Cola a really global corporation. Don also tells the story of Xerox which failed to take risk with the first PC they were able to design in 1973,which would have given them a five-year head start over its rivals. He says that people refrain from taking risks because they are afraid of making mistakes and failures.He also states categorically that if a company never has a failure, their management is probably not discontented enough to justify their salaries.
The second in Don’s recipe for business failure is being inflexible. Such leaders are so set in their ways that they believe that they have the formula for success and hence can’t see any other way of doing things.He narrates how the stubbornness & inflexibility of a brilliant man like Henry Ford with a wonderful business acumen resulted in Ford giving market share away to competition when he insisted that he will stick to the Model T and the famous “they can have it in any colour they want,as long as it is black”.The competitors,GM and Chrysler, introduced bigger, fancier and brightly-painted cars and zoomed past Ford in meeting customer’s changing preferences.
Another prescription for failure in the list is Isolate Yourself. According to Don, this is another wonderful strategy that will lead to failure. Never try to interact with the people, because you will come to know truth. Keep a close coterie of advisors and staff who get paid to think and say that you are wonderful. Never meet people on the workplace, never know their names or other whereabouts. Eat lunch with a few trusted lieutenants, never allow anybody to bring bad news. Create a climate of fear. Scream and throw tantrums. Dress down people in front of an audience. Embarrass them and be rude. Take all the credit for success and blame others for failures and mistakes.
He narrates the story of “Chainsaw” Al Dunlap and how he drove a fine company like Sunbeam into the ground in 1998.
The fourth prescription is Assume Infallibility.Never admit a problem or a mistake. Cover up issues or blame them on somebody or some external force. Don narrates how the Chairman’s letter to shareholders in annual reports blame on everything ranging from currency fluctuation to hurricanes for the poor show during a year. Don narrates Coca -Cola’s own experience in 1999 while dealing with the issue of school children in Belgium falling sick after consumption of Coke.The management did not admit that there was an issue with itself and refused to do anything. Sales plummeted and after a gap, the management decided to withdraw the product from the shelves, but the damage was already done.The episode resulted in the largest product recall in the company’s 120 year history and necessitated enormous expenses and time to repair the damage to the reputation and image. Don says this kind of infallible we-know-best attitude of managements have caused many companies to ignore reality and miss opportunities.
The fifth commandment is Play The Game Close To The Foul Line. Here he discusses the corruption in corporate circles.He narrates the example of Adelphia where the family owners John Rigas and sons operated the company as it were their family “treasure chest”. And companies like Enron, Tyco and WorldCom where CEOs and CFOs acted without regard for owners and employees.The author makes a strong opinion that enough laws can’t be passed to make men ethical. Enron failure happened despite availability of seventy-one thousand pages of federal regulations and also the numerous SEC and New York Stock Exchange rule for companies .
The sixth in the list is Don’t Take Time To Think. The author says that in today’s world, we have a tendency to communicate and respond instantly without any evaluation, without sitting back and reflecting quietly for a few moments and serious thinking.He says three major problems contribute to this scenario: The In-box Shock meaning that you have to deal with multiple communications happening at a rate of speed and volume which the average human nervous system is not capable of handling; too much of data, unprocessed, masking reality especially because executives tend to believe market research outputs blindly; not taking time to think leading to plain foolish and sometimes even dangerous because one can’t make any real progress if one just sifts through data and reaches quick conclusions based on previous experience rather than slow and careful analysis.
Next in the list is Put All Your Faith in Experts and Outside Consultants. The commandment is well explained with the story of how Coca Cola decided to diversify by entering into wine business by acquiring a wine making firm at the advise of consultants who thought that Coca Cola had to reduce the risk of dependency on soft drinks alone.But, the wisdom of Mr.Woodruff, mentioned earlier showed the management how the wine business is not a good fit for the company and a detailed analysis that followed concluded that even in the best times, the return from wine business will be equal to or less than the company’s cost of capital. And they exited wine by selling the business to Seagram’s. The author also narrates the story of Long Term Capital Management(LTCM) which boasted of Nobel Prize winning economists Myron Scholes and Robert Merton in its founder’s list(highly acclaimed and regarded for their knowledge of finance) but failed as the theories did not lead to practical successes in making money.
The Eighth commandment is Love Your Bureaucracy. The author says that bureaucracy is the best way to not get things done.This is because bureaucrats controls the rigid and many a time obsolete rituals, guard them with their lives because any change may undermine their power and authority.Bureaucrats can often become major impediment to progress of any kind and guarantee failure.Don says that if one wants to impede progress, make sure that administrative concerns take precedence over all others.
The ninth in the list is Send Mixed Messages. Don explains this with the example of the purchase of Columbia Pictures by Coca Cola, a highly unpredictable business with no guaranteed income, which did not fit into any business definition of Coca Cola and hence was sending a mixed message to the investors.
Don’s tenth commandment is Be Afraid of Failure. Don says that pessimism has become a growth industry ever since Thomas Robert Malthus predicted that population would outrun food supplies and thus all of mankind was doomed.But technology enabled world to have enough food for the people.Don also quotes Paul R.Ehrlrich, author of The Population Bomb who predicted in 1968 that hundreds of millions of people would starve in the 70s and that life expectancy would fall in 1980s.Both predictions did not materialize. Most of these predictions try to spread fear with a focus on failure. It is like ten cars in a massive pileup is making headlines but millions of cars safely negotiating a busy road is only an information and no news.
Eventhough the title of the book says ten commandments,Don has added an eleventh one: Lose Your Passion for Work- for Life. Don says that if somebody wants to fail, lose the passion for whatever he is doing .Those who choose to say to themselves “that’s good enough” or” that is not my job” or “I don’t care “ or “I am going to retire soon anyway” etc are examples of people who have lost their passion for work and for life.Don talks about Warren Buffet who said:”I tap- dance to work every day” to show how enthusiastic and passionate are successful people about work.
An unconventional book, well narrated in a lucid and simple style, the book is a must read for all present and aspiring leaders notwithstanding the fact that a few earlier books like Why CEOs Fail( David L.Doltich and Peter C.Cairo, 2003,Jossey-Bass) and Why Smart Executives Fail(Sydney Finkelstein, 2003,Penguin/Portfolio) had dealt with many of these clearly relating business failure to failure at the individual leadership level, which is the premise of the author too.For example, Doltich & Cairo talks about arrogance, volatility excessive caution, aloofness, mischievousness etc among the eleven derailers that is likely pull a CEO down which find their way in this book too may be in different terminologies. Finkelstein lists the “Seven habits of Spectacularly Unsuccessful People” with habits like thinking that they have all the answers, they stubbornly rely on what worked for them in the past which again are contained in the basic ideas of this book.
But the forward written by Warren Buffet lends credibility and sends the right signals to the discernible reader.
About the author: Donald R.Keough was President of Coca Cola from 1981 to 1993.He was again nominated to the board of Coca-Cola in 2004. He is Chairman of Allen& Company Inc and Allen & Company LLC, investment banking firms and sits on the boards of Berkshire Hathway Inc. and InterActive Corp. In the forward to the book, Warren Buffet says that Don is “one of the very few guys I feel I can hand the keys over to”.
Friday, November 21, 2008
Wednesday, May 21, 2008
Book Review- What The Customer Wants You To Know by Ram Charan
The book review was originally published in SCMS Journal Of Indian Management, Jan-March Isssue, 2008.
Title of the book : What The Customer Wants You To Know
Author : Ram Charan
Publisher : Penguin Portfolio
Pages : 178
Price : Rs. 295
The latest book from Ram Charan, famous for his ability to explain complex business issues in simple terms, explains why in this era of internet the conventional price-centric approach will not make sellers succeed. Sellers may have excellent products, customer relationships, great strategies, differentiated technologies, faster times to market, high operational efficiencies etc but still fail to get the sale. Sellers have to actually help customers meet their financial expectations, win against their competitors and succeed in the market place or help customers’ businesses to succeed in many dimensions. While customers may not articulate their requirement in explicit terms, they want their suppliers to help them accomplish their goals by acting as partners and not as one-time transactors.
In order to achieve such a scenario, the seller or supplier should know how the customers’ business works so that you as a supplier/seller can make it work better. And, the conventional sales approach will not enable you to achieve this. One has to adopt a new radical yet practical approach. Such an approach will help a supplier to release itself from the hell of commoditization and low prices. It can help one to differentiate from competition, lead to better prices & margins and , even higher revenue growth. At the heart of this new approach to selling is an intense focus on the prosperity of one’s customers. The approach is radical because no longer you measure your own success first. Instead you measure your success by how well your customers are doing with your help. You are not selling a specific product or service; you are focused on how your company can help the customer succeed in all the ways that are important to the customers. In short, you help customers meet their business goals & priorities by adding value to them. Charan says that this ability to create value for customers will differentiate you in the marketplace and you will be able to command a price for it and he calls this new approach Value Creation Selling or VCS.
According to Charan, VCS is radically different from how most companies sell today in five ways:
Ø The seller and its organization devotes large amounts of time & energy – much more than it devotes today-to learn about the customer’s business in great detail. One should probe to find out what are the customer’s goals, which financial measures they concentrate on, how they create market value and what key factors differentiate their products or services from competition etc. While one may be tempted to look at these from a short term, Charan advises that greatest opportunities lie in the medium & long term.
Ø Use your capabilities & tools to understand how your customers do business & how you can help them to improve that business. The sales force alone may not be able to achieve this. You need to muster support from many parts of your company in order to achieve that. People from every department will have to become intimately familiar with your customer. You have to compile large amounts of information, both facts and impressions in order to determine the best approach for helping your customers win. This may necessitate frequent formal & informal interaction between people and departments within your company and between your company & the customer.
Ø You have to gain knowledge about not only your customer but also your customer’s customers. To tailor your solution to your customer’s markets, you have to know who their customers are, what they want, what their problems and attitudes are and what decision making process they use. You have to work back from the needs of the end customers to the needs of your customer or you should have knowledge about the customer value chain.
Ø The execution of this VCS approach needs longer cycle times to lead to generation of orders and revenues. The approach requires patience, consistency & determination on your part to build a high degree of trust with your customers. This is necessary as this new relationship between you and the customer has to be far deeper than in the past for two-way information exchange to take place.
Ø The top management has to reengineer the reward & recognition systems to make sure that the organization as a whole is fostering the behaviours that will make the new approach effective. It is not just the sales target but also other efforts mentioned under the four points above. Members of the other departments who contribute to the new approach also shall be recognized & rewarded for their efforts.
The sales people have to develop an ability to research & understand the customer’s business, like market segments and trends in the customer’s industry and more important how the customer’s business makes money today and how it will continue to make money in future. They must develop a very clear idea about the customer’s business needs. They should also understand that VCS doesn’t end once the sale is made. The VCS is most relevant for any B2B company. And everybody in the organization must understand this is no quick-fix solution. Value creation selling is not just reducing the costs for the customers, it is also about increasing revenues for them. Author cites the experience of Tyco Electronics which supplies equipments to Toyota, Japan. Tyco’s people are located in Toyota’s factories where they can get and give ideas to improve Toyota’s cars by improving their own products. Tyco, according to Charan, is selling value and not just products to Toyota.
Charan has identified nine malaises which act as indicators of the breakage of the selling process:
1.Your sales force spends most of their time with the customer’s purchasing department. Purchase department is mostly a mere order executor and the decision maker regarding the purchase may be located elsewhere: in marketing , production, product design, engineering etc.
2.Entire discussion about a possible sales revolve around price rather than value addition possibilities.
3.Sales training is mostly focused on improving conventional sales techniques of being persistent and working under pressure. Charan says this will not result in any improved results as you are not trying to solve the real problems of the customer.
4. Incentive schemes designed to toughen the sales force to get better prices and better margins. These may not result in any value addition for their customers.
5. More intense focus on customers. While the intensity increases, it doesn’t solve the fundamental problems that affect sales.
6. Sales people not included in the design of the company’s offering. Nobody recognizes that sales person is the single person in the company who knows about what customers want or need. This robs the company of its insights into the customers.
7. Little thought about and less interaction with the customer’s customers. Delivering what the customer’s customers want only will make customer’s customers happy and hence you should have developed an idea how you can help the customers to achieve their aim.
8. Sales people internally focused. They are mostly concerned about how to meet the administrative demands on their jobs rather than helping the customers to improve his benefits.
9. Sales management is convinced it is doing a good job. Mostly they will be chasing new orders or satisfying the existing customers with after sales service. Sales people don’t get time to develop a business acumen about how the customer makes money.
Charan quotes Lou Eccleston, former President of Global Sales, Marketing & Services at Thomson Financial “Your success is governed by how well you understand what you can do to create value for the customer. If you can’t impact the customer’s performance in a positive way, then you are going to be a commodity product and you are going to get commodity prices”. Charan cites the experience of the company Unifi Inc, a North Carolina based textile company to underscore how VCS can dramatically achieve a turnaround in the fortune of a company. Sales people have to become business thinkers, developing their business acumen to diagnose their own and their customer’s businesses.
VCS is a customer-centric strategy. Hence sales people and companies must make enough efforts to put the customer at the centre of whatever the company does.
Information: The key to VCS: According to Charan, information is at the heart of the VCS. Detailed information, both facts and impressions are required. The more you know about your customer, the better you and your company will be at identifying his concerns and take initiatives that address those concerns. When it comes to information, it is not the quantity that is important but the quality. In order to get information, you have to become the customer’s trusted partner.
In order to become a trusted partner you must understand the following:
The customer’s opportunity and the competitive structure in which he operates.
The customer’s customer and the customers and the customer’s competition.
How decisions are made in the customer’s organization.
The customer’s company culture, value system etc.
The goals and priorities of the customer for short term and as well as long term.
Charan suggest that a company should prepare what he calls a Value Account Plan (VAP), which defines the value proposition and the business benefits the customer can expect to get from it. VAP demands great deal of indulgence. There are three components for VAP:
A customer snapshot which gives the details of the customer like its locations, business, key executives, decision makers etc.
The value proposition defining the customer need you plan to meet, the customized offering to the particular customer, the prices and the implication of these on your company’s revenues, costs, cash, investments and profitability. This has to be differentiated from the conventional approach in that it should come out with a list of benefits to the customer beyond the cost savings to him. You should look at your offering as a solution to customer’s problems and do “value pricing” so that customer looks at it from a total benefits point of view and not only cost savings.
List out the business benefits of the value proposition. A change has happen from thinking about value in terms of Total Costs of Ownership(TCO) to the Total Value of Ownership(TVO) which is an estimate of all the benefits the customer stands to gain. Benefits have to be listed over a period of time rather than immediate benefits. Not only quantitative measures like margins, cash flows, ROI, revenue growth, market share etc but also qualitative benefits may be listed.
While preparing a VAP, constant interaction with customers may be required. When you are trying to protect their interests and benefits, such constant interaction will be welcomed by the customers.
Charan deals in detail how a Value Creations Sales force can be developed. He cites to pre-requisites for achieving this: buy-in for the change and extensive training. He is clear that for creating a VCS, the present way of working cannot be stopped altogether and the new process started. The new approach has to be tried in parallel while the existing practices continue. Charan suggests that a start has to be made with sales personnel who possess the personal attributes to understand and execute he new approach. Senior people from sales must enthusiastically support the initiative for it to become a success.
Charan quotes the examples of Unifi, Thomson Financial and Infonxx to tell the reader about the qualities one has to look for in the sales people. According to Charan, the following factors assume importance while selecting people suited for VCS:
Affability: Must be socially affable to establish excellent relationship with the customer’s organization, within his own organization, a great communicator who acts as a link between the two organizations.
Conceptualizing problems and solutions: He should be able to sift through large amounts of unrelated data to generate alternative ideas about offerings that work for both the customer and the seller; able to identify specifically what the customer needs and how his own organization can create more value for the customer
Leadership: Leadership in the VCS context has more to do with the ability to manage a team of people over whom he may not have any hierarchical authority. He may be required to facilitate a dialogue between the seller and the customer and get others involved to suggest ideas, device solutions and make decisions faster, better and deeper than the competition while keeping profitable revenue growth in sight.
Tenacity: Extracting customer information necessary for the VCS is not an easy task. It takes extensive effort and time. Collecting and analyzing information about the customer is a never-ending process. Sales people must have the patience and tenacity to keep driving the team and the process.
Business Acumen: Sales people must understand the customer’s business and its processes all expressed in the language of business. Companies may have to create courses internally to teach these skills.
While these skills are essential requisites in the sales people, training the sales force for the behaviours needed for VCS is essential. The top management must make sure that the head and regional heads of sales are inducted into the VCS process and take ownership for the training. Even a certification process can be planned. Linking a sizable portion of the rewards, say up to 40%, of the incentive pay to implementation of VCS can ensure that leaders take it seriously. One must keep in mind that this doesn’t happen overnight and require tremendous effort and persistence. The best training has to come from the company’s senior leaders. Representatives of the customers’ organization shall also be involved in the training process. For handling highly specialized areas, outside experts can be sourced.
Charan also explains the process of making the sales pitch in the VCS scenario. The sales force must be able to present the quantitative and qualitative benefits to the customers. The sales pitch team must have at least one expert in finance to provide the quantified benefits. While power point presentation can be used, one must be able to establish the various points of value proposition. One must be devoted to listening rather than telling. The purpose is to encourage dialogues so as to result in better total benefits to the customers. While customers may not be very articulate about their concerns, one has to be prepared to deal with three critical questions that will be at the back of his mind:
1. Is the value proposition realistic? Credibility rests on making only those promises you are confident of fulfilling.
2. Are the proposed benefits exaggerated or realistic? Your presentation should precisely demonstrate how the benefits are delivered and how their value to the customer calculated.
3. Can the value proposition be executed in the customer’s shop? Despite all the information collected about the customer, it is for the customer to implement the value propositions you make. Depending on how candidly the customer discusses about his ability or inability will help you to make the changes to accommodate his concerns. The process of dialogue with the customer has to be continued indefinitely in the VCS process.
Charan ends the book with advice on how to sustain the VCS process momentum and taking it to the next level. Management has to make VCS its top priority or it will become just another fad. Top management has to show lot of persistence and energy to drive the change. They have to bring about a change in the work ethic. And since the sales force can’t do this alone, linkages between various functions must be established. Charan underscores the importance of linking rewards to the whole VCS process not only for the people in the sales organization but also for the members of the other functions as their contributions are also important in the successful implementation of the VCS.
In order to take VCS to the next level, Charan advises that the sales people shall not be afraid to raise issues with the customers. The sales team must be fully prepared when the go for a discussion or meeting with the customer .Organization should have developed reasonably thorough knowledge of the customer’s industry and their customers. And the whole process requires a huge change in the way the company thinks and operates in putting the customer first.
While those who have already read his earlier books, especially What The CEO Wants You To Know and Profitable Growth Is Everybody’s Business may find a few concepts repeated, the book provides engrossing reading.
Title of the book : What The Customer Wants You To Know
Author : Ram Charan
Publisher : Penguin Portfolio
Pages : 178
Price : Rs. 295
The latest book from Ram Charan, famous for his ability to explain complex business issues in simple terms, explains why in this era of internet the conventional price-centric approach will not make sellers succeed. Sellers may have excellent products, customer relationships, great strategies, differentiated technologies, faster times to market, high operational efficiencies etc but still fail to get the sale. Sellers have to actually help customers meet their financial expectations, win against their competitors and succeed in the market place or help customers’ businesses to succeed in many dimensions. While customers may not articulate their requirement in explicit terms, they want their suppliers to help them accomplish their goals by acting as partners and not as one-time transactors.
In order to achieve such a scenario, the seller or supplier should know how the customers’ business works so that you as a supplier/seller can make it work better. And, the conventional sales approach will not enable you to achieve this. One has to adopt a new radical yet practical approach. Such an approach will help a supplier to release itself from the hell of commoditization and low prices. It can help one to differentiate from competition, lead to better prices & margins and , even higher revenue growth. At the heart of this new approach to selling is an intense focus on the prosperity of one’s customers. The approach is radical because no longer you measure your own success first. Instead you measure your success by how well your customers are doing with your help. You are not selling a specific product or service; you are focused on how your company can help the customer succeed in all the ways that are important to the customers. In short, you help customers meet their business goals & priorities by adding value to them. Charan says that this ability to create value for customers will differentiate you in the marketplace and you will be able to command a price for it and he calls this new approach Value Creation Selling or VCS.
According to Charan, VCS is radically different from how most companies sell today in five ways:
Ø The seller and its organization devotes large amounts of time & energy – much more than it devotes today-to learn about the customer’s business in great detail. One should probe to find out what are the customer’s goals, which financial measures they concentrate on, how they create market value and what key factors differentiate their products or services from competition etc. While one may be tempted to look at these from a short term, Charan advises that greatest opportunities lie in the medium & long term.
Ø Use your capabilities & tools to understand how your customers do business & how you can help them to improve that business. The sales force alone may not be able to achieve this. You need to muster support from many parts of your company in order to achieve that. People from every department will have to become intimately familiar with your customer. You have to compile large amounts of information, both facts and impressions in order to determine the best approach for helping your customers win. This may necessitate frequent formal & informal interaction between people and departments within your company and between your company & the customer.
Ø You have to gain knowledge about not only your customer but also your customer’s customers. To tailor your solution to your customer’s markets, you have to know who their customers are, what they want, what their problems and attitudes are and what decision making process they use. You have to work back from the needs of the end customers to the needs of your customer or you should have knowledge about the customer value chain.
Ø The execution of this VCS approach needs longer cycle times to lead to generation of orders and revenues. The approach requires patience, consistency & determination on your part to build a high degree of trust with your customers. This is necessary as this new relationship between you and the customer has to be far deeper than in the past for two-way information exchange to take place.
Ø The top management has to reengineer the reward & recognition systems to make sure that the organization as a whole is fostering the behaviours that will make the new approach effective. It is not just the sales target but also other efforts mentioned under the four points above. Members of the other departments who contribute to the new approach also shall be recognized & rewarded for their efforts.
The sales people have to develop an ability to research & understand the customer’s business, like market segments and trends in the customer’s industry and more important how the customer’s business makes money today and how it will continue to make money in future. They must develop a very clear idea about the customer’s business needs. They should also understand that VCS doesn’t end once the sale is made. The VCS is most relevant for any B2B company. And everybody in the organization must understand this is no quick-fix solution. Value creation selling is not just reducing the costs for the customers, it is also about increasing revenues for them. Author cites the experience of Tyco Electronics which supplies equipments to Toyota, Japan. Tyco’s people are located in Toyota’s factories where they can get and give ideas to improve Toyota’s cars by improving their own products. Tyco, according to Charan, is selling value and not just products to Toyota.
Charan has identified nine malaises which act as indicators of the breakage of the selling process:
1.Your sales force spends most of their time with the customer’s purchasing department. Purchase department is mostly a mere order executor and the decision maker regarding the purchase may be located elsewhere: in marketing , production, product design, engineering etc.
2.Entire discussion about a possible sales revolve around price rather than value addition possibilities.
3.Sales training is mostly focused on improving conventional sales techniques of being persistent and working under pressure. Charan says this will not result in any improved results as you are not trying to solve the real problems of the customer.
4. Incentive schemes designed to toughen the sales force to get better prices and better margins. These may not result in any value addition for their customers.
5. More intense focus on customers. While the intensity increases, it doesn’t solve the fundamental problems that affect sales.
6. Sales people not included in the design of the company’s offering. Nobody recognizes that sales person is the single person in the company who knows about what customers want or need. This robs the company of its insights into the customers.
7. Little thought about and less interaction with the customer’s customers. Delivering what the customer’s customers want only will make customer’s customers happy and hence you should have developed an idea how you can help the customers to achieve their aim.
8. Sales people internally focused. They are mostly concerned about how to meet the administrative demands on their jobs rather than helping the customers to improve his benefits.
9. Sales management is convinced it is doing a good job. Mostly they will be chasing new orders or satisfying the existing customers with after sales service. Sales people don’t get time to develop a business acumen about how the customer makes money.
Charan quotes Lou Eccleston, former President of Global Sales, Marketing & Services at Thomson Financial “Your success is governed by how well you understand what you can do to create value for the customer. If you can’t impact the customer’s performance in a positive way, then you are going to be a commodity product and you are going to get commodity prices”. Charan cites the experience of the company Unifi Inc, a North Carolina based textile company to underscore how VCS can dramatically achieve a turnaround in the fortune of a company. Sales people have to become business thinkers, developing their business acumen to diagnose their own and their customer’s businesses.
VCS is a customer-centric strategy. Hence sales people and companies must make enough efforts to put the customer at the centre of whatever the company does.
Information: The key to VCS: According to Charan, information is at the heart of the VCS. Detailed information, both facts and impressions are required. The more you know about your customer, the better you and your company will be at identifying his concerns and take initiatives that address those concerns. When it comes to information, it is not the quantity that is important but the quality. In order to get information, you have to become the customer’s trusted partner.
In order to become a trusted partner you must understand the following:
The customer’s opportunity and the competitive structure in which he operates.
The customer’s customer and the customers and the customer’s competition.
How decisions are made in the customer’s organization.
The customer’s company culture, value system etc.
The goals and priorities of the customer for short term and as well as long term.
Charan suggest that a company should prepare what he calls a Value Account Plan (VAP), which defines the value proposition and the business benefits the customer can expect to get from it. VAP demands great deal of indulgence. There are three components for VAP:
A customer snapshot which gives the details of the customer like its locations, business, key executives, decision makers etc.
The value proposition defining the customer need you plan to meet, the customized offering to the particular customer, the prices and the implication of these on your company’s revenues, costs, cash, investments and profitability. This has to be differentiated from the conventional approach in that it should come out with a list of benefits to the customer beyond the cost savings to him. You should look at your offering as a solution to customer’s problems and do “value pricing” so that customer looks at it from a total benefits point of view and not only cost savings.
List out the business benefits of the value proposition. A change has happen from thinking about value in terms of Total Costs of Ownership(TCO) to the Total Value of Ownership(TVO) which is an estimate of all the benefits the customer stands to gain. Benefits have to be listed over a period of time rather than immediate benefits. Not only quantitative measures like margins, cash flows, ROI, revenue growth, market share etc but also qualitative benefits may be listed.
While preparing a VAP, constant interaction with customers may be required. When you are trying to protect their interests and benefits, such constant interaction will be welcomed by the customers.
Charan deals in detail how a Value Creations Sales force can be developed. He cites to pre-requisites for achieving this: buy-in for the change and extensive training. He is clear that for creating a VCS, the present way of working cannot be stopped altogether and the new process started. The new approach has to be tried in parallel while the existing practices continue. Charan suggests that a start has to be made with sales personnel who possess the personal attributes to understand and execute he new approach. Senior people from sales must enthusiastically support the initiative for it to become a success.
Charan quotes the examples of Unifi, Thomson Financial and Infonxx to tell the reader about the qualities one has to look for in the sales people. According to Charan, the following factors assume importance while selecting people suited for VCS:
Affability: Must be socially affable to establish excellent relationship with the customer’s organization, within his own organization, a great communicator who acts as a link between the two organizations.
Conceptualizing problems and solutions: He should be able to sift through large amounts of unrelated data to generate alternative ideas about offerings that work for both the customer and the seller; able to identify specifically what the customer needs and how his own organization can create more value for the customer
Leadership: Leadership in the VCS context has more to do with the ability to manage a team of people over whom he may not have any hierarchical authority. He may be required to facilitate a dialogue between the seller and the customer and get others involved to suggest ideas, device solutions and make decisions faster, better and deeper than the competition while keeping profitable revenue growth in sight.
Tenacity: Extracting customer information necessary for the VCS is not an easy task. It takes extensive effort and time. Collecting and analyzing information about the customer is a never-ending process. Sales people must have the patience and tenacity to keep driving the team and the process.
Business Acumen: Sales people must understand the customer’s business and its processes all expressed in the language of business. Companies may have to create courses internally to teach these skills.
While these skills are essential requisites in the sales people, training the sales force for the behaviours needed for VCS is essential. The top management must make sure that the head and regional heads of sales are inducted into the VCS process and take ownership for the training. Even a certification process can be planned. Linking a sizable portion of the rewards, say up to 40%, of the incentive pay to implementation of VCS can ensure that leaders take it seriously. One must keep in mind that this doesn’t happen overnight and require tremendous effort and persistence. The best training has to come from the company’s senior leaders. Representatives of the customers’ organization shall also be involved in the training process. For handling highly specialized areas, outside experts can be sourced.
Charan also explains the process of making the sales pitch in the VCS scenario. The sales force must be able to present the quantitative and qualitative benefits to the customers. The sales pitch team must have at least one expert in finance to provide the quantified benefits. While power point presentation can be used, one must be able to establish the various points of value proposition. One must be devoted to listening rather than telling. The purpose is to encourage dialogues so as to result in better total benefits to the customers. While customers may not be very articulate about their concerns, one has to be prepared to deal with three critical questions that will be at the back of his mind:
1. Is the value proposition realistic? Credibility rests on making only those promises you are confident of fulfilling.
2. Are the proposed benefits exaggerated or realistic? Your presentation should precisely demonstrate how the benefits are delivered and how their value to the customer calculated.
3. Can the value proposition be executed in the customer’s shop? Despite all the information collected about the customer, it is for the customer to implement the value propositions you make. Depending on how candidly the customer discusses about his ability or inability will help you to make the changes to accommodate his concerns. The process of dialogue with the customer has to be continued indefinitely in the VCS process.
Charan ends the book with advice on how to sustain the VCS process momentum and taking it to the next level. Management has to make VCS its top priority or it will become just another fad. Top management has to show lot of persistence and energy to drive the change. They have to bring about a change in the work ethic. And since the sales force can’t do this alone, linkages between various functions must be established. Charan underscores the importance of linking rewards to the whole VCS process not only for the people in the sales organization but also for the members of the other functions as their contributions are also important in the successful implementation of the VCS.
In order to take VCS to the next level, Charan advises that the sales people shall not be afraid to raise issues with the customers. The sales team must be fully prepared when the go for a discussion or meeting with the customer .Organization should have developed reasonably thorough knowledge of the customer’s industry and their customers. And the whole process requires a huge change in the way the company thinks and operates in putting the customer first.
While those who have already read his earlier books, especially What The CEO Wants You To Know and Profitable Growth Is Everybody’s Business may find a few concepts repeated, the book provides engrossing reading.
Monday, February 11, 2008
Economic Development: We Should Show Courage To Think Of A Different Model
Despite 15 years of reforms & liberalization, poor has either remained poor or become poorer.The results of the so-called reforms have not reached the lower strata to improve even their economic well-being.The rich-poor gap has only widened.It is felt that it's time for a new economic model which looks at the well-being of the members of the society
The Hindu on December 24,2007 carried an article titled “India 2007: high growth, low development” by P.Sainath on the editorial page which brings out the realities of development in the country. The author quotes the Human Development Report of the UNDP for the year 2007. According to HDR, rank of India in the Human Development Index(HDI) slipped from 126 to 128 which puts us in the bottom 50 of the 177 nations that HDR looks at. While one may feel very sad about our development ranking we have reasons to be happy & proud: rank of India in the dollar billionaires improved from 8 in 2006 to 4 in 2007 according to Forbes Magazine! Cuba has no representation in the roll call of billionaires but it is ranked 51 in HDI, 77 places ahead of India! Even in Asia, countries like Vietnam and Sri Lanka at 105 and 99 respectively are ahead of us, the so called Asian Tiger.
On Friday, February 1, 2008, Economic Times reported “India grew 9.6% in FY 07;FM hopes for an encore” (Page 17). The report says that the country grew faster in 2006-07 than previously estimated and clocked 9.6%, highest in 18 years. It continues to say that India’s per capita growth rate stood at 8.15 in the last fiscal.On the same page the paper has reported the data released by the National Sample Survey Organization(NSSO).The data pertains to the average spending by urban & rural population.The average individual spending on consumer items per day in rural area is about Rs.21 while that in urban area is aboutRs.39(or Rs.625 and Rs.1171 respectively per month) in 2005-06.And about 19% of the rural population spent less than Rs.12 a day.
On February 7,ET reported about growing inequality in the country(Proof-reading FM’s inclusive mantra: Inequality Rises In Both Rural & Urban India, page 13).The report provides the results of the India Financial Protection Survey conducted by Max New York Life and NCAER which uses the Gini Coefficient(devised by Italian statistician Corrado Gini in 1910s and is a variability measure emplyed to calculate a nation’s consumption or income inequality. The coefficient has value from 0 to 1, with 0 indicating perfect equality and 1 perfect inequality).The GINI coefficient for Rural, Urban and All India in fact increased from 0.38, 0.39 and 0.43 respectively in1995-96 to o.41, 0.43 and 0.45 respectively in 2004-05 indicating that inequality has in fact increased despite all the growth we talk about.
The Business Line on February 8, 2008 had an editorial on the same theme: The India Story: Growth Without Equity where Mr.S.D. Naik laments that it is a matter of grave concern that the recent acceleration in GDP growth has not been accompanied by an equitable distribution of wealth and wellbeing based on the India Development Report 2008 released by the Indira Gandhi Institute of Development Research , Mumbai. He goes on to say that while there has been a reduction in the percentage of people living below poverty line during the last two decades, the incidence of poverty as measured by the head count ratio(HCR) declined at a slower rate of 0.7 % per annum during 1994-2005 , compared with 0.85% per annum during 1983-1994.Also, while India has the second highest growth rate (after China), its rank in terms of Human Development Index(HDI), a composite measure of life expectancy, adult literacy and standard of living) slipped from 126 in 2006 to 128 in 2007 even when the average incomes of middle class people surged and the country’s rank w.r.t dollar billionaires rose from 8 in 2006 to 4 in 2007.
While it has become a fashion to compare our economy with that of China, the proponents of growth based on GDP conveniently ignore facts like that China has been able to bring down the incidence of poverty by 45 percentage points between 1981 and 2001 whereas we have been able to reduce the same by only 17 percentage points.
All these stories narrate hard facts that could be pointing to shortcomings in the development model that we follow. While all the macroeconomic growth indicated by the growth in GDP might result in the improvement of the economic situation of the country on a total scale resulting in better average per capita income, it does not necessarily lead to the development of the underprivileged and the poor. The allegation that the new found liberalized economy has in fact favoured the upper crest of the society while the have-nots have been pushed further down, so far has been proved correct. I feel fifteen years of reforms and liberalization is sufficiently long for economies to have an evaluation of the structural adjustment process we initiated to bring in economic development. The development of a society shall be measured by the well-being of the members of the society. Most of the nations have been overwhelmed by the wealth the nation can generate by actively promoting corporate interests by embracing structural reforms recommended by the Brettonwoods twins and WTO(influenced by a few countries and their big corporates), but one should keep in mind what David C. Korten in his book When Corporations Rule The World , “The task ahead is to transform a world ruled by corporations dedicated to the love of money to a world ruled by people dedicated to the love of life”.
The Hindu on December 24,2007 carried an article titled “India 2007: high growth, low development” by P.Sainath on the editorial page which brings out the realities of development in the country. The author quotes the Human Development Report of the UNDP for the year 2007. According to HDR, rank of India in the Human Development Index(HDI) slipped from 126 to 128 which puts us in the bottom 50 of the 177 nations that HDR looks at. While one may feel very sad about our development ranking we have reasons to be happy & proud: rank of India in the dollar billionaires improved from 8 in 2006 to 4 in 2007 according to Forbes Magazine! Cuba has no representation in the roll call of billionaires but it is ranked 51 in HDI, 77 places ahead of India! Even in Asia, countries like Vietnam and Sri Lanka at 105 and 99 respectively are ahead of us, the so called Asian Tiger.
On Friday, February 1, 2008, Economic Times reported “India grew 9.6% in FY 07;FM hopes for an encore” (Page 17). The report says that the country grew faster in 2006-07 than previously estimated and clocked 9.6%, highest in 18 years. It continues to say that India’s per capita growth rate stood at 8.15 in the last fiscal.On the same page the paper has reported the data released by the National Sample Survey Organization(NSSO).The data pertains to the average spending by urban & rural population.The average individual spending on consumer items per day in rural area is about Rs.21 while that in urban area is aboutRs.39(or Rs.625 and Rs.1171 respectively per month) in 2005-06.And about 19% of the rural population spent less than Rs.12 a day.
On February 7,ET reported about growing inequality in the country(Proof-reading FM’s inclusive mantra: Inequality Rises In Both Rural & Urban India, page 13).The report provides the results of the India Financial Protection Survey conducted by Max New York Life and NCAER which uses the Gini Coefficient(devised by Italian statistician Corrado Gini in 1910s and is a variability measure emplyed to calculate a nation’s consumption or income inequality. The coefficient has value from 0 to 1, with 0 indicating perfect equality and 1 perfect inequality).The GINI coefficient for Rural, Urban and All India in fact increased from 0.38, 0.39 and 0.43 respectively in1995-96 to o.41, 0.43 and 0.45 respectively in 2004-05 indicating that inequality has in fact increased despite all the growth we talk about.
The Business Line on February 8, 2008 had an editorial on the same theme: The India Story: Growth Without Equity where Mr.S.D. Naik laments that it is a matter of grave concern that the recent acceleration in GDP growth has not been accompanied by an equitable distribution of wealth and wellbeing based on the India Development Report 2008 released by the Indira Gandhi Institute of Development Research , Mumbai. He goes on to say that while there has been a reduction in the percentage of people living below poverty line during the last two decades, the incidence of poverty as measured by the head count ratio(HCR) declined at a slower rate of 0.7 % per annum during 1994-2005 , compared with 0.85% per annum during 1983-1994.Also, while India has the second highest growth rate (after China), its rank in terms of Human Development Index(HDI), a composite measure of life expectancy, adult literacy and standard of living) slipped from 126 in 2006 to 128 in 2007 even when the average incomes of middle class people surged and the country’s rank w.r.t dollar billionaires rose from 8 in 2006 to 4 in 2007.
While it has become a fashion to compare our economy with that of China, the proponents of growth based on GDP conveniently ignore facts like that China has been able to bring down the incidence of poverty by 45 percentage points between 1981 and 2001 whereas we have been able to reduce the same by only 17 percentage points.
All these stories narrate hard facts that could be pointing to shortcomings in the development model that we follow. While all the macroeconomic growth indicated by the growth in GDP might result in the improvement of the economic situation of the country on a total scale resulting in better average per capita income, it does not necessarily lead to the development of the underprivileged and the poor. The allegation that the new found liberalized economy has in fact favoured the upper crest of the society while the have-nots have been pushed further down, so far has been proved correct. I feel fifteen years of reforms and liberalization is sufficiently long for economies to have an evaluation of the structural adjustment process we initiated to bring in economic development. The development of a society shall be measured by the well-being of the members of the society. Most of the nations have been overwhelmed by the wealth the nation can generate by actively promoting corporate interests by embracing structural reforms recommended by the Brettonwoods twins and WTO(influenced by a few countries and their big corporates), but one should keep in mind what David C. Korten in his book When Corporations Rule The World , “The task ahead is to transform a world ruled by corporations dedicated to the love of money to a world ruled by people dedicated to the love of life”.
Saturday, February 9, 2008
Nothing Ethical About It! Back To IIPM !
It’s more than a year since I wrote last about IIPM and its ploys. I even thought of ignoring IIPM as certain people and institutions are incorrigible, whatever happens.But I sincerely thought that BT, claiming to be the No.1 business magazine will not stoop to conquer ( to make money).BT dtd February 10, features an ad from IIPM(page 79)which gives the “EDP CALENDAR 2006-07 ASIA” detailing ‘World Class EDPs For India Inc’.The ad starts with “The following professors exclusively visiting IIPM to take classes, will be additionally taking Executive Development Programmes for India Inc.as per the following calendar” (italics added).Then it gives the details of the programmes starting from April ‘06 and ending with Dec ’07. Not even a single programme has been scheduled for 2008! Usually a Calendar of Events are prepared for the next year- like an academic calendar at a business school will give you schedules for the next academic year –it never tells you about the past events. Business Schools invariably teaches business ethics as a subject but how can an institute which resorts to blatant violation of ethical principles inculcate ethics and values in their students? IIPM has been resorting to these apparently unethical methods to further their interests. But what about a respected business magazine like BT which claims to be the No.1 business magazine in India carrying such misleading ads? How could a highly respected company like 3M support the same?(The ad shows Post-it, a brand of 3M as a supporter )
Monday, February 4, 2008
Shall I continue to subsidize companies like TCS, Infosys, Wipro or Satyam and their shareholders and employees?
The profits earned by the export of software from India have been exempted from IT ever since the section 80 HHE of the IT Act(1961) was introduced in 1991. Initially, such an incentive to encourage exports was necessary as we wanted foreign exchange very badly as our reserves had fallen to abysmally low levels. Thanks to the incentives, the software exports took off very rapidly, and has emerged as one of the happening sectors and major earners of foreign exchange during the past sixteen years or so. The foreign exchange reserves have since jumped from those perilous levels to very comfortable levels and economists and social scientists have started probing the various uses to which these bulging reserves can be put.
While the strength of FE reserves gives us lots of confidence, has it been really helpful in reducing the social imbalances like inequality of income, eradication of poverty etc?Who benefits from such incentives? Companies like TCS, Infosys, Wipro etc each report profits in the vicinity of a billion dollar a year.Who are the beneficiaries of this profit? Barring contributions made by these companies towards social responsibility activities, these profits and the extra profits due to the IT exemption get distributed among the company’s promoters, shareholders and employees who happen to be among the super rich, or high net worth individuals or employees who have already been paid handsomely in the form of tax free dividends or very high salary packages. The benefits of the tax exemptions mainly go to a limited number who are already better off than the rest of the members of the society. Shall we continue to encourage this practice? If these three or four companies were to be taxed at the normal rates, something in excess a billion dollar would have been available to the society to improve the bare necessities of lakhs of people. While the GDP would have shown the same level of improvement, a larger number of members of the society would have had the benefit of consuming the same thing which a few members would otherwise would do. The current scenario will only help in widening the gap between the rich and the poor. Even I, a middle class citizen would have benefited from the amounts these companies would have paid by way of tax. As it stands , I have, in effect, been subsidizing these bigger companies who don’t get taxed despite being immensely profitable where as I get taxed at the normal rates for whatever salaries I struggle to earn.
While the strength of FE reserves gives us lots of confidence, has it been really helpful in reducing the social imbalances like inequality of income, eradication of poverty etc?Who benefits from such incentives? Companies like TCS, Infosys, Wipro etc each report profits in the vicinity of a billion dollar a year.Who are the beneficiaries of this profit? Barring contributions made by these companies towards social responsibility activities, these profits and the extra profits due to the IT exemption get distributed among the company’s promoters, shareholders and employees who happen to be among the super rich, or high net worth individuals or employees who have already been paid handsomely in the form of tax free dividends or very high salary packages. The benefits of the tax exemptions mainly go to a limited number who are already better off than the rest of the members of the society. Shall we continue to encourage this practice? If these three or four companies were to be taxed at the normal rates, something in excess a billion dollar would have been available to the society to improve the bare necessities of lakhs of people. While the GDP would have shown the same level of improvement, a larger number of members of the society would have had the benefit of consuming the same thing which a few members would otherwise would do. The current scenario will only help in widening the gap between the rich and the poor. Even I, a middle class citizen would have benefited from the amounts these companies would have paid by way of tax. As it stands , I have, in effect, been subsidizing these bigger companies who don’t get taxed despite being immensely profitable where as I get taxed at the normal rates for whatever salaries I struggle to earn.
Saturday, February 2, 2008
Opening Up The Market = Less Market = Curtailment Of Democratic Process?
Why is it that all new initiatives or moves by Government, regulators and even economists are biased towards big businesses and big businessmen? Are we moving towards a regime where opening up of the economy and markets leading to less markets consequent to lesser competition?
This article has been motivated by the report in ET dated Jan 25, 2008(Minority ransom in M&A deals on way out). The report per se is restricted to the amendment to the company laws aimed at curtailing the rights of minority shareholders which may not have serious implications on the democratic processes in the society. But on a wider horizon, this can be an example of the larger maladies that exist in the economy in the pretext of freer markets. Actions of this sort can raise doubts in the minds of the people regarding the implications they may have on the democratic process if it percolates to other areas too. First let us look at the report and the company law amendments mentioned there. The title of the report itself seems to be in bad taste. It gives an unfortunate impression that minority shareholders always try to put spokes on the scheme of things and try to thwart any attempts or stall any proceedings by promoters and managements. How many moves by incumbent managements and/or promoters with good intentions were thwarted by minority shareholders acting on their own interests? There might have been a few rare cases where minority shareholders have tried stalling the processes by the promoters and managements but a majority of them might have been instigated by competitors or other interested parties. Shall we amend a regulation to appease a few corporates or to punish still few troublesome minority shareholders? But, why is it that all new initiatives or moves by Government, regulators and even economists are biased towards big businesses and big businessmen? Are we moving towards a regime where opening up of the economy and markets leading to less markets consequent to lesser competition? Changes that have been happening in India over a period of last fifteen years somehow create an impression on the above lines. For example, when SEBI initially drafted laws for regulating IPOs, it stipulated that 25% of the offer had to be reserved for general public investors after all the reservations for employees, shareholders of promoting companies, Indian Mutual funds,FIIs and Indian & Multilateral development financial institutions etc The very purpose was to create a better market for securities. But such stipulations have since been diluted even though it has not achieved one of it’s aims viz spreading an equity culture and with stock valuations skyrocketing, the retail small investors will have a really difficult time to get allotment without any mandatory requirement regarding setting aside a portion of the shares to them. By and large regulations for markets have been found to be favouring companies than public.
This type of market scenario is being witnessed in many other areas too. Before liberalization, cement industry had a very large number of players, thanks to the encouragement given to the mini-cement plants .Today, the competition in the industry has been reduced from many to a few. And these few are controlling the stakes in the cement market with the prices of cement going through the roof. Cement prices in 1993-94 hovered around Rs.100-110 per bag and today the prices have increased to Rs.260-270.It has become simply unaffordable to the common man. The real estate companies, who have raised huge amounts funds from the markets due to stratospheric valuation of their companies can easily afford to pay Rs.260 or 270 for a bag. Are the market forces intact and playing? Are we proving right what Peter Drucker wrote back in 1996: “We are learning very fast that the belief that a free market is all it takes to have a functioning society –or even a functioning econmy- is a pure delusion” (The Relentless Contrarian , Wired, August 1996)
Recently Mr.Ratan Tata was interviewed by a business publication where he made a scathing remark about the attitudes of businessmen which explains the attitude of businessmen to the market forces.(He himself being a businessman, how he will exclude himself from the kind of behaviour is anybody’s guess). Mr.Tata is reported to have said, ”In Delhi, you have the President of CII talking about open markets on the one hand and on the other hand trying to ensure that there is no one who comes into the industry” while speaking on the controversy about awarding fresh GSM spectrum to various players in the telecom market.(Businessworld, January 14, 2008).When it comes to market forces vis-à-vis M&As, while M&As can theoretically lead to competitive advantages for firms by way of economies of scale, the resulting bigger players may keep the consumer at ransom.
The process of liberalization and consequent opening up of the market has apparently led to less-democratized processes in the economy. While democratic process dictates one person one vote, irrespective of the position, wealth or power one enjoys, the antithesis seems to be happening in business and economy where one rupee,one vote regime prevails. Holders of larger stakes (like promoters and management team) will be able to manipulate huge swings towards their position after the proposed company law amendment to favour value-based voting than number-based voting. Won’t the existing framework be more effective as a check & control system on the promoters and/or incumbent management? The proposed amendment might essentially entrust the decision making power and authority with a few leading to decision making highly dependent on the wisdom of a small cadre of promoter shareholders or leaders of the management team.
It is observed that people in positions of power usually abstain from the process of decision making whenever there is an issue of conflicts of interests- be it sitting on an interview panel and facing a scenario of interviewing a candidate who happens to be a relative or having other relationships or being on the panel to select the business person of the year. Why such practices don’t get extended to executive decisions involving shareholders? Why not interested promoters and management representatives abstain from voting and leave it the public shareholders(including institutional investors) to decide? One should not expect all shareholders to exercise their votes considering the low shareholder activism in India but the process is a first step to empower the public and minority shareholders. Companies can even suggest that these groups may discuss the issues with the independent directors who are supposed to protect the interests of the outside shareholders. Rather than trying to implement a step to control or curtail the minority shareholders, a process to empower them shall be attempted. Won’t that be a more democratic process to be adopted in a democratic country?
This article has been motivated by the report in ET dated Jan 25, 2008(Minority ransom in M&A deals on way out). The report per se is restricted to the amendment to the company laws aimed at curtailing the rights of minority shareholders which may not have serious implications on the democratic processes in the society. But on a wider horizon, this can be an example of the larger maladies that exist in the economy in the pretext of freer markets. Actions of this sort can raise doubts in the minds of the people regarding the implications they may have on the democratic process if it percolates to other areas too. First let us look at the report and the company law amendments mentioned there. The title of the report itself seems to be in bad taste. It gives an unfortunate impression that minority shareholders always try to put spokes on the scheme of things and try to thwart any attempts or stall any proceedings by promoters and managements. How many moves by incumbent managements and/or promoters with good intentions were thwarted by minority shareholders acting on their own interests? There might have been a few rare cases where minority shareholders have tried stalling the processes by the promoters and managements but a majority of them might have been instigated by competitors or other interested parties. Shall we amend a regulation to appease a few corporates or to punish still few troublesome minority shareholders? But, why is it that all new initiatives or moves by Government, regulators and even economists are biased towards big businesses and big businessmen? Are we moving towards a regime where opening up of the economy and markets leading to less markets consequent to lesser competition? Changes that have been happening in India over a period of last fifteen years somehow create an impression on the above lines. For example, when SEBI initially drafted laws for regulating IPOs, it stipulated that 25% of the offer had to be reserved for general public investors after all the reservations for employees, shareholders of promoting companies, Indian Mutual funds,FIIs and Indian & Multilateral development financial institutions etc The very purpose was to create a better market for securities. But such stipulations have since been diluted even though it has not achieved one of it’s aims viz spreading an equity culture and with stock valuations skyrocketing, the retail small investors will have a really difficult time to get allotment without any mandatory requirement regarding setting aside a portion of the shares to them. By and large regulations for markets have been found to be favouring companies than public.
This type of market scenario is being witnessed in many other areas too. Before liberalization, cement industry had a very large number of players, thanks to the encouragement given to the mini-cement plants .Today, the competition in the industry has been reduced from many to a few. And these few are controlling the stakes in the cement market with the prices of cement going through the roof. Cement prices in 1993-94 hovered around Rs.100-110 per bag and today the prices have increased to Rs.260-270.It has become simply unaffordable to the common man. The real estate companies, who have raised huge amounts funds from the markets due to stratospheric valuation of their companies can easily afford to pay Rs.260 or 270 for a bag. Are the market forces intact and playing? Are we proving right what Peter Drucker wrote back in 1996: “We are learning very fast that the belief that a free market is all it takes to have a functioning society –or even a functioning econmy- is a pure delusion” (The Relentless Contrarian , Wired, August 1996)
Recently Mr.Ratan Tata was interviewed by a business publication where he made a scathing remark about the attitudes of businessmen which explains the attitude of businessmen to the market forces.(He himself being a businessman, how he will exclude himself from the kind of behaviour is anybody’s guess). Mr.Tata is reported to have said, ”In Delhi, you have the President of CII talking about open markets on the one hand and on the other hand trying to ensure that there is no one who comes into the industry” while speaking on the controversy about awarding fresh GSM spectrum to various players in the telecom market.(Businessworld, January 14, 2008).When it comes to market forces vis-à-vis M&As, while M&As can theoretically lead to competitive advantages for firms by way of economies of scale, the resulting bigger players may keep the consumer at ransom.
The process of liberalization and consequent opening up of the market has apparently led to less-democratized processes in the economy. While democratic process dictates one person one vote, irrespective of the position, wealth or power one enjoys, the antithesis seems to be happening in business and economy where one rupee,one vote regime prevails. Holders of larger stakes (like promoters and management team) will be able to manipulate huge swings towards their position after the proposed company law amendment to favour value-based voting than number-based voting. Won’t the existing framework be more effective as a check & control system on the promoters and/or incumbent management? The proposed amendment might essentially entrust the decision making power and authority with a few leading to decision making highly dependent on the wisdom of a small cadre of promoter shareholders or leaders of the management team.
It is observed that people in positions of power usually abstain from the process of decision making whenever there is an issue of conflicts of interests- be it sitting on an interview panel and facing a scenario of interviewing a candidate who happens to be a relative or having other relationships or being on the panel to select the business person of the year. Why such practices don’t get extended to executive decisions involving shareholders? Why not interested promoters and management representatives abstain from voting and leave it the public shareholders(including institutional investors) to decide? One should not expect all shareholders to exercise their votes considering the low shareholder activism in India but the process is a first step to empower the public and minority shareholders. Companies can even suggest that these groups may discuss the issues with the independent directors who are supposed to protect the interests of the outside shareholders. Rather than trying to implement a step to control or curtail the minority shareholders, a process to empower them shall be attempted. Won’t that be a more democratic process to be adopted in a democratic country?
Friday, January 18, 2008
An Ad For Liquor?Post liberalization adventure or blatant violation of regulations?
Nothing Surrogate About It!
We Indians had been witnessing a large number of surrogate ads from liquor companies, promoting their famous brands through products which are not their regular products like crystal glasses , ready-to-wear apparels etc.But the ad which appeared in the Jan 13, 2008 issue of Business Today(pages 94&95) has nothing surrogate about it!The product is Glenmorangie Single Malt whiskies from Glenmorangie Distillery, Scotland. The ad talks about four different brands from the company.There has been no attempt to hide the product behind a veil of lies. The ad goes like this" To drink Glenmorangie is to experience a kaledoscopic sensory adventure.Multiple layers of aroma,taste and texture unfold and entwine, dancing through your soul, revealing the beautiful and the alluring complexity within.It si this complexity that makes Glenmorangie the most intriguing, sensuous and deliciously seductive single malt whisky in the world". Any intention of being surrogate? The ad concludes as "There is revelation in every glass of Glnmorangie.An explosion of tastes and aromas igniting your senses." Very straightforward ad for liquor.Are we changing?
We Indians had been witnessing a large number of surrogate ads from liquor companies, promoting their famous brands through products which are not their regular products like crystal glasses , ready-to-wear apparels etc.But the ad which appeared in the Jan 13, 2008 issue of Business Today(pages 94&95) has nothing surrogate about it!The product is Glenmorangie Single Malt whiskies from Glenmorangie Distillery, Scotland. The ad talks about four different brands from the company.There has been no attempt to hide the product behind a veil of lies. The ad goes like this" To drink Glenmorangie is to experience a kaledoscopic sensory adventure.Multiple layers of aroma,taste and texture unfold and entwine, dancing through your soul, revealing the beautiful and the alluring complexity within.It si this complexity that makes Glenmorangie the most intriguing, sensuous and deliciously seductive single malt whisky in the world". Any intention of being surrogate? The ad concludes as "There is revelation in every glass of Glnmorangie.An explosion of tastes and aromas igniting your senses." Very straightforward ad for liquor.Are we changing?
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