Saturday, September 12, 2009
Some recent news items (2009)
Cisco’s entry into server market
Apple recruits chip designers
Intel acquires a software company
Oracle acquires Sun
RIM acquires a browser company
Google building Operating Systems
Nokia acquires Payment System Company
Prime View (Kindle Manufacturer) buys E INK
List goes on ...and grapevine says more to come….
Why this is happening?
In early part of the industry evolution, we had vertically integrated industries (like IBM in early mainframe days) with proprietary and interdependent architectures.
Then with time as product functionality and reliability improved, industry shifted to modular and independent architectures and led to the rise of best of breed suppliers like Microsoft (Operating System), Intel (Processors).
Subcomponent industry develops with clear interfaces and best of breed suppliers
New product introduction is fast, one just needs to system design the new product. The components can be easily sourced from suppliers for product assembly.
Cost comes down initially as subcomponent suppliers main focus is cost optimization
Unfortunately party cannot go on for ever and few problems have started emerging
• Limit in component level innovation or cost reduction
• Breakthrough innovation is not coming as there are interdependencies across the subsystems and components
• Even if breakthrough innovation comes, it gets copied very rapidly as getting components from suppliers is easy , like iPhone, or eBook reader
So What Next?
Hence comes rise of Vertical Integration and drivers are more than innovation
• Cost and Profitability- As number of suppliers increase in value chain so is their profits (assume each supplier earns 20-25 % gross margin). So why not integrate companies and work on integrated 25-30% gross margin and pass partial benefit to customers
• Innovation – Product level Breakthrough innovation will need optimization and interdependencies across components and subsystems
• Competition – Raising time and other barriers for entry for the competition. Competitors will need time to understand the product and develop internal capabilities to design and manufacture components
• Regulation and Technology grants – Thanks to credit crisis and government stimulus, government is promoting new investments in creating jobs and facilities and also selectively giving grants for R&D programs in new technologies.
• R&D Economics of Scale – By vertical integration , companies can leverage economics of scale in R&D efforts at product level and interdependencies rather than suboptimal utilization and duplication at component level
What will be the Implications?
I wrote earlier about rise of product companies as result of Obama’s ban on outsourcing.
This goes one step further with rise of Vertical Integrated companies. There will be more levers for M&A for both early stage technology companies and established companies
So on one hand vertical integration will accelerate the pace of M&A and on the other hand it will change game from collaboration to competition, as witnessed in recent Google Voice and iPhone controversy
Earlier leaders had no incentive for vertical integration, as it would have turned their existing partners and customers into competitors and would have led to cannibalization of their existing product line sales. But this is changing now, as evident from Cisco’s bold move…
The best of breed component players will need to think that where they will fit in vertically integration and fierce competition trends. Status Quo will not be the option!!
Monday, September 7, 2009
There were reports how few companies actually prosper even in great depression. I was taking this with a pitch of salt probably cause and effect fallacy with hindsight bias.
Having said that, I am now seeing first data point in Telecom industry, how big is getting bigger and taking advantage of credit crisis.
Indonesia Telecom industry is dominated by three players – Telkomsel, Indosat, Excelcom
The market share by subscribers is Telkomsel (51%), Indosat (26%) and Excelcom (22%)
Credit Crisis as an Opportunity
As credit crisis hit, it was difficult for smaller players Indosat and Excelcom to raise money and fund Capex. They lowered their Capex by 50% in 2009 vs 2008
Telkosmel largest player sensing opportunity actually raised its Capex by 25% in 2009 vs 2008
Last two quarter subscribers data is showing while Indosat and Excelcom lost subscribers, Telkomsel is increasing its subscribers in fast growing Indonesia Telecom Market
“Over the last two quarters, Indosat and Excelcomindo, Telkomsel's two largest competitors, have both reported lower customer numbers, with the first losing 3.24m in Q1 and a further 4.4m in Q2 and the second, a rather more modest 1.12m and 220k”
Big is getting bigger…
So in credit crisis, invest in bigger blue chips…leaders in their industry, who are taking this opportunity and going on aggressive spending mode..
Same thing China is doing , treating credit crisis as an opportunity buying all raw materials of the world and building additional capacity. Chinese companies might give run for their money to companies in other parts of the world later…!!
Saturday, August 22, 2009
Every Tom, Dick and Harry has a strategy for doing some thing. If you dig deeper, you realize they don’t understand what strategy is!
One of the most renowned Professor of Strategy taught us Strategy course in B school. We asked a dumb question outside the class to Professor, “what the strategy is in real world?” He answered that even after decades of teaching he didn’t fully understood what is strategy! He added “Probably strategy is a way of life...”
I was confused and couldn’t understand his point. Now after few years of corporate life I can appreciate what Professor was talking about.
Strategy is about making choices.
Most people I see confuse strategy with goal.
Doing better is not a strategy. Doing better is a goal.
I heard from an acquaintance about recession strategy of a CEO.
CEO understood the challenge of recession and was addressing his sales force. He said “We need to formulate strategy for recession. The environment will be difficult so
We need to increase our Sales, Go out of our comfort zone and look for all opportunities
We need to be careful about profitability as your customers will pressurize you for lower prices
We need to be extra careful about cash collections as many costumers will face cash flow problem
With this strategy we should be able to face recession”
Is the above a strategy???? This is his goal of doing better for increasing sales, profitability and cash flow but definitely not a strategy. Is he making any choices or asking his sales force to make so??
Sales guys are confused… Should a sales guy go and win market share by decreasing price? Should sales guy take risk and do business with risky customers? If sales guy doesn’t opt for one of above two choices, he will loose sales.
So choice is between taking risk and increasing sales or being conservative and satisfied with lower sales. Unfortunately so called CEO strategy doesn’t provides any answer…
If Strategy is about making choices, then don’t we make choice every moment consciously or unconsciously among infinite possibilities? Is that a strategy?
That’s the point, that’s not the strategy.
For making strategic choices, one should have conscious choices in hand other wise this is business/life as usual and no real strategy...
I cannot say that I didn’t choose to become Prime Minister and that is my strategy to work in corporate life vs. politics. I never had that choice.
Sonia Gandhi had a choice to become PM of India but she didn’t choose to become PM, so probably she has some strategy behind her move.
Similarly for making strategic choices, choice should be among comparable alternatives. Smartness or Diligence cannot be strategy
I can’t say that I didn’t choose to become clerk but chose to work in management role and this is my strategy. Choosing a superior option can be smartness but not strategy. However if I choose the other way, i.e. work as clerk instead of working in a management role (despite being IIM MBA), then that could have been a strategy. Why would I like to become clerk when I can have a management career, may be to know trade secrets of a competitor (This could be my strategy, Isn’t it?)
Similarly I see people confuse strategy with
Planning of initiatives with out really making conscious choices. Detailed Action Plan with milestones and responsibilities is not a strategy. Why you choose to have that plan not the other (if any) can be strategy...
Differentiating their Product. Service, Brand without really making conscious choices. Merely because you have a differentiated product or service, you don’t have a strategy. Why you made product different? Just because you liked it, sounds cool then that this is not your strategy...
Tactics of achieving the goals
So when can we say a company or individual has a strategy?
Most convincing definition, I have came across of strategy is “Identifying what you choose not to do”
Think why you chose not to make a particular choice. There will be some logic behind it… That is your strategy.
If there is common thread behind your choices then your strategy is consistent...
As goes a dialogue in latest Bollywood block buster “Kaminey”... “Life’s course is not decided by which path you take but by what path you leave...”
Isn’t it what you choose not to do? Strategy…
That is what Professor was referring to a way of life, missing in CEO’s strategy but visible in Sonia Gandhi’s strategic moves
Thursday, August 13, 2009
China has been long known for command and control structure, very process oriented, manufacturing economy. Creativity cannot exist in such discipline environment.
Comparing potential of creativity in India and China, India has a better chance...
I had the above world view for years
Compare the history of India and China, Indians were thinkers and invented zero and hence mathematics, where as Chinese invented paper, printing press among others.
That distinction is still relevant today as Indians have excelled in Software Industry where as China in Manufacturing Industry.
My above view got reinforced further after working first hand with Chinese colleagues (both mainland Chinese and ethnic Chinese)
I found Indians to be good at managing uncertainty, making assumptions, get some thing working, thinking out of the box, having big picture and on the other hand Chinese to be very process oriented, disciplined, focused , capable of flawless execution of projects at large scale.
My inference was that Indian companies will tend to be more creative than Chinese companies. Creativity has better chance in India
This view was challenged recently and I found, like many others, I might be wrong about creativity in China.
Global Consumer Brands can be proxy measure of Business Creativity
Name any global Indian brand in consumer space? I cannot think of any. Only few aspiring global brands are of Software Companies and these do not belong to consumer space
Name global Chinese brands in consumer space? You have some and many more are growing: Haier, Lenovo, Huawei…
How can Chinese companies be more business creative and build brands? It is again with the same process approach discussed earlier that they are applying to creativity. Chinese companies, combining process approach with execution excellence and global ambitions, are developing global consumer brands better than India. Haven’t you seen spectacular display of creativity during Beijing Olympics (Flawless execution)?
Chinese creativity style is collective or mass creativity rather than lone star creativity culture found in western world and India.
If a Chinese leader understands importance of creativity and wants his staff to develop mass creativity, his staff will take this task as a holy grail. They will do everything in their capacity to give their sincere shot. These collective sincere efforts even with less individual contribution can deliver results.
So China only needs few leaders who understand importance of creativity and have global ambitions, rest everything will follow.
In contrast, in India apart from leaders, followers should also understand importance of creativity and their version of creativity should match with their leaders. So India needs far more number of creative people and their collective synchronization to make any creative impact.
Which is more difficult to execute? India model or China model?
Incidentally, the only Indian company which comes close to building global consumer brands is Tatas and guess from whom Ratan Tata got inspired? Well China …
“About four years ago we decided to look at ourselves and our goals in a much bigger and bolder way than we had in the past. The genesis of this came from a little comparative study we did of India and China. I realized the difference was the scale of each thing they undertook. …I realized that with almost everything China did big, they grew into it very quickly. Their growth rate momentum supported that.”
In China, anything can be created even Creativity!!
Monday, August 10, 2009
Well, she can in one stroke convert her most controversial action into wider international acclaim and even become an ecological political icon
She can convert her statues as solar power producing by coating them with special paint, which can convert solar light into electricity.
This is not a science fiction stuff or a geek’s fantasy. Italy is planning to build a 200ft high, solar energy-producing statue of one of its most cherished saints, Padre Pio
This way Mayawati can also contribute to improving power situation in UP, which is becoming worse with each passing year.
Indian leaders need to think about public utility as well when they plan and construct national monuments/ structures. The case in point is in Malaysia, where government not only build Petronas Towers as monuments of Malaysian pride and identity but also converted them into office space, which in no time became most sought after office address in Malaysia and South East Asia.
If Malaysia and Italy can do it, then why cannot M(alaysia)AYAWATI(taly)…
Wednesday, August 5, 2009
Execution Barrier 1 : Why companies don’t get it right?... Profit Making Motive rather than Idea Implementation
After few years of corporate life and seeing the world change at unimaginable pace ( both boom and bust), I was wondering about Execution Barriers and Ram Charan’s book (though a good read ) cannot provide all the answers.
So what are Execution Barriers ?
Execution Barrier 1: Profit Making Motive rather than Idea Implementation
What will drive and inspire a team to produce extra ordinary results?
Setting financial goals like increasing sales by X, increasing Profit by Y, increasing share price by Z and then following this up in reviews?
Or implementing a unique product or process idea which is unprecedented and difficult to achieve and following this idea implementation process?
Idea can be a new product , better quality, better service , better on time delivery, affordable pricing , a different channel, user experience etc that on implementing will provide customers a better product or service proposition.
Radical ideas are contagious and inspire team more than financial targets. If implemented successfully they can even help to over shoot financial targets X,Y or Z.
Most executives and corporates miss the above and set only financial goals X,Y,Z and expect their team members to figure out the details, “ I don’t care what you do, just meet these numbers !!”
One cannot engage and inspire the team in this way. On the contrary , an inspiring and radical idea can even motivate folks to work and implement it for free ( like Linux, Wikipedia etc..)
Most successful examples in recent corporate history such as Microsoft, Apple, Yahoo, Google, Amazon, Cisco, Ikea, Dell, South West Airlines, Sony, Tata, Walmart, Infosys, Huawei, Reliance were those of successful idea implementers. These corporates had their radical ideas, which inspired their team to develop new products, services and processes, Thus inspiring their team to develop wining business propositions while executing on their ideas.
There will be many corporates whose radical ideas were not successful e.g. infamous Motorola Iridium case.
How can one know whether his idea is worth implementing? There is only one way to know, Just do it!! . Outcome will be successful, when idea is implemented passionately and meets right market opportunity (like Microsoft’s OS met growing PC demand). However some corporates might not be that lucky.
Luck or external environment is not in one’s control but executing an idea can certainly be one’s choice, which will be more inspiring and engaging than mere financial targets which most companies follow.
So what’s your big idea ?
To Be Contd…
Thursday, July 23, 2009
The first time I visited Jakarta was in Feb 2008. Since then I have been visiting Jakarta every alternate month. I was surprised to see airport like strict security checks in all 5 star hotels. Every time one enters or moves out of the hotel, one has to go through metal detector gates, frisking and bag checks etc etc. What the hell, I thought…My Indonesia colleague told me that Indonesia has terrorist attacks in the past and the targets are often 5 star hotels where foreigners stay, hence this airport like security in these hotels.
During my visit last month, I visited Marriott and Ritz Carlton for meetings. Security there was much tighter than any other 5 star hotel in town. But in spite of such tight security, a terrorist attack in form of blast took place. This reminds us that even of the tightest securities can be breached.
However, the situation was in control within short time, an unexplored bomb was detected, control room was found out and the terrorist weren’t allowed the free hand like the one that was witnessed in Mumbai Terrorist attack in Nov 2008.
Preparedness cannot all together prevent these incidents but can help to minimize the impact: the difference between Mumbai and Jakarta attack.
I wrote in my earlier article that scenario planning can help in prevention of Mumbai like terrorist act.
That is not applicable to situation as was in Jakarta because they were following most of the scenarios mentioned in the above post.
Are there any technology solutions which can be useful in further minimizing the chance and impact of such terrorist attacks??
The answer is Yes, one such solution being Electric Nose (E Nose) solution.
E Nose is like an artificial nose which can help disabled people (who lost sense of smell) to generate smell stimulus and direct it to the brain. It is in early stage of development. This concept can be enhanced to develop artificial smell detectors that will be able to detect almost all types of smells that human nose can detect.
Humans cannot detect explosive material by nose. So this technology can further be developed to augment human sensing capability with addition of animals smell sensing capability such as smell sensing capability of sniffer dogs. This thus can be used to detect explosives smell and detect its transportation, storage and usages.
If these smell detectors will be placed in hotels and other sensitive and random places, explosives will be much easier to detect.
So why such fantastic solutions so much needed today are not coming up? Necessity is the mother of invention and demand of E nose for medical purpose is lying at the backseat as it is not necessity when compared to other pressing health needs of eyes, ears, brain, heart, organ transplantation, gene therapy , cancer, AIDS, diabetes etc..
Thus, a technology push and stimulus plan focusing on E Nose can help in accelerating its development but this doesn’t looks like a priority of the moment…
If some fraction of Obama's Stimulus Plan can be put to accelerate development of such technologies, these solutions can be employed for safety of the common man. But current focus is on being Green. Hmmm a question of the moment pops up here: If the choice is between Green and Grenade Free, what will you choose?
Saturday, June 13, 2009
My thoughts above got triggered from an unexpected event: Meeting Bollywood Stars.
Being an avid Bollywood movie buff and a probability student, I used to calculate probability of meeting film stars at airports. Why? Well, I travel fair bit but never got a chance of meeting any movie star at any airport or a foreign city. I came to the conclusion that unless I act on prior information and plan my visit accordingly, probability of finding them unexpectedly is very low and a rare event (black swan event)
Little did I know that black swan will appear very next week and it would leave me with a strange thought!
I was traveling on June 11 from Kuala Lumpur to Shenzhen. I was suppose to board ferry from Hong Kong airport to Shenzhen. When I reached at the Shenzhen Ferry Ticket Counter, I saw a notice at adjoining Macau Ferry Counter: HK Airport welcomes IIFA Guests. Next moment, I suddenly realized that a contingent of film stars are about to come and take ferry to Macau. That was the chance surely not to be missed!!
In next few minutes I saw who's who of Indian Film Industry. So black swan can happen and all probably calculations can go wrong!!
Some movie stars I recognized immediately, some I took time to recognize as real appearance is different from on screen appearance. Some I didn’t recognize at all. Among the last category was - one old guy who caught my attention, wearing very unusual dress and standing alone from the group...I tried to recognize who he was? Couldn't figure it out? I thought him to be some back stage guy and forgot about it. In next few minutes as whole contingent assembled, they went away.
Later after having a quick sip at Cappuccino and recharging myself again, I moved to Ferry Gates for security check. (It is very intense and close door security check in small groups at HK airport for Ferry Travelers). To my surprise, I saw same contingent of film stars coming for security check too (so what, you are film stars you need to pass security check too!!). I was last guy in the queue at that time. And film contingent was to follow me in the same queue. Interesting, I was loving it, dint mind it at all...another black swan, further close film star encounter
I was wishing some pretty face or handsome hunk star would follow next to me in the queue… but soon I realized that I am not going to be that lucky...same old guy who caught my attention earlier came forward first and stood next to me...Damn Bad luck...his hands were trembling, he looked lost & disgusted ...
Seeing me he smiled and said hello...At this moment, I looked closely at him and his eyes. I couldn't believe who he was ... Yesteryear Superstar Rajesh Khanna ... Still I felt the need to confirm, politely I asked: Are you Rajesh Khanna? He smiled and said Yes...next moment he was totally lost again in his own world...as if he was saying “30 years back whole India knew me and now you are asking me who I am?”
One of his associates was accompanying him and guiding him like a Child/ lost person ...Couldn’t believe yesteryear's superstar will be in such a situation today... I felt at that moment that it is difficult to come to terms for loss of success after having tasted success…
This made me think what Taleb mentioned in his book - People get more hurt by loss than feel happy by gain ...Gain of 10 at base of 70 to take one to 80 will prove to be less joyful than the pain of coming to 70 from the base of 80...What say?
If a person knows that he has a chance of super success in future but it will gradually boil down to failure later, will he choose to go up and come down? or will he say: no thank you to relative success - I am doing good...I don't need momentarily super success…I do not want to spend rest of my life figuring out - Who Moved My Super Success … and I do not want to live with pain of becoming nobody from known buddy at airports...
Sunday, May 31, 2009
Absence of Evidence is not Evidence of Absence: Melbourne next Silicon Valley or an Immigrant Unfriendly City
This was my maiden visit to Australia. I must say , of all the countries I have visited so far (Americas, Europe, Asia, Middle East) I was most impressed by Australia. My first impression was that Australia is one of the best and safest place for Immigrant Indians. You find every fourth person Indian , more North Indian restaurants in Melbourne than in Bangalore or Kuala Lumpur, Cricket Bars, Melbourne Cricket Ground and an average person can be engaged in cricket conversation etc.
My Australian colleague told me that Melbourne has largest number of
immigrants in Australia and is most immigrant friendly city in Australia. Not only Indians, there is significant presence of other nationalities too in this city. A Case in point is Greeks (third largest Greek population in the world after Athens and one more city in Greece). Similar statistics for other nationalities too..
Irony is that I was staying in a hotel on Spring Street opposite to Victorian Parliament and was thinking about competitiveness of Melbourne -- the same place where Indian Community led their agitation rally today i.e. a week later...
Thursday, April 23, 2009
Well that could be a mathematical GMAT problem...Asking what is the probability of finding two identical horoscopes?
According to Vedic Astrology there are 9 important planetary objects: Jupiter, Saturn, Mars, Sun, Moon, Venus, Mercury, Rahu, and Ketu.
There are twelve houses in one’s horoscope. And these 9 planetary objects can occupy any of the twelve houses. More than one planetary object can occupy a same house. Only constraint is that Rahu and Ketu should always be in opposite houses.
So there are (8) ^ 12 combinations possible i.e. 68719476736 (68. 7 billion)
Well they are more complexities
Each Planet can be placed in any of the 12 Zodiac Signs i.e. Aries, Taurus, Gemini, Cancer, Leo, Virgo, Libra, Scorpio, Sagittarius, Capricorn, Aquarius and Pisces.
Thus total possible combinations are now (8) ^ 24 i.e. 4.72236648 × 10^21 (4722 billion times billion)…I cannot count them..! (Is it the limit of human population on earth / universe / space? Well that can be another point of discussion!)
Further, there are additional complexities in horoscope such as divisional charts having their own multiple possible combinations (Ignore this complexity in this discussion)
Still for 6 Billion Population we have 4722 billion times billion or more possible combinations…So possibilities of uniqueness of horoscopes cannot be doubted!!
With so much complexities and possibilities in a single horoscope how do astrologers predict? Here is the catch...They look for individual combinations and placements of planetary objects in isolation whose probability is often 1/12 or 1/6 like any planetary object is in particular house/ in particular zodiac sign or two planets are in same house/ opposite to each other.
Each heuristic when looked upon individually looks manageable (1 in 12 persons may have this astrological combination). Astrologers predict the pattern and destiny by combining few of these heuristics
So with uncountable number of possible combinations can these heuristics predict all possibilities? Not possible.
When there are uncountable number of combinations, do astrologers know patterns for all success? No, again not possible
How were these heuristics developed? Guess they were developed studying backwards (Observing extraordinary successes and failures and in turn identifying commonalities in their horoscope patterns).
So, what astrologers know are past patterns of some of the heuristics associated with individual success or failures. They try identifying and looking for similar patterns in an individual’s horoscope while doing predictions.
However, when unexpected success or failure comes up, astrologers again work backwards and develop new heuristics or a possible explanation of existing heuristics with second, third or fourth order effect.
Hence, astrology can explain successes or failures based on past patterns but it cannot anticipate unexpected new outcomes. Similar is the story of risk management and black swan phenomena. Most of our knowledge of risk management is based on past events. From this knowledge, we keep try developing fool proof systems but they cannot guarantee safety from unexpected events. Yes history repeats itself, but not always. Sometimes new history is also created. This is exactly Taleb’s “Black Swan” and possible limitations of predictive astrology…Black Swans of Astrology can and will appear…
Tuesday, April 21, 2009
Software has already replaced many tasks which were done by human mind earlier (individual or collective) such as ERP, Accounting, Business Intelligence… List will increase in future.
Combining Software with Machine to make smart machines is still on early evolution path. Basic rule based control systems can be performed now and this will evolve into smarter machines, appliances, cars, gadgets …
What is the future of software? To understand this, one needs to understand how mind works?
How does a human mind work?
Mind performs three broad categories of functions
*Analysis – Currently done by existing software but can be improved
*Imagination – Currently not done by existing software
*Information Collection – Currently existing software only receives user input – later self information collection by all senses – read, touch, hear, see
Comparing mind functions with existing software capabilities, It looks software capabilities are getting there. What can be the problems in future software evolution?
The biggest problem is that human mind doest not always work logically or in a rule bound way
Human mind has its own imperfections and biasness based on
*Emotions: Mood, Righteousness, Empathy, Hatred
*Selective Thinking: Exceptions, Processing full or only part of information
*Psychological Profile: Risk, Reward, Failure
*Prior Information: Curiosity, Information Gathering, Social Condition
Future of software development will demand development of competencies to understand above imperfections and incorporate them in software development.
For eg .. Risk management software tools in financial world failed because software were analytical, rule based and didn’t incorporate human imperfections. One can argue that software was right and human understanding of risk management was wrong. Well if end result is not achieved than blaming weakest link doesn’t offer any comfort.
Efforts of future software development will be to achieve this imperfection. If imperfection is achieved then distinguishing line between Man and Machine will get blurred.
Friday, April 3, 2009
Thursday, March 26, 2009
I wrote about Strategic Rationale for Mergers and Acquisition in IT sector and identified two main categories of rationales: Economics of Relationship and Economics of Credentials.
Finally, there are 8 companies in race… L&T, Tech Mahindra, Spice, Apax Partners, IBM and 3 others.
Let us analyze, what could be possible rationales of these companies for Satyam’s Acquisition?
L&T has niche but strong expertise in ERP, Engineering Services and also has existing investment in Satyam. Satyam also has very strong presence in ERP space and emerging Engineering Services Space
Economics of Credentials: (Very Strong)
*Financial Credentials: Combined Entity, Tier 1 Player
*Capability Credentials : Combined Entity, Strong Credentials in ERP, Engineering Services to compete with Tier 1 Players, Good credentials in Other Horizontal Services: Business Intelligence, BPO
*Client Credentials: Increase in number of combined clients in different industry verticals, geographies
*Geography Credentials: Diversified Europe, Asia, Middle East, Australia, China, Japan
Economics of Relationship: (Limited)
*Cross selling opportunity for horizontal services to L&T’s existing clients – BPO, Business Intelligence. This depends on how many active client relationships L&T has that can be penetrated further via Satyam’s Services
Tech Mahindra is a niche Telecom Vertical services player. Satyam has limited success in Telecom Vertical. Mahindra Group has investment in different IT companies: Bristlecone, Plaxion, Systech, Mahindra Logisoft, Mahindra Special Services Group and Mahindra Engineering, which they can think of combining together with Satyam to form a strong Tier1 IT company.
Economics of Credentials: (Strong)
*Financial Credentials: Combined Entity: Tier 1 Player
*Capability Credentials in Other Verticals and Horizontal Services: Business Intelligence, BPO, Engineering Services
*Geography Credentials: Key Telecom Markets: Scandinavia, China, Japan
*Capability and Client Credentials in Manufacturing/ Automotive Vertical
Economics of Relationship: (Limited)
*Cross selling opportunities for Satyam’s horizontal services to Tech Mahindra’s existing clients – BPO, Business Intelligence
*Cross selling Opportunity for Tech Mahindra’s Telecom Services to Satyam’s Telecom Clients
Financial Investor and no major Strategic Rationale
Financial Investor and major strategic rationale can be merger/ synergy with other groups IT / Telecom investments (Long Shot)
Economics of Credentials: Leading MNC, No need for Satyam’s Credentials
Economics of Relationships: Satyam’s client relationship will not help a company like IBM.
IBM will be interested in buying more share of customer wallet or more precisely will not let it go to any other competitor. Many of the existing client contracts of Satyam may be renegotiated and these existing clients may hunt for new vendors. So instead of fighting then for new businesses, IBM may as well acquire Satyam and keep existing clientele intact
Other 3 Players (Guessing Game)
MNC – Can be HP, CSC or dark horse Cisco
Tier 1 BPO Player
Similar rationale as IBM
Economics of Credentials: Leading MNC, No need for Satyam's credentials
Economics of Relationships: Satyam’s client relationship will not help a company like HP.
HP will be interested in buying more share of customer wallet or more precisely will not let it go to any other competitor. Many of the existing client contracts of Satyam may be renegotiated and these existing clients may hunt for new vendors. So instead of fighting then for new businesses, HP may as well acquire Satyam and keep existing clientele intact
Economics of Credentials:
*Financial Credentials: Increasing Size, Narrowing Gap with leaders
*Geography Credentials : India Presence
Economics of Relationship: Not much cross selling opportunity
Cisco is diversifying. In other words Cisco is trying to get more share from its customer’s wallet. Cisco is getting into servers space and later may look for entry into services too. They already have joint venture with Satyam for Healthcare initiatives and want India to be Global Hub for their services. So they can be in race…
Economics of Credentials: Capability Credentials: Service Arm
Economics of Relationship: Yes, Cisco’s clientele can be penetrated with Satyam service offerings
Tier 1 BPO Player
It would have been a good Strategic buy for a Tier 1 BPO company such as Genpact, Convergys, EXL , Transworks etc to become an integrated IT and BPO Player, but as public information goes, none of BPO companies are participating in the acquisition process
The above analysis was of Strategic rationale from Buyers point of view.
From Customers point of view,
Satyam’s Clients must have got shaken by Satyam Fiasco, hence must be having decreasing confidence in Indian IT players. The trust betrayed by Raju is unlikely to get restored by Naiks, Modis or Mahindras in a short term. Clients will prefer US MNC’s such as IBM or HP to take over Satyam. Clients are unlikely to prefer Private equity Players, who might be investing now in Satyam to sell the company again.
Job continuity and gaining back their prestige will be of paramount concern to the employees. They may prefer IBM and HP over L&T, Tech Mahindra. Employees would not prefer a Private Equity Investor who will be feeding them only to sell off later.
So from Buyers point of view L&T has strongest of rationale and should be willing to pay highest bidding price for Satyam. From clients and employees point of view IBM would be best choice. But how much IBM will be willing to pay for Satyam, considering the fact that they are already on Global Buying Spree (Biding for SUN too) and risks are still uncertain for Satyam Law suites.
Finally Business decisions including M&A are not decided by rationale logic alone. If logic would have prevailed than Satyam fiasco wouldn’t have happened in the first place. So finally emotions may come into play and this race may have a surprise outcome…Mahindras!!
Tuesday, March 24, 2009
Friendster, a social networking site famous in South East Asia has tried this.
Probably Google might try it also .."Google Cafe” based on cool themes, the way Google Office Campuses are designed.. Even “Orkut Cafe” might be a good idea.
Which other internet/ social networking site can spark interest as Cool Cafe?
*Yahoo : “Yahoo Cafe”, Sounds Great Idea
*Amazon: “Amazon Cafe” Sounds Great for Book Lovers
*MySpace: “MySpace Cafe” Sounds OK
*Linkedin: “Linkedin Cafe” May work for Some Special Types ( e.g. “Men in Ties”)
*Facebook: “Facebook Cafe” May be can work
*Microsoft: “Microsoft Cafe” No Way
Well that speaks of internet branding and Why Microsoft needs “Yahoo Cafe” to compete with “Google Cafe”?
Monday, March 23, 2009
In my earlier role, our team did research on Offshoring Maturity and Financial Performance for Fortune 500 companies and found out that top 30 Offshorers or Outsourcers ( or a better term Globalizers !!) outperformed S&P index by three times.
The top Globalizers were having highest growth rates, better profitability and increasing shareholder value than their peers. The biggest contribution to top 30 Globalizers list was from banking and financial sector (no wonder, the financial crisis!!)
Many of the companies, which are in dire trouble today because of financial crisis, were ironically from the top Globalizers list. This is even true for companies outside banking and financial sector such as automotive and manufacturing sector.
What is cause and effect? Did outsourcing and offshoring led to financial crisis? Or is it the risk taking behavior of these companies which was rewarded in the good cycle and punished in the bad cycle? And this heavy offshoring was a characteristic of risk taking behavior.
Or are these pure random events and not necessarily have cause and effect relationship. (My view on cause and effect changed after reading Tyeb’s “Black Swan”).
Interestingly earlier research on outsourcing and financial performance was considered for getting published in Harvard Business Review but it didn’t go thru ( Probable reason might be that outsourcing/offshoring leads to better financial performance is a common knowledge). Now Ivy League Economists can find answers to this uncommon question: Did Offshoring led to financial crisis?
Sunday, March 8, 2009
“Finally, I differ with one of the solutions Nandan proposed in ICT in India. The Single Citizen ID, this problem is rightly identified but I differ with the solution approach Nandan proposes. Stated solution approach is classic example of what Nandan’s Fellow Infosys Board Member, Rama Bijapurkar, wrote in her book “We are like that only” - India will not develop like any other country because of change in circumstances and India’s solution will have to be designed with keeping in mind the current realities. I believe India has more cellular phones than any other government generated identification document, Passport, Voters ID card, Driving License, Ration Card, PAN Cards etc. So instead of finding out any western solution of Single Citizen ID, why can’t we start with Mobile Phone Registration and start from there?”
Well, glad to see in the news that Indian Government has started working on this idea of making mobile number as citizens identification number (ID) in collaboration with Alcatel Lucent.
The idea is still at conceptual and prototype stage. If it happens, then India will move one idea forward!! Few more to go and India will be there…
Sunday, March 1, 2009
Why do we need Bailout of Banks? Banks (or Men in Ties) took huge business risk and suffered, so why their businesses need to be bailed out with public money? Well the answer is if the banks go burst, they will cause suffering to public especially millions of small investors. The current problems in banking industry are because of the structure of this industry.
On risk of being over simplistic, Banks functions can be classified into three buckets:
* Generating Funds by channelizing deposits from public ,
* Distributing Funds to the public in form of loans and other investment vehicles (Here “Men in Ties” are most active!!)
* Transmitting Funds and keeping the financial systems working by providing short term liquidity, funds to various entities.
In the current banking industry structure, big banks provide all the three functions and are the ones which need desperate government help.
How can these problems be fixed? Well structure of utility industry may give ideas.
Take analogy from structure of utility industry where three functions Generation, Transmission and Distribution of power are separate and managed by separate entities. Similarly banks functions are like Generation, Transmission and Distribution of funds. These three functions can be separated into different entities. This division can help in narrowing down the present and future problem areas under different entities. Then government can nationalize or utilize other tools to solve these problem entities.
There can be three types of banks:
* Generating Banks: Which can channelize generation of funds by taking deposits from public. There is no problem in this system and banks are doing much better than government. ( Here “Men in Ties” are not that active and mostly marketing and efficiency is required)
* Distributing Banks: Which can distribute the funds to public for loans and as investment options. This is the problem area, where banks have taken reckless risks which in turn started problems. Here “Men in Ties” are most active and have turned Distributing Bank into Disturbing Bank. The troubled Distributing Banks can be nationalized if required.
* Transmitting Banks: Which can act as intermediaries between Generating Bank and Distributing Bank and can keep the financial system running. Transmitting Banks should be completely overtaken by government to keep the system working.
So by employing Divide and Conquer Strategy
* Generating banks take deposits from public and pass these deposits on to Transmitting banks at pre approved rate of interest. Government pays them few basis points more to cover their expenses and profits.
* Transmitting banks then should provide money to Distributing Banks at pre approved rate of interest. “Men in Ties” in Distributing Banks should be free to invest but should be of greater scrutiny. The troubles ones should be nationalized.
* Government should take the role of Transmitting bank and ensure liquidity in the system.
In this model if there is trouble in any entity, it can be treated as an isolated case. Government can nationalize the trouble entity or restructure it as required with out jeopardizing the whole financial system.
Divide and Conquer is an old strategy of every politician. Obama should not have problem in using it in banking industry for larger public good. Will “Men in Ties” like to wear government hat? Well, one can’t choose color of tie some times!!
Wednesday, February 18, 2009
Auto Bailout, where opinion is heavily divided on whether Government Bailout can help Auto Industry survive in US? I hold a different view.
Obama instead of giving loans to GM, Ford Chrysler to survive the crisis, should mandate wide spread car purchase. This will help GM, Ford, Chrysler (World Class Companies, which are only caught by crisis in surprise and every thing will return to normal when demand returns!!) to operate at viable level and help them tide the crisis.
For a start, Obama can
- Order upgrade of all Federal and State Cars to latest 2009 models of GM, Ford and Chrysler
- Mandate compulsory car upgrade of all the companies who take Federal loans for Bail out. This would include car upgrades of many banks, insurance companies, real estate companies etc
- Give to CEOs, whose pay cuts are proposed as Bail out pre condition, additional high end luxury cars as consolation
- Mandate Car Purchase for all companies who benefit from Stimulus Plan such as Infrastructure Companies, Capital Good Companies etc
- As an unemployment benefit, give a new car upgrade to person who has been unemployed for three months
- Donate US made cars as foreign aid to poor people of developing world such as India, China, Indonesia and others. This would upgrade living standard of millions of people
- Give cars as consolation for Home Foreclosures
- Award cars as incentive to Doctors and Physicians, who participate in Health care IT digitization project
- Award cars to households, who implement energy efficient practice and use renewables
- Reward cars to deserving and brilliant students as part of Federal education initiatives
- Mandate a Car purchase with every new Immigrant Visa Application
- Mandate Car Purchase for every job outsourced
- Persuade Other Governments to buy US cars as good will gesture in return of Americas Foreign Policy of promoting world peace
- Send Cars to Cuba as good will gesture to upgrade all their 1950’s antique cars
- Offer North Korea to abandon Nuclear Program in lieu of free US cars
- Mandate Car as prize money for all sports competitions (Golf, Tennis, Super Bowl...)
- Offer to give cars as Ransom to Pirates
So on…the more I think out of the car, the more ideas come ….
If Government Spending can return growth even at cost of huge deficit as being propagated by Governments around the world, this plan may well be viable. Even Cars Can Fly!!
Sunday, January 18, 2009
“Imagining India” : Ideas for the New Century.
Excellent book by Nandan Nilekani where he analyzed India’s past growth and future possibilities by analyzing evolution of ideas in India. He used a good analytic framework and analyzed 18 Ideas crucial to India’s growth and categorized them as: Accepted (6), Process (4), Debate (3) and No Direction (5) depending on where we stand currently. Spot On !!
I would like to add three more ideas to this list -
- Dignity of Labor & Career
- Internal Security and Foreign Policy
- Relation between Business and Politics
I would add “Dignity of Labor & Career” in the Accepted Category. Nandan’s Generation and even my generation grew up with the notion that there are only three careers for educated middleclass Engineering, Medicine and Chartered Accountancy. Depending upon one’s aptitude ( read marks) in Maths, Biology or Accounts, one has to choose one of the three careers, face fierce competition with fellow aspirants to enter colleges of repute and employment market.
Today situation looks different and dignity of labor is being accepted in many more careers. New careers have emerged and middle class is accepting these career choices for children with equal enthusiasm. Chefs, Choreographers, DJ’s, Fashion Designers, Air Hostess, Singers, Actors are being increasingly accepted as career aspiration rather than as creative rebel act. Performing in realty TV shows is as sought after recognition as getting into IITs for middle class families. Even in sports, apart from Cricket, recent successes in other sports such as Tennis, Badminton, Shooting, Golf, Boxing is inspiring many youngsters to take these as a career. To make India a developed nation we need to have excellence in all services which will be driven by dignity of labor i.e when a person chooses his profession by his choice and not by narrowly defined options governed by societal pressures, and then excels in his chosen field.
I would add “Internal Security and Foreign Policy” in the Debated Category. We know the issues, debate is on but no consensus yet. As India is gaining increasing significance in the world, India needs to protect its national interest and grow up its global profile by behaving like a mature global player. How India should deal with Pakistan? Should India be offensive like Israel or channel Diplomacy? How to conduct its foreign policy? Should it align with any current camp or form an alternate camp of Emerging Countries? How should India deal with China? etc etc.
Why Indians need to obtain visa for visiting any other country which hinders India’s ease of doing business with rest of the world? Why can’t other countries give visa concessions to Indians as they give to Europeans, Americans and other Asian nationals?
How can India prevent terrorist incidents like one in Mumbai? Should we focus more on inclusive growth for internal security or become a tough policing state like China. Cries for tougher laws, structural and policy change intensifies and is debated after every incident but gradually fades away for the lack of any concrete consensus.
I would like to place “Business and Politics” in the No Direction category. We all know political parties need funds and in the absence of transparent fundraising framework unlike west where business houses and individuals can openly participate, political parties in India resort to parallel economy and remain secretive about their supporters , fund raisers. Following such ways can take very ugly turns like the one incident which took place recently: A Government Employee was allegedly harassed to death for not contributing to ruling party funds.
A developed India can not take shape unless there is transparency in the relationship between business and politics and civil society has the means and rights to question these relationships within legal framework.
Finally, I differ with one of the solutions Nandan proposed in ICT in India. The Single Citizen ID, this problem is rightly identified but I differ with the solution approach Nandan proposes. Stated solution approach is classic example of what Nandan’s Fellow Infosys Board Member, Rama Bijapurkar, wrote in her book “We are like that only” - India will not develop like any other country because of change in circumstances and India’s solution will have to be designed with keeping in mind the current realities. I believe, India has more cellular phones than any other government generated identification document, Passport, Voters ID card, Driving Licence, Ration Card, PAN Cards etc. So instead of finding out any western solution of Single Citizen ID, why cant we start with Mobile Phone Registration and start from there?
In all Nandan’s framework is a good analytical tool to understand and debate on India’s problems and opportunities. I sincerely hope that politicians use this framework and some of the ideas in upcoming election debates ….