Wednesday, December 29, 2010

The unlikely villain turned hero

Painting with a broad brush is not always the right thing to do. In the United States, virtually anybody who's in the finance sector has been branded a villain. They of the billion dollar bailouts and the million dollar bonuses. Near the top of the pecking order of rogues, in the public mind, is AIG - the insurance company that had to be bailed out at the peak of the crisis. But consider what's happened to AIG in the last one year and you may change your mind.

AIG's stock has risen 97% in 2010 - the fourth best performer in the S&P index. AIG was a solid company brought down by the antics of one department. But that didn't detract from the soundness of the rest of its business. When confronted with the crisis, it had a number of valuable assets it could sell. Top of the pile was AIA, its Asian subsidiary, which was a jewel. It has disposed of other businesses as well. It brought in a new CEO - Bob Benmosche, a rather colourful personality, out of retirement. Lots of things have been done well.

The US government holds 92% of the company now thanks to its 182 billion bailout. But it can now start to look forward to exiting. If it could realise $30 per share it could break even as the Wall Street Journal says here. If it could sell at $45 it would make a profit of $20 bn. The share price now is $ 58. Of course the government couldn't unload the stock at this price - it would simply crash; but it increasingly looks likely that in a carefully managed divestment spread over time, the US taxpayer might actually make a profit. Bailout should not be a bad word anymore, if you make a profit, but alas in the intellectually challenged shrillness of US politics, such niceties are unlikely to be observed.

A rather interesting subplot is that of the CEO Bob Benmoshe. When appointed he called Congress, a bunch of crazies. Fortune voted him the most tone deaf CEO of 2009. He demanded a private jet and took a holiday weeks after being appointed. But then, just look at AIG's performance. As a shareholder, you have to be delighted. Sadly, he has been diagnosed with cancer recently and in undergoing chemotherapy, but hopes to oversee the government exit from AIG and turn a profit for the shareholder. Recently, he wistfully wondered if somebody would call him and congratulate him , but then he realised the Ayn Rand's famous quote of " Find your Thank Yous from within" was perhaps more appropriate.

Appearances and name tags are deceptive. Convenient buckets of heroes and villains are not always true in the real world. Reality is often far more messy and not reduceable into a pithy soundbite on Fox News or the New York Times. At the moment, AIG, and its Chief, deserve a tipping of the hat. Why is it that you aren't likely to find many Americans who would agree with that ?

Perhaps you should promote the poaching?

Seeing your star employees being poached by a rival always seems a bit of a bummer. And rightly so. We know from research, on industries as varied as semi-conductors and mutual funds, that they often take valuable knowledge with them and therefore enhance the performance of your rivals. And indeed, research on Silicon Valley law firms as well as on Dutch accounting firms*, shows that moving employees do not only enhance the survival chances of the poaching firms but also decrease the survival probability of the firms from which they were poached. This was especially true if the employees moved in groups and if it concerned geographically proximate rivals, because they are the ones you are especially in competition with.

Customers poaching

So far the bad news. But can there be any upside to your employees being recruited? Well, yes, actually there is definitely a potential upside to that as well – especially if your employees are being hired by your customers, as professors Deepak Somaya, Ian Williamson and Natalia Lorinkova discovered. They examined the movement of patent attorneys between 123 US law firms and 109 Fortune 500 companies from a variety of industries. And they found strong evidence that if a client company recruited a patent attorney from a law firm, subsequently that law firm would start to get significantly more business from that company.

Hence, your employees leaving for your clients can be a good thing; they bring you valuable business. McKinsey – always ranked as one of the most admired professional services firms in the field – understands and manages this process particularly well; once you have been employed by McKinsey you automatically become “an alumnus of The Firm” (rather than a deserter). The firm carefully nourishes its relationship with its “alumni”, because they subsequently bring a large chunk of their business through the door.

Competitors poaching

Recently, professors Rafael Corredoira from the University of Maryland and Lori Rosenkopf from the Wharton School even found a beneficial effect of your employees being poached by rival firms. Using patent analysis studying US semi-conductor firms, they examined the transfer of knowledge between pairs of firms: the firm from which the employee was poached and the poacher. Not surprisingly, there is quite a bit of evidence that when this happens, knowledge transfers to the poacher; it comes in the form of the brains of the newly arrived recruit. However, Rafael and Lori also discovered that, as a result of employees moving to another firm, the old employer also experienced knowledge inflow from the recruiting firm!

Now, how is that possible? Someone moves out and, as a consequence, you gain knowledge from the place they went to?! Well, that’s because in real life we often socialize with our colleagues. When they start to work for a different firm, this does not mean that we stop talking to them. And what do they talk about? Well, work… While having a drink or two, former colleagues exchange information about how things work at their new place, how they solved a particular problem over there, what technology they use, and how they have got their processes organized. And you benefit from that.

Perhaps slightly surprisingly, Rafael and Lori’s findings showed that this exchange of knowledge was especially pertinent if it concerned a geographically distant firm. They conjectured that that is because there are other means in which you can get knowledge from rival firms that are nearby; perhaps then it is likely that you already have friends there, go to the same local conferences anyway, or that your kids go to the same school. Whatever the reason, it seems evident that if your employees are at risk of being poached by a rival firm, make sure it is done by one far away: you don’t suffer the adverse consequences of a strengthened competitor as much, but you do get the knowledge inflow upside.

Hence, scrap the non-compete agreements and gardening leaves, but only on the condition that they are moving far away, and promise them a sumptuous dinner and lavish drinking budget if they come back to visit their old friends at the firm.

Sunday, December 26, 2010

Yuletide Cheer

Its that time of the year, when there is a nip in the air (or a vigorous bite if you happen to live in cold lands). The world is seeming an altogether nice place. Half the world's humanity is on holiday. Warm greetings and best wishes are flying around. Most of us are prepared to put the ills of the world behind us and, for a few days at least, look forward with hope and happiness to celebrate all that's good in this world. As indeed, it should be.

For those in the northern hemisphere, its deep winter. Both in Europe and in the United States, they are facing an especially cold start to winter. Many will have a white Christmas, even in places where snow is unusual. Its cold and blustery outside. Perhaps frigid. But inside, the family has got together. The fireplace is exuding warmth. There's food on the table. There's a drink to warm the insides. There's a feeling of joy and togetherness. The spirit of Christmas.

And there's the coming New Year. Millions more, who are not Christians, will join in ushering out the old and welcoming in the new year. A time to look forward with hope for better times to come. For most of us, the year past might have been a mixed one. Some joys, some sorrows, some victories, some disappointments. Although it might appear that the bad was more than the good, nature actually deals us a reasonably even hand. Its time to forget the not so good times, and cheer for that which is to come.

Its also the season for resolutions. Make them, many do, for the New Year. Most break them soon enough. But in the season of hope, its entirely appropriate that we try to aspire for something that we would like to be. For its only hope and cheer that can see us through the winter.

For some, hope would be a difficult emotion to drum up. Perhaps homeless, shivering in the cold. Perhaps nature dealt them a bad hand. But even then, I hope, and pray, that the cheer in the air will ease some of the pain and make it a little more sunny for them.

As you would have gathered, this isn't a post with a theme or a message or an opinion. Its just a revel in the mood that I can feel. And therefore an incoherent ramble. By Indian standards, which might laughable elsewhere, there is a nip in the air. Not all is well with the world, but there is the feeling of cheer and hope. Its a wonderful feeling. A moment to savour. A time to thank the Lord (or the stars if you prefer it that way), for safely negotiating the year gone by. And a prayer (or an exhortation) to stand by and see us through the year to come.

Pause for a moment. Sniff the air. Imbibe the cheer. Take a deep breath and feel the hope in the lungs. And then, resolutely, march on.

Xin nian kuai le !

Wednesday, December 22, 2010

FCC Moves to Halt Internet Service Provider Content Discrimination and Preferences

The Federal Communications Commission has moved to keep Internet service providers from limiting or unreasonably discriminating against content provided by competing services

The regulations are designed to keep telephone and cable companies that provide phone services from using their Internet services to limit use of Skype and other online telephone services. It is also intended to halt them from making content provided by audio and video service providers they do not own less desirable by limiting downloads from firms such as Netflix or Hulu or providing faster service only for their own content.

The rules are designed to maintain a level competitive position on the Internet and to restrict the abilities of companies that dominate access to the Internet from using oligopolistic control of the service points to harm content competitors.

The regulations require that services allow their customers equal access to all online content and services, but allow the services some flexibility to management network congestion and spam as long as the rules are clear and not anti-competitive.

The rules apply to fixed line services, but do not apply equally to wireless telephony which is becoming the primary means of Internet access though smart phones and electronic tablets and e-reader. Mobile phone providers are permitted to provide preferential access to their services or selected partners, but the rules forbid mobile providers from blocking access to competing sites and services. Mobile services are given more leeway to manage their networks because capacity is more limited than on the Internet.

The regulations are an important step in ensuring that major service providers such as Comcast and Verizon are not allowed to use their dominance in service provision to harm other companies and the FCC should be applauded for its efforts. Such companies have in the past shown their willingness to take advantage of their monopoloy power and are not widely noted for their consumer friendliness.

Major service providers and Republicans are vowing to fight the move, arguing that the FCC does not have the authority to issue such regulations. If the courts side with them on the issue, Congress should explicitly give it the authority or empower the Federal Trade Commission to ensure competivieneess online.

Does the stock market appreciate management consultants?

Management consultancy has boomed over the past decades. I recently saw a statistic which showed that in 1980 global revenues in the consultancy business equalled $3 billion. By 2005, it was more than $150 billion.

But what does it say about you, as a company and management team, when you are hiring a management consultant to help you out, with your strategy or organizational structure? On the one hand it is a good thing, right; you are not afraid to ask for help, and management consultants can bring in valuable outside knowledge, ideas, and experience. On the other hand, it could be interpreted as a bit of an admission of defeat… “we’re not able to figure it out ourselves”, “we have run out of ideas and options”, “we’re in seriously trouble; we need help” or something along those lines. Plus, these pin-striped guys do not exactly come cheap.

Whatever way you put it, it is some sort of a signal – either openness to outside ideas or a signal of brewing trouble. And signals are what the stock market is always on the lookout for, like a vulture spotting the slightest of limps in a wounded animal or, perhaps more kindly, some green shoots to announce the arrival of spring. So, it is an interesting question: does the stock market usually respond negatively or positively to a firm hiring a management consultant?

Professors Don Bergh from the University of Denver and Patrick Gibbons from University College Dublin set out to examine exactly this question. They collected information on 116 listed firms that publicly announced hiring a management consultancy, and statistically analyzed whether such an announcement increased or decreased the firm’s share price. And the answer was clear: share price increased with an average of 1.4% by the hiring of such an advisory firm. Now that’s value for money for you; the pin-striped guys haven’t even done anything yet and your company has already increased in worth.

But did everybody experience this uplifting effect? Not really: Don and Patrick also found that this entire effect could be attributed to well-performing firms; firms that already were healthy and profitable before bringing in the advisor saw quite an upsurge in their share price – apparently the market thinks that the combined forces will be able to make the company grow even faster. However, underperforming firms – firms with a more dismal financial track record – did not benefit at all from hiring a consultant. As a matter of fact, the stock market’s reaction would even turn negative for the real sub-par performers. Apparently, in that case it is interpreted as a sign that the company is in even more dire straits than originally assumed.

But might this not be dependent on who you hire, thou might wonder? Surely McKinsey, BCG, Bain or Booz Allen must be viewed differently by the market than some second-tier cheap-suit shop? Well, ehm… no. The stock market’s reaction was exactly the same no matter who the firm hired; whether it was McKinsey, some local chaps, or one of the big accounting firms doing a bit consultancy on the side; the market did not care. Apparently, it doesn’t matter whose help you ask, but it sure matters whether you ask for any at all.

Sunday, December 19, 2010

Au revoir Phil

How do you say farewell to a man like Phil, on his retirement ? You just can't. Period.

How do you even begin to say farewell to somebody who has spent 42 years in the company. No that's not a typo. The number is right. FORTY TWO years of sterling service to the company. He has seen it all - he's seen the company's many victories and some setbacks. He has seen people come and go. He's seen history being made ; well, he made much of the history.

Phil's an Australian and typifies everything that's great about that country. Sporty, fun loving, thoroughly professional, amazingly warm in a non sentimental way and above all, a wonderful human being. I bumped into him on a lovely barmy day in Sydney in 1994 ; an instant friendship grew that carries on to this day and will undoubtedly carry on for a long time more.

I could go on and on about his professionalism. He's the only person I have ever known who drove an initiative that was right for the company, even if it meant his job was going. He's amongst the rare breed of men who's untainted by even the faintest whiff of corporate politics. Scrupulously fair, unfailingly honest, brilliant at execution, but rarely bothered about acclaim - seeing Phil renews your faith that such people still exist.

But even more than his professionalism is his ability to build fabulous relationships with people across the world. Across nations, across cultures, across geographies. I've seen him in tough negotiations out of which would emerge friendship , not bitterness. He virtually redefined the concept of win win in a business relationship - in every deal I have known him to do, both sides won. Now how many people in the world can lay claim to that.

As he became a senior statesman in the company; his energy actually grew, not diminished. I've seen many brilliant people become cynical and static as they age in a company. Not Phil. He actually became younger. He became even more energetic, if that was possible . Every youngster was treated as a friend and equal ; not an ounce of condescension. He was still at the forefront of company dos even as his retirement was looming.

He has a love affair with India. He's been here many times and has hosted countless Indians in Sydney. He's taken us to innumerable restaurants for many a warm evening. He's taken us to the Sydney Cricket Ground to see Indians play. When all didn't go well for us in business, he stood by us like a rock. He's guided and coached many many of us during times of trouble. He showed us how to imbibe the wonderful Australian spirit of winning fairly. Phil's an Indophile in the true sense of the word. In fact, one of his granddaughters is actually named India.

Thank you Phil for everything that you have done, for what you are and for the incredible relationships that you built with so many of us. You leave a wide gaping hole in the company as you retire. I know that in your typical way, you would say somebody else will pick it up and do an even better job and that the business would go on. But the place won't be the same without you Phil - not by a long chance. And many will miss your presence deeply. It so typifies you that you would be missed not only inside the company, but by every outside organisation you have dealt with.

Many readers of this blog know Phil personally and I invite you to record your thoughts in the comments section.

Au Revoir Phil. Thank you for the friendship and wish you much happiness in the years to come.

Phillip L Cox retires this week after 42 years of sterling service to Unilever round the world.

Friday, December 17, 2010

The stock market generally hates acquisitions, but here is an exception to the rule

In about 70 percent of the cases, the stock market responds negatively to the announcement of an acquisition. Put differently, despite their popularity, the average take-over destroys value for the acquiring firm. There are literally hundreds of good academic studies that consistently show that effect. For long, it was actually quite impossible to find any category of acquisitions that defied this rule and made some money, but lately a few studies have started to emerge that identify types of acquisitions that are seen in a more positive light by the ever elusive stock market.

One such sub-sub-subcategory of acquisitions that do appear to make at least a little bit of money are international acquisitions that were preceded by an alliance between the merging firms, especially if it was a strong form of an alliance, i.e. an R&D or Marketing alliance or prior buyer-supplier relationship (rather than a mere equity stake or licensing agreement). I know, it sounds like a very very specific category but I am already glad we have at least found one.

Although such alliances-turned-acquisitions are pretty rare – as evidenced by research by professor John Hagedoorn from Maastricht University – there are examples of firms doing it that way consistently: Cisco is well-known for turning dozens of small equity alliances into full-fledged take-overs and also Heineken has been using this incremental approach over the years with much success, consistently first cooperating with local breweries before fully acquiring them.

And in a way I find it understandable why, although rare, this type of acquisitions has a pretty decent track record. Acquisitions are just very hard to do. They usually are fraught with information asymmetries; basically most firms don’t have a clue what they’re buying. And due diligence is not going to solve that problem; acquisition integration is often hampered by cultural differences, incompatible systems and plain mistrust – something you don’t just look up in the company’s books beforehand. Hence, the troubles are hard to avoid.

But a preceding alliance might actually do that trick for you. Having lived through a lengthy alliance before the deal (“a lat relation before moving in together”) will have reduced these information asymmetries and unfamiliarities while, crucially, in the process, may well have bred some much needed trust. Because trust is definitely what you require abundantly when merging households (although precisely then, it often is in short supply…).

Professors Aks Zaheer, Exequiel Hernandez and Sanjay Banerjee from the University of Minnesota examined such alliances-turned-acquisitions and assessed how the stock market responded to their announcements. Let’s say it was a weak “yes”: unlike the average take-over, the stock market had a weak but positive appreciation of these types of deals. Where the stock market usually responds negatively to an acquisition, they found that if the take-over was preceded by an alliance between the firms, the share price of the acquiring firm increased after the take-over announcement.

This results was really only true though (i.e. “statistically significant”) if it concerned an international acquisition. And in a way I find that understandable, because the issues of information asymmetry, cultural differences, and mistrust are clearly aggravated in the case of a cross-cultural merger. Hence, in these cases, a prior alliance proves particularly helpful.

So, see, there is a glimmer of hope after all, for the track record of M&A. All it needs is a bit of patience and fidgeting around before engaging in the real thing.

Monday, December 13, 2010

Acquisitions – finally something to cheer about…?

Decades of research scarily consistently shows that most acquisitions destroy value, and only cost the acquirer money. There is really no denying it – all “ifs” and “buts” have been raised, examined and rebutted – about 70 percent of acquisitions fail. That is because acquirers are usually inclined to overpay (under pressure from bankers, the press and their own adrenaline; a take-over premium of 60-80 percent is really nothing unusual) and because managers systematically overestimate their potential for value creation; integration is often much harder to pull off than one thinks and “synergies” carry you only so far. So far the (familiar) bad news.

Slightly to my surprise though – although not unwelcome – over the past years a few studies have emerged that managed to identify categories of acquisitions which on average do create surplus value. And the first category identified is actually quite a sizeable one: the acquisition of private firms. Pretty much all of the research on M&A is conducted on public firms; that is, firms listed on the stock market. And that is understandable because we simply have much more information on them; because they’re public firms, they more consistently gather and report data and, of course, share price data is available. Hence, we can examine them better.

Professors Laurence Capron from INSEAD and Jung-Chin Shen from York University managed to obtain data on a large number of private deals and, guess what, in contrast to the public deals they examined, these did create some value! Where the take-over of a public target made the share price of the average acquirer fall by about 1 percent; the acquisition of a private target raised it by an average of 4 percent. That may not seem overly impressive to you but it’s really quite a bit of peanuts if you calculate its monetary equivalent – certainly in comparison to the abysmal take-over track record of public deals.

But how come these private take-overs do appear to create some value? Well, that’s a bit of speculation, but Laurence and Jung-Chin had an informed suspicion: information asymmetry. Because, by definition, information about private firms is usually not publicly available, there would also be much fewer buyers aware of the juicy take-over target, and that it was possibly available at a bargain. Consequently, there were fewer bidders and more opportunity for value creation for the eventual acquirer.

Consequently, private deals usually do better than public ones. They might be a bit murkier, hidden and not as glamorous, but hey, they actually make you some dosh!

Saturday, December 11, 2010

Climb every mountain

If you are from the generation that grew up with The Sound of Music, you may recall this song - Climb every mountain. In that classic musical, it wasn't the most melodious of pieces, but it made up with some depth of meaning. Each one of us climb our personal mountains and this post is a rambling muse into how all achievements, big or small, are remarkable, amazing and, in many ways, the purpose of life.

Any one of us who has watched a baby take her first step can easily marvel at that achievement. For the baby, that step is like climbing Mt Everest. The act, by itself, is simple and one that the baby won't give a second thought to in the years to come. But at that moment, its a priceless achievement.

Big achievers reach stardom. They get much fame, but alas not always, some happiness. But, each and every one of us, achieve many victories during the course of the years. Small it may seem to the outside world, but giant it is in our own hearts. Every personal milestone, we cross is a moment to savour, to dwell on the wonder of life and take heart. Far too often, we fail to celebrate ourselves and recognise the immensity of what we had done.

Corporate organisations are notorious in putting down achievement on the mistaken premise that you must always set the bar higher and be in a perpetual state of disappointment. Every deadline met, every target achieved, every move made, is a moment for quiet satisfaction. Its amazing how the overwhelming feeling of every corporate citizen is one of anger, disappointment, grouse, and all things negative and rarely one of accomplishment, which should often rightfully be the case. Witness any water cooler gossip and you'll know what I mean.

Its not only the biggest winner that counts, Every winner, no matter however small the win , ought to justifiably take pride. We need to inject more of the sense of achievement, fulfillment, and victories into our lives. To counterbalance the despair, the heartache and the defeats that often tend to crowd out everything else.

Take sport. Ask anybody who the heroes of the Beijing Olympics were and 9 times out of 10 the answer would be Michael Phelps or Usain Bolt. Rightfully so. But to me Natalie du Toit and Natalia Partyka were equal heroines. They won nothing. But Natalie made it to the Olympics swimming competition despite having lost a leg in an accident and Natalia played table tennis for her country despite being born without a right hand. They made it to the Olympics on sheer merit; no allowance was given for their disabilities. What an amazing personal accomplishment.

I'll leave you with a sporting scene to savour at the end of this chaotic, jumbled up, post. It wasn't the Olympics or World Championships or anything like that. Its was a middling event of questionable global relevance. The best of the business stayed away from it. But four girls from humble origins performed way out of their skin and achieved an amazing result. Way beyond expectations. That's achievement to me. Turn up the volume, sit back and watch this; and I guarantee you goosebumps.

Monday, December 6, 2010

The looks of a leader

Attractive people are generally seen as more competent and fit for their job. For example, experiments using headshot photographs of people mixed with random CVs generally show that people rated as physically more attractive also receive higher ratings in terms of “job competence”. Men deemed to be handsome are more likely to be regarded good business leaders. Yet, we know that, at the same time, for example intelligence and physical attractiveness don’t correlate (positively or negatively!). Hence, it is purely a physical preference; and nothing else.

The most striking example and evidence of this I found was not in an experiment on business leaders but from an experiment on political leaders – although I am sure the situation won’t be much different for business leaders.

Two researchers from the faculty of business and economics at the University of Lausanne - John Antonakis and Olaf Dalgas – ran an experiment in which they gave 684 people in Switzerland photographs – and nothing else – of the pairs of faces (the winner and runner-up) from the run-off stages of the 2002 French parliamentary election. These Swiss people would never have seen and did not know anything about these sets of two candidates. Subsequently they asked them “who do you think will win this election?” In 72 percent of the cases, having seen only the two photographs, people predicted the results of the elections correctly… That’s probably a lot better than most political analysts.

Then they got a little mischievous; they gave the photographs to 681 children and told them “we are going to play boat; who do you want as captain of our ship?” In 71 percent of the cases, the children’s’ choice correctly predicted the winner of the local French parliamentary elections.

We pretend – mostly to ourselves – when selecting a job market candidate, filling out a ballot, or choosing a leader, that we carefully weigh the pros and cons, assess someone’s experience and competence, and make a well-informed rational choice. Yet, in reality, at the end of the day, we’re all just playing boat.

Sunday, December 5, 2010

All that glitters is gold

They say all that glitters is not gold. But today, that might be a slightly misplaced sentiment. Gold is glittering so much that everything seems to pale into significance. I mean the price of gold. If you haven't noticed, it has skyrocketed. And the cause of it is coming from an unlikely direction.

Gold hit an all time high price of $1424 a troy ounce in Nov. It seems to be zooming northward. I haven't done the math, (after all this is a Sunday post !), but gold might have performed as well as equities as an investment vehicle in the recent past. That's a little funny given the significant difference in risk profiles.

Cut, to a completely different angle. One of the fundamental cultural differences between Indians and Chinese comes in the area of addiction to the yellow metal. Indians simply love gold and can't resist hoarding it. Gold jewelery, that is. It is passed from generation to generation; safely stored in bank lockers. They are taken out only for weddings, when Rajalakshmis try to outdo each other in the amount of yellow they display. Regular readers will remember that the aforesaid lady is in a regular battle with the weigh scale. But for once, she doesn't mind adding substantially to it, by decking herself from head to toe (literally) in gold.

Madame Wang has different tastes. She simply doesn't like gold at all. She won't be caught dead wearing yellow; convincing proof that the nomenclature of the yellow race is a misnomer.She has a fancy for diamonds; especially those paid for by the male species, but that's another story.

End result. China used to consume some 200 tonnes. Indians gobble up some 600 tonnes. No contest.

No longer so. Chinese imports surged five fold in 2010. Consumption stands now at some 450 tonnes. The unthinkable may happen - China may overtake India as the largest consumer of gold.

What on earth is happening ?? Has a cataclysmic change happen in the gemological tastes of Madame Wang. Yes; but not what you might think. She still doesn't like to wear yellow. But she has money flowing through her ears. She doesn't know what to do with it. What can she do ? She gave it to the Americans until they can take no more. She started giving it to even the Greeks, but there are far less Marias than there are Wangs. Who else to give it to ?? So she's now started to buy gold instead. Not jewelery, but just plain bullion. stocking the stuff.

So here's a tip to Rajalakshmi. Start selling all that's in the bank locker bit by bit to Madam Wang. In a trickle. Empty it over the next two years. You'll make a fortune. And walk lightly into the next wedding !!!

PS. Yes , I know its a Sunday, but .............

Thursday, December 2, 2010

Content Farms and the Exploitation of Information

A growing number of firms are aggressively pursuing the market for information by providing material that answers online searches and employing strategies so their material appears high in search results.

These enterprises are providing high quantity, low quality material on topics designed to produce many search hits and driven by the desire to make money from advertising received as high traffic sites. Some are proving quite successful.

Demand Media, for example, uses about 13,000 freelance writers to produce about 4000 articles a day for which it gains about 95 million unique visitors with more than 620 million page views monthly. Its site alone gets about 50 million users., Yahoo and AOL are also engaging in the market.

When you make a search and are taken to,, or hundreds of other sites providing such information to the public, you encounter this mass produced content. The business strategy is working and many of the sites are among the top 25 sites in the U.S.

These producers and a whole range of similar organizations are producing material in content farms that rely on freelancers who are paid as little as $1 an article or get no payment except for number of page views for their specific work. It is a throwback to the penny-a-word days of journalism in the 19th century. The firms are increasingly seeking video producers, photographers, and graphic artists to provide similar material at similar levels of compensation.

Even established news organizations and other enterprises are starting to use the syndicated material produced by such content farms. Organizations such as Hearst publications and National Football League are relying on them for some content that appears on their sites, for example.

The implications of these developments on the quality of Internet information and the prospects for professional writers are clear and hardly encouraging.

Monday, November 29, 2010

Why analysts appear racist

The following experiment caught my eye: Professor Stephen Sauer, from Clarkson University,
together with two colleagues recruited 101 analysts to review information to value the stock of currently privately held company. All analysts were given the exact same information with two “minor” adaptations: In some of them the CEO had gone to a prestigious university; in some of them to a second-tier school. In some of them the CEO was white; in some of them the CEO was black, thus basically creating four groups (prestigious & white; prestigious & black; second-tier & white; second-tier & black). Then the compared the analysts’ valuations…

In spite of it being “the exact same (fictitious) companies” there were major differences in valuation. By far the highest value the analysts assigned to companies whose CEO was white and from a prestigious university, followed by those from second-tier schools who were black, and second-tier schools who were white. Rock bottom were those companies headed by a CEO from a prestigious university who was black…

Stephen and colleagues found this a rather scary find…

So they decided to run yet another experiment: They recruited another 62 analysts and gave them the same company information. However, this time on half of them, they explicitly stated the following about student recruitment at the CEO’s alma mater:
“The university [had used] a double-blind procedure with no special consideration for gender, race, or ethnicity”, so that it was unambiguous that the CEO had made it into the (prestigious) school purely based on merit, and nothing else.

Now the results changed spectacularly: The companies with CEOs from a prestigious university who were black received the exact same valuation as companies with CEOs from a prestigious university who were white. Apparently, people do not just devalue a company because its CEO is black – phew! – there is something else at play.

Why did they then in the first experiment assign the lowest value to those companies with a CEO of a prestigious company who is black? Well, apparently, whenever people see a black person from a prestigious university, they are inclined to assume that he might have been admitted there not based on merit but because of some sort of affirmative action…: positive discrimination. And hence, that it is likely that he is not as good as his credentials might suggest. And of course, statistically they are right…; black males are more likely to have been admitted to B-school due to affirmative action than white males (for the simple reason that the number of white males admitted due to affirmative action is quite certain to be zero). Take away that possibility and analysts don’t care about the colour of someone’s skin.

But that of course does not mean that all black males are admitted to a prestigious school due to affirmative action. It doesn’t even mean that most black males are admitted to a prestigious university for that reason. So analysts do get it wrong rather often, and that must be one darn annoying thing, if you’re a black male at a prestigious university who simply made it in based on merit, and nothing else.

Sunday, November 28, 2010

The quintessential bureaucrat

All bureaucrats are the same, but some are better than the others ! Each nation is blessed with a liberal sprinkling of "homo sapiens pointless bureaucracy-ensis". But the ancient land of India is surely the world leader in this matter. Meet Ramamritham - the quintessential member of this species.

Readers of this blog will know of my partiality to caricaturing a typical member of a group by a name. The Indian female has featured here so often that her name is now acquiring legendary proportions (pun intended). Having been accused of gender bias, I shall now strive to correct it with describing the masculine equivalent.

India abounds in Ramamrithams. Typically he comes from the state of Tamil Nadu or West Bengal - these two cultures seem to have a huge affinity for inhabiting the corridors of babudom. He takes great pleasure in designing the most elaborate and pointless of procedures. He squeals with orgasmic delight when he has the opportunity to add one more procedural step in an already lengthy treatise on pointlessness. The more the paperwork, the greater is his joy. The airport procedures that I alluded to here and here were designed by a particularly bright specimen of this tribe. He has also been behind the need to wave your photo identity card every 5 minutes at all and sundry - I think he is protecting you and me from an acute case of amnesia of our names and how we look. We shall pass lightly over the fact that being forced to look at my photo every now and then and being reminded of the passage of years is not improving my mood.

You can't escape meeting him. If you want a mobile phone, he's there. If you ask for a gas connection he's there. If you want a passport, a credit card ......, actually anything at all, you will have the full pleasure of meeting this wonderful man. If you are returning from abroad, and have to pick up the pieces of living in India, you will have the privilege of cohabiting with him intimately for a long time. Its now 4 months since I returned back, and he still hasn't left my house.

His latest fancy has been to give me his full attention in the small matter of obtaining a new credit card. He has decreed that not only should my address be verified, but my phone lines have also to be verified. Fair enough. Call me on my mobile, and you can verify it easily enough. He then wants to check on my land line as well. But then, our Ramamritham works only from 11.00 to 4.00 Mondays to Fridays. At that time, I am, alas, away toiling for my daily bread. Tring Tring he rings. No answer. He then calls me on my mobile and complains that I am not answering the landline ! Explanations of lack of geographical proximity don't cut much ice. Right; he can sit on my application grandly. As with wine, the older it gets, the sweeter it is.

I have movingly expressed my willingness to coo sweet nothings to him anytime on Saturday or Sunday , but weekend romance does not seem to catch his fancy. I have offered to bring the sainted instrument for him to caress in person, but his idea of intimacy does not seem to extend in that direction. I have even offered to overdose him with his first love - enough paper - to prove that the landline number is indeed mine , but he refuses to be titillated even by that ruse. He is steadfast, upright and represents the best of his tribe.

I hereby award the gold medal in bureaucracy to Ramamritham. May he flourish and conquer many new heights. May he continue to bring laurels to the country. And , no doubt, he will appear time and again, in this humble blog.

PS . All characters in this post are entirely fictional and the subject of this blogger's imagination and have no resemblance to any person living or dead.

Monday, November 22, 2010

Does an MBA make you unethical? Finally some evidence

While, a year or two ago, the dust clouds of the fallen giant investment banks were still settling, at many a place the discussion opened whether it was these CEOs' business school education that caused him (invariably him…) to act in such a selfish, destructive and unethical way.

For example, Forbes debated the issue heavily under the title “are B-schools to blame?” while at the Harvard Business Review a discussion raged under the highly similar header of “are business schools to blame?” (as if they plagiarised each other… which I thought would add some juice to an ethics discussion…). Although there was the occasional stern defendant of the system, most treated the question as a rhetorical one (“yes, of course!”) and vehemently declared denial itself to be almost as unethical as the destructive actions themselves.

But what’s the evidence; was there any presented? Do we actually know whether earning an MBA makes one behave more unethical and less socially responsive? No we don’t. I was asked by a BBC World presenter, after giving a speech at the Rotterdam School of Management, whether it wasn’t true that most of the corporate villains had MBAs? I had to admit I didn’t know but, even if it were true – that most of the disgraced (and sometimes jailed) corporate villains were lauded with an MBA – what does it prove?

Suppose that 60 percent of the villains had MBAs; perhaps 70 percent of all major corporations in the world are headed by MBAs; this would actually imply that of the villains relatively fewer have an MBA than of all (non-villain) corporate big shots! It is irrelevant whether most villains had an MBA; the relevant question is whether getting the MBA made them more likely to be vile. And frankly, that we did not know.

And I say “did” because now we do – at least sort of. Professors Daniel Slater from Union University and Heather Dixon-Fowler from Appalachian State University decided to, rather than contribute yet another 'informed opinion' and 'point of view', actually test the conjecture. And, in retrospect, that wasn’t so hard to do…

Because they simply looked up the “corporate environmental performance” score for 416 Standard & Poors 500 firms as put together by the company KLD Research and Analytics Inc. Nowadays there are quite a few corporate social responsibility rating agencies and systems around but KLD’s is generally regarded a very good one, because they are fully independent and really track a variety of indicators, gathering the information from multiple sources, including extensive inspection of public records, surveys, and on-site facility inspections. Dan and Heather also looked up whether those companies had CEOs with or without an MBA, and used that to compute whether firms with MBAs at the helm performed any worse in terms of corporate environmental performance than firms with a CEO who did not go to B-school.

And the answer was a resounding no. They checked whether this effect could be due to all sorts of confounding variables (like the CEO's functional background, age, education level, firm size, prior financial performance, type of industry, etc.) but, nope, really: the companies headed by MBAs were no more likely to be vile.

As a matter of fact, they were less likely to be vile! Companies with CEOs with an MBA generally did better in terms of corporate environmental performance; it were the non-business-educated chief executives that engaged in the bad stuff. I reckon that’s quite a shocker to the average righteous blogger in leftish spheres: business school actually makes one more socially aware and responsive!

And, on a final note, it didn’t make any difference whether you were from Ivey League Harvard or had your MBA from the University of New South Nebraska State; programme rank had no influence on these blissful results.

And now I am going to take a walk down our corridor to the office of our Ethics Professor and apologise for calling her course “pointless”… See you later.

Saturday, November 20, 2010

Chicken Tikka Masala in Old Blighty

Chicken Tikka Masala is reputed to have taken over as the national dish of Britain. Perhaps the best example of reverse colonisation, although it must be said that overthrowing "British food" is not as great an achievement; such being the epicurean significance of the cuisine in Her Majesty's land. Actually its a Bangladeshi takeover, given that 99% of the curry houses in Britain are run by Bangladeshis. But we shall lightly pass over Bangladesh propagating "Balti"cusine" and such other monstrosities.

Stay with the chicken. British affinity to consuming this hapless avian is the only logic I can find (after much scratching of the head in vain) to explain the take over of Blackburn Rovers , a Premier League football team, by Venky's - an obscure chicken farming company from India.

Firstly the facts. Blackburn Rovers is a struggling middling football side in England. Its been bought out by Sri Venkateswara Hatcheries for £ 53 m , an Indian family firm, run by Anuradha Desai and her brothers. The takeover was completed yesterday and the team's home grounds are henceforth to be known as Venky's Ewood Park !

Foreigners taking over English clubs is not something new. It is mostly rich tycoons doing it for vanity - witness Roman Abramovic and Chelsea. They lose pots of money, but they don't care, for it barely makes a dent in their fortune. Owning a football club is like digging a hole and pouring money into it endlessly. Its the biggest dud when it comes to a business investment. Even Manchester United the most famous and richest of them all is financially in ruins. Nobody makes money except the players - its the only field where you can make outrageous salaries (think of a salary of £35000, ie Rs 25 lakhs per day) whether you perform or not.

Anuradha Desai does not fall in that boat. She is no playboy. She isn't a household name, even in India. She is known for prudently growing the company that her more illustrious father built. If she had a passion for football, it has thus far been well hidden. Beyond the usual blah blah that is made after any acquisition - we will grow together, we see a bright future, and such other rubbish, she displayed her ignorance of football by saying she is not going to pour money in to buy players. The economically challenged rabid English fan wants his favourite club to be owned by a zillionarie who'll write a blank cheque to buy every player on earth. He doesn't want to see prudent business principles.

There is zero brand value for this investment - can't imagine Venky's Chicken Tikka Masala in the menu. Sitting in the owner's box and watching Blackburn lose on a miserable cold and windy winter's day cannot be her idea of happiness. Back home in India, seeing handsome hulks sporting the Venky's logo on their football shirts is not going to make Rajalakshmi eat chicken.

Of all the bewildering acquisitions that happen in the business world, this must surely take the cake.

Thursday, November 18, 2010

Management myths

Have you ever heard that the Great Wall of China is visible from outer space? Well, it is a myth. But also a very persistent one, despite there being clear evidence that it is not. Similarly, there are quite a few myths in business that are very persistent, despite clear evidence exposing them. Let me tell you about three types of business myths, and give you some examples.

Self-perpetuating myths

First there are self-perpetuating myths, and they exist in pretty much any industry. Take the film industry. Film distributors have preconceived ideas about which films will be really successful. For example, it is generally expected that films with a larger number of stars in them, actors with ample prior successes and an experienced production team will do better at the box office.

And sure enough, usually those films have higher attendance numbers. However, professors Olav Sorenson from Yale and David Waguespack from the University of Maryland discovered that, because of their beliefs, film distributors assign a much bigger proportion of their marketing budget to those films. Once they acknowledged this factor in their statistical models, it became evident that those films, by themselves, did not do any better at all. The distributors’ beliefs were a complete myth, which they subsequently made come true through their own actions. And there are other examples for different industries.

Management fads

The second type of business myths are known as management fads. They concern management practices that at some point emerge and become popular, such as the old Total Quality Management, ISO9000 system or SixSigma. They usually behave like popular fashions, like the ones in design or clothing: they come and go, and sometimes reappear many years later under a slightly different guise.

Although often quite harmless (yet seldom really useful), some of them can actually be quite detrimental, without the adopting firms realising it. Take ISO9000. ISO9000, in a nutshell, helps firms to identify best practices within their organisation, document them, and make sure that everyone in the firm follows that one standardised best practice. Thus it leads to efficiency and productivity gains.

However, unexpectedly and unfortunately, as professors Mary Benner from the University of Minnesota and Mike Tushman from Harvard Business School discovered, the firms that adopted ISO9000 several years down the line saw a decrease in their innovativeness, in terms of new technological inventions. The system of homogenised best practices stimulated efficiency but it also blocked deviations from the standard, consequently limiting the discovery of new innovations.

Reversing cause and effect

The third type of business myth pertains to the issue of so-called reverse causality. Over the years, popular business books such as In Search of Excellence, Built to Last, and Profit from the Core made recommendations to managers by comparing highly successful companies and finding out what they have in common. Although at first sight this may seem like a logical approach, there is one big catch to it: the risk of reversing cause and effect.

Several of these books, for example, recommend that firms should develop a strong, coherent organisational culture. That is because most of these highly successful firms had one at the time of writing the book. However, research tells us that firms often develop a strong coherent culture as a result of having been successful for several years. Hence, their strong culture is not the cause of their success; it is the consequence of it. Trying to develop a strong coherent culture might not help you to become successful at all. Quite possibly it could even be harmful and counterproductive, because a coherent culture could also lead to ‘groupthink’ and a lack of innovation, which could be dangerous especially in a fast-changing business environment.

There are many myths in business; some specific to particular industries and some more general. Some myths merge but also disappear after a while. Other myths though are surprisingly persistent. They almost act like business viruses; they have a detrimental effect on their “host” (the adopting organisation) but they also spread rapidly, because they are easy to replicate.

You could describe this as “the sneeze theory of management myths”; companies affect each other because they do business with one another. For example, ISO9000 is easy to imitate because it concerns a standardised set of rules and procedures. Moreover, firms that have adopted it often start to expect that their suppliers follow the same system, making the practice spread.

Furthermore, we know from research – among others by Professor Mark Zbaracki at the University of Western Ontario – that executives are inclined to overstate the benefits from the adoption of systems such as ISO9000 to other people within their firm and to other firms in their industry, thus stimulating the further diffusion of “the virus” and keeping the business myth alive.

Saturday, November 13, 2010

The sheer bliss inside the airport

It took us 74 minutes two weeks ago to enter the airport. It is now time to experience the blissful experience of actually being in.

Lets concretise the experience. Imagining you are taking an international flight out of Chennai airport, arguably the worst airport in the land. You may recall that the last step before being allowed entry into the hallowed portal is a painful check of your ticket and papers by an uniformed worthy. Immediately after you enter, within 10 yards, the same process repeats itself as you enter a fenced off area - another queue, another check.

You then proceed to yet another queue - this time to screen your baggage through an Xray machine . Not even in Timbuktu airport in Mali, which is essentially a cowshed, does this process take place. Huge queue. People on overloaded trolleys banging you from the back. Since Indians have a general disdain for queues, seven sub queues form which ultimately merge into one chaotic rugby scrum . And unique Chennai practice dictates that your bags be fed into the conveyor upside down - ostensibly the logic is that giving a through shaking of your bag is good for general health.

Having navigated this successfully, you then proceed to check in where it is an axiom that larger the flight, the smaller will be the number of open counters. No less than 5 persons will be at each counter - one operating and the others interfering. Inevitably each person checking in will have a slanging match on overweight baggage - after all every worthy has checked in with 100kgs which she is expecting to be taking for free. When told a firm No - she proceeds to open all her bags right here to retransfer stuff from one bag to another so that at least one bag could be left behind with the adoring multitudes who have come to see her off. So enough entertainment to occupy you for a full hour.

If you successfully navigate check in then you proceed to immigration. After the fall of the Soviet Union, India and North Korea stand unique among the league of nations where the immigration check for home nationals is more intense on the way out, than on the way in. He patiently flips through each page on your passport and wants to know why you are adding to his work by going somewhere - why can you not simply stay at home.

Then comes the famous security line. India stands unique in demanding that you put a silly baggage tag on your hand baggage which has got to be stamped - the most useless security measure I have seen anywhere in the world. Only one xray machine is working. There are no less than 7 people manning it - one feeding the bags, one seeing the stuff on the machine, one stamping that silly tag, and four resting. Just as your turn comes after 54 minutes of waiting, there come the cabin crew trooping in for your flight. They have priority, of course and you sigh as that lot jumps the queue. And just as you get ready to finally "make it" you are rudely shoved aside, by the Minister coming with a retinue of 12 all of whom have priority.

Phew. Past the security check, at last. Immediately your ears are bombarded with shrill announcements delivered at 1000 decibels and completely unintelligible. I am firmly convinced that the only criteria airlines use to select ground crew is that they must be completely in love with the sound of their own voices. Totally pointless announcements non stop, yelled in English, Hindi and the local language. Yelling for some passenger or the other to contact somebody or the other - and since they cannot get their names right, it makes for some comedy; the only saving grace. Announcing "boarding procedure" for a 20 seater aircraft which everybody ignores anyway. Asking you to check your baggage tack. Asking you to go to the loo.

The getting on to the plane. A long line has formed 2 hours before the plane is due to board. And since its late coming in from wherever its supposed to come from, its a three hour wait. Yet people love to queue up - there must be some intense satisfaction in getting on to the plane first ; a joy that has thus far eluded me. Maybe the fear that your seat may not be there if you are not the first to get in.

Aerobridges are only for ornamental purposes; they are not meant to be used. So you are told to stand on a rickety bus hanging on for dear life by the boot straps as the Lewis Hamilton wannabe shows off his braking and acceleration skills.

At last you get in. Only to find that the blighters before you have stuffed every available space overhead. The seat has basically been built for the pygmies of Andamans. You are wedged in the middle between two fat ladies who should have bought two tickets each to accommodate their bulk. Its 3 AM in the morning. Ah ! What bliss it has been.

Communicating strategy

Whether you are heading up a team, a business unit, or an entire Plc, you’re going to need a strategy. And you are going to have to communicate that strategy clearly to others, because only if others are aware of it can they actually contribute to it, and will it have any effect – a carefully crafted strategy document, no matter how elaborate and sophisticated, is not going to resort to much if it merely disappears in a drawer unnoticed.

There are several rules – litmus tests – that any strategy must adhere to, for it to be communicated effectively, whether you are the CEO or a team leader.

Rule 1: Make some genuine, tough choices. Often you hear things like “our strategy is to be a good employer”, but that is not really a strategic choice. Something is only a genuine, tough choice if the converse is meaningful. “Our strategy is to be a lousy employer” is unlikely to be anyone’s preferred choice. CEO Stevie Spring’s choice for Future plc to focus on making magazines for young males is one; magazines for middle aged women, for example, could have been a genuine option.

Rule 2: You should be able to capture the essence of your strategy in just three of four points. One point (e.g. “we do magazines”) is meaningless and does not provide any direction. If you provide twenty pointers you are basically telling people what to do – moreover, no-one will actually remember them. We “1) do specialty magazines, 2) for young males, 3) in english” provides lots of direction but also leaves ample room for creativity and growth.

Rule 3: Communicate not only the “what” but also the “why”. Trinity Mirror’s CEO Sly Bailey told me recently that if there was one thing she learned about strategy communication it is that we are always inclined to carefully explain what the choice is, but underestimate communicating the reasons behind it. Research on “procedural justice” proves her right; if people understand and believe that the decision making process had been solid and just, they are inclined to cooperate, even if they do not entirely agree with its outcome. Vice versa, people who agree with the choices but feel the process used to arrive at them was wrong are inclined to withold cooperation regardless of their agreement. Hence, carefully explaining the “why” is at least as important as explaining what the strategy is.

Sunday, November 7, 2010

The porpoise–Jack Welch connection

Porpoises truly are very cute animals. They are fun, playful, cuddly, bubbly, and social. Moreover, in many countries and cultures, stories exist about how porpoises saved sailors whose ships sank in stormy weathers far from land, by tirelessly pushing them to safety with their snout. The saved sailors, once firmly ashore, would of course tell everyone the tale of their miraculous saviour, and the porpoises became revered and adorned.

Yet, somehow, whenever I see one (in SeaWorld or on television), they make me think of Jack Welch…

Not because Jack Welch is fun, playful, cuddly, bubbly, and social – not many would put Neutron Jack in that category – but because of selection bias.

“Selection bias” thou might wonder, “what the heck is that?” Well, it basically is a statistical term that explains how we make mistakes and draw erroneous conclusions if we base our analysis only on what we observe, and not on what we don’t see. Let me explain.

Given the abundance of stories, there probably really are sailors who were pushed ashore by a rather helpful porpoise. Porpoises are playful animals and they like pushing things around – including swimming sailors. However, it is quite likely that they don’t give a rat’s ass where they push their newly found toy. They probably push the sailors found in open sea in all sorts of directions; some of them happen to be headed toward land. Yet, for every sailor safely pushed ashore there probably are several seamen who were pushed in all sorts of directions but to land. Unfortunately, they just did not live to tell…

The sailor who was pushed ashore by the porpoise told everyone about his miraculous rescue but his unfortunate colleague who each time was pushed back into open sea whenever he got land in sight, vigorously cursing the bloody animal, did not quite get to tell his version of events.

That’s selection bias, and the world of business is full of it. We analyze companies, investment strategies, and the chief executives of the cases that became a success, but we don’t quite see how many went under following pretty much the same path. Jack Welch’s famously hard-headed management style worked well for GE and pushed it ashore, but who is to tell how many companies drowned receiving the exact same treatment? Basically, we just don’t know, but it would be unwise to just take any “successful” strategy for granted, and mimic the actions in the determined (but possibly false) belief it will lead us to safety too.

Saturday, November 6, 2010

The bridesmaid's hour cometh

Beijing, everybody knows. Shanghai, is equally well known. But most people's knowledge of China stops right there. The more enterprising will know of Shenzhen. But then , that's about it. The rest of China remains a mystery to many who have not ventured in that direction.

Well, its now Guangzhou's turn to be in the spotlight (pronounce the zh, like a j). The Asian Games start in Guangzhou on Friday, the 12th. It was my home city, until recently, and so, if I may, I will dress up the long suffering bridesmaid, as the bride that she will be for the next two weeks.

You may know Guangzhou better as Canton. The province in which Guangzhou is situated is called Guangdong which the British , long ago, transliterated to Canton. Confusingly, they ascribed the name to the city, not the province. But, even in Guangdong, the bride is often, the brash noveau riche, Shenzhen. Even in her backyard, Guangzhou remains a bridesmaid.

But for most of China's history, when the culture turned inward, the outside face was Guangzhou. It was always the most open and outward looking city. The Cantonese traveled far and wide in the world. Most of the "Chinatowns" that you see in every city in the world, is far more likely to be Cantonese. The Chinese food that you see internationally is mostly Cantonese. Even the infamous "Hakka Noodles" abomination that you see in India is of Cantonese origin.

What of the Asian Games ?? It will no doubt be a huge success ; Guangzhou has been preparing for it for years. It will have the usual Chinese efficiency, but it is likely to have more of a "heart" - something the Beijing Olympics lacked a bit. Cantonese are like that - they are less regimented and more spontaneous. The writ of Beijing lies like a heavy hand, up north, but down South where Guangzhou is, it is usually ignored.

The sport will be tremendous. In many disciplines, it will be a virtual World Championship - the only events where it will be short of world class will be Athletics and Swimming. China will sweep the medals, like always, but others will have their time in the sun too. For India, it will be a thud after the Commonwealth Games - those were far short of world class and India garnered a rich haul of medals. It won't be like that in Guangzhou where the standards will be much higher. But there will be quite a few high points.

From an Indian point of view, the star event will be the unglamorous 10m Air Rifle Event. In the Beijing Olympics, Gagan Narang, India's best bet faded away, but Abhinav Bhindra rose to win gold beating Zhu Qinan of China who had won the gold in Athens and was the favourite. Zhu was inconsolable and is desperate for revenge. But Narang is in terrific form as is Bhindra; it will be a great fight.

Vijender will win in boxing, but Sushil Kumar will have a tough fight against the Iranians in wrestling. Saina Nehwal, India's golden girl may struggle. Three Wangs stand in her way. On her day she can beat anybody, but to beat all three of them is a tall order. The women's 4*400 metres relay team will win gold. But the real high point for India may be the emergence of Tintu Luka. She's the favourite for the women's 800m, for long the domain of Shiny Wilson. She's a truly world class athlete emerging under the tutelage of PT Usha. In the Commonwealth Games she stood no chance against the Africans. But in Asia, she can, and should, win. She's young and rapidly growing, and will be the star of the future for Indian athletics.

So tune on the Telly. Watch the sport, but also enjoy the sights and sounds of "my city". She'll be at her best and wonderfully beautiful. Viva Guangzhou.

Tuesday, November 2, 2010

The hidden costs of outsourcing

I’d say there are even more hidden dangers to outsourcing than giving up control of key activities. What is also a major risk, is that of the loss of particular capabilities which – and you might not quite realise this at present – are crucial to your performance in further downstream activities.

Let me give you an example. My colleague at the London Business School Markus Reitzig, together with his co-author Stefan Wagner, examined outsourcing in one particular process; a firm’s filing and enforcement of patents. Firms that do R&D usually try to protect their inventions by getting a patent. Once the patent is granted they often need to engage in enforcing it, for example through proactive and reactive litigation. These different types of activities – patent filing and patent enforcement – are such specialised activities that usually they are carried out by different individuals within an organisation.

And now comes the trick: Quite often, firms would chose to outsource the patent filing to some external, specialised law firm – “because they’re the experts and can do it more efficiently than we can”. At first sight, that seems to make sense. However, one of the crucial activities conducted for patent filing is the identification of “prior art”. Prior art encompasses all knowledge disclosed to the public before the patent is applied for. And if a firm outsources the entire patent-filing activity, it also leaves this identification and interpretation of prior art to the external solicitors. The problem is that, in the process, the firm will also lose a rather important “by-product”, namely knowledge about the firm’s technology competitors. That is because, as a result of investigating prior art, firms usually learn an awful lot about competitors working on similar issues. And that knowledge is rather relevant further down the line…

Markus and Stefan examined the firms that had outsourced patent filing and statistically compared them to a bunch of firms which continued to do both activities in-house (despite many telling them “you should really stop doing that, you know; it’s old-fashioned; haven’t you ever heard of outsourcing?!”). And they found that the firms that had not outsourced their patent filing activities were much better at identifying potential technology competitors (and their weaknesses) early on. This gave them the possibly to successfully attack them proactively. Firms that gave up on their own in-house patent filing function, and outsourced it to some external specialist, found themselves ill-equipped for patent enforcement activities. Consequently, their downstream performance plummeted.

My guess is that what Markus and Stefan found for patenting is true for many activities; outsourcing one sub-process might have undesirably (hidden) consequences for some other function somewhere else within the firm. These linkages are largely unknown and often impossible to observe, quantify and measure. However, that does not mean that the costs are not very real!

You have to be careful with outsourcing. What may seem like a relatively tangential activity to you, which you could safely put in some externals’ hands, might accidentally make you lose a capability which is critical further down the line. And once you’ve lost that in-house capability, it will be very hard to get it back.

Saturday, October 30, 2010

Ah, the joys of an Indian airport

If you have had the good fortune to be in an Indian airport even once, you would appreciate the unmatchable joy of such an experience. This blogger is uniquely qualified to ruminate on this topic, since he has spent a substantial proportion of his life in the confines of the aforementioned entity. Unfortunately he continues to indulge in this hobby , despite numerous new year resolves to escape from this magical experience. Readers who have specialized in weaning diehards away from their addictions may please email this writer.

The enjoyable experience begins with approaching the airport. As you near your drop off point, you see a traffic jam a mile long. This is because everybody coming before you has parked his car right in the middle and has begun the process of unloading humans and baggage of gargantuan proportions. The famous Rajalakshmi (she of the gargantuan proportions herself) finds the act of getting off from the car a feat that might challenge Nadia Comaneci, and therefore takes a full 9 minutes to complete this test of human flexibility. Then comes the 13 pieces of baggage without which an Indian wouldn’t be caught dead traveling. Having done all this, its perfectly OK to leave the car in the middle and walk off – only 5 minutes saar, solpa adjust maadi. End result, mile long traffic jam.

Indian travelers love to have at least a dozen people to come and bid them farewell . Farewells have to be long and done many times to prove your undying affection to the departing. Hence the traffic jam of people , about 2000 of them, thronging and blocking the entrance. A few are waving wildly and gesticulating comically through the glass at those who have already gone in. The others are all in the various phases of the “send off”. One bawling baby is being passed hand to hand for an affectionate and rather wet cuddle. Other 90+ year olds are having their feet touched, or receiving an endless stream who are falling flat at their feet . Tears are flowing copiously. The departing are repeating this process for every inch they move, somewhat like an infinite loop that the coder spends his life creating (the probability being very high that the departing specimen is a coder; excuse me, IT professional) . Much jostling and pushing. Somebody has just stepped on my toe. Another massive lady has lost her balance and has caught me in a rugby tackle. Much waving is going on – on an average the much loved departing hominid has to wave 1467 times – I am not exaggerating; this has been the subject of 13 separate Phd theses at Harvard ; academicians’ research is usually on such weighty topics.

As the enjoyment of this experience is only extended to a chosen few, Indian airports try their best to exclude the masses. This is done by a laborious checking of a ticket with an identity card at the entrance. Since the guy who checks it is obviously illiterate and since airline tickets come in myriad shapes and sizes, he takes about 27 minutes on an average to accomplish the said task. And since the addiction of enjoying the airport experience is desired by many of the millions who throng India, this activity leads to a serpentine queue where you can explore your fitness by standing for 42 minutes on one leg.

After 74 minutes of an absolutely riveting experience, and one full blog post later, I have finally been able to come to the entrance of the airport. The even greater joys of being in, now await me. To be continued ……. !!

Thursday, October 28, 2010

The hidden dangers of outsourcing

Outsourcing is one of those words that have become hideously fashionable in corporate lingo in the last 5 to 10 years. A business cynic – which obviously I am not! – might conjecture that perhaps it is popular because it appeals to some fundamental human desires for shirking and procrastination, finally telling managers “to stop doing certain stuff” rather than always pushing them “to do more”. I, as a more thoughtful business observer, on the contrary, think that outsourcing often makes sense, simply because you cannot, and should not try to do everything yourself. Other companies can sometimes do a particular thing better and more efficiently than you, if alone because they can bundle and specialise in it, and then you’re better off buying it from them.

Some companies take it a bit far though… Some time ago I was talking to a senior executive of a major airline and they actually had the idea that in the future they might be able to get rid of all their staff, facilities, pilots, planes, and so forth, and concentrate on “being the director of the chain”; that is, not actually do anything but tie together all the activities conducted by others. Hence, outsource everything accept for the coordination between all the parts. Well… here is my opinion: You can forget about that. Try that, and it won’t be long before nobody needs you anymore.

The classic example of that is IBM’s PC in the 1980s. It was IBM’s plan to outsource everything, add its brand name and just one little microchip connecting all the PC’s ingredients. They outsourced the PC’s microprocessors to some geeky guys who owned one of those founded-in-a-garage little companies in Palo Alto (the little company’s name was Intel) and the operating system to yet another geeky guy with big glasses heading a founded-in-a-garage little company in Seattle (the geeky guy’s name was Billy Gates), in the process provoking the genesis of the most powerful alliance the world of business has ever witnessed: Wintel (Windows and Intel).

Because following in IBM’s footsteps towards Palo Alto and Seattle were all the other computer manufacturers which copied the PC; hence buying their microprocessors from Intel and their operating system from Microsoft. And not for long, Intel, Microsoft and end users alike could not quite remember why they needed IBM in the first place and completely “disintermediated” them. It were Intel and Microsoft that reaped the great big benefits of the booming computer market and not grandfather Big Blue IBM, which ended up in a severe crisis as a result of it.

Hence, be careful with outsourcing; giving up control might get you more than you bargained for (especially if it concerns geeky guys in a garage).

Sunday, October 24, 2010

The Ascent of Man

The Ascent of Man is an all time classic BBC documentary on the evolution of human society. Written and presented by J Bronowski, it was made in the 1970s and traced the evolution of humans into what they are today.

That was before the age of computers. And email. And the Blackberry. With the onset of such a revolutionary step in human evolution, the series needs to be continued. Alas, J Bronowski is no more. So with much tribute to him, this blogger now presents the fourteenth chapter in the series.

Humans will now evolve with amazing rapidity in the next 20 years or so , both physically and mentally. The right hand will now comprise of 5 thumbs so that they can all simultaneously punch away at the Blackberry. The left hand will evolve into no fingers and a velcro palm so that the sainted instrument can rest more snugly. The human neck shall elongate and tilt at 45 degrees so as to see the screen better. All teeth shall turn Blue, so that there is no need for wires at all. The most sensitive part of the body will become the thigh, so that it can sense the ping of the incoming email better. The thigh will be specially linked to the mouth so that it can drool as soon as as the next E Mail comes. The eye will come down in the human body, somewhere in the region of the navel so that they can be as close to the Blackberry as possible.

Sleep patterns will change into a series of 10 minute naps with a five minute break in order to check emails. Air travel will completely stop because it would be unthinkable for the human race to shut off the Blackberry for anything more than 5 minutes. Cars will be Blackberry enabled so that on the front windshield, your emails will be continuously scrolling through - you can reply through a convenient keypad on the steering wheel. Television programs will stop having ad breaks and instead have email checking breaks. Lovers will not hold hands - they'll hold Blackberries instead. And they'll pop the question via an email. The slap will now be replaced by a fully spirited heave of the Blackberry in the general direction of the offender.

The Church and for that matter all religions, shall fully adapt to this new world. You will be able to text God and he shall reply within 1 nanosecond - the ping shall be replaced by a Hallelujah ! The Bill of Rights will be amended to include the possession of a Blackberry and the right to get at least one email a second as a fundamental right. International human rights organisations, including Amnesty International, shall keep tabs on this fundamental right and pass strictures against China for not changing its script into a more Blackberry friendly one.

Afflictions of the human body shall also change. Previously deadly killers such as malaria and cholera shall become extinct. Instead arthritis of the right thumb shall become the bane of human life - the product of a million emails sent.Psychiatrists shall make a killing on treatment of blackberrymailopyschosis - the fear of not getting a ping on the Blackberry in the next one second.

The field of arts and sports will not be left behind. Whole orchestras will make music with thumbs dancing on Blackberries. Gymnastics will be decided by who can text the maximum messages while doing a somersault. The swimming world will be rocked by the news that the new Blackberry compatible body suit is banned for giving undue advantage. And alas, drug abuse in sport will not go away - steroids to dull the pain in the thumb being in all pervasive use.

Children shall be born, Blackberry ready. Kindergartens will be replaced by Berrygartens. The infant's first word shall still be mama, but it will be typed on the Pinkberry (for girls) and Blueberry (for boys).

This is Thiru Kung Tzu signing off with a modern day adaptation of a famous quotation from a long forgotten poet "Into that heaven of Blackberrydom, my Father, let my world awake".

Friday, October 22, 2010

When reality pales into insignificance

Imagine a company which was for decades a byword in inefficiency. It pollutes like hell. It has 400,000 workers, none of whom can be sacked, although it needs far fewer. Most of the places it operates in are rife with insurgency, where the government's writ doesn't run very deep. Corruption is endemic. Technology is antiquated. There's a mafia which operates almost exclusively thanks to its presence. It struggles to transport its production to its customers. Governments set prices, allocate stocks and fix wages - not the market.

You get the drift ? Now this company wants to sell its stock to you. You would run a million miles. Right??

Wrong ! You actually fall over yourself in trying to invest in its stock. Welcome to the crazy world of stock markets.

The company, is Coal India. It is a government owned monopoly that has been around for decades and for most of that period was of dubious financial capability. And yet, for the last few days, everybody around me seems to be subscribing to Coal India's IPO - the government is offloading 10% of its stock. Even the famed Rajalakshmi, who's probably never seen a lump of coal in her life, is applying. The IPO has been oversubscribed some 15 times.

Does any of this make sense ?? Of course it does. The IPO was priced at a discount. There is an opportunity to make a quick buck. The equity culture in India is unbelievable. The aforesaid Rajalakshmi, for whom a Balance Sheet is a concept that could very well be from Mars, sits in front of the telly watching the stock ticker creep by on CNBC every day. Investing logic is derived from "buzz" - if everybody is doing it, I must do it too.

Coal India is a monopoly. India's demand for coal, and power is not going to come down for many a decade. Its IPO got the highest credit rating from CRISIL - the domestic credit rating agency. Voila - the ugly duckling has suddenly become a beautiful swan.

Everybody seems to be happy. The punter who's subscribing is waiting to make a quick buck. The government is grinning from ear to ear as the musical sound of the cash pouring in is heavenly. The bankers who "advised"" on the IPO have made fat fees. The employees are burping loudly, having been given the opportunity to make the quick buck themselves. The company itself is finding it wonderful to be in the headlines for the right reasons.

I am scratching my head in bewilderment. Did somebody say the stock market was supposed to be an efficient mechanism to allocate capital ?? As the Americans say, Wall Street and Main Street seem to be operating on two entirely different planets.

Thursday, October 21, 2010

Forced to be stupid

Jessica Nolan, a researcher at the University of Arkansas, was interested in persuading residents of a particular California Community to conserve more energy at home. For this purpose, she designed four types of notes, to be delivered to people’s homes. These notes (roughly) said the following:

1. do it because it helps the environment
2. do it because it benefits society
3. do it because it saves you money
4. do it because everybody else is already doing it

Before using the notes, she knocked on a number of residents’ doors and asked them which of the four arguments would most likely persuade them. Pretty much everybody said, “Not the fourth! (I care about the environment, I care about society, I certainly care about money, but I couldn’t care less about what everybody else is doing”). But did they?

Subsequently, Jessica sneaked out at night and hammered one of the four notes on each door in the community.

Some time after that, she went back to check people’s meter readings. And guess what: households that had received the fourth note (“everybody else is doing it”) had by far the biggest reduction in energy consumption.

We are hugely affected in our decision-making and behaviour by our notion of what others are doing, although we usually don’t quite realise it (and deny it vigorously!). We might think that “oh no, I don’t care what others are doing” but reality is: we do. It is only human

Even top managers can be almost human (or at least some of them). For example, there is a lot of research on what influences managers’ strategic decisions (e.g. whether to choose strategic option A or B). And guess what, it’s imitation.

There is research on where firms choose to locate their new plants, whether or not they enter a particular market, adopt a new type of organizational structure, a governance instrument, etc. etc. Consistently, results show that managers are led by one simple question: “what are my competitors doing?” And then just do the same thing.

The problem is, sometimes what your competitors are doing is stupid. For example, research has indicated that (in certain industries) ISO9000 quality norms are counter-productive. Yet, throughout the 1990s firms imitated each other anyway and adopted the system.

And it gets worse. Sometimes, if you’re the odd one out that does not adopt the new practice, you start to look “illegitimate”. Analysts, shareholders, customers and so on start asking questions: “everybody else is doing it; shouldn’t you?” “Surely, everybody else can not be wrong”. But yes they can!

In this case – because customers start to shun them, investors criticize them, analysts downgrade them, etc. – firms may actually start to suffer from not having adopted the silly practice.

This places pressure on the firm to also act stupid, just to fit in, and be accepted. It takes a brave firm, to stop such a vicious cycle of imitation.

Saturday, October 16, 2010

We are a funny lot

Consumer behaviour is so complex that nobody really understands it. That's why there's a massive and flourishing market research industry to try and fathom this mysterious creature called you and me. Perhaps this is not so mysterious - after all the consumer is usually referred to as "she" instead of "he". And who can claim to fathom the mystery of the female of the species .......

Take the case of consumer behaviour in relation to plastic bags. When I first went to Guangzhou, I did the usual thing - go to a supermarket, buy tons of stuff you don't really need and cart it away in about 27 plastic bags . Since there are a lot of people in China and a lot of supermarkets, this translated into zillions of plastic bags let loose on the environment. Bad. Campaigns to "save the planet" yielded zero results. Mrs Li continued to merrily buy every kind of meat imaginable and carry them away in plastic bags.

The Guangzhou municipality hit upon a brainwave. Instead of banning plastic bags outright, as governments are wont to do, they simply decreed that shops must charge 20 jiao (or cents/paise) for every bag that the consumer wants. You would have thought that Mrs Li wouldn't care less - she's after all buying some 500 yuan worth of stuff. But no; much to everybody's surprise Mrs Li decided that she must contribute to saving the planet after all. She decided to bring her own bag to carry the groceries home . Lo and behold - plastic bag consumption fell by about 80%. You could still get one for convenience if you wanted, by paying 20 jiao, but you could also feel good about being responsible with the environment and bring your own bags. Great. Perfect mix of convenience and responsibility.

But then the same Mrs Li carries an umbrella - you see, it drizzles in Guangzhou virtually every day. And in front of the same supermarket which is shouting hoarse about saving the environment, there stands a pretty security lady who's wrapping your wet umbrella in a polyurethane cover so that the water does not drip in the shop. These are the extremely thin types - virtually no reuse potential at all and they are simply chucked. So zillions of plastic bags find their way into the waste dumps after all.

Why I write about this, is my experience being back home. There's no such rule in Bangalore; so our own Rajalakshmi merrily goes about filling plastic bags in the shop. This being India, and she being, shall we say, rather generously proportioned, there's more food to be bought !! So instead of the 27 plastic bags of Mrs Li, Rajalakshmi fills up 34 bags. And weightlifting not being her forte (in fact nothing remotely athletic being her cup of tea), she gets the shop to deliver this mountain to her home. Bangalore, with a questionable garbage disposal system, is literally choking under the weight of the plastic bags that its coders generate.

This blogger is of the view that he must make a small contribution - so he carries along his jholna bag (rather goes with the non corporate image being furiously cultivated). Try entering an Indian shop with a bag - you are branded a thief unless you can prove innocence; so stealing aids such as bags have to be strictly deposited outside. Attempts to explain green logic to Mr Bahadur Thapa standing at the entrance evokes total non comprehension. And even if you get past Mr Thapa, the checkout insists on putting the stuff into a plastic bag and then very helpfully placing it into my jholna. Environment be damned.

So what will work in Bangalore ? To make Rajalakshmi bring her own bags ?? Even if you are a genius in fathoming the minds of a consumer in other parts of the world, I bet you stand no chance with Rajalakshmi. So nothing short of a completely whacky idea will work. Readers are invited to contribute. Mine is to get some sundry frauds masquerading as god men to issue an edict that plastic bags from supermarkets are likely to result in arthritis of your small toe. The more illogical, the better - if its issued by a so called god man, it will be implicitly believed as gospel truth. Then maybe we can save Bangalore from being choked to death.