Reorganisations - the last refuge of the incompetent

There is one ritual that happens in all companies periodically without fail - an organisation restructuring. Old structures and divisions are thrown out of the window and new structures are announced. HR types take great pleasure in redrawing organisation charts, rewriting job descriptions and the like. Communication types have an orgasm designing communication packs and writing words like "restructuring to stimulate growth", "bringing the organisation closer to consumers" and such other waffle. CEOs like to stand up to the press and announce the change , to make up for lack of anything else to say about their companies. MIcrosoft did just that today, the trigger for this post. Steve Ballmer's version of the blah blah is "We are ready to take Microsoft in bold new directions". Balderdash. I have never seen a more futile activity than an organisation rejig. And yet companies do it all the time.

The pattern is all too predictable. If the current organisation is based on product lines, it will be made regional to "get closer to the consumers". If it is regional, it will be made based on product lines to globalise and take advantage of scale. People will be moved around in boxes on organisation charts. The new guys have to go on a round the world trip to familiarise themselves with their new responsibilities. Lots of presentations and power point charts. Every four years or so the charade is repeated.  None of this matters one iota to consumers and shareholders. The only gainers are probably the management consultants who make lots of money.

What a thorough waste of time and effort. Structures are important in organisations, but they matter less than you think. The primal instinct of marking territories and defending against invaders, is what structures are. Structures are boundaries where defences are erected , by petty minded egoistic manages who need to feel important. Much effort is actually expended in organisations in crossing structural boundaries. Seasoned operators build alliances and have informal channels through which they get things done.Formal structures matter little to the determined go getter.

The root of the problem is man's territorial instinct. Man likes to draw boundaries and defend everybody inside the boundary from everybody outside. Alpha males who inhabit the business world suffer from an acute affliction of this instinct. Chief Executives and Boards struggle to overcome this and get the entire organisation to operate seamlessly. Fat chance of that happening. In this quest, organisational restructuring is the placebo. The placebo is particularly touted by the HR function, as a magic cure, which gullible CEOs swallow all to easily.

If Microsoft's leaders think they can solve their fundamental problems and compete better with the likes of Google, by an organisational revamp, well, perhaps its time to write their obituary.

Tax evasion is a crime. Tax avoidance is a .... ?

In the good old days, this was an easy cliche. Tax evasion (breaking the law) was a crime. Tax avoidance (minimising paying the tax within the law) was something you were duty bound to do. Whether you are an individual, company, whatever. Period. Now it isn't so clear cut an answer.  And that says something about our times.

Witness the case of Apple. It does aggressive tax planning (all within the law). It has a big subsidiary in Ireland and has done a deal with the government there for a low tax rate. It does not bring overseas profits into the US, because it is double taxed then; so it leaves all its overseas profits overseas. All very legitimate. And yet there has been a huge outcry and a Congressional hearing where Apple is accused of not paying "its fair share of taxes".

Similar accusations are levied on Amazon, Google and Starbucks in the UK and indeed in many other countries. Nowhere are the authorities claiming they broke the law. They are just angry that these companies pay a low or zero tax despite large businesses in those countries.

From a public's point of view, there is no difference between evasion and avoidance. The expectation is that all companies must pay lots of taxes irrespective of the law and facts. Equally all rich people must pay big amounts of tax even if the law does not require them to do so. But for each individual himself, it is perfectly OK to evade tax (breaking the law). Queer set of values.

Almost everybody in India breaks the law when it comes to taxes. And before you protest too much, please answer if you have disclosed your savings bank interest as income in your tax return and if you have done no cash transactions above Rs 10,000. The less said about professions like lawyers, doctors and the like, the better. The salaried class is one of the worst offenders - their salaries are caught by the taxman under the withholding tax regime. Everything else, in the eyes of the salaried man or woman is not to be disclosed as after all they are paying "lots of tax" on their salaries.

Why does this work like that. Why is it OK for us to evade tax, but not for others even to avoid it. Is it just pure jealousy against the rich ? Is it just one law for everybody else and one law for us ? What is going on ?

For corporates and rich individuals, there is an expectation of  social responsibility at play here. It is not enough to follow the law. It is now required to be seen as "being fair to society" everywhere. This is a woolly concept ; after all what is the concept of fair.  But each company has to make its own "contract" with society. The more successful you are, the more demanding the contract.

Social responsibility has gotten an altogether new meaning, A far more challenging meaning. Companies have to be seen as "good citizens, whatever that means. Notice that the public's definition of a good citizen is "I break the law, but you shall do over and above the law". "

Its a tough world out there.

Not interested in the US anymore ?

So says Huawei. Really ?? No, not really. They are very interested in the US. Its just that they have realised that the doors to the US are simply shut for them. There has been a spat going on between the US politicians and Huawei for some time. It looks like the politicians have won.  And it begs the bigger question - can any company in the world be exclusively in one country or region (however big that might be) and hope to be a major player in the world.

Huawei is a telecoms company. They sell networking equipment significantly cheaper than say Cisco. They used to be crappy ( Cisco would snigger at the mention of their name). Not any longer. Same quality, half the price. In an uncomplicated world, companies  should be falling over themselves to buy from them.  But then, the world is not an uncomplicated place.

Huawei is a Chinese company. So what, you might ask ? Huawei's founder and leader was formerly in the Chinese army. Still so what ? Well, the ties with the Chinese government/army/party (same thing) never go away and its quite possible that Huawei will do whatever the Party in China asks it to. Huawei is not a transparent company. It largely refuses requirements that it be so.  And cyber espionage and hacking are weapons that the Chinese government uses against other countries constantly.The world's chief bugger (if you will pardon the bad pun) is China.

So Huawei is a pariah right. Wrong ? The US, and possibly every other major country does the same thing. Except that Obama cannot order Cisco to spy on his behalf while Xi Jinping can so order Huwaei. But then there is enough regulation and oversight in the US to prevent that from happening, or at least knowing that it is happening. And its not at all certain that Huawei would do anything major in the spying arena - its a $35 bn company. If its shown that it is doing something underhand, overnight, it would be expelled from the entire wold. But pompous Senators have repeatedly blocked Huawei from winning major deals in the US. Huawei has tried hard, but has won nothing. In frustration, they have simply given up. The beacon for capitalism and freedom, of course, does not think of the US consumers' interests (of getting things cheaper) and, of course, Cisco and other US competitors have been scrupulously fair , have never lobbied to stall Huwaei and surely windbag Senators have only the national defence of the US at heart.

Begs a question - why is only the US so paranoid. Every country in Europe has no problems dealing with Huawei . Even India, normally a completely paranoid country has plenty of Huawei here. The Chinese brass of Huawei in India go around with names like Ashok Li and Sundar Zhang. By the way, I have to recommend that Ramamritham Liu and Rajalakshmi Wang would also be worthy additions to their team. The only offense they have done to India is to start a Chinese canteen of their own on the grounds that what goes for Chinese food in India is unrecognisable by them and surely Gobi Manchurian is an abomination !

So what will happen to Huawei. They have admitted that they will have to revise their growth plans downwards. Without being truly global, no company can aspire to the big league. 

Or is that really true ? Could a company that's almost exclusively in one country be the largest in the world in its field ? We'll examine that in the next post.

Coffee is bad

What does Ramamritham have against coffee ? I would have thought the caricature of Ramaritham included a cup of coffee and The Hindu. Yet here's this venerable gentleman having an angst against coffee . Why ?

I am referring to IKEA's application to open retail stores across India. You may recall that the move to allow foreign owned retailers to set up shop in India is a recent one (Didi notwithstanding).  IKEA has been one of the first to submit their proposal, willing to bring it no less than Rs 10,000 crores of investment. You would have thought that they would be welcomed with open arms  - it is difficult to see boxed furniture being a threat to national sovereignty. But what they got was not a red carpet - instead they were treated with the full attention of Ramamritham. (in the guise of the Foreign Investment Promotion Board - FIPB)

I am no fan of IKEA stores. If you've been to one, they are all predictably the same format. You are forced to walk along one km of winding corridors that entirely destroy your sense of direction. You have to gaze at their full force of merchandise even if you want to buy a safety pin. After all those wanderings you are dying to sit down and rest your aching legs. Dutifully at the end of the trail you can buy a cup of coffee. Their format world over is the same.

Its the cup of coffee that has aroused Ramamritham's ire. Believe it or not, Ramamritham has turned down IKEA's application saying that they could not have a coffee shop - it appears that would become multi brand retail as the coffee is not IKEA branded coffee and hence would fall foul of the rules. Never mind the Rs 10,000 crores investment. FIPB is disallowing the proposal objecting to the coffee shop.

Finally the Commerce Minister had to intervene and suggest to Ramamritham that this is utterly nonsensical. He has asked IKEA to submit their proposal again and has promised them that he is partial to coffee.

Long long ago, when P Chidambaram was still a starry eyed reformer , he summoned a character called the Controller of Imports and Exports ( a terror those days) and asked him what he did. The worthy launched an impassioned plea as to how important and onerous his role was. PC's riposte was that he could perhaps understand that he had a role to play regarding imports, but pray, what was he doing trying to control exports ?? Within a few months he simply abolished the post.

I suggest he does a similar hatchet job on the FIPB. They perform no useful role. Open up investment in every sector barring maybe defence (even there there are arguments to  opening up for investment). Remember opening up for foreign investment does not mean that they can violate the law of the land. That provides the country ample protection against misbehaviour.

The only way to deal with nonsensical behaviour of objecting to the coffee shop is to abolish Ramamritham entirely.  Can Anand Sharma, the Commerce Minister, take a leaf out of his old predecessor and abolish the FIPB ?

PS :Newcomers to this blog who may not have been introduced to Ramamritham may get acquainted here.

Companies need a geography lesson

Ahhh ! If only the world was as simple as 50 years ago. Global companies found it quite simple then to divide the world ; there were only three regions in the world - America, Europe and Rest of the World. If you were an American company, 70 % of your revenues came from America, 27% came from Europe (Oh god; we have to improve there) and 3% came from Rest of the World (where's that ?). If you were an European company, 70% came from Europe, 27% from America (the bloody Yanks) and 3% from Rest of the World (where's that ?) Quite simple.

 

Alas life has got a bit more complicated for global companies. How to cut the world ? A popular division is to split as America, Europe and Asia Pacific. That threw up a problem - what about Africa (where's that ?). So came EMEA - Europe Middle East and Africa. Right - President Americas, President EMEA and President APAC.

 

That threw up more problems - does it make sense to group France and Mali in the same group ? And Venezuela and US didn't seem the same either.  So companies moved to split as per the continents - North America, Latin America, Europe, Africa and Asia.

 

That threw up more problems. In Europe, Western Europe was dead and declining. Central & Eastern Europe was growing at 35% per annum. Lumping them together under the same management seemed daft - they required completely different strategies. And what to do about Japan & China. Japan was more like Europe. China was an altogether different story. And was Dubai Asia or Africa ??

 

So companies started inventing "clusters" - the world was North America, South America, Western Europe, CEE, Africa & Middle East, South Asia, North Asia and South East Asia & Australia. Each had a President.

 

But that's got its own problems. Australia was more like the UK than Asia. Japan and China got still grouped together. So what to do ??

 

So, how to carve up the world ? In the good old days, geriatric Brits (since Britain owned most of the world), in smoky pubs, took out a world map and drew some random straight lines - how straight the line depended on how many beers they had had.  That's how country borders were created - if you see a map of Africa for example, that's why many so many national boundaries are straight lines. Never mind that it divided tribes, or ran halfway through a lake , and so on.

 

Now the same thing has been going on in companies. Substitute geriatric Brits for political company bosses, and smoky pubs for company boardrooms, and exactly the same things happen. There isn't a single company where this is being rearranged every three years.  Empires are made and they fall, just like in the political world.

 

I suggest that company bosses enroll for Geography 101 with Sriram,  before they start to draw their lines ! They might become a little more educated on the world.

 

Meanwhile readers are invited to present their own pet carve up of the world !

 

Cry for me, Argentina

Its time to change Andrew Lloyd Webber's famous song in Evita. There's no option, but to cry for Argentina. How else can you react to the awful move by Cristina Fernandez, Argentina's President, to nationalise YPF, two weeks ago ?

YPF, Argentina's largest oil and gas company is 57% owned by Repsol, the Spanish oil giant. Ms Fernandez's grouse against Repsol is that it is not investing in increasing production in YPF. This is partly true, but the real reason why YPF is not expanding production is that her government has artificially kept petroleum product prices low . No company is going to invest for very little profit. So the good lady has decided to nationalise the company. No doubt, a pittance would be paid to Repsol, well below the market value of its shares in YPF. This is daylight robbery, of the kind Ramamritham (of Vodafone fame) would feel proud.

Is this any way to treat your largest foreign investor ? Spain and the EU are up in arms and threatening a fight. Spanish companies have significant investments in Argentina, united by a common language, of course. Argentina can kiss good bye to any foreign investor from now on. Already it is an international economic pariah having defaulted on its sovereign debt in 2001. However much you hate international finance, you need investors for any economic activity.

Does any serious country nationalise anything these days ? Is there any more proof needed that nationalisation and state control of industry does not work ?

An interesting by line is the parallel with Indian politics. Cristina Fernandez is a Rabri Devi. Her husband Nestor Kirchner was the strongman of Argentina. When the constitution limited him for a consecutive presidential term in 2007, he installed his wife as President and , well ...... The plan was that he would return back in 2011 as President. Unfortunately, God willed otherwise and he died. So, the lady continues.

The worrying thing is that what this lady is doing might be read, and emulated, by another lady who's running another Eastern state in India. Thankfully, the latter lady apparently does not read any newspapers other than those that only write about her greatness. She certainly doesn't read this blog and there is little risk that the Argentinian precedent will be known to her. But still ,.........

The real worry is that Ramamritham has learnt about this move in the opposite corner of the world. You see, the problem with Ramamritham is that he reads widely, maybe even this blog !! The real worry is that he will take a leaf out of Ms Fernandez's book.

Andrew Lloyd Webber will have to produce another musical then. "Sonia" the musical, will feature the hit song, Cry for me, India !

One small step for Huawei, one giant leap for China

As is often the case, the seemingly trivial turns out to be a giant event. I suspect this is the case with Huawei's announcement, buried in the back pages of financial newspapers that it would no longer pursue new business in Iran. So what , you might ask.  Read on.

One of the fundamental principles in China is the total separation of politics  & economics. It has one of the freest of capitalist systems (at least for Chinese) and one of the most controlled of political systems. In foreign affairs, China has diligently pursued a policy of complete non interference in political matters. Its policy in Africa is unique in history. It is rapidly colonising economically, but scrupulously keeping away from interference in local politics. It will do business with anybody - God, Archangel Gabriel, Satan, Devil whoever, as long as there is business to be done. Before you denounce it, consider that there is some merit in this approach - the Chinese say political matters are for the citizens of that country to decide and it is not their place to make value judgements on them. In this, they are completely different from the European colonisers of the past.

The first chink I have come across in this policy is this announcement from Huawei. Huawei is a large supplier of telecoms equipment to Iran. These are undoubtedly used for espionage and suppression. Iran is a pariah for many nations - no American company can deal there. There has been constant criticism in the West of Chinese companies who do business there, but that's not unusual  - they are often criticised for doing business with the likes of Mugabe. So why has Huawei taken this clearly political step. Before you think that this is one company deciding and not China - perish the thought. No company in China decides on any sensitive matter without the go ahead from the government. For the first time, atleast as far as I know, China is saying politics might dictate economics in foreign affairs.

Is it finally true that economic clout cannot be divorced completely from politics.  As China's economic power grows bigger and bigger in the countries it is doing business with, it becomes harder and harder to stand aside and say it is not involved with local politics. This is exactly what happened to the East India Company, which started in exactly the same way. Maybe China is reaching the inflexion point. One breach like the Huawei action and the dam has to burst. Can the Chinese now deal with blood diamonds in the Congo, or keep away from selling arms to Mugabe, for very long ? As it gets drawn more and more into global politics, it will have profound implications for the world and China. The world because, it will alter the balance of political power inexorably. And for China because it is not good at doing this - diplomacy is not its strong point and it will have to learn.

That's why I think, its one small step for Huawei ..........

Ramamritham rules

Alas, Ramamritham is alive , well and strong and he rules upon all that he surveys (pun intended).  The Indian Government will announce today in parliament that it would open up the retail sector to foreign investment. No doubt the Left will organise some bandhs, yell at 10,000 decibels in the Lok Sabha, and then this law will be passed while the opposition will walk out en masse.

Ostensibly, this is economic reform. Its a pathetic, 15cms of reform after a decade of nothing happening, but we'll reserve that criticism for another day. What has got my goat is Ramamritham's dirty footprint all across this move.

Firstly foreign investment of 100% will be allowed in Single Brand Retail, but only 51% in multi brand retail. Therefore a Marks & Spencer store can be 100% foreign owned, but Carrefour can't. Even though they may both sell precisely the same things (M&S does sell a lot of food). Pray why ??

Secondly Ramamritham has excelled himself in drafting a series of conditions for allowing  even this. Look at some of them

• The minimum investment is $100 m. Where he got this figure is unclear. Why not $82.5 m? But at least we can live with this
• 50% of this $100 m has to be invested in "back end". Then our venerable hero has gone on to clarify that land, rentals and front end stores will not count as back end. No doubt detailed rules on what is back and what is front will be framed. (here is conclusive proof at last that Ramamritham doesn't know his front side from his back side) Lobbyists will work very hard to get IT systems included in back end. But R will qualify that Microsoft Office will not count as back end. Many months of fruitful work and litigation awaits.
• 30% has to be sourced by these companies from small scale (completely irrelevant if the product is rubbish and the consumer does not want it) No doubt a front small scale company will be set up who will buy the stuff from a big company and then sell it to the retailer to fulfill this quota. R being very smart will then draft rules to stop this. The retailer being equally smart will get a small scale company to buy from a small scale company to buy from a big company ....... and so on.
• Stores can be set up only in cities with 1 million population. Lobbyists will work to reduce this number to half a million. They will then lobby that last year Gummidipoondi crossed 1 million population and that R should not wait for another 10 years for the next census but instead pass an interim order allowing the store to be opened there.

How can we get this into Ramamritham's thick skull that we don't want him deciding what is good or bad for us as consumers.  Or for the small Indian retailer who he is trying to protect with such quixotic rules. The Indian retailer needs no protection. He is quite a formidable force. Its by no means certain that small retailers will vanish just because Walmart came in - in India the economics of the retail industry, especially the relative high cost of real estate,  is such that this is very unlikely.

In any case, how about letting the consumer choose. Rajalakshmi will vote with her feet and purse. She will buy where something is cheaper, better and where she likes to go. She deserves that freedom. Ramamritham should be booted from blocking the way.

PS : For those new to this space, Ramaritham is the mythical, fictional bureaucrat who takes orgasmic pleasure in framing complex, unnecessary and useless rules in order to make lives miserable for ordinary members of the homo sapiens species.

The curious case of Ben & Jerry's

Do you like Ben & Jerry's ice cream? Most probably a resounding yes.  But this post is not about its ice cream. Its about what it has done on Tuesday.

What it did on Tuesday was to go to New York's Zuccotti Park where the Occupy Wall Street protesters are camped and dole out free ice cream to all of them. Nothing spectacular about that, except that it went on to publicly declare its support for the protesters. It also published a statement from its Board of Directors that the company has the deepest admiration for the protesters and is standing with them. You can read what the Board said here.

Ben & Jerry's has long been a left leaning company promoting a variety of causes. Its founders Ben Cohen and Jerry Greenfield started the company with a clear social and sometimes political agenda. So should this latest action be surprising. Yes, because, Ben & Jerry's is no longer an independent company. It's a subsidiary of Unilever, a global multinational company, perhaps the very sort that the Occupy Wall Street protesters are agitated against (that is, if somebody can decipher what exactly they are protesting about).

Was Unilever ambushed by the act of Ben & Jerry's ? Tough to believe so - for the Board of Ben & Jerry's has Unilever representatives, including an ex Director of Unilever itself. Unilever has issued a statement that it is neutral to social campaigns and has no comment to make, but that is a blithe remark considering that  its subsidiary is indeed making a very loud statement.

How far do you let your subsidiary act on its own ? Usually subsidairies are simply legal shells and the parent runs them as one corporate whole, unless there are external shareholders. But Ben & Jerry's is different. Perhaps because of its historical brand image. Perhaps because of covenants agreed with the founders at the time of acquisition to allow the company to have a social agenda. But still, the latest action seems a step too far. I won't be surprised if the upstart is reined in.

What of the protestors ? They are objecting to evil corporations; right ? Do they want the support of one ? Some of them expressed mixed feelings. They said they were uneasy about corporations muscling in on their patch. But they also said, they could not turn down a free ice cream !

Very curious.

Happy Birthday Big Blue

On June 16th, IBM turned 100. Yes, 100 years old. That is a colossal achievement by any standards. As with living beings, so with corporations - the primary motive, and a great achievement,  is survival. Time to bring out the cake and sing Happy Birthday.

The company started life in 1911 as Computing Tabulating Recording Corporation, formed by a merger of three small companies. A decade or so later it changed its name to a more catchy International Business Machines, the name by which it is still known. And over the decades it has weathered many a storm, made many a significant achievement and today, even at a ripe old age, is strong, robust and dancing. That is has done so in the field of information technology, where the pace of change is far more rapid than in other sectors, adds a special gloss to the achievement.

Look at the inventions it has to its credit. The punch clock to record time, the electric tabulating machine, the ATM, the floppy disk, the hard disk, the magnetic stripe card, the barcode system, the relational database, the DRAM .......... Its employees have won five Nobel Prizes. It helped put man on the moon.

It has had towering business leaders. None bigger than Thomas J Watson Sr, who was President of the company for 40 years ,  between 1914 and 1956. A legend, it was he who created IBM. And in the 1990s, when it was tottering and seemed about to fall, it turned to a biscuit king - Lou Gerstner to transform it into a services company.

It was one of the earliest companies to adopt HR practices, that we would consider common place today but were positively revolutionary for those times. Group insurance in 1934, paid leave in 1937, a training centre in 1933. 18 years before the Civil Rights Act of 1964 in the US, it recruited its first black salesman.

Its had troubled times too. Early on, it didn't move away from punched cards and almost died. Another near death experience was when it lost the battle for the PC operating system to Microsoft. In the 90s , until Lou Gerstner pulled it into services, it was stuck on being a hardware company. But each time, it survived and came bouncing back. That's the stuff of champions.

Today its back to its heyday. Its a colossus and in robust health. Its one of the largest companies in the world. And one of the most admired. Happy Birthday old girl. You deserve a toast and cheer, even from your competitors.

Is globalisation a dirty word ?

Whenever there is any event of importance anywhere in the world, you are sure to find some form of "anti globalisation protest". "Globalisation" seems to a be a dirty word. Also dirty are 'multinational", "capitalism", etc etc.

If you ignore the loonies and listen to the arguments of the sane protesters, their logic for anti globalisation usually converges on the following

• It exploits poor people in developing countries and sometimes deprives them of their traditional livelihood (farming)
• It is harmful to the environment and contributes to adverse climate change
• It deprives people in richer countries of their jobs
• It does not promote human rights and democracy in the countries they operate

Underlying this is the assumption that multi national companies , in their single minded pursuit of profit, will not care about any of these.

Consider this for a moment. The protesters argue against multinational companies. Is it then OK for home grown companies to do exactly the same thing ? Is there any evidence that multinational companies are worse in their behaviour than domestic companies - surely the opposite is true.

The problem is that companies can freely move across borders ; ordinary people cannot. Economic globalisation has happened far ahead of social and political globalisation. Hence the inevitable conflict.

As I mused before on the bad connotation that companies in general ignite, companies have to think global, but act local. They must not make a big virtue of their globalisation. They should keep that very low key. They must be seen to be local.

Only when the social and political fabric of society becomes global (if ever), should companies come out their closet and declare themselves global.