Friday, September 4, 2015

The Story Greed, Deceit and its effect on Organisational Culture

When I first read Greg Smiths resignation letter 3 years ago on the ides of march, I knew something wasn’t right in the way financial institutions operate. A myriad of thoughts ran through my mind.

When we trust the people who advise us and implicitly follow the financial institutions that handle our hard earned money, we believe that we are buying professional advice at a fee that is normal.
Reality across the financial institutions is far from it. The very fundamental of NIM (Nett interest margin or commission on transactions)  that forms the bedrock of investment banking or simple banking stands compromised when a client is referred to as a muppet or transactions are done to make a 'hit and run'.

I am going to tell you 3 short stories here:

Greed part 1:
Yes “Hit and Run”. I have lately come across this word so frequently uttered incestuously by entrepreneurs who are doing the so called series A,B,C ‘or whatever’ funding of their amazing sustainable scaleable ideas in the hope of founding the unicorns
or
the very people who are funding these, each one hoping to find a ‘muppet’ before passing the parcel stops and the last muppet obviously files for Chapter 11.

At a time when 7 trillion of global market cap has been eroded in just 1 week between 24th and 28th Aug 2015, the net worth of Lloyd Blankfein has shot thru the roof . He happens to be the CEO of the most coveted investment bank on the planet  and is now a billionaire. Obviously he has found his muppets right.

The incapability of the human mind to connect the dots and take informed decisions leads to severe imbalances that keep aggregating to unmanageable proportions which eventually become endemic on a global scale.

In the early part of 2008 Murti of Goldman Sachs predicted  crude at US$200 and would have found thousands of muppets to dump oil futures and earn hefty bonuses in trading commissions and thereafter till the Feb of 2009, crude only accelerated towards earth to breach below US$ 40.

By the Dec of 2014 when the crude had already fallen to $65 from the $110 levels Goldman went on to predict a $40 level in the coming months and I am sure would have amassed billions in commissions on the base of their specious advice to gullible investors who were trying to get a positive alpha on their investments.

At the time that this piece was being written the crude was around $37.

What amazes me is the blatant manner in which these 'super' financial institutions such as Goldman Sachs etc across the globe misguide and get away with it and no real regulation has been formulated till day to make these goliaths accountable. No one seems to have a clue of what they are talking. They only seem to be in a perpetual search for muppets.

Greed part 2:
When all the top financial institutions collude to create a epiphany of deceit to fix the loan markets at the cost of billions of retail borrowers across the world to make supernormal profits, they start fixing LIBOR. Tom Hayes might be the face of the scandal and now a state guest for 14 years but can you even begin to imagine that the LIBOR which is allegedly the most transparent measure of global financial health was fixed fraudulently since the last 3 decades thereby making loan seekers pay larger than required interest rates and in every way feeding the bonuses (linked to profitability) of the bankers across the globe.

When fraud is at a mass market level, it’s in every ones interest to hide it – for its impossible to convict 80% of the bankers.

Greed part 3:
It was a sad day on the wall-street when Sarvashreshth Gupta a 22 yr young Goldman Sachs analyst jumped to hisdeath after complaining of 100 hrs a week work and ridicule by his boss and unreal timelines and pressure to complete presentations. When he left India as a student of Pennsylvania University, the family would have seen no end to their happiness - for dreams come true when you travel to new countries for education and jobs and money. But sarvashreshth was being made to feed someone else's greed.

Moral of the three stories:

At an extrinsic level these might be isolated cases of individual frustrations / failures / or misplaced ambitions that the media would make these sound. But at an intrinsic level these stories are a reflection of an irreparable rot that has infested the corporate culture where irrational demands and insatiable expectations of abnormally higher profits make people do things that are outside the subsets of propriety.

Culture in families, in organisations, in countries and on the planet is a function of varying degrees of greed and righteousness. The global culture now sits on the bedrock of an ultra-capitalised greedy planet that is only working towards higher and higher profit and bonuses.

Unless the captains of the industry such as Blankfein and hundreds like him don’t take it upon themselves to get rational in their greed and change the corporate culture, and let the results, profitability and achievement of Annual Operating Plans be a function of organisational culture having underpinnings in happiness, care, trust, patience, compassion and not simply a mindless pursuit of month on month profit, the talent and lives of people like Greg Smith, Tom Hayes and Sarvashreshth Gupta would continue to get wasted.

We are born to be ‘naturally’ truthful and happy and stress-free and cohabitate peacefully on this planet with each other. Greed and fraud and deceit takes a lot of effort. The choice is entirely ours as to what seeds we want to sow in our respective organisations that would eventually form the ‘corporate culture’.

Warren Buffets white knight investment into Goldman Sachs in 2008 might just have been his life’s biggest moral mistake.

And next time someone tries to sell you a capital protected market linked investment/insurance plan (which only God can guarantee) give that fellow a tight slap and start running away from him for such a thing doesn’t exist and will never exist either.

Manu also writes on Huff Post.

Sunday, August 9, 2015

The Run Rate Conundrum - 'Or the beginning of The Great Depression'

Being a citizen of a country obsessed with cricket, the only run rate that I ever knew was the runs that a batsman makes per over and that i thought defined the run rate - till recently when I realised that even businesses (read new e commerce world) are getting discounted and valued on their run rates. It must be very interesting for those old brick and mortar industrial houses such as the Tatas in India and Walmart
in the US that flipkart and facebook are valued more than these over a century old business behemoths. What took billions of man hours to build has now been surpassed in value by young turks who took their ideas to fruition in a matter of a few years.

Hats off to these young companies for what they have created in such a short period of time.

But there is another side to this story of how the calculations based on ‘run rate’ have brought the world to the precipice of destruction and collapse.

And 2 sectors, one with which I am closely involved - hospitality, and one which I am closely watching lately, are perfect examples of how Bill Gates has done an immense disservice to the human mankind by inventing that little devil (thats what we will call it from now on), the ‘ + ‘ sign on the excel cell where you plot the run rate for the shortest period of time between the two cells, drag the cells to a time period of convenience, where the potential extrapolation of that run rate makes Walmart’s annual sale look pale in comparison to the run rate and get millions of dollars of funding for the idea that is yet to hatch.

In late 90’s it was as easy as registering a domain and coming up with an idea. And a couple of million dollars could be raised easily and the founders would start surviving on Dom Perignon in the hope of a Nasdaq listing just a few months from the conception of that idea.

What happened in early 2000 and the dot com crash merits no explanation or waste of time of the readers of this piece.

The consultants and investment bankers who had deployed trillions of dollars of funds (..of HNI’s , pension funds, 401K in the US etc) in these dot.com companies and earned and digested their deployment bonuses (because no one ever made any profit) suddenly became lecturers and advisors on topics such as how the chaos of 2000 could be avoided.

Relying on the perfectness of the short human memory, about 7-8 years later these investment bankers got a brilliant idea and a new scam of CDO’s emerged on the premise that house prices will go up infinitely and incessantly across the globe and a simple burger flipper ended up owning 3 houses because of cheap credit and loose control on credit checks and what followed consumed the likes of Lehman and over a hundred banks across US and Europe. But the investment bankers had already encashed their ‘deployment bonuses’ and share of the brokerage incomes by doing a circular trading of these Collateral Debt Obligations and who was left behind holding a carrot? The commoner who was enticed to buy his second or the third home and the pension funds and the hard earned money of HNI’s (that was siphoned off by the likes of Madoff and hundreds of fund managers of these Ponzi schemes).

And - Because many of these institutions were too big to fail, it was all eventually funded by governments thereby expanding the balance sheet of the respective central banks and during this time when people were losing their homes and losing jobs, interestingly the global sale of ultra luxury goods was at an all time high and there are no prizes for guessing who was stoking this insatiable demand of these luxury goods (Louis Vuitton, Hermes, Dom Perignon, Rolex and Cartiers of the world)

Almost 7 years later (I am convinced that collective short term human memory begins to fade after 5 yrs and is completely wiped out in 7) we are seeing a frenzy like never before where people say that ‘this time it’s different’ because the businesses have actual run rates and e commerce activity has actually taken off and the approx. 16-17 trillion dollars that’s conveniently printed by the US Fed needs deployment and therefore the same cycle all over again.

While we are yet to see many/any of these multi billion dollar companies churn any positive cash flow, the distribution of deployment bonuses is at an all-time high.

I was amazed to hear that a Japanese company paid out close to 135 million dollars in a year to one of its rockstar executive for deploying approx a billion dollars in the same time period. That’s 13.5% in deployment fees/bonus. (this example is over-simplistic but is being mentioned just to make a point)

Small companies selling salads, idlis, sandwiches, rotis are getting obscene amounts of funding because they are allegedly having an exemplary run rate and conveniently someone is seeing immense potential of growth because of a 15 day run rate which if you extrapolate using the devil ‘+’ on excel makes this company/portal worth a couple of billion dollars.

Why?? Because they sold 2 pieces of their product on the day of the launch and ever since they have been registering a 100% growth in the last 30 days. And none of the investment bankers want to miss this opportunity to own these growth stories. Is this sustainable? I don’t think so. And I am quite sure about it. On the 31st day of course the run rate isn’t the same but the funds have been deployed for accelerated value creation.

During the times of irrational exuberance everyone only talks of growth potential and entrepreneurs only look at their product and imagine that every single person on the planet is their potential customer and an infinite demand is assumed and therefore exuberance. No one realises that in the hyper competitive and efficient market with negligible barriers to entry any great idea is great only as long as it’s in the mind.

Hotels are an interesting case in point. The consultants make the owners spend humongous sums of money on the basis of the ‘little devil’ and suddenly large investments on land and building seem recoverable but oops only a handful of hotels in this country have been able to recover their investments and majority of the hotels chains are reeling under severe debt and a popular chain ‘Leela’ is almost bankrupt and many other hotels will take over a hundred years to recover investments going by the actual run-rate.

But consultants have taken their fees and are looking for new clients and there is no answerability.

This will continue for ever unless:

  • Every fund manager is made a part owner of the businesses where he is recommending investment.
  • 'change the consultancy model from all authority and no responsibility to all authority and all responsibility'
  • 80% and not 20% of the compensation of these deployment managers comes out of the positive cash flows of the businesses.
  • Consultants are made to move from the model of ‘all authority and no accountability’ to ‘all authority and all accountability’.
  • Consultants, investment bankers, and deployment managers aren’t allowed to ‘hit and run’ at the cost of the investor.

Till that historic instance in time some innocent child again shouts and says that the ‘emperor is naked’ this bubble will keep getting inflated and will consume the world all over again and if indicators are anything to go by and if the sum total of all present economic, political, financial, emotional and judgemental decisions could be plotted on some model to arrive at a result……

What lies ahead will make the depression of 1929 look like a walk in the park.


Manu also writes in Huffington Post

Saturday, July 18, 2015

The Futile Rant About Stress and Work-life Balance

Every Sunday newspaper supplement invariably carries an interview of some CEO or a leader with an opinion on work-life balance and how the same has become so vital in today's busy industrious metro 'something' lifestyles. 

Advice is freely available that ranges from ideas such as 'Ways of switching off from work', 'The power of saying no', 'Taking regular holiday breaks' to 'Finding specific time out for hobbies' and 'stress management'. 

The misanthropist in me gets amused. Work-life balance is not a verb or a task that's actionable. It's a state of mind. 

Any conscientious manager who has a sense of responsibility to achieve something for his employer (read the one who signs cheques that feeds your family), for his own comforts, for his family, his community - for the desire to make a difference to the society, and for all those who look up to him - how can work and life require a mentionable balancing act? 

For any well meaning person, work should be life and life should be work. 

While I do come across people who work strictly by the watch all their life, there is a certain breed of these people who can cause a traffic jam at the office exit gate at 17:29:55 hours if the official time is 0900 to 1730 hours. I wonder how can tasks-for-the-day suddenly be completed with such alarming precision. 

Ratan Tata during a Jaguar and Land Rover meeting in the UK expressed his disgust about the attitude of UK managers in the garb of work life balance and their intent to work by the watch. The itch to leave and switch off from work on Friday afternoon at 1500 hrs through Monday morning, almost everywhere westwards of India is surprising. 

If a senior manager was made the owner of his company (where he is employed) overnight, would he switch off or allow anyone to switch off or even fathom switching off for two and a half days? 

And then there are people who can plan their holidays months and sometimes years in advance. Again I wonder - how can there be a guarantee that the organisation wouldn't require you at a future moment or a project may not require your attention. How can one plan a committed holiday ahead of time? 

If you need to travel with your family you just plan and travel whenever you feel that you can be away from work. If there is a family compulsion just inform your team and leave without any question or doubt.

But if you don't NEED leave why do you want to be away from work - that used to be allegedly 'Worship' in our childhood books - just because you have a few leaves pending?! 

I am inspired by Netflix and the culture that company has managed to implement. Amongst many game changing initiatives, one amongst them is that there is no leave policy at all. And the study proved that liberty to take a need based leave actually improved the efficiency and profitability of Netflix. And employees were happier even though they were taking 30% lesser leaves.

'Act in Netflix's best interest' - That's it. Culture cannot be simpler. 

Stress is another topic of discussion thats commonplace these days. Everyone is seemingly stressed. Everyone is talking about stress management. So does that mean that life is giving you stress? But yes stress is a way of life - if stress is an issue at all. 

But why should your work, your family, your job, your children, your time commitments give you stress? You need to manage all this, smilingly - if you love all of the above. Anything that you don't love or don't respect will give you stress. 
....and if God wanted the need for human beings to switch off, he would have designed a switch in the body....
I believe, no balance or stress management is required for efficient managers. God gave you a body with a mind and a heart that never switches off. And if God wanted the need for human beings to switch off, he would have designed a switch in the body. 


If a person has the ability to think - how can a person switch off and what's the need to switch off. An average person sleeps for 8 hours , has an average 2-hour commute, works for 10 hours and does everything else in the remaining 4 hours including eating, socialising, family time etc. Being alive is a balance in itself. 

So what's the point......! 

We allow our mind and body to be shackled in the assumed burden of work and then seek balance. If you love what you do, why do u need unshackling. If you are responsible enough to hold the position that you are holding why do you need to switch off. 

Even though you are away from work, you are still thinking about it all the time. But can thinking kill anyone? After all, psychologists ask you to regularly play Sudoku to prevent Alzheimer's. Why can't people consider their work - a game of Sudoku? 

Work is life. Work is party.... 

Evolved beings are always partying and enjoying and working simultaneously. There can be no distinction between work, party and life. 

Clichedly enough, if you love what you do and consider your work as a hobby, you will think about that hobby all the time. For instance, I don't find it strange that sometimes in the middle of the night when I think of a new idea or thought, I instantly WhatsApp it to the leaders of my team so that that flash of idea is not lost and sparks imagination in my team who will translate the vision to organisational reality. In my opinion, no hour or place is odd. You could be having an absolutely unproductive day at work with only lacklustre ideas and yet while lying down at home think of an idea that may make a huge difference to the organisation. 

I think about my work all the time. I love golf, economics and stock markets and I think about them all the time as well. Thats how I find my balance. 

Anyone who is seeking work-life balance or feels that it can be sought or achieved won't ever find it and anyone who needs to switch off - isn't switched on enough and won't ever be either. 

L. P. Jacks beautifully cites, "The master in the art of living makes little distinction between his work and his play, his labor and his leisure, his mind and his body, his education and his recreation, his love and his religion. He hardly knows which is which. He simply pursues his vision of excellence at whatever he does, leaving others to decide whether he is working or playing. To him he is always doing both".

manu also writes on Huffington Post 

Saturday, May 30, 2015

Martians, Modi and A Challenge for The PM

For the fear of being left behind I thought it imperative to opine on my Prime Minister for whom I voted and also wanted to write a non economic, easily comprehensible, data-free article that anyone can understand especially my international audience.

I haven’t been as amused lately as I am now, looking at the various marketing machineries for Modi who has been creating an aura of invincibility and humbling the achievements of Mangalyaan in comparison of what the Ironman has achieved in the last 1 year.

Let’s ignore the following few things in the credit of Modi and imagine that aliens from Mars are responsible for these and not the government:
  • Rate of increase of farmer suicides
  • Slowdown in industrial production
  • Lack of tolerance towards the Christian and Muslim communities that has exacerbated in the last 1 year
  • Real Interest rates still high because of a high spread retained by the banks and government having no real control over anything
  • Unemployment rates going up by a few hundred basis points
  • And not a single big infrastructure project having taken off the ground with hundreds of billions of dollars stuck in stalled projects

Now let’s safely assume that a few of these amazing global tailwinds were all because of Modi’s charm that he spread, during his global sojourns:
  • Crude oil prices dropping from $110 to $55
  • Inflation is well within the comfort levels of the Central Bank
  • Dollar inflows into India that took our forex reserves to USD 350 Billion
  • Easing of tensions with Iran thereby making the Middle East a bit more stable.

While the captains of the industry aren’t getting enough opportunity to praise Modi for what he has done for the country or its economy, since no one dare displease him, my report card for my Prime Minister is as follows.

I am a common man – very middle class –  simple things matter to me.
Each day, as I read about the plan for 100 smart cities in India, I only look towards the skies and musingly ask God – "Are you kidding me?!".

I keep looking for the ‘acchhe din’ or good days that were to come with Modi.
So much talk about a corruption free country. But just recently a policeman in Bangalore fined me in cash and even gave me a discount upon negotiation. Was fined because I went on the wrong side of the road. A pertinent point to be mentioned here - Bangalore is the only city where, on a few roads, one must drive on the right side instead of left and those new to the city are supposed to know this by birth!

It's all a big sham!
Governments have only marginal utility.

For a commoner, it's like selecting an outsourced security guard for your premises at minimum wages with minimum expectations and hoping that when one day the real need arises – this fellow isn’t sleeping.  Otherwise most of the time – he's just half dead - although he's still there.

While a lot of columnists and senior journalists are busy writing the government’s scorecard, discussing his performance in incomprehensible semantics, I want to give Modi a simple task –

India approximately has an area of 3.2 million sq kilometres. Mr. Modi, please pick up any 100 only hundred sq kilometre (.03%) area of your choice anywhere across the length or the breadth of this country and convert it into a place where:
  1. An hour of rain doesn’t inundate the area and choke it
  2. Where an innocent pedestrian can walk without tripping over
  3. Where a person on a wheelchair can roam about without cursing every single day of his existence
  4. Where a tourist can drag his suitcase without a hassle, between roads and footpaths
  5. Where traffic lights work and roads have adequate lane markers
  6. Where a pedestrian has more respect (like everywhere else in the world) than the speed defying typical Indian driver on wheels
  7. Where a lady can walk without feeling uneasy or being visually stripped naked by passerbys
  8. Where someone who must be punished, is punished without blaming the 10 million pending cases in Indian judicial system 

Just maintain it for one year for the world and your voter to see.

And then we will do the swachh bharat and talk of 100 smart cities – please.

In the meanwhile it would help to spend some time in your country rather than making innumerable  trips abroad unless you want to cover it all before the oil prices start going up.

You are a good man Mr. Modi – and I think you've got the vision right. But vision must be followed by strategy, which must be followed by execution and metrics – and my Report Card says – you still have a very very long way to go. In the reportcard, at best, you get a Minus B.

Wednesday, May 27, 2015

BlackBerry And The Art Of Becoming Irrelevant in the Business World

Around the time when Mark Zuckerberg was floating around in the dorms of Kirkland House figuring out Facebook (FB) or allegedly plagiarising the Winklevoss brothers' ideas, the market cap of BlackBerry (BB) was about US$64 billion.
Fast forward to 2015, the market cap of FB is at about US$225 billion while BB is less than US$6 billion.

There was a time when owning a BB was associated with busy high-level corporate executives who always felt the need to be connected and have uninterrupted access to their e-mails while on the move. The BB Messenger also known as BBM -- an Internet-based instant messenger -- was a really clever innovation, a sort of wonder that allowed people to remain connected without paying exorbitant prices on GSM texts.
The BB was seen as a well-guarded bastion when it came to security. The best of the hackers around the world could not break the encryption codes of BB. Some pockets of US government including the White House still completely rely on BB since there isn't a platform as secure as this. BB owns some 44,000 patents that form the bedrock of its intellectual property.

But when Android was taking over and becoming a preferred platform for mobile software, BB couldn't see the train coming head on and made three fundamental mistakes that have rendered it irrelevant forever.

These mistakes are similar to those that many companies make in today's business scenario.

1. Overconfidence in one's ideas and existing business models

The clich├ęd saying "change is the biggest constant" is more conversational than truly understood by the majority. Polaroid, Kodak, Xerox have all become irrelevant and BB had ample opportunity and intellectual capital to correct its course at the right time. But hubris isn't only personal and human, it's organisational as well. And hubris can do you in. Resistance to change and resistance to new ideas and new paradigms can be suicidal.
BB was an amazingly evolved tech company and was at the zenith of its popularity. But its pride and its belief in its supremacy didn't allow it to evolve and open the platform for creation of apps and allow developers to use that platform for creativity; Google's Android did. When BB's market cap was about US$64 billion, Google's was about US$35 billion USD

On most occasions I disagree with Michael Porter but here I vehemently agree. BB had created an amazing barrier to new entrant and it just scuttled it away.

2. Delay to act in the face of an approaching train

Imagine you get stuck on the tracks of an oncoming train while you are with a group of people who are only going to follow you and listen to you (read CEO). You are supposed to shout at the top of your

voice and get your followers (team members) out of harm's way. And yes you have to
scream on the top of your voice. You cannot say,Excuse me - there appears to be a moving object that vaguely looks like a speeding train and if I ain't incorrect it is seemingly moving in our direction and for our safety, we must just step aside, please. What you need to say is Get the *&^% out of the way.

Strategy strategy and (oh my God!) strategy. This word has consumed more than 80% of the educated world especially the folks from business schools. And there is less action and more strategy in the corporate world today. Parkinson's Law.

Someone within BB needed to see the onslaught of WhatsApp. By the time BB figured out that their BBM messenger had to be on an open platform, and WhatsApp had to be BB compatible - it was too late. WhatsApp spread like an unstoppable virus and before you could say Jack Robinson, WhatsApp was a 300 million strong community. Jan Koum started WhatsApp as a small initiative to circumvent the inflated GSM texting costs and that became the nemesis for BB.


3. Failing to protect the consumer's interest / pocket

I love the phrase ceteris paribus. All other things remaining constant, the cost to the consumer must be the lowest in an efficient market. You cannot have a product that's pricey, not-so-good looking, expensive to use and still running on technology that's at the end of its product lifecycle.

BB hasn't thought of introducing a dual SIM mobile phone till date. In fact, until they launched their OS10 about 24 months ago, consumers had to subscribe to a BB plan with a fixed minimum monthly cost of Rs 300 (approx US$5) in a country where average revenue per user (ARPU) is Rs 95 or about US$1.5. Frequent travellers, price-conscious consumers figured out the virtues of carrying two SIM cards for various purposes and taking full advantage of various talk-time plans. Samsung with its duos range at the right time of "need lifecycle" launched dual SIM phones and changed the game forever. Almost all manufacturers now make dual SIM phones but Samsung is far, far ahead of the curve and BB still hasn't figured it out.

BB wrote its own obituary way too soon due to inaction or absence of speedy action at the right time.

Don't let that happen to your company.

Manu also writes in Huffington Post

Sunday, May 10, 2015

License to Corruption

Research and data can throw rather interesting theories and a recent one by Uma Karmakar, a Harvard Professor and Bryan Bollinger of Fuqua threw up an interesting argument.

Their research drew a correlation that shoppers who brought their own bags to recycle would tend to buy more organic versions of food. One green action led to another. But the same people were most likely to buy ice cream, chips candy bars and cookies. These shoppers weren’t replacing green items with junk. They were just adding junk to the cart.

Uma’s research says:
You do good and you give yourself a cookie
If I behave well in one situation, I give myself license to misbehave in another.
I get a diet coke – I get myself a hamburger.
If I have carried my recyclable bag, I have helped the environment – so I have earned the icecream.

In consumer psychology ‘licensing is the key’

License to indulge or licence to be corrupt

Corrupt?

Corruption isn’t only in financial parlance. Corruption is a simple word that means questionable intent wherein individuals don’t do what they are supposed to do or they do what they aren’t supposed to do.
‘Corruption in my most simplified connotation is diluted intent’

A simplified parallel can be drawn between the research above and over zealous and tom tomming ceos and executives in positions of authority and also between politicians who pretend to be paragons of virtue. And if you look around you there will be ample to locate.

People who are loud and brash and are over confident of their performance and cannot stop tom tomming are the people that boards and top leaders must watch out for. As corporations grow, more than often we would come across executives who are always on the right side of everything, who would always be too good to be true, whose integrity would always be seemingly unquestionable, who would always get loud in tricky situations to create a facade of invincibility. These could be the very people who would have hidden traits of Jeffery Skilling of Enron, Martha Stewart or Carly Fiorina who would put their businesses and its reputation in harm’s way.

Politicians aren’t terribly different either. The most corrupt politicians are the ones who indulge maximum in public service. India has a huge concept of farm and gas subsidies paid by the combination of fiscal deficit and tax payers money. But a fraction reaches the end user and yet the powers that be seldom show a real intent to weed out this structural flaw in public distribution because this money in some form or the other finds its way back into the politicians personal coffer.

The more money is allocated for infrastructure, the more we hear of people vanishing in open gutters during rains in India, the farmer suicides is now a global debate and yet no serious intent has been shown by the polity - for how else, but through corruption, would the elections be financed in India which is really the root cause and forms the bedrock of all corruption.

Bertrand Russel rightly quipped – Fools and fanatics are always so certain of themselves and wiser people so full of doubts.


And next time be on a watch when someone tries to take the recycling of grocery bags to a level of obsession or talks too loud about ones virtues of honesty and righteousness.

Sunday, April 26, 2015

Is Life and Commerce - a Casino?

GMAT is a popular exam that most MBA aspirants appear for. And the sample tests available online throw up a very interesting food for thought. If one is just hovering around being an average or just
above average (Joe Bloggs) in academics he/she would score about 550-570 out of a total of 800 ie 65 percentile (approx) if that person were to mark the entire exam randomly as per ones gut, the score would still be still 550-570

This i figured out when i was preparing for my GMAT in 2007. The trick is to achieve 99 percentile.

The business world

MBA to me is seemingly the most irrelevant education one can ever acquire because it makes you aware of your surroundings a bit more than everyone else. The case studies based on thousands of successes and failures over the last 100 years makes you terribly aware of too many things and you lose your chance to take that risk. Because we fail to forget that its an efficient marketplace.

The more i deal with educated and allegedly experienced professionals the more sceptical i get. Analysis analysis and more analysis. The sum total of all monetary risk is as follows. Every fund every source of money could be parked in AAA rated securities (absolute safety), and as businessmen start taking risks and start leveraging the base equity, the returns start rising. (Risk reward ratio – directly proportional)

In India you can easily park money at 11-12% in almost AAA rated securities or bonds and Warren Buffet’s life performance is about 21% CAGR (and i consider him the epitome of financial performance), so put it simply - the entire economic activity on this planet, the entire analysis, the entire risk reward, the entire funding of start-ups, etc etc is to inch from 12 % CAGR to 21% CAGR.

And yet

Statistically only 8-10% companies have survived beyond 33 years of existence
Only 8-10% of start-ups ever make any money
Only 8-10% of return is guaranteed over a long period of time
And in a casino if one analyses the top 4 games that are played 95% of the time, you have a fairly good 8% chance of winning.

If Ambani (india’s leading businessman) had analysed his pro and cons even an iota more, his children would still be filling fuel in the petrol bunks of Yemen. Thank Goodness he didn’t know what IRR was.
If Bill Gates or Jobs had calculated their IRR on their investment what would they be doing today is anyone’s guess.

Life is about the leap of faith and an uncanny and a very scarce ability to go with ones gut to invest/start/embark on the journies of life. After all you only have an 8 % chance over short to medium term and we are all dead in the long term.

The business of life

Life sucks – I know a dear friend who courted for 9 yrs before getting married and the marriage lasted just a little over nine months. And there are people who didn’t see their potential spouses, went thru an arranged married ( 2/3rd s of the world doesn’t even know what an arranged marriage is) and they have been married for ages some for decades and many I know for over half a century.

Carrying your heart on your sleeve is the best virtue a human being can have. You win some. You lose some. Whether its life, love, casino or business.

Go by your gut and pursue your dreams. If you win you become rich, if you lose you become wiser.

There is no failure in life – only feedback


And life is just one big casino.

Sunday, January 25, 2015

The Hero who moved me

More than often our lives get crowded by motivations that we draw from the super achievers, the great scientists, the billionaires, the inventors, the business leaders who have made an amazing difference to the planet and to the mankind. Mine does too.

But a few days back my wife and I visited Mallaya Hospital Bangalore, for a general health checkup and while waiting for my reports that were seemingly taking an infinite time I was just observing the Bangalore life and traffic go by when i heard an ambulance siren at a distance and this security guard, approx 40 yrs of age wearing the cleanest and most well ironed uniform, emerged from somewhere and immediately, with the agility of a soccer player, readied a wheelchair and a stretcher and an oxygen cylinder.

Within this time an auto driver (tuk tuk) screeched and brought in a very sick woman and this guard pulled the wheelchair got this lady into it and shouted at 2 nurses to whisk away this lady into the hospital’s care.

The ambulance arrived in the meanwhile and this man was ready to open the door and get the patient in emergency out of the ambulance and pushed the stretcher up the ramp to handover to the nurses who were just emerging from the hospital.

All this happened within a 2 min time frame and over the next 15 minutes that i observed this man tirelessly and relentlessly made a difference to the life of every single person who crossed or arrived at the hospital porch spread over no more than 80 sq mts. To a few passerbys he simply enquired about the health of their near and dear ones. I just assumed that this must be the guards first day at a new job/assignment.

I collected my reports and left for the day but somewhere the memory of my 20 mins there lingered on and i asked my chauffeur to go by the hospital next day and stopped my car 50 mts short of the porch and again saw this man, the security guard, at it with same enthusiasm, same speed and same smile.

Couldnt resist the temptation to ask this man what his exact job is – and he said he is ideally supposed to just stand there to ensure a simple law and order at the hospital entrance. I felt a sense of pride shaking hands with K.M. Nathan and felt his infectious energy and enthusiasm. He told me that he has been doing this right here at this spot the same thing for 22 years. And he is 50 now. I have not been so moved by anyones commitment ever in my life. Since 22 years Nathan was performing at 200% of his efficiency, every single day, as if that was the first day of his job.

In an era where billions of dollars are being spent to do research on how to break mission fatigue (repetitive job syndrome) and on office ergonomics where legal rights of employees make them sue their employers just if the shape of the chair isn’t correct, Nathan is a definite outlier and a fine example of what commitment means.

Commitment is really the most important dynamic of strategy and success. A committed team that collectively moves towards common organisational goals can make any company or a project successful. It cannot be taught in business schools, it cannot be developed externally.

The trick is to find Nathans in your midst and nurture them. Nathan is made of an element that doesn’t exist in the corporate world anymore. More than often our myopic corporate visions fail to recognise the Nathans around us. Mallaya hospital did and maybe Nathan is their best brand ambassador.

You are my hero Nathan and you have taught me a new connotation of commitment. 

Sunday, January 11, 2015

How Boards expedite the demise of some of the best Companies

We were in absolute-absolute awe of TESCO during my days in the UK, during the hey days of TESCO. The retailer had established itself as the most efficient company, churning out QOQ of phenomenal growth, managing its working capital cycle so beautifully that 3 months of working capital cash (zero debtors and 3 months creditors) allowed it to become the most wealthy real estate company as well. Sir Terry Leahy was regarded as a business icon par excellence and no business management class / case study would go by without the mention of TESCO, its success, its strategy, its leadership and its growth. The customer reward program “clubcard” has been revered as one of the most successful reward/research programs in global retail.

Established in 1977 it spewed a whopping net profit of 3.8 billion in 2011 and attained a market cap of some 100 billion Pounds at its peak.

Circa 2014 overstating of profits, accounting scandal, CEO resigns, Market Cap eroded by 70% and the stakeholders – vendors, employees and most importantly customers lose confidence in one of the best and most talked about companies in British history.

These stories and case studies provide an immense opportunity for CEOs and the Boards to analyse in depth the real causal factors of such mistakes/fiascos and learn fast. And i have come to believe that a greater opportunity lies in failures, bad bosses, bad companies, frauds around oneself as that teaches you what not to do and what not to be. Because the world is full of advisors and teachers who tell you what to do – but not ‘what not to do’.

In the era of ever increasing hierarchies and over paid board members with chip on each of their shoulders, it becomes a compulsion on each and everyone to allegedly perform, review and justify one’s presence in that chain –

And thats where the problem starts. Lets reconstruct what might have actually happened at Tesco.

1    A mom and pop store tries to make it big by focussing on its customer, employees and concentrating on providing value while cutting costs and aiming for superior sales and a respectable growth. (by and large this is the crux of millions of mission and vision statements round the world).

The CEO, a maverick and a confident fellow expands the chain over the next 2 decades to a stratospheric level and achieves some amazing benchmarks in the history of business growth and performance.

After a few good consistent quarters and a few consistent years, the board expands and so do reviewers of the business, each one of them having some success in their pocket in some domain but little or no expertise in retail but having an unbelievable ability and capacity to opine and advise the CEO

From an annual review format, and a distant oversight on the business the board now wants a quarterly review of sales, costs and profitability.

The operational team expands and a reporting division is set up at TESCO to sate the board’s appetite for reams and reams of numbers, data, analysis.

The CEO begins to get a bit edgy as some of his time is now spent in ensuring timely quarterly reporting, new formats of reporting, each of these formats of reporting arising out of each of the reviewers imagination/past-experience and his belief in the effectiveness of these formats.

CEO (ambitious, growth hungry – both personal and organisational, conscientious and diligent) now begins to work harder and smarter than ever before and maintains the pace of growth, trying to outbeat the reasonable industry parameters and ensuring that that the board is happy with reporting and growth and numbers etc.

The board begins to feel that every target, every goalpost that the CEO had been given was seemingly easily achieved, every retail industry benchmark was easily surpassed – so perhaps the CEO needs to run even faster, better and more efficiently and the CEO could do something more and something better than what he has done all this while.

The board members analyse the data even more and come to a conclusion that retail industry needs a greater scrutiny and the company needs to move from a quarterly reporting and review to a monthly review.

CEO by now a bit bewildered and stretched, begins to wonder where to get the next alpha in growth because by now he is concentrating less on the till management, external customer’s sensitivities, he has lesser time for his vendors, he has lesser time for his employees (the greatest asset) and by the time one monthly reporting gets over only to be told by the board that the business could have performed better -  it is time for the next monthly review.

Now the board has become the most important customer, the internal customer and the poor CEO is spending his max time on the internal customer and least on the external. The poor fellow – TESCO’s customer who isn’t now getting the best bang for his buck on the till, who feels that ASDA is doing a better job with customers, who feels that TESCO is losing the grip on the most important stakeholder – its paying customer.

The numbers begin to wane and market metrics begin to flounder and CEO is working the hardest than ever before because he has just been advised by the board that he needs to have a better grip on his numbers and he isn’t reviewing his business closely enough and the board passes a resolution for a weekly review after relying upon a battery of very smart analysts who are now asking questions such as –

Why is Friday sale less than Saturday because UK has historically been a Friday shoppers market.
What marketing initiatives have been implemented between 1600 hrs and 1800 hrs on Friday to ensure that sales are at their expected highest.
Why cant we delay the poor dairy farmers payments from 30 days to 60 days, squeeze the vendor a bit more and improve our working capital cycle.
Why, why, why not???

By now the CEO and the CFO are doing everything else but running the simple grocery chain and looking after their external cash paying customer.

Having lost his own ability and confidence to run his business that he once ran like the king of the jungle the CEO is only making reports, doing number crunching and absorbing advice and suggestions from the all powerful board who are now behaving like  the Sam Waltons of the world.

The CEO and CFO are now on the edge because while they have used their entire competence to do the best that they can possibly do, they can still perform better – as per the board, they aren’t doing enough – as per the board, they are just not analysing the numbers enough – as per the board.

Finally the reporting format of every month every quarter every week becomes so important to pass by that the hapless duo of CEO and CFO having exhausted every arrow in their quiver decide that after all ‘we do get consistent customers’ week on week and month on month and they decide to account future anticipated sales (by a small sum of a quarter of a billion Pounds) in this reporting period (because it has become so bloody important to make the numbers look good for this report – as if this was the last)  and reduce the payables to show higher periodic profits. After all this is the only way that the board will be happy and the share price will reflect the boards effectiveness.

This isn’t only the TESCO story. Every single company that’s over reviewed and over scrutinised is going thru some similar point in its lifecycle and will meet the same fate. And collectively everyone will work and unite to find a fall guy and blame it all on him.

-Subprime crisis of 2008 was a result of greedy executives wanting to perform even better to earn even better bonuses and underwriting junk paper.
-Enron was a result of greed where weather was being bet upon and derivative trades were being exchanged on prediction of weather.

Warren buffet had invested in TESCO and called it his biggest mistake in life (did he not know the TESCO board well enough?)

Buffet meets his CEOs only once a year and sets reasonable and achievable expectations and creates an environment for them to perform.

He allows his rockstars (CEOs) to make mistakes and learn and believes in them as long as he believes that their intentions are correct.

And above all Buffet believes that businesses aren’t built over weeks and quarters but over a lifetime.

No one has had the courage till date to follow his management style and understandably no one on this planet has been able to replicate his success.

Moral:
The world can only grow as much and so can the size of the global economy - only the capitalists will beat the world growth (Thomas Pikkety)
Businesses will go thru spurts and troughs of their lifecycles. Do not view them WoW (week on week), MoM (month on month), QoQ (quarter on quarter)
Build brands that make a difference and last a lifetime. Stop Boards from over scrutiny and from orchestrating the corporation’s demise.
Allow effective CEO s to operate businesses as if it were their own. Dont kill them with specious recommendations and hollow experiences from unrelated industries.

And above all for the success and peace of the planet and suatainable profit of the corporations.........

‘Search for the intrinsically motivated purpose of life rather than extrinsically motivated mindless pursuit of profit’