Friday, July 27, 2012

Losing An Unfare War?

For The Fifth time in a row, there is no Airline Company in The B&E Power 100 list. Swati Sharma Writes on why there will be none Next Year too.

Annual profits are a phenomenon unheard of in the Indian commercial aviation space. After recording losses of $6.5 billion between CY2006 & CY2009, the industry continued swimming underwater during CY2010, despite a rather pleasing domestic passenger count of 52 million. While it is tempting to argue that even globally, airlines have not had a happy outing during the past half-a-decade, one cannot overlook the biting truth that of late, the Indian aviation industry seems to have mastered the art of making losses even when the sector globally records positive incomes. Factor this – in FY2010, globally, airlines earned $18 billion in profits. Indian carriers on the other hand, lost $400 million (loss as per IATA). The fact that Indian carriers today carry a debt burden of $13 billion (the highest in Asia) is another worry.

When former Civil Aviation Minister Praful Patel assumed office seven years back, he had declared that India would become one of the largest aviation markets in the world. It has. But only in terms of footfalls. On the profit-making part, it is today a tale of Christian scientists relying on mere prayers. So who’s to blame?
The largest player makes a loss, and you know everything is not good. Worse, it comes as a confirmation that even after years of famine, none in this industry stand a chance of reaching the oasis called the B&E Power 100 list. True: the hallmark of any sector that has enjoyed an overwhelming presence (like BFSI, Oil & Gas, Power, Metals et al) in the list of India’s 100 most profitable companies, during any given year, has been at least the largest in the category that has made a positive margin on revenues. But look at the negative state of affairs on the P&L sheet of India’s largest domestic airline Jet Airways (market share of 24.8% of the domestic market, as of April 2011; DGCA data), and you will understand why there is no airline name in the ranking.

Despite revenues of $3.3 billion, Jet recorded a net loss of Rs.858.4 million in FY2010-11. A big problem for Jet is its accumulated and ever-increasing debt load of Rs.130 billion. In fact, due to debt issues, employee unrest and continuous losses annually, its stock has also been under fire. Today, the company is valued at $800 million – about 62% lower than in May 2005, when it got listed on NSE. The airline then was purely a domestic player. Today, it earns 58.3% of its revenues from international routes – a fact which should have added greatly to its advantage and profitability thereof, given the much profitable long-haul routes. But no. Structural issues have got the better of Naresh Goyal’s brainchild. The problem with the other two-largest Full-Service Carriers is no different. Together with Jet, Kingfisher (20% market share) and Air India (15.4%) made more than Rs.68 billion in losses during FY2010-11. [While Kingfisher lost Rs.10.27 billion, Air India is expected to have lost more than Rs.57 billion.


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Thursday, July 26, 2012

Irrepressible We are, Irrepressible We will be!

No doubt, Microsoft is Sitting on $40 billion in Cash, and that does make The Skype Acquisition Affordable. But then, does it really makes sense to buy a firm that still hasn’t figured out a way to make Profits?

What adjective would you use to describe the act of paying 30 times the EBITDA (earnings before interest, taxes, depreciation, and amortisation) and 400 times the operating income for the acquisition of a company that hasn’t figured out a way to make profits in the last five years? Irrepressible (difficult or impossible to control or restrain) fits the bill pretty well. Why? Because during the press conference (on May 10, 2011) announcing the $8.5 billion acquisition of Skype (an online phone and video calling service) Steve Ballmer, CEO, Microsoft made everyone believe that there couldn’t be a better reason for the deal than an irrepressible urge when he said: “We are irrepressible in moving forward, and pursuing new things. This Skype acquisition is entirely consistent with our ambitious, forward-looking, irrepressible nature.”

On the face of it, the acquisition looks nothing more than an attempt to project Microsoft as a company in tune with the times. But before we seal our verdict on the viability of this transaction, let us delve into the fundamentals first. Keeping aside the obscene amount that the tech giant has coughed up, what makes this deal a center of speculations & apprehensions is Ballmer’s record with respect to strategy. Apart from losing formidable competitive advantages to Apple in the form of tablets and music players, the CEO’s deal making conscience has not very been very encouraging so far. In fact, while recently speaking at the annual Ira Sohn Investment Research Conference in New York, David Einhorn, President, Greenlight Capital (the company which holds 9 million shares of Microsoft) called for Steve Ballmer to step down. Raison d’être: In 2001 & 2002, Ballmer experimented in the area of mergers & acquisitions (M&As) for the first time in his capacity as CEO by shelling out over $2 billion to take over two ERP software vendors – Great Plains Software and Navision. Microsoft estimated that the businesses would be generating more than $10 billion in combined annual revenues by the end of 2010. Come today and $1 billion per annum is what the two units are actually churning out (as of 2010). That’s exactly $9 billion short of initial predictions.

Again in 2007, the Redmond based company shelled out $6 billion (a premium of 85%) for acquiring aQuantive (an online advertising outfit). The $2.6 billion operating loss incurred by Microsoft’s online services division for the year ending March 2011 signifies that the acquisition hasn’t really paid off as of now. Even the $500 million purchase of Danger Inc. in 2008 resulted in Microsoft withdrawing the disastrous Kin line of phones from the market.


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Tuesday, July 24, 2012

Is The World now Ready for The Indian Style of Management?

Theory“I” talks about how Global Management concepts are now getting Influenced Significantly by lessons from The Indian Context, both Culturally and Professionally. With more and more Indians taking up Global Leadership roles across the World in Varied Areas of Society,polity and Industry,is The World getting Enmeshed with and finally Accepting The Indian style of Management? By Arindam Chaudhuri

What should you then call the Indian style of management? And even before that, why should one even accept the hypothesis that the simple ascendance of individuals with a heavy Indian lineage to global positions is the finalistic evidence that the Indian style of management is gaining prevalence in power corridors? Isn’t the Indian “style” atypically laced with the capitulating negative tint of the wheeler dealer variety; of the manager who believes in being effective than on simply being efficient? Yes, that may be true. But even though in discussions pertaining to how Indians ‘manage’ issues, while one might be more prone to straddling the critical cynicism laced fence, look a little deeper, with an honest openness to the happenings around the world, and however much you might wish to, it might not be possible anymore to disregard the slow but sure rise of these very Indians in the power corridors that run the world.

Some say it’s simply the law of averages. Throw a handful of chewing-gums on a wall and simply by the law of averages, a few would stick on. The corollary, shove a few million Indians into Europe and US, and some would eventually become leaders. Well, that may be true too; but only at levels and in groups that are more driven by hard labour than by skill and intellect. The moment one talks about societies based on meritocracy – a factor that drives many Western nations – then all these debates can be dismissively rejected as then, it doesn’t matter whether the individual came from a large demographic group or an insignificant one, what matters is simply the person’s personal capability, capacity and competence.

So while a few years back, one simply boasted of Google having Indians as amongst the largest ethnic groups of workers, today one boasts of people like K. Ram Shriram (member, Google board of directors) and Nikesh Arora (Chief Business Officer, Google), whose names are listed just below the likes of Eric Schmidt, Larry Page, Sergey Brin on their corporate listings. The growing number of people of Indian origin at the helm of leading companies and top B-schools is another sure evidence of this hypothesis being forwarded. Adobe CEO Shantanu Narayen, Citigroup CEO Vikram Pandit, PepsiCo CEO Indra Nooyi, Sun Microsystems co-founder Vinod Khosla, Motorola Inc. Co-CEO and Motorola Mobility CEO Dr. Sanjay Jha and more recently, Reckitt Benckiser CEO Rakesh Kapoor, represent the growing and fruitful aspirations of Indians in global companies. Similarly, South Carolina Governor Nikki Haley, USAID administrator Rajiv Shah, Solicitor General of United States Neal Katyal, Chief Information Officer of United States Vivek Kundra, Satveer Chaudhary in Minnesota and Upendra Chivukula in New Jersey. Louisiana Governor Piyush Amrit (nee Bobby) Jindal top the politico-bureaucracy list too.

The 2000 US Census had already given the initial pointers to this by mentioning that Indian Americans had the highest median income of all groups. A Duke University-University of California Berkeley study showed that from 1995-2005, Indian Americans had started more engineering and technology companies than British, Chinese, Taiwanese and Japanese immigrants put together. All this simply could not have been possible if we were purely considering the gum-on-the-wall theory to assess individual advancement. Clearly, there’s something that Indians are doing right, which is allowing them to advance to leadership positions in various streams of society. And this has to directly do with the management and leadership skills that they are practicing on their teams, companies and peer groups, much of the skills which I am convinced have developed due to their connect with India – in terms of their cultural upbringing, family background, educational focus, objective oriented approach in life and similar aspects.


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Friday, July 20, 2012

Embrace Innovative Business models or go under

For The Music Industry, Buffeted by Declining sales of Albums and Slowing Digital Downloads, The Writing on the wall is clear. Embrace Innovative Business models or go under.

At a fundamental level, the music industry’s woes can be ascribed to its inability to come up with new alternative music products tailored to keep pace with the changing face of music. Another is the failure of traditional music companies to alter their existing business model, largely based on physical distribution of music (selling CDs), which still accounts for almost 73% of their total revenue pie. Crispin Reed, Managing Director, BrandHouse, a UK based brand consultancy, fully agrees. “Although, sticking to conventional business models might have been a conscious decision, it’s equally likely that this was due to inertia, which is typical in well-established sectors. It’s often easier to create a new paradigm than change a long established one” says Reed. Thankfully, a few big players seem to have accepted the harsh realities of file-sharing, music downloads and independent do-it-yourself market taking over. According to an industry report, both Universal and Sony are using digital music downloads to build buzz around a particular album, which will follow the single months after.

iTunes stores have also shown the industry a way to monetise the digital platform. Introduced by Apple in 2004, users are charged a nominal downloading fee per song. Today, iTunes accounts for 70% online digital music sales and is the largest legal online music retailer in the world. Johnny Ryan, Senior Researcher at The Institute of International and European Affairs (IIEA) offers some ideas on how the industry can buoy up sales of music. He tells B&E that “the lesson for the music industry lies in the gaming industry. Computer game sales have risen as the music industry’s have fallen, and a part of the former’s success is a result of its approach to piracy and community”. The most successful computer games offer players online communal experiences that allow them to compete against each other, and to leverage the community and social strengths of the internet. At the same time, they also require players to connect via online subscription services that make software piracy impossible. Transferring this concept to the music industry might actually be a good approach.

Read more.....

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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