Aspirations and Realism: Balancing Business Perspective

As everyone has aligned themselves to the realities of downturn and slowdown, as the case might be for different companies, we are setting into some very interesting business times. We have lived in times of crazy growth for a long time. Last three decades or so have been either times of slow stable growth (pre 1991) or high growth (post 2000)…..seldom have we been in times of downfall from existing positions. To that effect none of us have ever gone through such business conditions in our working lifetime in all probabilities. These times will probably teach us some of the most hard hitting and valuable business lessons.

 Some of the lessons many corporate honchos have already started to realize are:

Lesson 1 : Best business plans are those which are made on real business and real market…..anything that’s based on too many complex set of assumptions made in order to reflect geometrical growth, are bound to be high risk prone

Lesson 2 : Best form of profitability is real cash flows….virtual profit booking in ever inflating books  might cause  for some exciting exit options to investors in good times, however in more difficult times they will struggle to even maintain regular expenses

Lesson 3 : Its good to have internal accruals and then growth…not vice versa

Lesson 4 : Ability to get high amount of debts and have a high debt equity model might make the business model look attractive to some….however heavy debt is what it is on balance sheet…debt that needs to be serviced

Lesson 5 : Steady growth is not bad and periods of consolidation after every round of growth is very good….often we don’t give the business an opportunity to go through consolidation phase in fear of loosing growth advantage

 While some of the above lessons are bringing about great sense of realism about ways of managing business, to me what’s interestingly standing out is importance of “strategy” in such times….rather paradoxically though. It’s important to understand that market is what we make of it. If ever strategy was going to create huge differentiation for organizations, its periods like now. These are times to learn from conditions and not succumb to them. Far too many organizations have resigned to the fate of economic conditions today….there is difference in picking up the learning’s and moving forward, as against getting risk averse due to mistakes made in the past.

 Closer home, in the last quarter or so I have seen consulting firms in India which are down by 30-40%, as against firms which are up by 20-25%. That’s a huge differentiation getting created. Same very firms in the last year were growing at same pace when market forces created natural growth.

 Organizations which can imbibe realism in ways of running and managing business, but not loose sight of creating aspirations and meeting them through clear business strategies, are likely to go long way in times to come….watch out for how industry leadership positions in several industries change in next few years….they will change hands much faster than they would have in good times.

Cheers

Era of Fast Forward and Speculation

With intense globalization, several economic theories have gone out of the window….timelines on most of the things have been redefined. 2008 was perhaps a perfect example of how economic order has changed in the world.

 

Everything is fairly fast forward in this era….also there is an added element that plays a very influential role on various factors influencing economies, perhaps the most important role….Speculation.

 

One look at some interesting highlights of 2008 say a story. It’s a year stock market touched a high of 22K and a low of 8K, oil touched a high of $150+ and a low of $40, real estate went from all time high prices to a point where many real estate companies are looking ways to bailout, GDP growth touched a high of 9-9.5% to a low of 6-6.5%. There were also economies like US and Japan, which have gone into almost recession statistically. Few decades back one could have never imagined this entire chain of events taking place within a span of 12months. What would have been a cycle for decade, takes place now within months and years.

 

Now interestingly while there are several real factors like sub-prime crisis, fall in US consumption etc which have contributed to this situation, but a fluctuation of this order can not be explained by just simple demand and supply. There is allegedly a big role played by speculation.

 

Businesses are no different. Each day, each week, each month is important in sustaining growth of an organization. Unlike years back, one can’t afford to relax for a bit. You miss the bus for one month and chances are that year is gone. It’s a lot of energy and sustenance, more than anything else to ensure a successful business. Also environment with its ups and down, with elements of speculation and such other uncontrollables, is not getting any easy.

 

So specifically with regards to India, are we in times where growth is not a possibility for some years? I personally don’t think so. These are times of real test. These are times where one needs to put in huge amount of energy in doing the things right on everyday basis, these are times when you need real business and real ideas, and not just business plans. These are times where brick and mortar businesses where customer value is clearly identifiable, are more likely to exceed. We are still an economy growing at 7%pa approximately, which is not a mean number by any ways.

 

Often people ask me what’s the impact of current environment on business. I reflect back and conclude for past several years, businesses had got used to having very high growth plans, and actually exceeding that with somewhat ease. Now plans are getting realistic and more sane, and one will need to work very hard to come within touching distance.

 

These I personally believe are very interesting times, for many of us who have never gone through such a huge learning curve in such a short span.

 

~~Rohit~~

Creating Organization Structure – Strategy, Operations and People

  

There are so many views about how does one create structure for an organizations that usually it boils down to ones conviction about what will work and what will not work. Given the far reaching impact of structure on delivering strategy, unfortunately this can have unpredictable implications. In addition due to the lagging effect and gestation period, it’s too late by the time one discovers if the structure designed is working well or not.

 

While structure is such an interesting point of view based exercise at times, there isn’t any laundry list of dos and don’ts for an effective exercise; in my experience some of the following factors impact the same in one way or another:

 

-          Strategy (future scenario) and Process (operations management) are two key levers in any situation. However it’s very critical to understand the trigger for the exercise. Basis the strategy and trigger the relative focus on the two levers could change.

 

-          A very deep process view based exercise is usually triggered by productivity and efficiency enhancement kind of strategies, which is only one of the possible strategies. Basis whether the business strategy is of growth, returns, diversification, product focus, market focus, efficiency focus, productivity focus etc. the approach to the exercise could be drastically different. High level phases might read the same though to naked eye.

 

-          Broad dimensions of structure are Product, customer and geography/market. Even though these elements will remain in any structure, depending upon how the interplay of these dimensions plays out at various levels in the organization, number of structure options is almost endless.

 

-          Matrix structure is more articulation of reporting relationships and MIS and not so much of structure. This is more about how one wants the operations to flow in terms of people interactions and decisions.

 

-          MECE (Mutually Exclusive and Cumulatively Exhaustive) is a very simple but important concept that every structure options must qualify. This in itself can ensure better traction and growth compared to a rather convoluted structure.

 

-          In most cases distortion happens when you start to map people and make adjustments due to ‘sensitivities’… but that’s the reality of every organization.

 

-          Structure, MIS, Variable pay can impact behaviors and culture in a desired direction

 

 

~~Rohit~~

 

 

Impact of Blip in Growth

 

 

As I have mentioned in my blog before also, these are some very interesting times. There are different ways to look at the current fiscal. One set of opinion might say we are in a slow down, yet another would point to the fact we are yet amongst the 3 fastest growing economies globally. 7-8% growth in slow down times is something many economies would take without blinking an eye.

 

Now that apart, it means some interesting set of things:

-   At the very outset, its time for them to look more inwards than outwards

-   Organizations would be under pressure for margins. Cost structures in many cases are aligned to higher growth which may not happen for an indefinite future. Several organizations might shift their priorities from top line growth to margins

-   Cost management would become paramount as a consequence of above point. Slow down in hiring and salary increases is an immediate visible impact

-    While in absolute terms everyone would gain, in relative terms most of them would be in red. Increments less than inflation, business growth less than planned etc

-    Its time when many organizations would carry out internal consolidation initiatives, which otherwise were not able to find time in tight management calendars. Since many of these organizations have over grown their systems, processes and structures, these will be times when some of these will be very closely looked at

-    From HR point of view, tightening of Structure and Performance will find prominent presence in corporate agenda for majority of organizations

 

Let’s take Real Estate industry as an example.

In times of exponential growth in past 3-4 years, several organizations grew more than their internal capacities. In case of real estate they small and mid players would often exhaust their internal capacities in acquisition phase of life cycle itself. Just launch of project itself would result in booking of sales and in process creating resources for moving the project forward. It was almost that they were making money for project management skills. Taking money from consumer to create what they need was fantastic.

 

However in times like this many of them would struggle. They will struggle to make meet ends and would be under severe pressure for resources. These are times that will push them to do the following:

-          Align growth to internal capabilities and not external opportunities

-          Sell out for players who simply can not finish projects which are in work in progress stage

-          For large players it would mean concentrating on setting the house in order

 

 

In end like they say nothing is white or black…there is a lot of grey. Basis how an organization had planned in the past in terms of solidity of that plan, and basis how they plan now, different organizations will go through very different set of motions.

 

~~Rohit~~

Business Ahead in Financial Year 2008-09

 

As the country waits to see how political events turn out over the next few weeks there is a lot at stake for the industry and business community as well. The next two weeks in my view would have a strong impact on how economy and industry fares over the next year or so. It’s not just about whether the current UPA government survives the vote of confidence in the parliament or not.

 

While many of us with years of indifference might be neutral to events of the past few months and coming weeks, lets look at the possibilities from a business point of view:

 

Possibility A: Government fails to survive the vote of confidence and the country is faced with early elections. In all likelihood this will result in increase in inflation rate, free fall on stock exchange due to uncertain economic environment, fall in GDP by probably another 0.5 percentage points, long wait for elections result which will decide the future course of thinking on economic issues and reforms, and ofcourse the fact we will yet again get into a situation with no clear majority and permutations combinations of UPA numbers against NDA numbers.

 

Possibility B: Government survives the vote and continues for the entire term. Now given next year is election year anyways they will try and go all out for creating a positive image for themselves in the intervening period. Since inflation is not something they have immediate and absolute control on, in all likelihood with support of SP in place of stubborn Left, they will go all out for reforms. Possibly many of the pending bills in parliament: Banking reforms, Insurance reforms, Pension reforms etc would get the nod. Also the likelihood that government might just have enough time to push the deal before US government finishes its term, would create a possibly very positive environment.

 

My own intuition is that government will survive and we will see some interesting positive movements in the next year or so. If that happens, inflation and stock market might start showing signs of good recovery by end of this year or maybe Diwali….well it often requires a positive sentiment and positive environment to start pushing things.

 

~~Rohit~~