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~~

Breaking down the Small Cap Segment (Article 5 of 5)

 

Micro Small Cap Segment: Market Situation

·     This segment will face tremendous pressure on margins and volumes from bigger players

·     Profitability would be key for survival here

·     Many of them would need some private equity infusion for survival

·     A good business model and business plan would be the key to survival and success

 

 

Micro Small Segment: Market Situation

·     Constant information about basic people related decisions is the single biggest requirement for them…mainly information around compensation and benefits

·     The desire and will to grow of the owner/promoter is the single biggest motivator for growth many a times

·     Innovation is the other element they would be looking for

 

~~Rohit~~

 

Breaking down the Small Cap Segment (Article 4 of 5)

Small Cap Segment: Market Situation

·     Key here is also typically the market share and achieving a certain turnover volume and not so much profitability…though due to manageable size of operations they are likely to be highly profitable organizations

·     They will be getting ready for first round of funding….this segment would be in need for large capital infusions at few stages/milestones to break into the next segment

·     They are likely to have regional strong hold aspiring for national presence

·     They will be under constant pressure for buy outs and takeovers by Mid Cap companies looking for local consolidation

·     They would typically look for a support mechanism for growth in form of either third party manufacturing capability (hence becoming a sourcing hub instead of a manufacturing hub) or knowledge and brand capability

 

 

Small Cap Segment: Market Situation

·     Creating basic People Policies is likely to be their biggest challenge

·     A strong first line of reporting to the CEO/Promoter is likely to be the biggest challenge for these organizations

·     Many of them would struggle with decision making capacity enhancement as they are still in an environment where decision making is never cascaded down

·     Managing performance and creating performance accountability is amongst biggest challenge for these companies

·     They would struggle between hiring high cost but capable resources and low cost but inexperienced resources…many of them tend to take latter route for obvious reasons and continue to struggle…participation in equity and growth is often a middle path not so frequently used

 

~~Rohit~~

 

Breaking down the Mid Cap Segment (Article 3 of 5)

Medium Cap Segment: Market Situation

·         This segment is likely to be fastest in shareholders value creation due to the steep growth curve…they still haven’t reached a mass level where very high growth rates are difficult to maintain

·         Key here is typically the market share and achieving a certain turnover volume and not so much profitability

·         They will be getting ready for second round of funding or IPO….in some cases they might still be getting ready for first round of funding

·         Market mechanisms will keep creating exit routes for them from shareholders value perspective…they will be under constant pressure for buy outs and takeovers

 

 

Medium Cap Segment: Market Situation

·         Creating professional environment is likely to be their biggest challenge

·         Since many of these are likely to be owner/promoter driven, they are likely to need leadership coaching

·         Many of them would struggle with decision making capacity enhancement as they are still in an environment where decision making is always pushed up, rather never cascaded down

·         Managing performance and creating performance accountability is probably the single most biggest challenge for these companies

·         Wealth creation and possibly sharing of that wealth through various executive remuneration programs is a huge avenue available to many of these companies…however not many of them have figured how to harness that value

·         They are often stuck in a dilemma of whether to pay more emphasis on Financial Perspective of a balanced scorecard or the Capability Perspective. Striking that right balance would be difficult for them to achieve

 

~~Rohit~~

 

Breaking down the Mid Cap Segment (Article 2 of 5)

Mid Cap Segment: Market Situation

·     These are companies which are truly on a growth wave….they will continue to outshine the overall economy growth rate.

·     Many of them are on verge of breaking into large cap segment

·     Consolidation for market share will continue to happen…M&A’s would be quite regular in this segment

·     There will be increasing globalization activity in this segment as they will strive to establish global footprints

·     Several of them are likely to be multi business, multi product businesses and would look at unlocking of hidden value over a period of time

·     They are likely to be best candidates to act as entry vehicles for several fortune 500 companies to enter and invest in India

 

 

Mid Cap Segment: People Situation

·     Leadership Pool will be the single biggest challenge for growth

·     The second biggest challenge for them is likely to be operating and governance model for top management…figuring out an effective way of working for the top management team as a cohesive unit itself would unlock a lot of value

·     Hiring for these companies is not so difficult as they do have economic value and capacity to buy talent

·     However many of them will face challenge retention as they haven’t yet reached a level where they have been able to establish a differentiator in the market as an employer

·     They would be in strong need for cutting edge people practices as they begin to compete with the large cap players

·     They are likely to have a lot of inefficiency in their operating models and structures and would be in constant need to relook at that as they get into a different size and volume of operating

·     Due to the growth possibilities they are likely to have tremendous career growth opportunities…however they continue to struggle due to lack of understanding of that strength and means of harnessing that strength

 

~~Rohit~~