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~~

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~~

Bachchan’s and Growth for Sake of Growth

Over weekend me and wify went for watching the much awaited Sarkar Raj. Somewhere in the movie Abhishek Bachchan and Aishwarya Rai are debating about their view points about businesses, profitability and social reforms. While Aishwarya is trying to establish a case for profitability as the core behind running businesses and in this case behind setting up a power plant (the point of contention in the movie, seemingly), Abhishek makes an interesting point: “plant ko banane ke liye paisa chahiye, paise ko banane ke liye plant nahi”…meaning “you need money to make the plant, you don’t need plant to make money”.

 

It raises an interesting question…we all talk of growth each year, higher top line, stronger bottom line etc etc. All of that because allegedly economy is growing and hence we should grow stronger. And ofcourse then there is all that relative growth. Grow more than your competitor, market share and all that. It’s growth for the sake of growth.

 

I wonder after creating a nice little vision statement, how many organizations revisit that…it’s just raised every now and then like a slogan…business growth is another matter as they would say J

 

Will we have an organization which is happy if they remain stagnant in growth, if there vision is met and lived day after day…or would we all continue to succumb under stock market commitments and money holders (I am not too sure if they all qualify to be called shareholders, hence the term money holders) theory of business for making money.

 

~~Rohit~~

 

 

GDP Target Vs GDP Expectations

I read somewhere today that Finance Minister setting targets of 9% GDP growth rate is more of a expectation that a target. Assumption being it’s driven by external factors like monsoons and long term policy decisions. Also read interesting correlations to business world and how people get rewarded or penalized for something that would have happened anyways due to decisions taken long back.

 

Interesting thoughts and interesting correlations. While the correlations are correct the allegation I am not sure is. I am not too sure that FM has no control over the GDP rate. The gestation period of impact of several policy decisions in today’s economic conditions are much faster and infact reflect within a year. Ofcourse there are factors like monsoons and its resultant impact that they can hardly do anything about. But then they would have factored the forecasts of that.

 

In a service industry driven economy the impact is infact felt within 2 quarters. If inflation and coalition politics was to give FM a free hand, and ofcourse if there was intent (which we all hope there is), the GDP impact can be felt in 2 quarters I feel. Case in point if he was to ease up control on money, lending would ease up, loans would ease up, housing sector would witness growth (players like ICICI, HDFC would take maximum one week to put pedal on sales), hence related industries would start to get boost. It’s a whole cycle.

 

The gestation periods in business are coming down a lot. Same is true for economies. Long term policy decision in my view decides the trajectory of growth. You can’t change from a 4-5% GDP rate to suddenly a 8-9% rate…that’s what will take long term decisions. However once that’s done, within the decided trajectory there is a lot of role for the finance minister and government to play. Good governance and sound financial policies can make a difference of almost 1-1.5%. Which in economies like Indian can be huge J

 

~~Rohit~~