Thursday, March 6, 2008

Indian Premier League or Initial Public Offering?

The year has been wonderful for cricketers. Even if it has not been raining runs and wickets for some of them, they have been drenched in crores of rupees by the Indian Premier League which has shown the world how to sell a product for a huge premium and created enormous hype about a revolutionary concept (for cricket certainly …) and got franchisees to pay enormous sums of money.
Actually, the word ‘enormous’ seems woefully inadequate, and to borrow an expression from my all time favourite author, the “imagination boggles.” The BCCI has earned Rs 4,124 crore from media rights, Rs 2,909 crore from team sales and some smoke money of Rs 200 crore from DLF, the title sponsor, while the earnings from player sales have not been disclosed.
As for the players, Mysore Sandal soap might consider M. S. Dhoni a slippery customer because he is alleged to have reneged on his contract, but the Chennai franchisee India Cements paid Rs 6.03 crore for him to lead its side. The Hyderabad franchisee Deccan Chronicle bought the explosive Andrew Symonds for Rs 5.43 crore and floored him and hopefully he will be better behaved in future.
Let me mention an astonishing fact just to give you an indication of how outlandish these prices are. Ishant Sharma, the latest Indian new ball bowling sensation, will earn Rs 1 lakh for every ball that he bowls in the Indian Premier League while millions of poor people like you and me will cheer him on even as we count our paises. All this hype and hoopla reminds me of two things: Clearly, the twenty-twenty format is a lottery which the cricketers and the BCCI have won.
The second is that all this hype and hoopla reminds me of the Indian stock market where any idiot could make money, or so idiots like me were led to believe as IPOs flooded the market at fancy P/Es and investors just had to get allotments for them to make a killing.
Reliance Power’s issue, which was oversubscribed 73 times, had the company laughing all the way to the bank as the company raised Rs 11,700 crore.
Sadly, the investors had nothing to smile about as the stock opened below the issue price and did not recover till Anil Ambani offered a bonus. Several other proposed offerings like Wockhardt and Emaar MGF quietly withdrew their offers.
My question is simple: will the much-hyped, much-talked-about, brilliantly-marketed IPL be just another IPO that promises much, is wonderfully packaged and something that will hurt the people who have bought into the concept? And more significantly does it offer any exit options to the investors who get hurt in the bargain?

Core competence out of the window
There is a point of view that I agree with about the theory of core competence and “sticking to your knitting.”
That view is based on the premise that these theories have relevance for Western economies which are stagnant or have low growth rates and companies have to think several times over before undertaking investments in unrelated fields.
In India, it is different as we have a booming economy and companies have cash from unsuspecting investors like you and me who cheerfully subscribe to IPOs without bothering to read the prospectus and so are able to take decisions like the franchisees have taken without worrying too much about the consequences or the returns.
But many of the franchisees would be hard-pressed to justify this investment as they have had no prior association or long-term commitment to cricket. GMR is from infrastructure, Deccan Chronicle is a media house, India Cements manufactures and sells cement, while Preity Zinta and Shah Rukh Khan fuel dreams.
Of course, Reliance can get into anything and make a success of it, though they seem to have started out badly with a poorly composed team for Mumbai.
Significantly, several of these franchisees recently launched Initial Public Offerings and collected enormous sums of money, including DLF, the title sponsor. They seem to be unfazed by the fact that it may take a decade to recoup the investment (if at all) and are making some gloriously vague statements about “image” and “corporate social responsibility” being the driving forces behind this decision.
I would have loved to be a part of these discussions and this reminds me of the decision one of my clients took several years ago to sign on Amitabh Bachchan as a brand ambassador.
Those were the pre-KBC (Kaun Banega Crorepati) days and the Big B was actually on the way to being a “has been” while my client’s brand was right up there. He signed him up for a fantastic sum of money so that he could spend time with the actor who had been his idol and it was a great ego boost for him that he was actually on first name terms with the great actor and must have caused enough ripples in the cocktail circuits in those days!
Now many of our great cricketers have been signed on by franchisees for enormous sums of money that, to my mind, at least, is disproportionate to the returns, hopefully not for similarly trivial reasons like being able to rub shoulders with these celebrities whom one might not have met otherwise.

Hyderabad? Chennai or Tasmania?
One of the reasons why the format may fail is the fact that most cricket fans are rabidly nationalistic and chauvinistic.
Recently, one of the Indian fans had a placard at Sydney which read “Symonds, Hyderabad welcomes you” and our TV commentators, who are as rabidly nationalistic as you can hope to meet, said that here was evidence that Indians are a sporting race.
I nearly choked. I am sure they do not witness cricket matches from the stands here. There is a death-like silence when an Indian wicket falls and huge cheering for every edge the local batsman comes up with. I can’t imagine Ponting being supported in Mumbai and Symonds being cheered at Chandigarh. Involvement of the fan with the teams playing is crucial to success and that is not merely sporting the T-shirt of the local team and that will come with time, if at all. How the teams build links with the local community will be crucial. If you look at the English county system, people like Shane Warne have a tremendous following in Hampshire as he is loyal to the team, lives there during the season has captained the team and nurtured young talent.
Will that happen here? I am not sure as this seems like a quick and ready passport to instant wealth or financial security for a lot of retired or retiring Australians who must have done some wonderful things in their previous janams as their karma is kicking in cash in droves.

BCCI can sell and even threaten but ...
While the BCCI may have pulled off a tremendous marketing coup and made the world sit up and take notice, it is perhaps relevant to recollect the past and the BCCI’s track record. It is the same organisation that had Jagmohan Dalmia and now Sharad Pawar.
One is reminded of the handling of the leaked e-mail and the Ganguly-Chappell spat. It has never bothered about the end consumer or cricket.
You just have to watch a one-day game in India to understand what acute customer discomfort is. It sells the TV rights for crores of rupees to broadcasters who consistently eat into viewing time with commercials that are casually aired in the first ball and during the last ball. Where will the BCCI find the organising capability to handle this mammoth event?
The sale has been made but what about after-sales? Do they have the capability? I am not sure. Will people watch?
Remember the timing clashes with all the soaps. Will housewives let their husbands watch the cricket while their favourite soap is on air? Remember many households in India are still single-TV households.
The pricing of TV spots seems fancy at this point in time. The Sony formula of sports and entertainment that was widely touted as breakthrough had limited appeal in my view. One believes that you may get new viewers but diehard viewers like me may not show the same enthusiasm.BCCI can learn from Anil Ambani
Let me go back to the IPO example that I started with of Reliance Power. The issue, though tremendously oversubscribed, started really disappointingly at the bourses when it was listed initially. The overall depression surrounding the US recession and a combination of factors ensured that the market crashed and the IPO was hit. Clearly, Anil Ambani was shocked and all the euphoria surrounding the tremendous subscriptions evaporated at the poor opening.
Mind you, this was the market and not really a function of the issue. Everyone knew that the issue was overpriced, but they went ahead and bought the issue. They did get hurt and Anil Ambani stepped in and offered a bonus as he was concerned about the real owners of the company – the investor.
The real owners of Indian cricket are people like you and me who love the game. People who watch the game on TV for hours on end support the team and even travel abroad to support it. I only hope the BCCI will show the same concern for us while running the IPL and itself in future. That will be Indian cricket’s greatest gain — not the enormous revenue it has got from IPL.

Ramanujam Sridhar is CEO, brand-comm and the author of “One land, one billion minds”.

Monday, March 3, 2008

Outsmarted by Jim Champy

Is the US in recession and what are the portents for companies. Read on to find out more from the management guru.
It is not often that one gets an opportunity to interview a management legend whose books and theories have made a profound difference to companies, businesses and professionals the world over. I am talking about James ‘Jim’ Champy, the Chairman of Perot Systems’ consulting practice and the author of Reengineering the Corporation: A manifesto for Business Revolution which has sold more than 3 million copies. Champy, who was in India recently, spoke to me on a variety of subjects including his latest book Outsmart! to be published in April 2008.

It was an interesting and insightful experience to spend an hour with someone who has so much to offer and who did it with so little effort and such readiness. He had a point of view that he put forth lucidly and strongly. He was extremely bullish about India, its prospects and its people. Most significantly, individuals and organisations have benefited from his writings and teachings and I am sure there will be a lot of wisdom in his forthcoming book. Excerpts from the interview:

On the recession in the US economy and the strategy for companies
Yes there is a recession around the corner, perhaps caused by some imprudent actions by some bankers, but the fundamentals of business are strong. It is perhaps here that the relevance of a book like Outsmart! comes out loud and clear. Companies with good people and good ideas can actually take advantage of the recession to take customers away from their competition.
On globalisation and its implications
Today, the competition is perhaps a lot more intense than it has ever been in the past and we live in a truly global economy. When Perot Systems was founded, there were no companies like Infosys, Wipro and TCS to compete with it. The fact that these are performing well today is testimony to the success of a global economy. It is either a problem or an opportunity depending on how you view it. While politicians in the US are making it out to be a problem, it is smart companies who are capitalising on it.
On the readiness of Indian companies to compete in this marketplace
Indian companies have great ambition and a willingness to take risks. There are a number of young entrepreneurs who have started small and wish to go places. Let’s not forget that the human resources potential in India is enormous and there are quite a few investors with deep pockets who are waiting in the wings to invest in this country.
The role of the leader in troubled and competitive times like these
My advice to leaders is to keep your ambition high. Troubled times may actually provide opportunities to acquire some of your competitors, and remember that there are a lot of people waiting in the wings with cash. But leaders need to be transparent in troubled times like these and be more open in terms of communication as there will be a lot of uncertainty in the minds of young people, particularly those who have probably never faced a downturn. There is another related issue in technology companies, particularly in India, where companies are growing at a healthy rate still. The problem is that these companies and their leaders are not paying enough attention to their human resources and have not defined the career growth plans of the young people who work for them.

On the importance of “employer branding”
I think it is important to remember that a brand alone will not engage people. The great companies engage customers and talents. The great companies are not concerned so much about their brands as much as they are with a strong idea that is the core of their strategy that people can relate to. Engage your employees and give them an opportunity to do “virtuous work” and ensure their career growth. I really envy the companies that do not have to sell to consumers or to talent. Take Apple for instance. They do not have to sell the iPod, people want it. Similarly you need not sell your employer brand if people are drawn to it.

On innovation and how certain companies are better at it
Traditionally, smaller companies are geared to take more risks and tend to be more innovative. The business model and size of the larger companies actually make it a lot more difficult for them to take risks or even to be more innovative, particularly in comparison with smaller companies. Culture becomes very important in companies that seek to be innovative. Companies like these seem to draw people who are excited about ideas and there are shared characteristics that keep fuelling the spirit of innovation.

And finally, his advice to young people who are entering the work force
Work for a real company that makes something. Do not join a bank or a consulting company. Learn what it is to make something before you start to consult; you may even get discouraged by it, but you will learn in the bargain. Try to find a job where you meet customers, try not to spend your entire life in a cubicle and most importantly, learn from your customers.

(The writer is CEO of brand-comm and the author of ‘One Land, One Billion Minds’.)

Software firms must shape up or ship out

Indian companies are moving up slowly. The fact is that customers actually want you to move up the value chain and a few companies like Infosys have already made the transition. Most Indian software companies are still largely providing high quality but low end work.
Reeling under the burden of the US economy, which is seemingly headed for recession, the hassled country’s tech firms are preparing for tougher times. Dr Michael Cusumano, the Sloan Management Review Distinguished Professor at the MIT’s Sloan School of Management, throws light on the effect of the slowdown on Indian software industry and how companies must gear up for the future. Dr Cusumano, a consultant and author of several books. Ramanujam Sridhar on behalf of Deccan Herald caught up with Dr Cusumano, who was at SDM_IMD, a management institute at Mysore recently to deliver a lecture on leadership. Here is an excerpt from the interview:
Deccan Herald: Can you tell us about the impact of US recession on the Indian software industry?
Michael Cusumano: Yes, there is a strong likelihood of a recession but it is largely consumer oriented and will have a limited impact on the software industry that will probably be short term in nature. But the long term threats to the software industry are more serious and they are arising from the rising wages and the shortage of skilled manpower. A significant threat too is the fact that a variety of countries and regions like the Caribbean, Eastern Europe, China and Latin America are realising the value of outsourcing as a business opportunity and staking strong claims.

DH: Do you see a change in the business dynamics of software business?
MC: The divisions between product and service are blurring. Earlier the software product companies like Oracle and SAP were selling the products and Indian services companies had taken up the implementation, maintenance and customisation of these products. With the wage rise that has recently hit the industry, it must be ahead of the curve and pay more attention to services R&D if it wishes to retain its position of eminence. Smart companies like Infosys and IBM have recognised this and are gearing themselves for the future. However, companies cannot afford to forget the fact that products are the main engines that drive the demand for services. There is a need to invest in R&D spending.
DH: Are Indian companies at the low end or the high end of the value chain?
MC: Indian companies are moving up slowly. The fact is that customers actually want you to move up the value chain and a few companies like Infosys have already made the transition. Most Indian software companies are still largely providing high quality but low end work. My advice to them is simple “Shape up or ship out!” There is a need for companies to get into the consultant mindset first. There is a constraint here though as Indian software companies have an overwhelming majority of their people as engineers. They would be well advised to look at management graduates in larger numbers to get a better business perspective of the software business and client needs.
DH: What is the way forward for Indian software business?
MC: Traditionally, software has meant different things to different nations, simply because they have a different cultural orientation. Let me explain. In Europe software is seen as a “science” dictated by formal methods and object-oriented design. In Japan software is seen as “production” given the pre-occupation with zero defects. In India software is seen as a “service” and there has been the rapid emergence and evolution of firms like Infosys, TCS, Wipro and Satyam to name a few. In the US software is seen as a “business” with global products like Windows, Microsoft office, navigator and global services being provided by companies like IBM, Accenture, EDS etc. The way forward for the software business in India is the realisation that future leaders will lead in basic research. The software industry in India must realise that the services business is presently labour-intensive and India will be hard pressed to keep up the growth rates as the rising cost of wages is already a pressure point.
The writer is the CEO of brand-comm and author of ‘One land,one billion minds’