IIPM: July 2012

Tuesday, July 31, 2012

Scrutiny-NUCLEAR DEAL: PARADISE THAT NEVER EXISTED

Most Indians had hailed the nuclear deal with US as one of India’s greatest achievements. Instead, it is increasingly looking like one of its costliest mistakes

The 123 deal allows US the expansive power to withdraw ‘reprocessing’ rights from India. Along with destroying our thorium based nuclear ambitions, this deal also killed the Iran-Pakistan-India (IPI) gas pipeline ($7.5 billion & 2,700 kilometer pipeline) that was aimed at sharing Iran’s abundant natural gas reserves with India and Pakistan. On the contrary, it promoted another pipeline for India – the Turkmenistan-Afghanistan-Pakistan-Indian pipeline (TAPI). This pipeline, unlike the IPI, is controlled by US oil companies and passes through US-controlled Afghan territory. Thus, this allows US to keep an eye on the energy transfer and to further moderate deals and India’s energy usage to their benefit! The IPI pipeline deal, which had fantastic diplomatic and economic benefits, started way back in 1994; but then, in the enthusiasm of signing the 123 deal, India was made to back out from the same in 2009. In the same light, to be doubly sure, US further blackmailed Pakistan and asked the nation to halt the pipeline work (at a time when India was reconsidering the IPI deal & had called for a meeting with Iran’s and Pakistan’s respective heads in May 2010) in exchange for aid and donations in January 2010. US also helped Pakistan in the construction of a liquefied natural gas plant, which will allow Pakistan to transfer electricity from Tajikistan. In summary the deal has been a shrewd double-edged sword, which on one hand, inserted a pause on India’s nuclear ambitions and on the other, stole the chance for diplomatic ties between India, Pakistan & Iran and energy sufficiency. The deal was basically done to curb Iran’s IPI plans, which is evident from how US pressurized Singh’s government as the IPI deal was getting nearer.

Policy and national strategy analyst, Brahma Chellaney, wrote recently about the deal, “In sum, India has a deal under which it got no legally binding fuel-supply guarantee to avert a Tarapur-style fuel cut-off; no irrevocable reprocessing consent; and no right to withdraw from its obligations under any circumstance, although the US has reserved the right for itself to suspend or terminate the arrangements if it holds India not to be in compliance with the stipulated terms. Moreover, the continuation of the deal will hinge on India not conducting a nuclear test ever again. These are the four “no”s embedded in the deal. In fact, this is the first case in world history where one nuclear-weapons state has used a civilian cooperation deal to impose a weapons-related prohibition on another nuclear-weapons state, which has only a rudimentary nuclear military capability.” We couldn’t agree with him less.

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Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Monday, July 30, 2012

Stratagem-TELECOM: POST 3G IMPACT

Amidst sluggish indicators of revenue, margins & subscriber additions, 3G and the promised data play were supposed to be major game changers. But evidently, it won’t be a moment too soon

When we look at service provider market share between the end of September 2010 and June 2011, the top 6 players who really lord over the market with double digit shares each – Bharti, RCOM, Idea, Vodafone, Tata & BSNL – had a combined market share of 88.37% last September. This combined market share has gone down to 86.15% by June 2011. A number of times, there is talk of consolidation to improve market share. Even if M&As happen between players beyond this coterie of 6, that can give valuable gains on a circle by circle basis. But consolidation is currently a difficult end considering that the norms are still not conducive for it. So the one way of getting rid of their performance blues is to look at ways to grow market share and aggressively grab customers from each other.

So far, they have been trying to achieve that through the ‘famous’ (for customers, at least!) price wars. However, the game may now significantly move away from pricing. Recently, Bharti Airtel, Vodafone, Idea and RCOM have all announced phased increase in tariffs of a minimum of 20%. Tata DOCOMO announced a price increase by 25-67% across various circles (see related story on price rise in this issue). RCOM also announced that it would no longer offer minute-based mobile schemes, which would offer unlimited minutes over a period. The costs of laying out network infrastructure and the heavy debt loads are the reasons for the same and it may be also be conjectured that larger players are colluding in recognition of the fact that price wars are helping no one. The constraints of a high amount of debt on their balance sheets has already lead them to cut down significantly on expansion plans. From Rs.298 billion in CY 2008, Bharti, RCOM and Idea together have brought down their capex drastically to Rs.95 billion in CY 2010 (COAI-PwC report).

In the short term, ARPUs and VAS share of revenue may fluctuate quite consistently. But as Stefan Zehle, CEO, Coleago Consulting tells us from UK, “When you are analysing post-3G impact and how it will change competitive dynamics in the sector, the most important criteria is the kind of customers each player is attracting.” While that gives more impetus to players like Bharti and Vodafone who got the cream, MNP subscriber movements post-3G will be an interesting statistic to watch out for. All leading players have reported decline in per month subscriber additions this year. Both Bharti & Vodafone had net subscriber additions of 3.1 million in December 2010, but the numbers have tapered off over the months to around 2.1 million in June, according to data from Angel Broking. For BSNL, the figure has dropped from 3.2 million to 0.8 million. Idea added 1.4 million in June 2011 compared to 3 million in December 2010, while the corresponding figures for Aircel are 0.9 million and 1.4 million respectively. RCOM had lost over a million customers to MNP till May (COAI), though the company claims that it has been gaining a sizeable number of high value clients as well.

So what will work for them in this battle for margins and not volumes? As far as 3G is concerned, a lot of the emphasis will now have to be on quality of service. The greatest gain from any M&A activity they undertake will ostensibly the one that they paid through their teeth for – spectrum. If India reaches the projected 1 billion wireless subscriber figures by 2014, the requirement of spectrum will be as high as 800 Mhz. according to TRAI. Post MNP, service will be a significant differentiating factor to avoid churn of high value customers in particular. On a benchmark basis, Indian mobile operators are working on a 3G spectrum of 5MHz. (compared to global benchmarks of 2x10 MHz. and 2x15 MHz.), which is very miniscule in terms of offering high quality data services. Incumbents are waiting for M&A norms to be eased, and a number of the new players are also reportedly sitting on spectrum waiting for the right time. Spectrum wars may get even more intense in the coming months. Another important aspect that players have to look out for more aggressively is enterprise services. At present, the market is estimated at around Rs.230 billion, and at a CAGR of around 12-13%, is estimated to be worth around $10 billion in another five years.

While 3G winners have discovered a blue ocean for themselves to revel in, the challenges in the short term towards revival of revenues and margins are pretty daunting. According to estimates by a JP Morgan report, 3G subscribers would grow to around 240 million by 2015 and operators would cumulatively earn revenues of Rs.899 billion by then. Yet, they would fall short of the expenditure incurred along with the interest rate on the debt they have accumulated (include cost of network roll out & the break even dates push back even further). Also, 240 million is a highly positive projection compared to the E&Y-FICCI report, that projects 142 million 3G users by 2015 and just over 300 million by 2020. The telecom space is well into an air pocket. On one end, players have to look at how they can best milk the investments that they have made rather than looking at making new ones. On the other, they have to look for ways to manage demand in higher value segments to their benefit, so that they can have the cream and eat it too!

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Saturday, July 28, 2012

The Globe this year and analysis on Major Sectors of India that are ripe for M&A

B&E & IIPM Think Tank present the M&A update 2011-12, Including a Primer on M&As across The Globe this year and analysis on Major Sectors of India that are ripe for M&A

The fact is that whether M&As are used for survival or for growth, they’ll remain one of the most glamorous strategies a CEO could ever employ.

And to that extent, it has been an interesting first half of the year 2011, which just about took us through everything the world (read: corporate) has been through over the last 3-4 years. From prosperity at the bourses, to shareholders suddenly crying out for mercy; from an economic boom to a devastating recession, the world has been through a roller-coaster ride all these years. Needless to say, the scenario had also affected the appetite for mergers & acquisitions (M&As) across the globe. After all, investor sentiment, consumer demand, and most importantly financing was simply not there for deals to happen. But, as US corporate profits reach 60-year highs and global economies start accelerating, M&As are definitely coming back with a bang. In fact, financial investors have already started flexing their muscles as new capital starts flowing in their funds. But is the corporate world ready for consolidation – across geographies, across industries – once again? And if yes, which sectors are ripe for consolidation? Or, are these moves by companies just add-on efforts to stay relevant amidst yet another recession (a double dip) that has not only started haunting the US, but also several economies across the euro zone and is also giving sleepless nights to the world at large?

The numbers look stunning. Global M&A deal value reached $1.16 trillion in the first half of this year, registering a 27.9% increase from last year levels. Although the deal volume was down by 2.7%, from 5,843 announced deals in H1 2010 to 5,684 announced deals in H1 2011, the ongoing trend suggests that while the larger, cash-rich buyers are prepared to spend, their smaller counterparts are playing a waiting game, sceptical of making commitments in an uncertain economic climate. But despite the dip in the volume of deals, there’s potentially good news on the supply side, as previously frustrated sellers recognise that the market is now open for business – even if it is not quite as hot as they would like. These sellers include private equity (PE) players, which need to sell assets (which they have been holding for long) in order to move forward. In fact, the first half of 2011 was the busiest six-month period since H1 2008 with closed deals worth $1,266.1 billion. While the largest deal so far this year is Deutsche Telecom’s $39 billion disposal of T-Mobile USA to AT&T (the largest corporate deal since ExxonMobil’s $40.6 billion acquisition of XTO Energy in December 2009), Johnson & Johnson’s $21.2 billion acquisition of Switzerland-based Synthes GmbH stood a distant second. Even cross-border M&As saw the busiest six months since 2008. Deals by individual countries announced in the first half of 2011 added up to $468.1 billion; registering a whopping 53.3% increase since H1 2010.

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Friday, July 27, 2012

Brickbats and ‘BRIC’Bats

India’s Trade Deficit is an Open Invitation to Disastrous Tidings

For most of the struggling global economies, India is like a light at the end of the tunnel; being a fast growing market in a stable democracy that is set to surpass China’s GDP growth rates in a few years; besides, its enormous working population (global Indian working population expected to be 28% of the total by 2020) makes it one of the most happening economies in the coming years.

However, this light may be a speeding train for India unless certain structural weaknesses are addressed, and one of the most serious is the country’s trade balance. India’s overall trade deficit was $117.3 billion in FY 2009-10, which is lower than $118.7 billion for FY 2008-09, as per the Director-General of Foreign Trade (DGFT). But recent government projections anticipate that the deficit is expected to double to $278.5 billion in three years, a 20-fold increase since 2004. Trade deficit is going to be an appalling 12.8% of GDP by 2014 from the current 7.2%. This can be the single largest reason for an unsustainable current account deficit akin to the balance of payment crisis of 1991.

India’s trade with BRIC counterparts exemplifies the anomaly in no uncertain terms. Of the $55 billion in bilateral trade with China in 2010, the trade imbalance is $20 billion in favour of China; up from $16 billion in 2009. Similarly, Russia enjoys a trade surplus of $2.59 billion from a total pie of $4.55 billion in FY 2009-10. With Brazil, India had trade surplus of $1.46 billion, but it turned into a deficit in FY 2009-10 of $1.02 billion. Even South Africa enjoyed a trade surplus of $3.53 billion in FY 2008-09 and $3.62 billion in FY 2009-10.

This can certainly ruin India’s competitive advantage in the long run by increasing unemployment risk & weakening the economy. India should follow a balanced & sustainable trade policy by focussing on merchandise trade and manufacturing and agriculture export.

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Thursday, July 26, 2012

Russians Out! Yankees in! Germans down!

A Comprehensive Journey through The History of The North Atlantic Treaty Organisation (NATO) and Libya will Convincingly Demonstrate that The World has more to fear from NATO than from Colonel Muammar Gaddafi!

Libya, a developing nation in North Africa, which has set an ideal example of development, is witnessing a downfall; economically, politically and socially. This is because ‘rebels’ (with an ever-present tribal mentality to overthrow Gaddafi without realising the severity of the measures they have adopted), who are aided and equipped by NATO forces are destroying Libyan oil fields & buildings, ruining existing infrastructure and killing innocent civilians. A nation built with hard earned wealth (Americans or Europeans didn’t gift Libya the wealth it has earned, in fact they tried everything possible to stop Libya), is now being sent back to the stone age with naive impunity.

In its last 43 years of history under the leadership of dictator Gaddafi whom NATO now wants to remove badly, Libya hasn’t met with such a catastrophe. To a sane observer, it is not difficult to realise that if Gaddafi is bad for Libya, then what NATO strikes are gifting to Libyans in the name of ‘liberation’ is even worse. However, this is not the first time that the world’s most influential collective defence force NATO has endangered world peace. History bears testimony to the blunders that NATO has committed and the wars that it has waged, which are not only unjust but also unpardonable for mankind.

After being formed on April 4, 1949 based on the North Atlantic Treaty with a simple ideology to keep the “Russians out, Americans in and Germans down”, as aptly stated by the first NATO Secretary General Lord Hastings Lionel “Pug” Ismay, NATO basic structural premise was its key fault. Its biggest failure has been in defining its relationship with Russia. The Soviet Union expressed its desire to join NATO in 1954, but the proposal was rejected, suspecting that the Soviets were conspiring to weaken NATO. But surprisingly, in the next year, it accepted West Germany on May 9, 1955 as a member to resist Russian military might. This move not only formally started the Cold War but also resulted in the creation of the Warsaw Pact signed on May 14, 1955 by the Soviet Union, Hungary, Czechoslovakia, Poland, Bulgaria, Romania, Albania, and East Germany – a pact to counter NATO, which apparently hasn’t even matured with age. As recently as in 2007, NATO again slighted Russia with its announcement of plans to install a defence system with interceptor missiles in Poland and Czech Republic to defend the nations against Russia. Yes, one can understand that Putin loves to attack nations faster than talk (Georgia, an iconic case study), but to deliberately go overboard in announcing the missile systems was a critical geopolitical blunder.

Tuesday, July 24, 2012

Stratagem-INTERNATIONAL : WALT DISNEY COMPANY- RIGHTS AND WRONGS

The Walt Disney Company has been one of The Most Iconic Corporate Turnarounds in Business History. Robert Iger has been Strategically Leading The Company since 2005, but The Challenge lies in reducing dependence on a Specific Business Segment. Is Disney up to it?

Nevertheless, Walt Disney Company is a much steadier ship today. In 2003, revenue stood at $26.48 billion and it grew to $38.06 billion in 2010, implying a CAGR of 5.31%. It isn’t the 20% growth rate that Eisner targeted yet, but the company is showing a reasonably healthy financial position despite the global financial meltdown. The man behind this success is Robert Iger, President and CEO. When he took over the office in 2005, Disney was a bottomless spiral of bureaucratic traps. Employees were afraid of decision making, which was largely centralised. His first priority was to undo the damage, which Disney had endured mostly on part of Eisner’s egoistic pursuits. He started off by patching up with Steve Jobs’ Pixar Animation, a relationship which Eisner had destroyed. According to Michael Corty, CFA Stock Analyst, Morningstar “Iger knew the importance of animation to its studio entertainment business, so he quickly patched up with Steve Jobs”. On January 24, 2006, Disney acquired Pixar for $7.4 billion in stocks. Although the move made Jobs the largest shareholder in Disney, it has proved to be one of the best acquisition that has bolstered Disney’s animation division. In 2010, the studio released Toy Story 3. Produced at a budget of $200 million, the movie grossed $1.06 billion; becoming the highest grossing movie of 2010 worldwide and the 5th highest grossing film of all time. The acquisition of Marvel entertainment couldn’t have come at a better time. Despite being in the movie business for ages, Disney always felt restricted with respect to its target audience. With more than 5000 characters under its label, Marvel has given Disney access to an array of inventory, which presents enormous franchising opportunities (properties can be exploited across segments). Disney is making considerable investments in the Parks and Resorts business. It has already started construction of the Shanghai Disney Resort. Conceptualised on a budget of $4.4 billion, the media giant holds a 43% stake in the venture. Although this is a late cycle business, the company will realise formidable earnings riding on the back of economic recovery and the 260 million viewers of its TV shows in the mainland.

One of the areas where Disney needs to work extensively is the interactive media segment. The business has been incurring operating losses for the past three years. Till last year, the Interactive Media Group had an employee base of 700. After the announcement of the results for 2010 wherein the division posted losses of $234 million, around 30% of the workforce was laid off.

Disney is on the right track so far and Iger seems to be playing all his cards right. The risk however lies in the fact that revenues are centralised. A segmental analysis of Disney’s business reveals that the Media Networks business generates 45% of all revenues. The remainder, which includes Parks & Resorts, Studio Entertainment and Consumer Products contribute 28.27%, 17% and 6.83% respectively. The media network business forms the backbone, and ESPN contributes 75% of cable network sales. But the growth of live streaming providers like Netflix can threaten that in the future.

Disney needs to extensively work on reducing its dependence on one business. Currently, the business is doing well, but then, the problem with good times is that they may ignore potential problems on the way. Moreover, with the kind of opportunities that he now has, Iger needs to push for higher growth in revenues and a return to the legendary days of lore.

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Source : IIPM Editorial, 2012.

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

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Friday, July 20, 2012

Kill their Goose, Now!

Terror Funds have to be Frozen on Top Priority, as it only Gets Harder

Just like any other business, even terrorism needs to be fuelled with money regularly to ensure that the bombs and bullets never fall silent! In fact, as an industry, terrorism today looks more driven by money and power rather than by religions and ideologies. Dr. Rachel Ehrenfeld, author of bestsellers like Funding Evil, contends that terrorism today is more “an international network of corrupt state leaders, super wealthy contributors and drug and crime kingpins”. One of the major objectives of US law enforcement post 9/11 was to ensure that the wells of terror funds stay dry. As per a report released by Assistant US Secretary of State for International Narcotics and Law Enforcement Affairs in 2007-08, a huge part of the remittances that flow into India are sent through illegal channels like Hawala, and are believed to facilitate terror activities as well. The Peruvian Financial Intelligence recently pointed out that “more than $3 billion moved illegally through Peru’s financial sector in 2009.” Most of it is used by terror groups.

As per a study by Homeland Security Newswire, the London transportation attack of 2005 cost $15,000, the cost of executing the 2004 train attacks in Madrid was $10,000 each and the 9/11 attacks cost around $500,000. As per CIA, the annual budget of al-Qaeda is estimated at around $30 million. Government cables sent by Secretary of State Hillary Clinton in 2010 believe that terror is being financed using armed bank robbery in Yemen, kidnappings, drug proceeds in Afghanistan and pilgrimages to Mecca. Even the oil trade is in the line of suspicion.

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Wednesday, July 18, 2012

Can we Move Out at All?

India’s Traditional Transport Systems Including Road, Rail, Air and Water never got their due Importance from Successive Governments.

The very essence of the phrase ‘national priority’ often gets diluted due to the number of times it is used, reused and misused in our country. It’s almost as if everything is national priority depending on how hyped up it is at a particular point in time. In that context, it is indeed debatable whether reforming and modernising India’s transport systems, including road, rail, air and waterways, were ever ‘national priorities’ in the sense that we expected it to be. On both technological advancement and security, India’s transportation systems seem to have fallen way behind when compared to our economic progress. And the gap is only increasing with time.

Indian Railways, which spawns across the nation connecting almost all cities and towns, is still awaiting modernization and suffers from many shortcomings. During the last 20 years, Indian Railways added merely 1,648 km, which is less than 90 km per year. Given the population size, we have very less rail route length per capita. According to the Centre for Transforming India, when it comes to roadways, New Delhi saw a mere 20% increase in road length and an alarming 132% increase in vehicles, which has led to a congestion cost of Rs.40 billion per year and a loss of 2.5 productive hours every day in Delhi alone. And this is the state of the capital; one can imagine the plight of the rest of India.

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Rewritten Global Management case books

In a Superlative & most Insightful analysis, B&E Documents how Corporate Leaders have Transformed their Organisations & Implemented continental strategic shifts that have Rewritten Global Management case books

In sharp contrast to IBM, the bosses at GM continued churning out monstrous gas guzzling cars even though they realised that nimbler rivals like Toyota and Honda were steadily taking away market share from the company. The false prosperity of the George Bush years and the Americans’ crazy love affair with SUVs made it appear as if the bumbling and stumbling GM might just pull through the imminent debacle. That never happened, and GM had to face the mortification of bankruptcy and a state sponsored bailout.

I am pretty sure even diehard skeptics who dismiss the ‘strategic’ importance of changing strategies for survival and growth would be convinced by now that changing strategies at the right time does matter even in a world tormented by Black Swans. But there is another sucker punch in this tale of changing strategies. Leaders like Deng and Gerstner often had the luxury of decades to contemplate the necessity of changing strategies – or changing course midstream if you may say. Leaders of the 21st century, whether of nation states or of corporations, simply do not have the luxury of time anymore. Change that occurred at a glacial pace once upon a time, now happens at a speed so blinding and dazzling that even battle-hardened veterans fail to grasp. Information technology is playing a key role in dictating the pace of this change; as is the relentless march of globalization. In effect, the time needed to change strategies is becoming so compressed that changing strategies often acquire the shape of what would be once considered a change in tactics.

Once upon a time, there used to be a Test Match played out over five days. That dictated its own strategy as well as a change in strategy. Now, we are ruled by 20-20 cricket. So, the captain, who could earlier adopt and then change strategy over a span of 450 overs, now has just 20 overs to do the same. Things are not very different in corporate boardrooms as change constantly gathers pace and keeps surprising us in a Black Swan manner. It is no longer enough to realise that you need to change strategy. You have to do it damn fast if you want to survive.

Perhaps that is the real Black Swan impact on nations and corporations!

GM’s Detour trick
The new gm is all about change – smaller, fuel-efficient cars, customer-centric approach, focus on emerging markets and most importantly, profits. pawan chabra writes about how GM’s strategic shift saved its day.

For decades together, General Motors was exalted as a symbol of American success. A success that would only be got by thinking big, making big and selling big. Today, it is cited as a failed American freighter. Its very DNA got the better of it, forcing the Detroit giant to detour. Precisely fifty years back, GM had grown into a Godzilla-making factory. It had embraced vertical manufacturing and its list of offerings either included products designed to match up to the budgets of luxury car buyers, or live up to the fancies of truck-lovers. Its audacity clouded its vision – the downfall was imminent. And so it happened in January 2009, when GM filed for bankruptcy. Fuel-guzzlers do not please a nation which is battling with rising unemployment. Not even if they carry a GM warranty. Change it needed, and change it did. From 51.4% of market share in US in 1961 to 30% in 1990, and to under 20% today, GM is a story of how a King-turned-pauper, finally realised that serving the middle-class is as important. And the fact that it still has a strong change of making it to history books as a phoenix of the modern capitalist world, is because all the three CEOs who followed Rick Wagoner (Fritz Henderson, followed by Ed Whitacre, followed by the current CEO Dan Akerson) during the past two years, have appreciated this change in mindset.

Cut to the present, and any GM insider who has lived the horrors of the downturn will confess that GM investors giggle more while talking about the muted GM DNA, than while ranting about the world-record IPO on the 18th day of November last (which helped raise $23.1 billion and marked the comeback of the company on NYSE). Muscular brands like the Saturn, the Pontiac, the Hummer and the Saab, no longer take shelter in GM’s umbrella (the company sold them about a year back) and the $80 billion in losses, accumulated over a period of four year, could soon become a thing of the past. The world is staring at a new GM, with a new strategic vision, take the differentiating leap ahead with its consumer-friendly and smaller offerings.

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Enter ‘Tactical’ Strategy

THE ART OF ‘TACTICAL’ STRATEGY IN A 20-20 WORLD

In the good old days, winners knew that strategic changes and shifts were the key to survival and success. But they also had the luxury of time to implement strategic shifts. In the 21st century, winners not only have to change strategy; they have to do it very fast, and very often.
By : Sutanu Guru

So you are one of those doubting Thomases with mystic leanings who believe that in our world, the best laid plans of men and mice go awry because the random usually overwhelms the calculated. You have perhaps read or heard about the book Black Swan by Nassim Nicholas Taleb, where the unexpected barges in through our back door so unexpectedly that it is often futile to draw up strategies for the future. In such a scenario, tactics, of course, become akin to the spin of a coin. So you think that adopting strategies doesn’t really matter and changing tactics can be as much fun as a blind date in a dark room.

I admire your nonchalant reverence towards the random and the unexpected and your irreverent indifference towards those two much abused words – strategy and tactics. I wish I could also drink from the well spring of mysticism that you draw upon. But I look at dozens, scores and hundreds of cases where the right change in strategy and tactics has worked wonders for nations as well as corporations. Changing tactics are so frequent that there would not be enough space even in a 2000 page book to recount them. Let me tweak your mysticism and cynicism a bit by citing just two sets of contrarian examples – one from the realm of nation states and the other from the realm of corporations.

Back in the 1970s, both India and China were considered to be virtual basket cases when it came to economic performance. The two countries were simply too huge to be ignored completely; but that was that. In China, the ‘Great Helmsman’ Mao Zedong had adopted such a bewildering array of strategies that tens of millions of Chinese citizens simply perished. Most Chinese found it difficult to feed themselves every day. And the Communist paradise that Mao had dreamt of had actually turned into a living hell for a majority of Chinese citizens. Being subjects of an authoritarian and totalitarian state, they couldn’t even protest their lot. In contrast, Indians were protesting loudly by the 1970s. Bizarre economic strategies adopted by Jawaharlal Nehru – and even more so by his daughter Indira Gandhi – had made India one of the worst performing major economies of the world, along with China. GDP growth rate in both the countries was abysmal; starvation deaths and the spectre of a famine were still all too real; the middle class had virtually no access to the cornucopia of goods and services that their counterparts in other countries were devouring with relish; and poverty reduction had become a bad joke.

That was the precise time when one country – and its leaders – deliberately and consciously went for a huge course correction, a monumental and hitherto unimaginable change in basic policies that could easily be termed a historic strategic shift. Deng Xiaoping, a comrade who had marched with Mao, decided that the colour of the cat was not important as long as it caught mice. Deng unveiled a historic opening up of China that had not happened for hundreds of years. It was Deng who allowed the animal spirits of entrepreneurship and capitalism through the back door, even as he maintained a facade of being a dedicated socialist. It was China under Deng that invited multinational corporations from America, Europe and Japan to set up factories to exploit the cheap labour available there.

The rest, as they say, is history, as India – that delayed its own strategic shift by more than one and half decades – still despairingly and wistfully talks about the ever remote prospects of catching up with China, while China shares the high table with the sole superpower America and blithely talks about G-2 being a reality. I won’t bore you with numbers and statistics here to showcase how far ahead China has moved. But I would definitely point out one stark lesson of this: strategies do matter and it is even more important to get the right time to change your strategies. Of course, dedicated fans of Nicholas Taleb might say that China is lucky Mao didn’t kill Deng Xiaoping when the latter fell out of favour with the Communist regime. I would say fans of the random and the unexpected are lucky in their mystical skepticism.

Those are not just nations whose future gets changed – for better or worse – by changing strategies. It applies even more brutally to corporations across the world. Let me cite the example – once again without boring you with numbers and statistics – of two giant and iconic corporations to showcase the importance of strategy and the critical importance of changing strategy. By the late 1970s, it had become evident to prescient analysts that both General Motors and IBM were heading for trouble. Both were behemoths that were not willing to change with the times. Of course, for an overwhelming majority, GM and IBM looked so invincible that even whispering about them heading for calamitous and life threatening times was considered to be blasphemy. One was the juggernaut that dominated the automobile industry of the world. The other was another juggernaut that completely dominated the computer industry of the world in those days. Throughout the 1980s, as technologies started changing and evolving rapidly and as rising concerns about the future prices of gasoline worried consumers, both IBM and General Motors stuck to their old strategy.

But then, in what could also be described as a Black Swan kind of phenomenon (!), Louis V. Gerstner – a man with no prior experience of the technology industry – took over the reins at IBM in 1993 after successful stints in American Express and RJR Nabisco. By the time he took over, even the biggest fans of IBM were resigned to the fact that the giant was virtually on its knees and slowly and painfully heading for extinction. Gerstner realised that a complete rehaul of strategy was the only way he could save IBM and he did exactly that despite stiff opposition of entrenched old timers. He rammed down the strategic changes, abandoned the OS-2 platform, decisively moved away from mainframes towards ‘service solutions’ and tried damned hard to become extremely customer focused and process oriented, than product obsessed. By the time Gerstner retired 10 years later in 2003, the remarkable turnaround of IBM was such a talked about story that the media shy Gerstner even churned out a bestseller aptly called ‘Who Says Elephants Can’t Dance?’

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