Friday, December 26, 2008

Changing Crisis to Opportunity

Almost every organization I know off has gone through a number of revisions in their forecast for 2009. Unfortunately almost all the revisions are downward. With the loud background noise of doom and gloom, there is still opportunity to keep business strong, and dare I say growing. A friend and colleague - Jareon in his business plan, used the expression changing crisis to opportunity, and this really should be the theme for 2009!

Financial engineering and unsustainable borrowing by enterprises and individuals fuelled growth in the last decade. Along with the credit crisis and moral dilemma of greed and rampant consumerism, the conditions also led to commercialization of technologies that are extremely beneficial.

The spiritual gurus of all religions have added their fair share of criticism to the current world and business affairs. The Archbishop of Canterbury Rowan Williams has said if anything good had come of the economic crisis, it had presented a society driven by unsustainable consumption with a "reality check". Recently Pope Benedict weighed in on the world economic crisis and the ethics of the financial community, branding the global financial system as “self-centred, short-sighted and lacking in concern for the poor.”

As much as we may need to reflect on our moral bearings, I am concentrating on the opportunities in this crisis.

Much derided consumerism that demanded gadgets like new phones with new features at increasingly lower costs has also helped us commercialize wireless technologies that make our every day life better. Semiconductor technology used in consumer electronic devices has improved exponentially and has contributed to advances in health sciences, transport, telecommunication etc. These same technologies however have also contributed to the weapon technologies that take lives. But fear of crisis or misuse should not paralyse us. So what are the opportunities in this crisis? Here are some thoughts.
  • From a financial perspective ; add value to your customer. If you are a bank – be a bank, if you are a financial advisor, understand the financial instruments you are selling, if you are involved in synthesizing new financial instruments, then understand the math behind it and be transparent.

  • From a technology perspective, there are a number of problems facing humanity that need to be solved, and can create wealth in the process of solving. For example ;

  1. Over 2Billion people do not have decent roofs over their heads. Just in urban areas alone there are 500M poorly housed people. Yes low cost housing can be a profitable business!
  2. Businesses that help reduce the environmental impact of our lifestyles – unless of course you believe that “climate change” is a hoax. Technologies like Cisco TelePresence On-Stage Holographic Video Conferencing can really make a difference, and be profitable.
  3. Robotic or autonomous systems to help the increasing elderly populations. Or sensor based technologies that help monitoring the elderly. A great example is the ishoe that could help the elderly from falling.

The list is long but the point here really is that there is a lot of wealth to be generated in business by concentrating on generating value to the customers in ways that can fundamentally improve ones quality of life. The biggest opportunity in the current crises is to focus your enterprise on value creation.

Unfortunately simple ideas now have complex connotations. I got 11.2 Million links when I googled "value creation". I have most of my experience in technology companies, so I try to define value creation simply as “Does the solution (product or services) that you provide fundamentally improve the circumstance of your customer” If the answer is an emphatic YES, then you pass the first stage of value creation. The next phase clearly is the economics of your solution.

Friday, December 19, 2008

You are smarter than you think and you are greedier than you admit

Bernard Madoff - made off with $50B. Are you fuming at the guile of the man to run a giant pyramid scheme, are you envious that he got away with it for so long, or are you asking “how could this happen”. The reason that Madoff and for that matter many other investment and financial experts got away with multi-billion dollar scams is that they preyed on two essential human characteristics. One is that most of us believe that we are not smart enough (do not have the time, interest, etc….) to understand the modern financial frame work. The second being, we do don’t want to miss the boat. Every body we know is making lots of money in the market, and we don’t want to be left behind.

If any financial instrument can not be explained then it is a scam. If the “expert” uses words that are not substantiated by facts, then he is a fraudster. An example used in the Madoff case. Fairfield a leading investment fund with ties to Madoff had in their literature for Premier Sentry fund billed their “value add” as a way to tap Mr. Madoff's trading expertise using "algorithmic technology" while Fairfield stood close watch, conducting "systematic investment compliance". Words to intimidate but really with no substance behind them, yet they got people to part with billions of their dollars.

Individual investors paid advisors who invested in funds that took lots of money in fees and commissions to invest in other funds that they knew even less about. So if the “business of investing” was not a pyramid scheme then what is? It is amazing to see fund managers who are very well paid, blame other fund managers for the losses they have seen in their funds.

The moral really is that the people you are investing your money with really don’t know that much more than you do, but hope that the people they are investing with know a whole lot more. This is a classic combo intellectual-financial pyramid scheme. The reason that these schemes work so well is because we all want to make our money grow by leaps and bounds. But then this is a problem only for the people who have money. The 3 billion plus people who don’t have any savings worth talking about wonder why $$1.5 trillion is being spent on bail outs and stimulus packages, and yet they don’t have enough to eat!

Wednesday, December 3, 2008

Enjoy the Journey

One often tends to separate business life and philosophies from ones personal life, leading us to live life in what we believe to be separate silos. But are there really separate silos in the lives we lead? As I was thinking about this I wandered in and out of the personal and the professional realm.

I was with a personal friend DY , who was lamenting the sudden changes in his life caused by the illness of his brother who is suffering from a nervous system disorder. He said that his life was enveloped in sadness to see his brother who was very vibrant and independent reduced to needing assistance for even the simplest of tasks. The thing that really made me think was when he said that his life was paralysed by the pain he felt for his brother, and that he could not visit his brother since it pained him terribly.

Knowing DY for a long time, I also knew that he was a grandfather of a beautiful one year old; he has a son who is rising his way up the world rankings in tennis, has a wonderful family. And, he is a successful entrepreneur. Yet he felt paralysed. And in the bargain, his grand child was not getting to know a really wonderful man, he was increasingly being uninvolved in his sons life, and he was unable to be supportive to his ailing brother. In his quest to find meaning in his life, DY has forgotten to enjoy the journey of life.

In professional life too, people often get focused on goals, and forget that the journey needs to be cherished, with a lot of lessons to be learnt along the way. As the world faces serious economic crises, the successful organizations are the ones that can enjoy the journey. What I mean by this is that organizations that get paralysed by fear of failure will not succeed. Scare mongering in an organization is typically the tool of the conniving or the stupid.

This is the time to invest in your competencies and core areas of the organization. This is the time to fight the desire for too much control by a few individuals and organize the company into smaller blocks with more leaders who are closer to the core of the business. This approach allows many different experiments and levels of risk to be taken at an atomized level, while ensuring no single block or atom can bring the company down if a wrong approach is taken.

Unfortunately in many companies the effort of tackling a recession gets hijacked by support functions that do not cater directly to customer, product strategy, or technology. As groups in companies directly involved with revenue generation, product development and product and market strategy get busy in tackling the challenge of growth from the front lines of the business, support groups with best intentions start driving what they believe is efficiency. Hence the importance of an effective executive who understands the business and is not preoccupied by any one or two functions of the business is important to ensure that the appropriate balance exists. Some examples of good intentions leading to decisions those are bad for business;

1. A large consumer and health care company decided to cut costs via consolidating IT infrastructure and applications for the more than 12 business units they have in a centralized operation. The great intention that drove this action was to avoid duplication of roles like business analysts and programmers. And to negotiate best prices with service providers to the world wide facilities. Very good intentions, however the results to the business were negative.
The support managers for the infrastructure group optimized on “cost” alone, and were accountable only to "saving cost". This resulted in choosing a service provider that had bad coverage in some of the fastest growing geographies and the business managers had to deal with the lost opportunity cost, with poor connectivity for over 12 weeks. While the support group was successful, the business suffered.

The decision to centralize the applications group resulted in the decision being made by the support managers that all the SAP applications would be standardized uniformly for all the bsuiness units to manage upgrades and SW maintenance more cost effectively. Again great intentions, but the impact on the business was negative. When a lot of the back office order taking and supplier related software was standardized for a business that deals with customers and suppliers from as varied a background as soaps, and sanitary napkins to perishable edible products to pharmaceuticals, the standardized ordering and inventory control application caused more people to be hired in the warehouses and distribution centres than was previously required, but the support team with the centralized software considered the implementation a success. The problem gets accentuatedd when the players and the score keepers are the same people.

2. The CFO of a successful technology company decided that the best strategy to grow was to change the compensation system of the sales team, and convinced the sales leadership that it was a good idea. As an experiment the company started in one of the geographies to give a large additional bonus for every percentage point of revenue inachieved above the 5 year CAGR in that g territory. The initial results were great the sales team in the particular geography was doing well. However, a year later, looking into the details, it was found that 82% of the growth over the CAGR came from contracts negotiated with existing global customers to buy from the said geography. This resulted in broken relationships with customers and internal organizations of the company. The CFO actually announced the success of this experiment, and suggested worldwide change in compensation schemes. Fortunately people closer to the core of the business took the lead in understanding the dynamics and had the final say .

The examples of good intentions with bad results are many. A bad economy is the time to differentiate your organization and your skill sets from the rest. This is the time to enjoy the journey, know that there are no shortcuts and grow personally and in business by providing value to your customers, your organization and to your personal life. Hopefully DY will learn to provide the tremendous value he can deliver to his family.