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Strategic Financial Decisions – The Makers & the Breakers

September 16, 2011 Leave a comment

Taking the Shylock route today’s organizations embark on a journey that can directly drag the organization to perilous and disastrous route into a future that offsets the goals and the mission of the Board. The financial charter by process design, rests with the decision of a very few; these few sometimes do not get the pulse of the organization; they constantly vibrate at a frequency that is completely off course the Board and the Business. With the changing trends in the corporate leadership and their approach to profitability, the only line items these leaders  see are bottom line cost reductions, spree of acquisitions & improper integrations, investing into sales & marketing efforts of decade old services, misplaced S&M focus over geographies and services. They are not to be blamed, without any depth in the service LOB of the organization and the technology vertical comprehension skills these decision and their makers drag the organization down and ensure it sputters to an halt like an old blocked rusted carburetor engine.

I want to discuss a few key examples of such perilous decisions and the decision makers that have devastated tall standing organizations. These decisions and the decision makers have collapsed structures and impeded progress in the name of growth and profitability; bringing to the fore their cleaving to traditional business structures and not adopt to the dynamic business environments governing the markets today.

Nortel Networks: Nortel struggled with a string of weak leadership team who huffed and puffed their way through mistake after mistake until Nortel eventually collapsed. They were burdened with billions of dollars in debt after missing out to raise equity and till they became a penny stock. Poor management and governance saw class-action lawsuits that cost it billions of dollars. Nortel made a series of multi-billion dollar acquisitions that were spectacular failures. Causes: Incorrect and out-of-line Financial Decisions by the handful of leaders that devastated the growth Nortel had achieved over the decades.

Air India: Foremost the Public holding of a Commercial enterprise does never survive, except for entities like ISRO where scientists and industry experts rule the roost. As for Air India and Indian Airlines the decision on not to privatize proves costly. The Indian state with its plural and coalition driven political schema cannot in anyway manage to be commercial in the wake of massive industry competition. The rising debts over fuel, airport parking, salaries, maintenance, one does wonder the future course of the organization. Wages account for just 16% of total costs, so the scope for reducing losses through wage or employee reductions is quite small. Blunders aplenty thanks to the Union ministry like the; Air India – Indian merger, Not outsourcing of fringe and support work, severe misuse of perks, corruption driven losses from high places, No industry expert to run the show as bureaucrats and politicians CANNOT run an airline. The purchase of Boeing 777 and 787 Dream-liners far beyond the airlines need is another major factor in this. Recently reports indicate corruption in the sale of assets of the Organization. Causes: Well.. its political state leadership. What more can anyone expect?

The above listed instances clearly highlight the need to have a strategic leadership team that drives business performance and posses great acumen and wisdom. Having taken financial decisions based on traditional and primitive approaches do not help growth in organizations that operate in dynamic business environments, the need of the hour is to have a sane leadership that can rise up and adopt to the changes. In the name of Optimization – Penny Wise Pound Foolish. Whenever the corporate house starts building hurdles for business growth in any form with red tapes lined with laces preaching of optimization; its high time the second level leadership and mid management foresee the conclusion. In the above examples we see that in the dynamic business environments the decisions becoming debacles.

Jesu Valiant – 2011

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Strategic Acquisitions – How? and What?

All organizations try to achieve the maximum growth in the shortest possible time. The trajectory that they want to take depends on what strategies they adopt to manage the varied challenges that they will face. There are many strategies that can be deployed in the wake of time-lines based growth targets. Its almost a undeniable fact that we have growth targets breathing down on CEO’s and the Board in all organizations and the route that they decide to take spells either the knell or the trumpet.

To swell any organizations revenue the strategy and the impending road-map is key; growth can be achieved by multiple ways. Defining a strategy and the under lying mesh of a plan is a hard job and usually the CSO – the strategist does that; he has to further that his conviction to persuade the brass of the organization. Lets take a look at the varied  examples of growth strategies that have been successfully used on most occasions to improve the swell of revenues.

Growth through Acquisition, examples and top reasons:

Avaya’s acquisition of Nortel

With Nortel filing for bankruptcy and the entire global telecom community completely aware of the ‘cash cows’ of a customer base with Nortel. Avaya’s acquisition of Nortel ensured it roped in the top enterprises where it can up-sell / cross sell and also the key Large Systems piece that had many fans in the enterprise world. With Nortel’s strong presence in NA, Avaya could get a rapid entry there with its newer range of products targeting the UC opportunities with Aura and other range of newer products.

Salesforce acquisition of Radian6

With all the CRM systems loosing out to minnows of smaller organizations thanks to the capability of Social Media analytics that these start ups have created. With Lithium’s intended acquisition of Scoutlabs and the market thirst for Social media analytics, Salesforce jumped into the bandwagon and identified and completed the acquisition of one of the market leaders in Social media analytics “Radian6”.  Salesforce overnight added capability to penetrate a big chunk of the market and also provide new capabilities to its huge and delighted customer base.

Tata Motors acquisition of Jaguar & Land Rover

Tata Motors acquisition of the British icons Jaguar and Land Rover was seen as an achievement; here Tata Motors without wasting much time and realizing the economic slowdown in European and American markets completed the acquisition rather swiftly. It provided Tata Motors opportunity to spread its business across different geographies and across different customer segments. Tata Motors did not hesitate to incur a huge capital expenditure in planning to invest US$ 1 billion in JLR in addition to the US$ 2.3 billion it had spent on the acquisition. Well Tata Motors now had global reach, varied market segments penetration, infrastructure, labs and technology.

JP Morgan acquisition of Bear Stearns

JPMorgan Chase acquired Bear Stearns for $10 per share, a price far below the 52-week high of $133.20 per share. JPMorgan Chase made the last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system. The Federal Reserve and the U.S. government swiftly approved the all-stock deal. As all could see JPMorgan benefited most in Bear Stearns’ prime brokerage business, which completes trades for big investors such as hedge funds. Bear Stearns collapse was spectacular just before the acquisition falling to 1% in 16 days.

Whats in a Acquisition?

Acquisition is an inorganic growth tool, many times this is the most sought after growth tool. There are many cases of pure failures in acquisitions thanks to the fine art that is required to compose a strategic integration. Acquisition tests the ability of most leaders who have little, or no expertise in shaping a joint market strategy and driving existing share holders commitments. Approaches abound and any failures in the estimated revenues are directly due to the lack of proper research and analysis over priorities and integration dynamics.  In certain events acquisitions could have been avoided and strategic alliances could have been the key.

How to make an Acquisition work?

Before even the ideas over a target company are framed, even before the very first exchange of numbers happen, there has to be a business analysis done from the market perspective invoking the best of methodologies. The earliest of activity starts with getting the priorities of the organization correct; priorities cover non-negotiable stance of the acquirer. This list of priorities are essential to even start mapping the possible targets that would help in fulfilling the non-negotiable stance.

Secondly the acquirer organization needs to ‘listen and monitor’ the market having its scanner on the alert not to miss any available opportunity, there can be missed opportunities that emerge that would otherwise been a launchpad for growth. It would be wise of the board members or CEO’s to avoid compulsions which would emerge from almost everywhere.

Jesu Valiant

Shared Services – Boon or Bane?

March 12, 2011 Leave a comment

With the financial year 2010 – 2011 drawing to a close, corporations who have not scaled their performances are looking to vertically integrate internal services to create a pool of shared services to run an internal horizontal and this is done with the perception of reducing costs thus. The major areas of such an alignment is very true if organization does not have a industry spread and rather sticks to one direct LOB [Ex: Legal Firms, Pharma etc.,]., it simply means ensuring that resembling functions are grouped together and thus an opportunity for cost savings, services consolidation, unified governance etc., are achieved.

The reality that emerges is a stark contrast to the ‘dream’ of shared services that a CIO, CEO, CTO or the board has. In the current dynamic business environments this is bound to become a curious case of debacles, a ready candidature for worst practices. The entire activity of service team integration to achieve horizontal spread with the varied competencies are complex, expensive, and hard to reverse. Any internal mergers and fusions of services sets the top brass drooling over imaginary prospects today; in fact this in todays business dynamism completely a ‘penny wise – pound foolish’ strategy. This ‘like services’ integration motto proves that the proposer exists in a prehistoric world, where this idea will suit a mass production environment and during times of industrial revolution.

Business dynamism of today involves node level skill based revenues, operational environments, industry process and workflows, domain centricity, COE & Practice Blocs, etc., and in today’s scenario its always “Economies of flow are superior to economies of scale”. Economies of Scale applies to a mass production and industrialized service design. There is however play for Shared services models in a closed industry bloc and lets take an accounting firm; the HR will only focus on recruiting MBA’s and CA’s, if they open a Financial consulting BU the same HR role is diversified to seek analysts and statisticians. If it moves into a systems perspective then introduction of new ‘sniffing’ skills addressing this bloc is needed. This is addressed by adding new skill in the form of resources. Now if this micro transaction is a macro in its millions of dollars worth of PA transactions then the need is directed  in having a dedicated resource augmenting HR rather a shared services bloc.

Economies of flow are superior to economies of scale

Economies of Scale: More the Quantity of output; lesser the average cost. Successful environment for SSO.

Economies of Flow: More the Value, More the revenue and More Agility. Risky Environment for SSO.

In a complex technology environment supporting a dynamic business unit dealing with complexities like multi tenancy client and product eco system, industry specific workflows and addressing diverse industry stack, technology spread across varied functional requirements, distributed niche services,etc., there are a host of mushrooming communities of practice that exists each focused on their direct pattern of work. Here a shared resource for ‘anything’ becomes a nightmare with huge sacrifices that need to made over business agility, business TAT, quality of niche services.

However this does not rule out any scope for shared services as there are indeed a few areas where a SSO [Shares Service Organization] model will yield results and optimize business across a given Sharing services can go either way. Performing analysis over the services organization, introduce best practices, eliminate waste and failures, perform analysis and identify work that can be shared and pursue optimization.

Jesu Valiant – 2011

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