Silicon Valley Road

Silicon Valley Road by Tom Maher is a wonderful book on the experience of the author. He has briefly described his life at Silicon Valley from a supervisor to Vice President of several companies. He has beautifully portrayed the importance of his childhood learning at an Iowa farm, which helped him to manage several problems created by union workers in companies. In his book, he underlines the need for teams inside the organisations for efficient management. Even his talent in laying bricks helped him to resolve the problems among employees.

He states that, “An embarrassment they (workers) would play on us while we walked by would be on the ladder trick. One person would be on the ladder by himself and would very politely ask for our help to hold the ladder for his safety. As soon as we would touch the ladder, he would jump down and write up a “grievance” and give it to us for doing union work.” He handled such instances by kicking the ladder and say “It’s stable enough, so get to work.” This is how he beautifully handled the union fun through his experiences from his work at union when he was a school boy.        

                               

While he was working in Caltex, he came across a different person named Perry Wallia. His employer told him that Perry was going to be fired but Tom should take him and may be find a job for him. So, Tom placed him as Quality Assurance manager. He was ok for four months and later all the employees complained about him. Then, he removed Perry and Perry just sat in his office. Once wafer fabrication director called for a process engineer’s help to solve a trouble in game board chip. Since, Perry was without any job Tom had asked him to do that. He solved that problem very easily. Only after this incident Tom understood that Perry was good at engineering rather than Quality assurance. So he made his job full time for solving complex and old problems. Later on he kept solving all the problems and made an impact on the organisation. This is where Tom felt that companies should not quickly lay off the underperforming employees, because each and every person will have different talents. An organisation must understand the employee talents and place them in a proper area where they can excel and make use of them.

Adding to this, he stated that poor performance is not the workers’ fault, because people are same all over the world. Only organisations should direct, train and monitor the employees towards the goal of the organisation.

Tom Maher says, “Most of the calculator companies deposited their payment in our bank or sometimes in another bank. One customer made a deposit outside the bank with a cashiers check and was able to cancel the check after the parts were delivered and before we could get the money.” He over came such problems by stating that “Customer must bring cash upfront before we would deliver any parts.” In such situations, he worked strategically by getting the insights from the customers wrong doings.   

Tom Maher took pains to remodify the damaged and unused products, because huge cost is levied on it. And also, he focused on the immediate inspection and correction of returned products by customers. One of his principles is that customer satisfaction comes from the employee satisfaction.

Apart from that, his life at several companies conveyed to him the importance of proper merger between related companies. The real time – online reporting system was the one which Silicon Valley companies lacked during his life time. Only at mid-2000, he was able to develop such system which has greatly improved the efficiency of the organisation.    

                                        

One thing which made me feel bad from his book is that he feels “India is a place which is full of garbage and manufacturers are not giving importance to the cleanliness. The ICs produced needs a clean machine set up, so that the accuracy of the instrument will be high.” This is one which he dislikes in India.  Maher also learned how management must be involved in the daily factory issues by knowing what problems are present and how they are being solved!

Pepsi’s Wrong move?

Recently, I read an article about diversification of Pepsi in New York Times. (http://www.nytimes.com/2012/03/13/business/pepsico-executives-line-up-behind-ceo.html?ref=pepsicoinc). I think diversification of brand Pepsi into nutritious segment is not a right strategy.

Pepsi is a brand well known for refreshment. Even their advertisements prove this; they are always clubbed with sports like Cricket, Football etc. The other brands in Pepsi portfolio are Frito-Lay, Tropicana, Quaker, and Gatorade. The brands like Quaker, Frito-Lay and Tropicana are unrelated to their core business. This shows, they are moving away from the core competence of the brand.

I accept that people are becoming more health conscious and hence the non-carbonated beverage segment has one of the fastest growing businesses. But adding non- carbonated brands in their portfolio is not right, since it is against their core product Pepsi. These brands will kill their own market share, because the customers for both the carbonated and non-carbonated segments are almost the same. Customers will get confused when single company advertises to take both carbonated and non–carbonated drinks. This will surely dilute their brand image. Even the non-carbonated beverage segment is more competitive with players like Parle, Nestle, Dabur, etc. who have strongly established their brands.

Why Pepsi wants to get into nutritious segment?

In global soft drink industry, there is not much competition; only two players like Pepsi and Coco Cola are enjoying the market share. But in oats and chips segment, the market is too crowded.  In this industry, entry and exit of the market is easy. Take the case of chips market- after the entry of Lays in India, companies like ITC (Bingo), Parle (Hippo) and Perfetti (Stop Not) have entered into the market and started killing market share of Lays. Like this in oats market, there is tight competition from Horlicks and some other regional players.

I think, Pepsi believed that they can easily sell whatever products they include in their portfolio due to their strong distribution network. But the case is not like that; due to addition of more products in same distribution channels, conflict among the products is created.

This case is not like ITC, compelled to get out of cigarette business and that’s why they had to get into biscuit and other businesses. Even ITC won’t mind if their cigarette business stops giving revenue. If Pepsi would want to be like ITC then this might be a right strategy!

In developed countries like the US the market of soft drink is almost saturated. Because of this, getting into nutritious segment is not a wise idea. Pepsi has to innovate products like diet Pepsi and has to create new market. I think creating new market in existing industry is much easier than competing with more players in new industry.

Recently in the US market, Pepsi lost their market share by 4%, but at the same time Coco-Cola market share increased by 20%.

This point clearly proves that current strategies of Pepsi are not doing well. I strongly believe over a period of time customers would forget the refreshing image of Pepsi, if it continuously added nutritious products in their portfolio.

Beware of Goldman Sachs

Now, there is a heavy discussion in Wall Street about financial holding company Goldman Sachs, after Greg Smith’s, a London-based executive director of equity derivatives at Goldman, wrote a scathing Op-Ed column in The New York Times called “Why I Am Leaving Goldman Sachs.” (http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?pagewanted=2&_r=1) The reason he stated for his resignation is that Goldman Sachs culture is changing.

They are not Customer centric; rather they focus on companies’ profit. He also stated that he was able to hear his manager calling their customers as “Muppets”. He feels that he doesn’t want to continue with this organisation and he is pretty much clear that people who are focusing on profits will not help to sustain the firm. So, he advised the top management to get the culture right again.

What has happened to Goldman Sachs? Is Greg Smith right about Sachs group? I think he is right. Around 2002, Goldman Sachs’ role in Greece Scandal itself had exposed their importance on customers. Greece wanted to enter the European Union. For that, their deficit should be 3% of their GDP. They were not able to do so. Only Sachs group has helped Greece to cook the books by devising a special kind of swap with fictional exchange rates. Now, this problem was magnified in the form of European Sovereign debt crisis.

In 2007, when the housing bust began to take its toll on Wall Street, Goldman Sachs was the first to ask for bailout from the Federal Reserve and approached them to change their status to bank holding companies. Is it the right strategy of Sachs to portray them as a Commercial banker after diluting the savings of huge customers around the world?

During this time, American International Group, an insurance giant facing collapse due to its exposure to the mortgage crisis, was Goldman’s largest trading partner. A.I.G. received an emergency $85 billion bailout from the federal government. Apart from this, SEC has filed a suit against Goldman Sachs stating that they had wrongly structured a security called Abacus 2007-AC1 and generated billions of losses for Abacus investors. Under the settlement, Goldman paid back the profit made from the Abacus deal and also paid a civil penalty.

All these incidents clearly state the importance Goldman Sachs gives to profits and depict the culture of the organisation. I feel Greg Smith is clear about the future of Goldman Sachs in his Op-Ed column.

However, let us also listen to Lloyd Blankfein, “In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people. Everyone is entitled to his or her opinion. But, it is unfortunate that an individual opinion about Goldman Sachs is amplified in a newspaper and speaks louder than the regular, detailed and intensive feedback you have provided the firm and independent, public surveys of workplace environments.” (http://www.valuewalk.com/2012/03/lloyd-blankfein-goldman-sachs-oped/)

I think, as an MBA student, it is for us to take a call on how we want our employer to behave! Let me know your thoughts on this.

HINDU Vs TOI

When the topic Ad war is brought up, the first few examples which strike the mind are brands like Sprite and Dew, Rin and Tide, Pepsi and Coke. But recently, it is the newspaper brands i.e. The Hindu and Times of India hitting each other through print and Television commercials that have became famous. It was initially started by Times of India. In a recent advertisement campaign it depicted The Hindu as paper that puts readers to sleep compared to its own brand. Then Hindu came up with the advertisement attacking on The Times of India saying that “Stay ahead of times,".

Here is the commercial!

After this ad it will be the turn for Times of India to respond. Let’s wait for that.

But here I have a doubt as to why companies get into these kind of marketing battle?

Is this the strategy to create a conflict and to boost the market share for both companies and to gain the competitive advantage or really trying to kill the competitor brand?

I personally believe that it will not kill the competitor brand, rather it would indirectly create the awareness for the brand among the people and influence the brand recall. I guess it would be the creative move of Times of India to provoke the leader inorder to get the attention among the people and to be noticed by other players. The reason could also be like TOI would have thought   that Hindu was enjoying the monopoly market and started a war. But in general everyone believes that Hindu has its own brand image among people and it is perceived as most respected brand in the newspaper industry because of its heritage. But Hindu is trying to upset its brand image while contradicting and making fun of other brands. The brand image may get diluted and the differentiating factor from TOI will not get noticed by customers because of this issue. Even though customers enjoy watching these kind of ad war the brand may be diluted.

Do you think, this kind of practise will dilute the brand image, and is ad war unethical?

Diversification Strategy for Piramal Healthcare

The cover story of Outlook Business (March 14, 2012) on diversification strategy of Indian Conglomerates influenced me to write this post. The article talks about failure of Indian conglomerates in their substantially new business. Some of such conglomerates are Reliance which is  facing a huge loss in their retail and communication business, Birla who are not doing good in their retail business . Why diversification has been a painful task for Indian Conglomerates? My thought extended to the Piramal Healthcare, the company created the empire through diversification. The textile player extended its footprints to healthcare through acquisition of  Nicholas Laboratories from its foreign parent in 1988 and created a huge  empire  within a period of 23 years. In May 2010, Ajay Piramal, Chairman of Piramal Healthcare stunned the business world by announcing that he has sold part of Piramal Healthcare’s business, constituting about half the company’s revenues, for a staggering $3.8 billion, or about Rs 17,140 crores, to Abbott Labs of the USA.

Now, Ajay Piramal is working on a plan to convert the pharma-centric player to a much more diversified conglomerate. Piramal’s latest foray is into the unrelated business of mobile telephony, that of investing close to Rs 6,000 crore in Vodafone India. In fact, the Vodafone deal, where Piramal bought a total of 11 per cent in the Indian arm of the telecom major Vodafone is a very interesting move.

In an interview with Business Standard, Piramal explained his twin philosophy: that of transforming his group from a pharma-centric one to a diversified one.

What is your opinion about the twin philosophy of Piramal group by entering into unrelated business? Will they sustain in the new areas?  What are the new opportunities for Piramal Group?

Merchandising in Cafés

I went through an article on Café Coffee Day partnership with Proline (http://www.thehindubusinessline.com/todays-paper/tp-corporate/article2999910.ece). It made me to think about the reason behind the introduction and the future of this venture. There are many coffee brands in our country like Barista, Lavaza, Costa Coffee, etc. The coffee major Starbucks has also announced their entry into the Indian markets.

Rather than coffee related products, Café Coffee Day is selling products like T-shirts, Mugs, Coffee Makers, Gift cards etc. It’s a sort of merchandising. I think this partnership with Proline will help them in generating more revenue as well as developing a good brand image. Launching T-shirts can attract more customers for Café Coffee Day which will help them to interact with more customers. Coffee Day has already introduced their T-shirts in foreign markets and it was a great success. Earlier, even companies like King Fisher, Fly Emirates and Starbucks have seen a grand success in merchandising. I think it’s a kind of their brand extension strategy and I also feel that merchandising is a branding tool. India’s leading Café chain “Café Coffee Day” earns 10% of its revenue from sale of merchandise.

There are many Coffee Chains in India largely selling Coffee related products. This kind of innovation will increase the share of merchandising. What I feel is that the merchandise needs to communicate the ethos of the brand and what it stands for. It will create impulse purchase. So Café Coffee Day must carefully design merchandise mix and they have to partner with the right players also. These are some of the key challenges for the Cafe; here they chose a right partner for introducing their T-shirts. Because, Proline is already an established brand. They have created a position in the mind of customers for the clothing like T shirts. It will help Cafe Coffee Day in strengthening their presence in the apparel segment also.

Increase the Taxes on Diesel Cars….Is it Right?

Recently, I read an article about Government of India’s (GOI) plan to increase the taxes on diesel cars in Business standard, February 29 (http://business-standard.com/india/news/mahindra-may-cut-expansion-plans-if-govt-imposes-diesel-tax/466234/). I strongly feel this is not the right time to do it.

Let me quickly give you a glimpse of the Government policies, consumer behavior and Indian automobile industry to substantiate this point. 

The main reason for raising taxes is because government is giving subsidy of Rs 5 - 6/ litre of diesel. This is a huge loss of nearly Rs. 86,000 crore every year, and also leads to environmental pollution. But in the real scenario only 10 – 12% of diesel is consumed by cars (Business Today January 14, 2012). (http://businesstoday.intoday.in/story/union-budget-2012-2012-10percent-extra-duty-to-be-imposed-on-diesel-cars/1/21630.html)

Currently the passenger car market is divided as 60% petrol cars and 40% diesel cars. This shows that there is a good market for diesel cars in the future. We all know that disposable income of Indians is increasing, everyone aspire to own a car. The buyers are too price conscious. If government increases the tax of diesel car vehicles, there would be a 10 – 20% increase in price of cars. In this situation, customer decisions may be:

1)   More Customers would withdraw the plan of buying cars.

2)   Some Customers would stick to the decision of buying diesel cars.

3)  Only few customers would turn to buy petrol cars instead of diesel cars, because price        of petrol is 60% higher than diesel.

Due to the fear of increasing tax among the customers, car sales in February grew 13.11% to 2,11,402 units. Even this is the first time ever the monthly car sales crossed 2 lakh units. Also Maruti Suzuki has got 80% of bookings in diesel cars in the month of February 2012. This clearly proves that customers are price conscious and increase of taxes would not encourage them to buy a car.

As a result, the sales of cars might come down. Foreign Companies like Ford, Nissan have pumped huge money in diesel car manufacturing plant in India. Tax raise might demotivate them to do business in India. Even Indian companies like Tata and Mahindra & Mahindra will get affected, since they are selling more diesel cars in the Indian market. As a proactive step, M & M recently stopped their expansion plan in Chakan, Pune unit. At the end of the day it may affect the Indian Economy.

Do you think it is the right time to increase the taxes on diesel cars?

Classical Conditioning

“The global business world strongly believes that Indians are highly westernised. The habitual changes among Indians like dressing, food consumption and others support this argument. So, MNCs are cashing out using this cultural change.” This is how people all around the world think. I just want to add my own views regarding this.

All the management philosophers talks about innovation as an important strategy to succeed in the minds of their customers. They think that innovation is one among the best way to sustain in the market. The reason behind this strategy is that customers will not be interested in buying products which does not have any innovation or variants. It is believed that people will lose interest in the products that don’t have anything new. But, I don’t think so.

Innovation is not what people desire. While buying a product, customers wish that it will satisfy their need. But companies come up with dissimilar variants to increase sales. For example, when you take textile industry in India, the traditional clothes are shirts and dhotis which suit the Indian climatic condition. The manufacturers are not able to come up with enough variants in shirts or dhotis. So, they come up with new models like Suits and Blazers which fit Western climatic condition. They marketed such irrelevant products in India by portraying suits as a formal wear. These suits will no way fit Indians, but, now Indians are highly attracted towards it.

How has this happened? How did the marketers attract traditional Indians towards them? This has happened through the strong development of media. Only through advertisements, companies are able to change the customers’ minds. Using Ivan Pavlov’s learning theory “Classical Conditioning”, marketers are using advertisements as conditioned stimulus to condition the customer minds towards their products. This is the point where the culture is changed without their knowledge and later they strongly believe that this is how a perfect man should be.

I think a small narration on “Vivel Soap” will help.  This advertisement portrays that “a person who does not use cosmetic products like Vivel will not be accepted by their friends”. Even Titan has transformed watch-a timekeeping device-into a fashion wear.  In the past, people have passed on watches through generations. Now, the entire dynamics of watch industry has changed. They did it with a strong advertisement base.

So, I think companies are the ones which decide how a customer should be… not the customer themselves…!!!

Rebranding Arun .... Will it succeed?

Arun, the flagship brand of Hatsun Agro Products (HAP), an established brand for more than 10 years, has introduced a new range of ice creams under the brand name ‘Ibaco'. The existing ‘Arun Unlimited' brand (store) would also be re-branded to ‘Ibaco'. The name Ibaco was chosen by Mr C. Sathyan, Executive Director of Hatsun, son of Chairman & Managing Director Mr R. G.Chandra Mogan. The name Ibaco sounds different in the Indian context and it means Richness which most of the people don’t know.

Ibaco is not a novel name. There exists a consultancy company named IBACO which stands for Investment Business and Commercial. The nature of their business is to provide total integrated technical and commercial service in petrochemical and chemical industry to do investment in Arab countries.

HAP is now having 50 outlets under the brand name Arun Unlimited in Tamil Nadu. Their plan is to open 20 more Ibaco outlets in Tamil Nadu by next month (March 2012) making the total to 70 Ibaco stores. They want to be a pan-India brand and have planned to invest Rs 50 crore to develop 250 Ibaco outlets across India including 70 in Tamilnadu. An Ibaco store will require Rs 20 lakh investments.

Ice cream business, including ice cream and parlour account for Rs 95 crore 2011 which is 7 – 8 % of its total revenue. Ice cream parlour alone contributed to about Rs 10 crore. This means that also a very small percentage of revenue comes from parlour sales.

I believe that this is a right move from HAP. Their existing outlets are situated in places like Express Avenue, Spencer’s Plaza, etc. in Chennai. It is clear that their target customers are upper middle income &premium customers. By the way, existing stores are not meeting their customer needs and people who are coming for ice cream parlour are not only expecting tasty ice cream but more. Premium customers have the perception that funky or odd brand name will give them the right experience like Baskin-Robbins. Brand Arun looks regional, traditional and simple; this will not give them any benefit when they target premium customers across India. Middle income customers will buy Arun ice cream even from the multi brand stores, but the customers coming for parlours are different. They are expecting a good experience than taste.

There are less Indian players in the premium ice cream segment. This move wills give HAP an early entrant advantage. So brand Ibaco will be the right solution for their brand and customer needs.

Do you think so?

End of Surrogate Advertisement?

I recently came across an article on Surrogate Advertising in Marketing Mastermind, August 2011. This provoked me to think about the “Ban on Surrogate Advertisement”.

To define, “Surrogate Advertising” refers to advertising which embeds a brand or product message inside an advertisement which is ostensibly for another brand or product. In most of the countries, alcohol and tobacco advertisements are banned by the government. It is a creative advertisement strategy which helps the companies to promote the products which are restricted by the government. All the liquor brands, including Kingfisher are advertising their liquor products in the name of bottled water. But, none of them are actually interested to promote bottled waters. If the government really wants to ban such promotions, they will put an end to surrogate advertisement. In such cases, can companies go for viral marketing? Will it be a better choice?

To answer this question, let’s first note the awareness level of these products. Such products are having high attention rate because of the negative reinforcements. Apart from that, the increase in internet user base supports the companies to go for viral marketing. Since social networking sites are becoming popular among the adults, companies are taking advantage of these sites to conduct some interesting games or events, using this platform as online customer engagement structure. For example, one of the world’s greatest viral marketing hit is from Thresher Wines, an UK-based liquor brand, which made customers to distribute discount voucher coupons for their products through blogs and emails. So, I feel that viral marketing will be a best alternative for surrogate advertising.

Think! What will happen to the Bangalore Royal Challengers team? Does that qualify as surrogate advertising and the team itself a surrogate product?                                                                                                                        

What’s your verdict on Windows 8 ?

The operating system behemoth Microsoft, unveils the first widely available test version of Windows 8 on Wednesday (Mar 7, 2012), giving the public the first chance to try out the new OS. How is Android  by Google, going to react to this?

The Product

Windows 8 is Microsoft’s first operating system which is compatible with low power microprocessor designed by ARM holding, who have become the standard processor manufacturers for tablets, smart phones and other devices. It will also work with traditional x86 chips made by Intel Corp for desktops and laptops. Windows 8 features a completely new interface to the users which was borrowed from “Metro" style of the current Windows Phone software. It features blocks or tiles which can be moved around the screen, so you can see your emails, voice messages or Facebook notification at a glance. This multitasking feature is missing in Android.

The Verdict

The biggest challenge of any operating system is whether it can attract the support of software developers, who build applications. If Windows 8 can score on that, it may help Microsoft to regain its supremacy.

According Google’s Mobile and Digital Content division lead, Andy Rubin, 300 million activations, with 850,000 new Android devices are coming on line each day. There are now at least 1,000 different Android devices in market and 450,000 apps in the Android Marketplace. All impressive numbers, but these stats are giving nightmares to Windows 8!

What are your thoughts? Will Microsoft take the tablet and smart phone market by storm? Or is it a little too late?

The Mystery behind Nathu La!

On 27^th of February 2012, I attended a very interesting talk on “Strategy Formulation and Grand Strategies”. It was about Nathu La bypass between Sikkim and Tibet, stating the reason why this bypass was formed between the two rival countries. This made me to think about the importance of this open trading border posts.

Nathu La is a mountain pass in the Himalayas, which connects the Indian state of Sikkim and China’s Tibet region. Because of the Sino-Indian war in 1962, this bypass was sealed. But, it was re-opened for cross border trade in the year 2006. China is considered to be a big rivalry for India. If there is conflict of interests, why did India and China accept to re-open this trading border post? Even now, this bypass is now guarded by military forces to have a peaceful environment.

The rationale behind this is that both India and China enjoy a huge economical benefit. Nearly 29 goods from India and 15 from Chinese side are allowed to be traded over this bypass. Approximately US$186,250 worth goods were traded between the two countries. It is like a direct trade that happens within a single country. If these goods are imported from China to India, we will be in need of huge amount of common currencies like Dollar or Euro to trade. Since, it involves a huge sum, both the countries have to supply their own currency in the FOREX market and convert them into Dollars or Euro. It is an unnecessary action which creates a demand for a common currency and makes that currency stronger, and, as a result, the home currency will depreciate. It is expected that heavy volumes will be traded across this border in future. If this happens, both the currencies will lose value. But, the opening of this trade centre allows traders of two countries to exchange goods directly without the intervention of the FOREX market. Apart from that, Customs duty can also be avoided for the traded goods. This encourages the traders to produce and sell more.  Paving the way for a major trade route will also boost the transportation, construction and service industries. This ends up in a huge employment and it helps in the development of both the economies.

Is India really growing? Should one invest in India?

I would say a big NO. I might sound a little pessimistic I know, but I have reasons for that.

First, if we see Inflation, it has always been a concern for India, which will cause lots of problems to the economy and it is mainly caused due to increase in oil prices. Even the prices of milk, and vegetables have increased. So, typically, middle income and lower income people have to face numerous problems, as their expenses are more, but the income is the same.

So then, the next billion dollar question is what RBI will do? Due to inflation pressure, the RBI increases the repo rates in order to tame the inflation. But the problem here is tightening monetary policy will affect the growth of the economy. If the Repo Rate is hiked, banks will increase the lending rate to corporate firms that in turn will decrease their profitability. This may also lead to less employment generation. Thus it reduces tax income for the government. This will led  to another problem of  increase in fiscal deficit

After all this, still if you are optimistic, give the following points a quick thought: Corruption and Scandals are becoming synonyms to India which will reduce the confidence of the FII to make investment in India. For instance, the 2G Spectrum Scandal, Commonwealth Games fiasco, etc. You may ask why I should consider FII investments to be important? This is because, our market is mainly controlled by FIIs, and hence they decide whether the market should go up or down

Are you still confident? Let me give you one more dimension of India: The inherited problem we have which we have not solved for decades like Infrastructure and Power will require huge spending from government, which means more loans.

But people say India is growing. However, I have my own doubts on whether I should invest in this country…..let us know your thoughts on this.