The Most Challenging Assignment In The Indian Corporate World : The Role Of The New CEO Of Satyam Computers.

The new Board of Directors has been appointed by Govt Of India which includes Bankers Mr Deepak Parekh, Mr Kiran Karnik, Ex Nasscom and Mr. Achuttan ,Ex SEBI, The new board is in look out for a CEO of Satyam Computers who will in a day to day charge of running the company.

What should be the Strategic Action Plan of the newly appointed CEO of Satyam Computers.?

1.Should he go to all the customers and confess the misdoing of Satyam earlier management and retain those customers especially the overseas. Should he go for aggressive marketing and take major accounts in the West European market and in the North American market.

2.Should he meet physically or through social media with all his internal customers, the employees and tell them the truth giving a clear picture and try to hold them back by restoring confidence in the mind of all his colleagues. Even request them for a pay cut or downward revision of salaries which will be a temporary phenomenon as a tool for financial emergency.

3.Should he talk with all the existing Bankers both domestic and international, and the domestic Financial Institutions and borrow some additional funds of nearly Rs 5000 Crores(approx US$ 1 Bn) with a minimum rate of interest officially cleared by RBI which will fend it for next 8-10 months in the first phase of the turnaround management. This is the most important part as Satyam is having serious liquidity problem, and the monthly wage bill is around Rs 522 Crores( Approx US$110).

4.Should he pick up an efficient CFO who can be transparent with all the stakeholders of the company and a financial wiz kids.

5.Should he appoint a CEO (Chief Ethics Officer) by creating a new post or if needed a new departments whose task is to keep a close vigil on the day to day activities and should have parallel reporting to the Board Of Directors, along with the CEO.

6.Should he call an EGM where he can take all the retail investors into confidence by showing them that it can be nursed back to profits in a shorter period of time? which may give a sentimental boost to the BSE and NSE, and turn retail investors starts coming back.

7.Should he appoint the new Auditors, who have got a clear track record along with good solicitors.

8.Should he go for a monthly un audited P&L A/C and Balance sheet instead of quarterly Balance sheet and P&L A/C to be more transparent to all the stake holders.

9.Should he keep his communication channels open and regularly communicate with the press both electronic and print media both national and international, in order to improve the public relations and image make over.

10.Last but the least and the most difficult part how he will be managing the ADR and the NYSE?

The above are the points that ha come to my mind, I am sure this can be a very interesting topic for all management students and practicing managers. This can be a real case study in the TURN AROUND management topic.

The problem is peculiar and unique as it has got 52000 employees who are cerebral workers and has made good for the company and also for India they were the brand ambassador for Indian and the jewel in the crown of Indian Industry; it’s all about diversion of fund and cooking up the books of account for last seven years.

Many ideas and suggestions can come forward which can be forwarded on this particular topic, but undoubtedly this is the most challenging assignment in Indian corporate world.

CEO's Role :Chief Executive Officer Or Chief Ehtics Officer .An Unique Case Of Mr.Ramalingam Raju Of Satyam Computers.

Mr Ramalingam Raju did he really played the role of the CEO , I mean Chief Ethics Officer.

In toady's management world, in a widely held public limited company Chief Ethics Officer and the Chief Executive Officer should be the same person.  Mr Raju was the Chief Executive Officer but not the Chief Ethics Officer.

Again and again it's being seen that "Integrity Scores Over Efficiency" in the long run.

The very episode of Satyam seems to be very interesting. In Sanskrit (Origin of all Indian Languages) it means truth.

I must say Mr .Ramalingam Raju has got the guts to say that he has done the fraud and has manipulated the accounts.The real Satyam from the founder of Satyams mouth  has come out.

In recent years we hear about the corporate Ethics and Corporate Governance, lot of emphasis are being given on this and the HR and Secretarial departments along with the vigilance department are major advocates for this.

In MBA course this subject is included and budding MBA's which they study with great care to pass the exam but in real life how many will be able to practice is a million dollar question.

It's not only with the Indian companies but also with major MNC's particularly the U.S. are recklessly did manipulations in their business precess.

Profit is not a dirty word it's the barometric measurement of efficiency of the management which is running the business.Profit can only come from the efficient and honest running of business coupled with acumen intelligence and sincerity.

Unfortunately we hardly find  any honest businessman, rather they are an extinct species.

Creation of shareholders wealth which one of the primary motto of the an efficient business is coming to a dead end.If the management is transparent and honest  the quantum leap in shareholders wealth may not be possible to create.  

Tax evasion and avoidance of tax , misappropriation of accounts , insider treading are rampant in corporates, along with the nexus with the FIIs and the I Bankers which can help in creating abnormal growth in share holders value.

It's the poor Innocent retail investors , vendors, employees gets the raw deal when a major corporate like Satyam sinks.

The customers are smart enough to scrap the deal or may not renew the next deal.Competitors are there who will snatch the account smartly from Satyam.

It's takes mammoth effort to make an organisation like Satyam which made every Indian and India proud.

It took Mr Raju long twenty years to build the empire , but it took only two weeks to finish it. 

Appetite for business growth is good but extreme form of  greed is not good ,you cheat yourself along with all your trusted stake holders. 

We all hope the Indian IT giant will come out like SAYTAM in a new integrated SATYAM way.

Economic Recession: The Only Panacea Is Demand Creation

To come out of the Economic Recession certain strategies are required and as we know in the text book of Economics that “Demand is the mother of production”.

Demand creation is the major and prime factor for the economy to come out of recession.

The basic question which arises in a laymen’s minds why demand evaporates, why consumers shy away from purchasing of products (goods and services).The  are reasons why they shies away from buying, spending and shopping.

Combat Liquidity Trap:

Liquidity crunch is considered to be major problem which arise during the recession, general people don’t have adequate disposable income to buy products and in turn there is a glut in the market and the manufactures and the businessman are stuck up with the products and services, an are force to sell product at loss or at break even.

Liquidity Crunch triggers recession and in turn the manufactures cuts the output and lays off employees. Job cuts and job freeze makes life difficult for people and an economy to sustain in the proper place.

With globalization and GATT in place the modern integrated global economy find it’s very difficult to survive. No economy is insulated from the global economic meltdown.

To break the vicious cycle the government plays the most pivotal role in by accelerating investments.

Active Role Of The Government.

According to Keynes during the recession the private entrepreneurs are skeptic in doing any further investments and prefer to minimize the investment role due to additional fear in mind of loosing money and capital. It is the governments and their bodies who should take a bold front and apply all financial mechanism to bail out firms who are loosing and not willing to do any farther investments. The stock market regulations are to be changed  for time being allowing the FIIs and retail investors to play safely and freely. In a free market economics the government’s role in the back side during the boom time, but it play the most important role during recession for baling out the economy from recession. Interest cuts which leverage the borrowing power of the entrepreneurs and the general public and in turn trigger of business activity and purchasing activity respectively. Inflationary trends generally are under control and the feel good factor amongst the entrepreneurs and general public should set in which in turn creates employments and demand in the market. The mixed economies of the world are in a better positing to trigger demands by buying for both the government bodies and pubic sectors. As public sectors and private sectors are dependent upon each other public sectors and government buying can easily pull up the private sectors demand and vice versa.

 Avoid:” Paradox Of Thrift”:

An In-depth look and government should come forward will it’s Fiscal Measures to over come this paradox and create enthuse amongst its people to create the demand by creating some confidence building measures and a favorable atmosphere by which people will be willing to buy and aggregate demand can be created.

As earlier said “Demand Is The Mother Of Production”, it’s of paramount importance for the government to create the demand by extending all benefits to the industry or bailing out industry and firms which can be turn around with fiscal measures, additional spending in infrastructure, housing, health care and labor intensive industry generating high employment and which in turn will create the aggregate demand.

 Taxes , Levies, Duties should be kept at a minimum level which in turn will attract the industry to go for production as well as interest the buyer to for shopping. A cut in income tax makes work more attractive. Therefore, the substitution effect of cost says people will work more. Interest rate cuts will also help the consumers to take additional loans for buying homes and other durable products, which in turn will trigger off demands for all allied industry. According to some Economist it’s the general consumers who have the keys in their hand to open to reopen the economic boom. It’s the sentiment which can’t be defined by economist but it very much a physiological factor which plays an invisible role in boosting the ailing weak economy.

 However, the Income effect suggests people may not work longer hours and increase supply of labors. This is because the income effect of a tax cut means people can get a certain income through working less hours.

Therefore there are 2 conflicting effects of a tax cut and it is uncertain whether supply of labor will increase. It depends what the tax rate was to start with.

E.g. if income tax was 70% a cut in tax may increase supply of labor.

Lower income tax increases disposable income, therefore, it may encourage people to spend more. There may be an increase in the aggregate demand for labor.

 However, it depends on marginal propensity to consume. e.g. if people save, buy imports or pay taxes then domestic product consumption doesn’t increase. For example, in a recession a cut in tax may lead to increased savings. People are not keen to spend more.

 If benefits are reduced they further reduced consumer spending and advertisements. This made areas of high unemployment even more impoverished. When people saved rather than spent their money it just made the recession worse. It was J.M. Keynes who was one of the most enthusiastic proponents of increasing government spending, even if it meant increasing the levels of borrowing.

If the government borrows they can kick start the economy and hopefully generate a multiplier effect which would enable the economy to start growing of course there is a fear of deficit financing.

In the United Kingdom and in US , Keynes was largely ignored until after the war and as a consequence the UK economy experienced high levels of unemployment for the remainder of the decade.

This particular phenomenon explains why Keynes talked about the “paradox of thrift”. Saving money reduces spending, output and therefore increases the level of unemployment in an economy.

 

Ethical and Prudent Banking Systems:

 An ethical Banking system and practice is required, the Central Banking systems should be given absolute power to work, and to regulate the all the activities of the banks.

Conservative approach may be required in the initial stages but in later stages it can be relaxed, but aggressive retail lending with increased interest rates along with low or no collateral's should be avoided. Over optimism of an industry should be avoided. Market Researches are not always correct; statistics may go wrong in some places.

 Aggressiveness Banking Business is good but Cautious Aggressiveness Banking Business is better. All Banks should appoint CEO (Chief Ethics Officer) and should have absolute power  and should report directly to the Finance and banking ministry.

 Conclusion:

 I have written this post with out elaborating the mathematical interpretation  and graphical interpretation in macro economics. I welcome suggestions from all readers of  this particular post  .I read about the IMF fact sheet and according to that Fact Sheet the prediction for 2009 is dreadful , lot of cautiousness is required to come out from the deep rooted crisis that has been created from the Sub Prime housing crisis in United States.

But if " Winter comes can Spring be far Behind" it is a general economic cycle of boom and bust according to the text books of economics the cycle will stay for 3-4 years but with modern financial mechanism it can be reduced to 1 1/2-2 years.

Hope 2010 will bring good news and the  global economy will be Honky dory.

Please Click :To Find The IMF World Economic Update 6th November 2008.

http://www.imf.org/external/pubs/ft/weo/2008/update/03/pdf/1108.pdf

Scenario Planning And It's Impotance In Modern Buisness Strategy.

What is Scenario Planning ?

 “Scenario planning is a discipline for rediscovering the original entrepreneurial power of creative foresight in contexts of accelerated change, greater complexity, and genuine uncertainty."

Pierre Wack, Royal Dutch/Shell, 1984

In today’s business world while doing business there is certainly one thing that is certain that is “UNCERTAINTY”. It has become an integral part of the contemporary management concept.Dabbling with uncertainty has become the part and parcel of modern strategic management expert. It the smartness of the management how to eliminate the uncertainty and combat the uncertain  change situations and overcome this at ease or else to carry on with it necessary changes in the management and business process and actions.

Scenario Planning is basically the far sightedness of the management, to what extent it can look beyond and certain unforeseen and unpredictable future and can change fast to combat the turbulent times.

 To manage risks related to innovation investments that extend long into the future, managers must be willing to look ahead and consider uncertainties. But rather than doing that, many people react to uncertainty with denial. They take an unconsciously deterministic view of events. They take it for granted, that some things will or will not happen. Not having tried to foresee surprising events, they are at a loss for ways to act when upheaval takes place. Scenario planning is a tool for helping managers to take a view into the future in a world of great uncertainty. It is the most efficient tool to manage strategic risks and opportunities.

 

History Of Scenario Planning.

 The scenario planning concept first emerged following World War II, as a method for military planning. The U.S. Air Force tried to imagine what its opponents might do, and to prepare alternative strategies. In the 1960s, Herman Kahn, who had been part of the Air Force effort, refined scenarios as a tool for business prognostication. He became one of America’s  top futurist.

 Then scenarios reached a new dimension in the early 1970s, with the work of Pierre Wack, who was a planner in the London offices of Royal Dutch/Shell in a newly formed department called Group Planning.

 

Pierre Wack and other planners were looking for events that might affect the price of oil. And they found several significant events that have been in the air. One was, that the United States was beginning to exhaust its oil reserves. At the same time American demand for oil was steadily rising.

 

The emerging Organization of Petroleum Exporting Countries (OPEC) was showing signs of flexing its political muscle. Most of these countries were Islamic, and they bitterly resented Western support of Israel after the 1967 six-day Arab-Israeli war.

 Looking at this situation, the planning team realized that Arabs could demand much higher prices for their oil and there was every reason that they would. The only uncertainty was when. It seemed likely to happen before 1975 when old  oil price agreements were due to be renegotiated.

 So Pierre Wack and his team wrote up two scenarios – each a complete set of stories about the future, with tables of projected price figures.

 The first story presented the usual opinion at Shell: that the oil price would stay somehow stable. But in order for that to happen, a miracle would have to occur. New oil fields, for example, might have to appear in non-Arab countries. The second scenario looked at the more plausible future – an oil price crisis sparked by OPEC. But after they have presented these scenarios to Shell’s management, there was no change in behaviour happening. The managers understood the implications, but no change in behaviour came.

 

So Pierre Wack went one step further and described for the scenarios the full ramifications of possible oil price shocks and he tried to make people feel those shocks through the scenario. He warned management, that the oil industry might become a low growth industry that OPEC countries would take over Shell’s oil fields. They described the forces in the world, and what sorts of influences those forces had to have. This was when scenario planning for businesses was born. It helped Shell’s managers to imagine the decisions they might have to make as a result. And it was just right in time. In October 1973, after the Yom Kippur war in the Middle East, there was an oil price shock and of the major oil companies, only Shell was prepared for the change. The company’s management responded quickly and in the following years, Shell moved from one of the weaker of the seven large oil  companies that existed at that time to the second in size and the number one in profitability.

 So to operate in an uncertain world, managers need to be able to question their assumptions about the way the world works, so that they could see the world more clearly. The purpose of scenario planning therefore is, to help managers to change their view of reality, to match it up more closely with reality as it is, and reality as it is going to be. The end result, however, is not an accurate picture of tomorrow, but better decisions about the future.

 Please Click For Details:

http://www.strategy-business.com/press/article/8220?pg=0

Strategy Mapping is Becoming A Mandatory Business Tool for Today's Corporate Sustanabilty.

Strategy Mapping Is an Extension Of Balance Score Card Systems, it was Kaplan and Norton of the Famous BCS propounded this particular theory. In Other words it is a destination statement and the proper implementation of Business Strategy.

It is very much a process driven system in order to achieve the goal of the organization by the management who has drawn the strategy.

“Strategy Mapping” is the process of determining objectives and means of getting there. The balanced scorecard (Kaplan and Norton) is one framework that can be used for strategy mapping. The balanced scorecard has four common perspectives: financial, customer, internal business, and innovation and learning.

Each perspective commonly has from four to seven goals and corresponding measures. The scorecard is balanced in that it contains elements that are short-term and long-term, financial and non-financial, and leading factors and the  lagging factors . An impotrance  characteristic of a balance scorecard is that it should represent a translation  and perfect implimentation of strategy.

In the Balance Score Card model we have seen that the ultimate goal is the profitability .But the profitability can come only by a systematic process which the business has to identify. Kaplan and Norton identified the components of strategy mapping which includes

(1) financial strategies,

(2) strategic themes,

(3) value propositions, and last but not the least

(4) critical internal processes.

For financial strategies, an example of an overriding strategy may be to maximize 

shareholder wealth, then the market capitalization of the firm in the stock exchange 

increases which may be attained by other financial strategies, such as maximizing 

revenues, productivity and asset utilization. In setting strategic themes, the overall

 strategy must be decomposed from an internal viewpoint. The focus is on 

determining what prudent business must be done to achieve desired strategic 

outcomes.

Three generic strategic themes are to increase customer value, achieve operational 

excellence, and exhibit good corporate citizenship. In setting value propositions, 

it is important to recognize that it is impossible to do it all. 

Instead, it is essential to focus on excelling in a few select areas. 

Three possible value propositions are product leadership, customer intimacy 

and operational excellence.

Critical analyses of internal processes are those crucial  functional operations 

that must be executed properly to achieve the value proposition and the value 

addition chosen. They must be identified so that the organization can assess 

the short comings of the current situation and rectify and develop any new skills 

sets and technological or process enhancement. The process of determining 

critical internal processes assists in prioritizing spending in hiring and training 

of human capital in order to increase productivity along with profitability.

Strategy mapping are used in for example for the following issues. 1.    Determining target market, focusing on target audience. 2.    communicating and understanding strategy and transparency in communication which makes the understanding easy. 3.    Detecting errors and continuous improving strategic planning. 4.    When determining target market, the chosen value proposition dictates the focus of the organization while the related critical internal processes chosen dictate which customers will come calling. 5.    Using strategy mapping to refine the customer base is an iterative process. Using strategy maps to communicate to managers assists senior management with ‘thinking out’ the strategic plan, allows senior management to articulate the plan to lower-level managers, and allows managers to link their relevant map segments to operational objectives. Strategy maps for communicating allows non-manager employees to see where they fit into strategy (including high-level goals), avoid strategy distortions, and link their relevant map segments to operational objectives. Strategy mapping can help in error detection by making inconsistencies and gaps in cause-and-effect linkages more visible. Periodic review of the strategy map will assist in error detection before related problems become an issue.The management level introspection is required at all levels and at frequent intervals of time.  The graphical depiction of strategy make the entire strategy more understandable to all levels of employees and make it much more likely to get valuable input from a variety of sources. Two common resistance to strategy execution are as follows strategy and people.  Strategy barriers include  (1) Problems and errors not being identified soon enough.  (2) Ineffective coordination of activities amongst the management people.  (3) Goals that are not very specific.  People resistance  includes the following points:  (1) Insufficient employee capabilities, the knowledge base is to be enhanced  and a proper communication is required.  (2) Insufficient Training and Development,  (3) Inadequate leadership and very often direction less. (4) Very poor line managers capabilities.  Strategy mapping is part of the solution to these barriers to strategy execution. Conclusion: All major organisation in order to avoid the the direction less attitude must adopt the Strategy Mapping process. The masterminds of Kaplan and Norten has made an excellent models which can really streamline the proper strategic function in order to achieve the business goals.