Savvy, Suave & Sharp Time Readers

Once upon a time, I met a drunk consultant who defined consulting in the coolest possible way I have ever heard “Consulting is all about borrowing your watch and telling you the time by it”. It was a remarkably candid explanation summing up a lot of things consultants do (alcohol can work wonders on you).

The consultants are curious creatures- they walk into your organization, the same place you have been working for donkey number of years, find problems which were always glaring at you for all these years, package them nicely and charge a bomb from you for their gyan. I am very tempted to say what most people who fail to make it to big consulting firms on campus say “Ah those blood sucking buggers who just gas around and charge big monies for it”. But let us not jump into that and look at things little deeper.

A few facts are true: consulting firms use kids, fresh out of B-schools with no real experience to help companies solve monumental business issues; the problems these firms find in the organization are not the ones which company is not aware about and they do charge a bomb. That’s quite obvious, they pay young, and smart champs fresh out of B-schools well; so they have to charge a bomb to run the system. But you cannot dismiss them as people who do nothing useful; if that was the case the profession would not have survived the tides of time. Let us look at a few scenarios where these time tellers are indispensible.

“I know that my watch shows the right time but I want a credible name to certify that my watch reads the right time”. When in college, we worked with a SMU which was into footwear manufacturing. The SMU asked us to make a 5 year strategy plan for them. The SMU also had E&Y working on the same project. The CEO of the SMU told us that they planned to apply for a big loan for their expansion and they wanted a globally reputed brand like E&Y to give them a detailed report adding credibility to their plans. He said that such a report will play a very important role in getting the loan sanctioned. Names like McKinsey, BCG, E&Y etc can really swing the decision in favor of you.

“I know that my watch reads the right time but my colleagues refuse to believe the time and keep reading a different time”. The CEO of the organization understands the problems of the company and wants to implement changes but the employees are against the changes, especially the top management. Generally the other power centers like the CFO, CIO etc gangs together and try to scuttle the changes. The CEO in need of a powerful backer brings an external agency to bring credibility to his arguments. The agency is generally a hot shot consulting name like McKinsey. This especially happens when the CEO is an outsider who has been inducted to get things right in an organization which is on its decline. When Louis V Gerstner arrived at IBM in 1993, his ideas were at 180 degrees to the existing wisdom at IBM. The IBM top management was after the “baby blue plan” which aimed at breaking down IBM into separate operational units and hiving them into separate companies which will have their own brands and a sleek cost structure. Gerstner on the other hand believed that the whole of IBM was greater than the sum of its babies. He also realized that IBM was wasting time on hardware and OS contradicting the strategic direction IBM was then taking. To take on the IBM racket, he brought an army of consultants from his previous organization (McKinsey). McKinsey, in its recommendation, provided the support Gerstner wanted backing the decisions with enough data and analysis which IBM syndicate found tough to argue against. This worked wonders at IBM and Gerstner eventually “made the elephant to dance”. But such interventions were always not successful. Jeffrey Skilling did the same thing in Enron and managed to mow the company down into dust and ended himself in prison.

“I am so busy cleaning my watch that I have no time to look at the time”. In most cases, company executives get so busy with their daily work that all the strategic aspects of their work take the back seat. In the war between the operational and strategic tasks, the operational tasks always take the precedence as it is most overbearing on your KRAs. So getting things done is much more important than doing the thing in the best possible way. To get things back in perspective and stay recent, it becomes imperative to have someone from outside to come and take a look at your business from a totally unbiased angle time to time. As the process requires a lot of comparison with the industry standards and competition; it is doubly good if the “unbiased” analyst is someone with worldwide knowledge base and network and has access to competitor actions.

Next time someone asks you for time, think about those “poor” consultants who make a living reading time J

A Brief History of India

Cash yielding Opinions

It is said that Media is the fourth pillar of democracy. Though an informal pillar, the power of this institution in our lives is felt the most when the other three pillars ie Legislature, Executive and Judiciary loses credibility in the eyes of the people. This is exactly what is happening in our country now. Indian media especially the Jain family controlled papers and channels (ToI, Times Now etc) have metamorphosed from opinion reporters to opinion makers. Till recently their economic daily Economic Times was free from this ethics flexible Jain syndrome. But looks like even ET has caught hold of the disease of manufacturing news.
Today's(19th Aug 2013) ET front page screams of a large number of Indian stocks trading below their book value ie the price of their assets and hence the ET reporter advises his readers to pick and choose these companies whose fundamentals are "strong". Though he mentions fleetingly that one of the reasons why the companies are devalued is the debt they have on books, the article conveniently forgets to mention the effect the debt have on assets and valuations of the company.
To understand more, let us explore the idea of "sitting ducks". A public listed company is classified as a sitting duck if the stock valuation of the company is lesser than the book value ie the total assets of the company. The underlying idea is that if some corporate raider can buy the shares at a lesser value, tear down the firm and then sell off its assets, he can make a killer profit. But the problem here is that a raider can pocket the profits of the sales only after he pays off the debts the company owes. Debt owners have the first right on the company assets followed by preferential share holders and then only can a common shareholders (the ones who buys from stock market) profit. Take for instance, Reliance communication which is presently at Rs 118.75 and the book value is Rs 159.47. The difference is nothing but the huge debt of Rs 35,185 crores loan they are struggling with and to reduce which Mr Anil Ambani is doing exactly what a corporate raider would have done- selling his assets piece by piece. But the fact remains that nobody wants to buy and so he is turning towards his brother for help now.
Now let us look at the issue from a different angle. As a result of this article, almost every stock (with the exception of some really badly effected ones) shot up by 2.5% to 7% today with intra-day figures touching even 10%. Analyse this spurt in the context that the sensex over all fell by 291 point today due to the continuing rupee meltdown. If a person who was privy to this information had invested 1 crore in some of these stocks yesterday, he would have made around 5 lacs in a single day today. So a few might have profited from the brilliant ET analysis. But who lost? To understand that, let us first look at a famous stock market theory.
The Greater fool theory states that stock markets are able to give a return greater than the corporate profits because everyone who trades on stocks behaves like fools. A fool buys stock only because he/she believes that there will be another fool who will be willing to pay more for the same stock. So fools keep selling to each other and the valuation goes up. But in case of an oligocracy like India (sadly we are getting there, the country is ruled by a few powerful people across politics, business, media, bureaucracy etc), we will have to modify the theory a bit. We will have to say that there are two categories of fools here: Powerful fools and really foolish fools ;). The first category runs this country and so knows when to buy and when to sell. They know when the government is going to free import duty on petroleum and when petrochemicals will be curtailed and so we cannot even call them fools. They are able to manufacture the right environment needed to breed a million fools who will buy from them. So all the fools in the second category who read the first page of ET diligently and went to buy the "assets" of PSUs at a deep discount will be the proud owners of these shares for next few months to come.
I guess that was too much of economics and stock market theories, let me close this article on a lighter note. Americans extended the greater fools theory and surmised that if you want to make money in the market, then you need to be a lesser fool. So how will you remain a lesser fool? Simple, by withdrawing from the market when you see too many fools who does not understand anything about stocks around. There were a lot of veteran fools who successfully used this tactic and made money at the expense of bigger fools. Some say even American President Herbert Hoover was one of them. So, the story goes like this. President Hoover was interested in stocks and held a big portfolio and was making good money as the markets were on a upward surge in 1920s. Once, while in a lift, the lift operator started talking to him about the right stocks to invest in. The talk by a commoner with no understanding of stocks rang an alarm bell in Hoover's head. He, being a veteran fool, understood that the market is getting crowded with fools and time has come to sell. He immediately went to his broker and asked him to sell every stock he held. The grand presidential sale hit the headlines and the news spread in no time. When the other investors saw that the US President was selling, they panicked and there was a mad rush to sell stocks. The mad rush resulted in the crash of the NYSE on that Tuesday (October 29) of 1929. The black Tuesday as we know the day today marked the beginning of the Great Depression.....

Absurdity of "collective conscience"

In April 1959, KM Nanavati, a commander in Indian navy, shot dead his friend for 15 years Prem Ahuja. Ahuja was having an illicit relationship with Nanavati's wife while the commander was away on work. Nanavati surrendered after the act and was trialed by a jury of 9 members of Greater Bombay sessions court. Though it was clear from the beginning that Nanavati had killed Ahuja in cold blood, the commander acquired a hero image during the trial. Thousands used to gather in front of the court when the arguments happened and Nanavati used to be get an arousing welcome with slogans and clapping whenever he arrived at the court. A tabloid Blitz eulogized his act as a loving and wronged husband avenging the wrongs done against his family by a playboy. This version of the story became so popular that Blitz sold for Rs 2 per copy whenever it ran this story while its original price was 25 ps at that time. Rallies happened in Mumbai supporting Nanavati and finally the jury acquitted Nanavati with a 8-1 verdict.The "collective conscience" was obviously for setting Nanavati free (or at least it seemed so) though he committed a murder in cold blood. But 1959 was very different from 2005 and the honorable justice of the sessions court didn't think that the judgement was objective and impartial. He dismissed the jury's verdict and referred the case to the Bombay High court. Subsequently on retrial, the Bombay High court found Nanavati guilty of culpable homicide and sentenced him to life imprisonment; the judgement was upheld by the Supreme court later. Taking Nanavati's case as an example, government of India abolished jury trials stating that jury can get influenced/misled by media and public opinion and hence cannot provide justice without bias.

Fast forward 50 years, today we have an overdose of media and self proclaimed representatives of public doling out their outdated ideas in the name of public opinion. This "opinion" is taken to millions by loud, biased and TRP hungry news readers (or should I call them opinion makers) thus creating and propagating our "collective conscience". They shout and demand answers and provide adrenaline rush which rivals thriller movies or serials (with which basically they compete for viewer's time). The misleading of public opinion was always there but nowadays it has become torpedoing rather than simple biasing. Media can create heroes and make a villian out of the same person in a split second. They beatified the Defense minister Antony when he moved decisively against the corrupt defense deals. He suddenly became the beacon of hope among the corrupt ministers of the government. But when the cancellations came again and again, the saint was slowly brought down to human levels and is now in the process of moving into devilish boundaries.

There are many things our "collective conscience" represent. One of the most detrimental among them to our diverse nation is intolerance. When a unknown religious organisation claimed that Viswaroopam hurts their religious sentiments, every single news channel in the country ran prime time coverage on it. There were discussions and debates about the issue before the movie even released (and hence obviously none of the speakers knew what is really there in the movie). Seeing that one organisation is stealing all limelight, 20 more joined in a matter of days and the controversy blew over in no time. Ever since the Delhi rape case, our "collective conscience" has grown to include intolerance towards anything said against women. Though curiously, Bollywood is kept out of this intolerance category. I guess that may be because if the idea is applied on Bollywood  there will be hardly any movies coming out. With the idea hotting up, an old rape case called Suryanelli case has resurfaced and prominent politicians are finding themselves in the middle of the controversy. I agree that the comments made by justice Basant and Sudhakaran MP were insensitive but what surprises me is the reluctance to even consider the premise that the girl may have been used as a child prostitute when evidence does points to the same. The same aspect was highlighted when news channels made a ball out of the jocund comments made by Vayalar Ravi to a journalist who asked him about Suryanelli case. People who understand malayalam could easily make out that Ravi was trying to put the journalist in a spot for her open ended question but according to a popular news channel, the sexist comment severely traumatized the female journalist.

Though I borrowed the usage "collective conscience" from Afzal Guru verdict, I didn't write anything about the verdict itself because a lot have been already written and analysed about the same. Personally, I don't believe the true culprits of parliament case has been booked under law and lot of questions remain unanswered but as per the collective conscience of the nation, the culprit has been punished.