BUSINESS ISSUES IN THE CHANGING PROFILE
OF CORPORATE INDIA
Presentation by
Mr. S. Pramanik
Managing Director
GULF OIL Corporation Limited
37th National Convention of Company Secretaries
5th November, 2009
GLOBAL SCENARIO
The world has entered a significant recession, perhaps the
largest since the 1930s.
Industries worldwide continue to convulse from sharp declines
in demand.
These declines, coupled with severe financing restrictions,
have already injured companies in many industries.
Governments around the world have scrambled to save the
financial system, led by the United States, which stepped in
with roughly $8 trillion in bailouts, stimuli and other guarantees
– an investment worth nearly half the entire U.S. economy.
INDIAN ECONOMY BLOG ( 16.8.2009 )
Growth in Indian Economy due to large domestic savings
and corporate retained earnings are financing investment.
Sluggish labour market and wealth has hit urban
consumption. But low export dependence, a large
consumption base and the high share of employment ( 2/3 )
and income ( 1/2 ) coming from rural areas has sustained
consumption.
INDIAN ECONOMY BLOG (contd…)
Pre-election spending, especially in rural areas and high
government expenditure have also been pulses. Timely
monetary and credit measures have played a key role in
improving private demand, liquidity and short term rates and
reducing the risk of loan losses. Credit is largely channeled
by domestic banks, especially State controlled ones which
have low loan to deposit ratios and little exposure to toxic
assets.
GAME CHANGERS
Failure of major Global Financial Institutions / Banks
Crash of All Asset Classes mainly real estate / housing.
Steady Direction by RBI / Finance Ministry
US Election Results
Satyam Computers Ltd. episode – Focus on Governance
Election 2009 Results in India
Launch of Nano
DOCOMO – Pay by the second
ORGANISATION GROWTH
The growth journey is not a straight line that slopes smoothly
upwards, and is not for the faint hearted. Growth
organisation leaders and their people must expect bumps,
and cannot lose their nerve when they hit those bumps.
- Ram Charan and Noel M. Tichy ( 1998 )
GROWTH INDUSTRY
There is no such thing as growth industry. There are only
companies organised and operated to create and capitalise
on growth opportunities.
- Theodore Levitt
ORGANISATIONAL CHANGE
Periodically, all successful Organisations have to change.
Once crises has occurred any Organisation will change, but
waiting for crises is not often the route to success. Lack of
leaders willing to take their Organisation through
fundamental change.
ORGANISATIONAL CHANGE (contd…)
Waxing pessimistic is one of the easiest ways to masquerade
as wise. And there is plenty to be pessimistic about.
“No pessimist ever discovered the secrets of the stars, or
sailed to an uncharted land, or opened a new heaven to
human spirit” - Helen Keller
“Pessimism never won any battle”
.
- Dwight D. Eisenhower ( 34th President of USA).
PLAN AND ITS EXECUTION
Establishing the plan represents at most 5% of the
challenge. 95% of the challenge now lies in execution.
- Carlos Goshen, Nissan
Execution is not only the biggest issue facing business today;
it is something nobody has explained satisfactorily. Execution
is a specific set of behaviours and techniques that
companies need to master in order to have competitive
advantage. It is a discipline all its own.
- Larry Bossidy & Ram Charan, Execution, 2002
BUSINESS ISSUES
Recessionary periods often act as fertile incubators for
newborn companies with innovative new technologies and
business models, in part because they clear room in markets
by culling weaker participants.
Analysis shows organisations that have followed deep cost-
cutting strategies through current and past downturns have
lost value relative to their industry sectors.
On the other hand, players capable of going on the offensive
in difficult times while holding their core investment
strategies steady typically outperform their peers in share
value.
BUSINESS ISSUES (contd...)
A company’s relative market power results from a number of
factors, including its presence in attractive segments, its
customer access, the attractiveness of its product and its
sales power. Recessions change this equation in several
ways, as customers shift buying behaviours, competitors
slash prices and buyers almost instantaneously gain
additional leverage over sellers.
Financial power measures a company’s access to cash and
cost of capital, which the downturn has altered as well.
Managers who a year ago viewed financing as a cheap and
ready commodity now prize it as a scarce and crucial
element of success.
BUSINESS ISSUES (contd…)
Severe economic downturns can quickly overstress
company income statements and balance sheets, causing
declining revenues and margins, productivity problems and
cash shortages.
BUSINESS ISSUES (contd...)
Every aspect of a business will be tested during a downturn,
and the right strategy will differ depending on the issues :
An innovative company that can maintain volumes and
pricing power is in a good position, as is a firm with a
variable cost structure and the ability to protect gross
and operative margins.
A sound level of capital and a lean asset position can
provide the flexibility to go on the offensive.
BUSINESS ISSUES (contd...)
Companies that in flush times developed these traits
can continue their existing growth strategies without
interruption, or use their strong competitive positions to
acquire weaker competitors at a discount.
Companies with revenue and margins threatened by
recession must form a strong defensive line, including
liquidating non core assets and reassessing their cost
structures.
SUGGESTED AREAS OF FOCUS
1. Get Smart with Your Marketing Spending
Effective stewardship of marketing expenditures can
easily save 10 to 15 percent of a company’s total
marketing budget.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
2. Break the Classic Rules of Pricing
Are you focusing on your customers’ ability to pay rather
than willingness to pay ? If so, having intimate
knowledge of your customers is crucial.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
3. Get Creative with Customer Interactions
By improving the deployment and effectiveness of field
resources, you can reach growth targets without
slashing field forces.
Target your most attractive customer segments, acquire
the high potential ( large and profitable ) customers
within those segments, and serve them through the right
channels – doing all of this while also keeping cost-to-
serve at an appropriate level.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
4. Gain Control of Out-of-Control Complexity
Complexity must be controlled so companies have a
clear path to the next growth frontier.
Optimize the overall product portfolio based on customer
needs
Creating the appropriate transparency on revenue and
the cost impact of complexity
Taking a comprehensive value chain perspective
Installing the right processes and governance to ensure
sustainable results.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
5. Streamline Research and Development without
Stifling Innovation
Innovation leaders achieve roughly 70 percent higher
earnings over a four-year period than companies without
an explicit innovation focus.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
6. Cut Direct Material Costs
In tough times, companies often attempt to “squeeze the
last penny” out of their suppliers, thus opening the door
to years-long confrontations. Smart companies,
however, avoid the conflicts and instead try to
understand their suppliers.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
7. Slash Demand and Indirect Materials Costs
When the economy sinks, so do costs.
With demand management, companies can cut 10 to 20
percent off their addressable spending in certain
categories; savings can begin in as little as three
months.
Demand management fundamentally changes the way
organisations acquire their goods and services.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
8. Take a Tough Approach to Manufacturing
Do we have the right manufacturing footprint ?
Should we consolidate facilities ?
Can we reallocate production to lower-cost sites ?
Should we be in the business of manufacturing at all ?
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
9. Avoid the “Whack-a-Mole” Approach to General &
Admin Cost Cutting
Companies often view back-office functions such as
finance, IT, human resources and legal as non-value-
added areas and ideal for cost cutting.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
10. Unlock Millions ( Billions ! ) of Dollars in Cash Flow
Companies can unlock millions of dollars in cash flow –
delivering immediate and substantial bottom-line
benefits – by systematically identifying gaps and
problems in the complete order-to-cash cycle.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
11. Design a Leveraged Organisation
The best companies today are modular, where joint
ventures, alliances, pooling, shared services, offshoring
and outsourcing are common tactics.
In an economic downturn, survival will depend on
maximizing a wide range of opportunities for every piece
of the value chain.
Work smarter. Work Cheaper. Work bigger.
Executive Agenda (AT Kearney) – Number 2, 2008
SUGGESTED AREAS OF FOCUS (contd...)
12. Become a Selective Acquirer
Deals made in downturns create more value than those
made in upturns.
Deals can be made at more favourable prices, although
equity stakes are higher and financing is more
expensive.
Executive Agenda (AT Kearney) – Number 2, 2008
FOCUS ON HR
Finally look after your PEOPLE, especially, during a downturn
As tomorrow’s economy and society take form, all of us
individuals, companies, organisations and government alike
– now face the wildest, fastest ride into the future of any
generation.
It is, when all is said, a fantastic moment to be alive
- Alvin & Heidi Toffler
Revolutionary Wealth (2006 )
THANK YOU