The road to building successful and sustainable businesses
1
6 THE ECONOMIC TIMES GOLDEN COMPANIES DECEMBER 14, 2011 When world economies were flourishing, the so-called, Anglo Saxon model of dispersed shareholding, mostly by institutional in- vestors, seemed to be the best way of doing business. An explosion of new players - hedge funds, sovereign investment funds, pri- vate equity funds and others - has broken down the premise of commonality of purpose. Ira Millstein, an expert on corporate gover- nance at Yale University, said in 2008 that this change has created for corporations and their boards a "zoo" of owners with different stripes, teeth, sensors, claws. The underlying shifts in ownership and investment structures have promoted the embrace of shareholder value - in particular, the fixation on short- term results that it encourages. In essence, the notion of shareholder value suggests that the ultimate success of a compa- ny should be judged by how well it enriches its shareholders, either through dividend pay- Impact term vision. Second, defining the long-term and embedding it into today's operations are more complicated than they may seem at first glance. Creating long-term value does not negate the need to tend to the immediate needs of a company. When driving a car, it isn't enough to just know your destination. You must also be aware of the cars around you, the course of the road, your fuel level and other pressing matters. In the same way, companies must ma- noeuvre through today's market to make it to the long-term horizon. However, managers must also do a better job at recognising the short-term pressures that needlessly interfere with their longer-term goals. When managers try to steward their organi- sations toward a long-term vision, the crux of the challenge is in creating a meeting point where long- and short-term needs connect. If own obstacles to success but cultural tradi- tions and the importance of personal relation- ships give many Asian executives a view of their constituencies that go beyond sharehold- ers to include their employees, community, suppliers, and country. Founders, managers, board members and most other stakeholders usually want their companies to prosper indefinitely, and many of today's corporate giants take pride in their longevity. The recent focus on short-term strategies and shareholder value has blurred the view of the distant horizon, but has not di- minished the general desire to reach it. But, executives face two daunting chal- lenges as they rediscover the value of long- term thinking and strive to create sustainable companies. First, the genuine need for short- term stewardship can distract managers, even those with the best intentions, from their long- ments or share price increases. With the stock market as the judge and jury, strategic hori- zons shrank to a myopic fixation on short- term results. Shareholders were quick to sell when companies missed their own profit tar- gets. Results were weighed heavily against ex- pectations. And, executives, often nurturing bonus packages linked to meeting yearly tar- gets, adjusted their strategies accordingly. The retreat from shareholder value was has- tened by the global financial crisis. Many crit- ics blame an excessive focus on share price, especially in the financial services sector, for the kinds of risky strategies that created a de- bilitating amount of toxic assets, brought down Lehman Brothers and others, and sent most of the world into recession. The greatest challenge to the Anglo-Saxon corporate model has come from the emer- gence of corporate giants from emerging mar- kets, particularly India and China. The rise of Lenovo from China and Infosys in India, for example, has electrified the debate on owner- ship and governance models. Governments or wealthy individuals or families are still the dominant shareholders in many Asian compa- nies, particularly in China. State or family- owned or -controlled enterprises face their T he turmoil in the world economy and financial markets has brought to the fore age-old questions on what constitutes a successful business or industry. Companies are being chastised for measuring success on the basis of short-term parameters that mainly focus on their self interest and that of their shareholders. Observers are questioning whether market competition provides sufficient discipline to drive and constrain businesses simultaneously. And, of course, the market's structural failures and ways to fix them are recurrent themes for conferences, television talk shows, blogs and newspapers The road to building successful and sustainable businesses ➜ SPEED BREAKERS TO SUCCESS: OWNERSHIP AND SHAREHOLDER VALUE ➜ TAKING THE RIGHT TURN: MOVING TOWARDS LONG TERM BUSINESS SUCCESS ➜ MEETING AT THE CROSS ROAD: CONGRUENCE BETWEEN SHORT AND LONG-TERM GOALS immediate goals clash with long-term aspira- tions, the incongruence is a clear symptom of an unhealthy company- in other words the tail starts wagging the dog. If achieving quarterly volume sales targets is a company priority, for example, this can be quickly achieved by of- fering deals to buyers, but the long-term dam- age of devaluing a product or service can be tremendous. While planning for the long term, companies must incorporate a much broader range of is- sues into their planning. Henry Ford in 1911 did not need to worry about a world without petrol; his great-grandson William Ford Jr. in 2011 must. Resources from oil to water cannot be taken for granted and global challenges in- cluding climate change, pollution, population growth, and the loss of biodiversity have a di- rect impact on every business model, be it a small microbrewery securing clean water to a multinational crisp producer contemplating a world with scarcer potatoes. Being able to work with future uncertainty and translate this into short-term action can be a major competitive advantage. Along with aligning the two horizons, communication and commitment are critical factor for success. The author, Arati Porwal is the Chief Representative, CIMA - India Liaison Office and is based on CIMA's report 'Building World Class Businesses for the Long Term: Challenges & Opportunites'. To read the full report and other CIMA reports, log on to-http://www.cimaglobal.com/ Thought- leadership. S ears India, which is the off-shore development centre for Sears Holdings Corporation started its operations in December 2009, providing technology solutions and application support in the retail domain. Sears India currently supports Sears Holdings and its group companies having operations in North America. It handles a significant portion of the organisation's technology needs including application development, support, testing facilities and software product development. “Since its inception, Sears India has seen rapid growth in the technology domain and within just 2.5 years, has more than 650 employees. The key reason for this growth has been primarily because of the value generation which Sears Holdings India (SHI) has been able to give to Sears. The value generation amounted to higher than target savings in input cost on the technology front, capability to market faster, better quality and flexibility of services and innovation, which Sears was not able to get through existing third-party IT service providers,” expresses Alok Kumar, CEO, Sears Holding India. Talking about the kind of growth they perceive in the coming three years, Kumar says, “The global economy has seen a lot of challenges over the last four years and it is likely that the challenge to the economy may continue over a few more years. However, this is the time when the investments made by Sears in SHI will help the organisation to bring down the cost of operations and create higher value through innovative technology solutions by helping the business make better profits.” But, there are challenges that can impede strong growth of the company as well. According to Kumar, “The only challenge, which might impede the growth would be the global economic challenges that might push organisations to do more with less. The increasing cost of operations in India may be a dampener in the future, but that would not effect the overall growth if the overall value generation remains high for Sears." Talking about what differentiates them from their peers, Kumar further points out, "Every company aspires to be excellent; but very few, in a true sense, achieve excellence. At SHI, we have been able to achieve a lot in a short span of time primarily because of a high focus on the value generation we bring to Sears. SHI made a conscious decision to stay away from low value work and focus on the work, which cannot only bring large savings for Sears, but also make a difference to the organisation's bottom-line. With this approach, SHI today does much of the technology development work for Sears unlike most of the captives in India." "Every company aspires to be excellent; but very few, in a true sense, achieve excellence" SEARS IT & MANAGEMENT SERVICES INDIA PVT LTD ALOK KUMAR CEO, SEARS IT & MANAGEMENT SERVICES INDIA PVT LTD (SEARS HOLDING INDIA) “Every organisation needs to motivate, coach and develop employees to their desired levels of competence” F or an organisation to function at its very best, it is vital that its foundation focuses on not only external customers, but also internal ones. The training industry is the current sunrise industry and more organisations are focusing on people as their key asset. Thus, looking at training and development as core needs, the industry is likely to grow exponentially. Yogesh Sood, MD and chairman, Blanchard Research and Training India LLP elaborates, “We treat our employees, associates and ven- dors as our internal customers and attempt to have a strong emotional connect with them. We believe that in our organisa- tion, we need to motivate, coach and develop employees to their desired levels of competence and commitment. Besides, we offer products like ‘Situational Leadership II’, ‘Building High performance Teams’, ‘One Minute Manager’, ‘Legendary Service’, ‘Whale done’ and more. These have a high traction and value in the marketplace and guide us in the right direction, thus enabling us tremendously to deliver more than we commit to our customers.” Having been global leaders since 1979 in workplace learning, productivity, performance, and leadership training solutions, their vision is to unleash the potential of people and organisa- tions for the greater good. “We work with some of the world's largest organisations to drive lasting behavioural change that has measurable impact. With significant growth over the past three decades, we now reach a multinational client base with programmes delivered in many languages throughout North America, Europe, Asia, and Latin America. Blanchard Research and Training India is KBC's Indian partner for the last three years,” adds Sood. So, how have the changing economic conditions affected the future growth rate in this sector? “We are headed for uncertain financial times, not far in the future. However, we see a sus- tained growth for our business since we stand on firm ground, because we extend contemporary and relevant learning and de- velopment solutions to the market. Our business solutions are aligned to the dynamics of fluctuating economic situations and thus, are in a place to withstand market knocks. We also depend upon the fact that we skill and re-skill our employees to handle change and challenges far more effectively than most others in the business,” concludes Sood. YOGESH SOOD, MD AND CHAIRMAN, BLANCHARD RESEARCH AND TRAINING INDIA LLP BLANCHARD RESEARCH AND TRAINING INDIA LLP PICTURE: RAJESH BHASIN
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The road to building successful and sustainable businesses, featuring Mr Alok Kumar,Sears. SPEED BREAKERS TO SUCCESS: OWNERSHIP AND SHAREHOLDER VALUE TAKING THE RIGHT TURN: MOVING TOWARDS LONG TERM BUSINESS SUCCESS MEETING AT THE CROSS ROAD: CONGRUENCE BETWEEN SHORT AND LONG-TERM GOALS
Transcript of The road to building successful and sustainable businesses
CMYK
6 THE ECONOMIC TIMES GGOOLLDDEENN CCOOMMPPAANNIIEESS DECEMBER 14, 2011
When world economies were flourishing,the so-called, Anglo Saxon model of dispersedshareholding, mostly by institutional in-vestors, seemed to be the best way of doingbusiness. An explosion of new players -hedge funds, sovereign investment funds, pri-vate equity funds and others - has brokendown the premise of commonality of purpose.Ira Millstein, an expert on corporate gover-nance at Yale University, said in 2008 thatthis change has created for corporations andtheir boards a "zoo" of owners with differentstripes, teeth, sensors, claws. The underlyingshifts in ownership and investment structureshave promoted the embrace of shareholdervalue - in particular, the fixation on short-term results that it encourages.
In essence, the notion of shareholder valuesuggests that the ultimate success of a compa-ny should be judged by how well it enrichesits shareholders, either through dividend pay-
Impa
ct
term vision. Second, defining the long-termand embedding it into today's operations aremore complicated than they may seem at firstglance.
Creating long-term value does not negatethe need to tend to the immediate needs of acompany. When driving a car, it isn't enoughto just know your destination. You must alsobe aware of the cars around you, the course ofthe road, your fuel level and other pressingmatters. In the same way, companies must ma-noeuvre through today's market to make it tothe long-term horizon. However, managersmust also do a better job at recognising theshort-term pressures that needlessly interferewith their longer-term goals.
When managers try to steward their organi-sations toward a long-term vision, the crux ofthe challenge is in creating a meeting pointwhere long- and short-term needs connect. If
own obstacles to success but cultural tradi-tions and the importance of personal relation-ships give many Asian executives a view oftheir constituencies that go beyond sharehold-ers to include their employees, community,suppliers, and country.
Founders, managers, board members andmost other stakeholders usually want theircompanies to prosper indefinitely, and manyof today's corporate giants take pride in theirlongevity. The recent focus on short-termstrategies and shareholder value has blurredthe view of the distant horizon, but has not di-minished the general desire to reach it.
But, executives face two daunting chal-lenges as they rediscover the value of long-term thinking and strive to create sustainablecompanies. First, the genuine need for short-term stewardship can distract managers, eventhose with the best intentions, from their long-
ments or share price increases. With the stockmarket as the judge and jury, strategic hori-zons shrank to a myopic fixation on short-term results. Shareholders were quick to sellwhen companies missed their own profit tar-gets. Results were weighed heavily against ex-pectations. And, executives, often nurturingbonus packages linked to meeting yearly tar-gets, adjusted their strategies accordingly.
The retreat from shareholder value was has-tened by the global financial crisis. Many crit-ics blame an excessive focus on share price,especially in the financial services sector, forthe kinds of risky strategies that created a de-bilitating amount of toxic assets, broughtdown Lehman Brothers and others, and sentmost of the world into recession.
The greatest challenge to the Anglo-Saxoncorporate model has come from the emer-gence of corporate giants from emerging mar-kets, particularly India and China. The rise ofLenovo from China and Infosys in India, forexample, has electrified the debate on owner-ship and governance models. Governments orwealthy individuals or families are still thedominant shareholders in many Asian compa-nies, particularly in China. State or family-owned or -controlled enterprises face their
The turmoil in the world economy and financialmarkets has brought to the fore age-old questionson what constitutes a successful business or
industry. Companies are being chastised for measuringsuccess on the basis of short-term parameters thatmainly focus on their self interest and that of theirshareholders. Observers are questioning whethermarket competition provides sufficientdiscipline to drive and constrain businessessimultaneously. And, of course, the market'sstructural failures and ways to fix them arerecurrent themes for conferences, televisiontalk shows, blogs and newspapers
The road to building successful and sustainable businesses ➜
SPEED BREAKERS TOSUCCESS: OWNERSHIPAND SHAREHOLDERVALUE
➜TAKING THE RIGHTTURN: MOVING TOWARDS LONG TERMBUSINESS SUCCESS
➜MEETING AT THE CROSSROAD: CONGRUENCE BETWEEN SHORT ANDLONG-TERM GOALS
immediate goals clash with long-term aspira-tions, the incongruence is a clear symptom ofan unhealthy company- in other words the tailstarts wagging the dog. If achieving quarterlyvolume sales targets is a company priority, forexample, this can be quickly achieved by of-fering deals to buyers, but the long-term dam-age of devaluing a product or service can betremendous.
While planning for the long term, companiesmust incorporate a much broader range of is-sues into their planning. Henry Ford in 1911did not need to worry about a world withoutpetrol; his great-grandson William Ford Jr. in2011 must. Resources from oil to water cannotbe taken for granted and global challenges in-cluding climate change, pollution, populationgrowth, and the loss of biodiversity have a di-rect impact on every business model, be it asmall microbrewery securing clean water to amultinational crisp producer contemplating aworld with scarcer potatoes.
Being able to work with future uncertaintyand translate this into short-term action canbe a major competitive advantage. Along withaligning the two horizons, communication andcommitment are critical factor for success.
The author, Arati Porwal is the ChiefRepresentative, CIMA - India Liaison Office andis based on CIMA's report 'Building World Class
Businesses for the Long Term: Challenges & Opportunites'.
To read the full report and other CIMA reports,log on to-http://www.cimaglobal.com/ Thought-leadership.
Sears India, which is the off-shore development centre forSears Holdings Corporation started its operations inDecember 2009, providing technology solutions and
application support in the retail domain. Sears India currentlysupports Sears Holdings and its group companies havingoperations in North America. It handles a significant portion ofthe organisation's technology needs including applicationdevelopment, support, testing facilities and software productdevelopment. “Since its inception, Sears India has seen rapidgrowth in the technology domain and within just 2.5 years, hasmore than 650 employees. The key reason for this growth hasbeen primarily because of the value generation which SearsHoldings India (SHI) has been able to give to Sears. The valuegeneration amounted to higher than target savings in input coston the technology front, capability to market faster, betterquality and flexibility of services and innovation, which Searswas not able to get through existing third-party IT serviceproviders,” expresses Alok Kumar, CEO, Sears Holding India.
Talking about the kind of growth they perceive in thecoming three years, Kumar says, “The global economy hasseen a lot of challenges over the last four years and it islikely that the challenge to the economy may continueover a few more years. However, this is the time whenthe investments made by Sears in SHI will help theorganisation to bring down the cost of operations andcreate higher value through innovative technology
solutions by helping thebusiness make betterprofits.”
But, there arechallenges that canimpede strong growthof the company aswell. According toKumar, “The only
challenge, which might impede the growthwould be the global economic challengesthat might push organisations to do morewith less. The increasing cost ofoperations in India may be a dampener inthe future, but that would not effect theoverall growth if the overall valuegeneration remains high for Sears."
Talking about what differentiatesthem from their peers, Kumar furtherpoints out, "Every company aspires tobe excellent; but very few, in a truesense, achieve excellence. At SHI, wehave been able to achieve a lot in ashort span of time primarily becauseof a high focus on the valuegeneration we bring to Sears. SHImade a conscious decision to stayaway from low value work andfocus on the work, which cannotonly bring large savings for Sears,but also make a difference to theorganisation's bottom-line. Withthis approach, SHI today doesmuch of the technologydevelopment work for Sears unlikemost of the captives in India."
"Every company aspiresto be excellent; but veryfew, in a true sense,achieve excellence"
SEARS IT & MANAGEMENT
SERVICES INDIAPVT LTD
ALOK KUMAR CEO, SEARS IT &MANAGEMENTSERVICES INDIA PVT LTD (SEARSHOLDING INDIA)
“Every organisationneeds to motivate,coach and developemployees to theirdesired levels ofcompetence”
For an organisation to function at its very best, it is vitalthat its foundation focuses on not only external customers,but also internal ones. The training industry is the current
sunrise industry and more organisations are focusing on peopleas their key asset. Thus, looking at training and development ascore needs, the industry is likely to grow exponentially. YogeshSood, MD and chairman, Blanchard Research and Training IndiaLLP elaborates, “We treat our employees, associates and ven-dors as our internal customers and attempt to have a strongemotional connect with them. We believe that in our organisa-tion, we need to motivate, coach and develop employees totheir desired levels of competence and commitment. Besides,we offer products like ‘Situational Leadership II’, ‘BuildingHigh performance Teams’, ‘One Minute Manager’, ‘LegendaryService’, ‘Whale done’ and more. These have a high traction andvalue in the marketplace and guide us in the right direction,thus enabling us tremendously to deliver more than we committo our customers.”Having been global leaders since 1979 in workplace learning,productivity, performance, and leadership training solutions,their vision is to unleash the potential of people and organisa-tions for the greater good. “We work with some of the world'slargest organisations to drive lasting behavioural change thathas measurable impact. With significant growth over the pastthree decades, we now reach a multinational client base withprogrammes delivered in many languages throughout NorthAmerica, Europe, Asia, and Latin America. Blanchard Researchand Training India is KBC's Indian partner for the last threeyears,” adds Sood.
So, how have the changing economic conditions affected thefuture growth rate in this sector? “We are headed for uncertainfinancial times, not far in the future. However, we see a sus-tained growth for our business since we stand on firm ground,because we extend contemporary and relevant learning and de-velopment solutions to the market. Our business solutions arealigned to the dynamics of fluctuating economic situations andthus, are in a place to withstand market knocks. We also dependupon the fact that we skill and re-skill our employees to handlechange and challenges far more effectively than most others inthe business,” concludes Sood.
YOGESHSOOD, MD AND CHAIRMAN,BLANCHARD RESEARCH ANDTRAINING INDIALLP
BLANCHARD RESEARCHAND TRAININGINDIA LLP
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