As a global hub of skilled talent, India’s attraction as a destination for research and development activities across industries continues to grow. A phenomenon that started in the 1980s, when the first multinationals explored the country for their R&D centers, has today gained significant momentum with one third of the top 1,000 global firms having a presence here. From the discovery of “zero” till date, several examples abound of the culture of innovation ingrained in the Indian mindset. After the 2008 economic reset, there has been renewed interest in R&D in India. Over 220,000 Indians today work in multinational R&D centers, which have invested $7-7.5 billion on their headcount in India in FY2011 alone. But what, exactly, are we creating? Scratch the surface, and we realise that many MNCs leverage their centres for low-value activities and operational support to headquarters, rather than driving innovation out of India. There are several reasons for this, but let’s take a step back and analyse the objectives (commonly referred to as Charters) that MNCs have, while establishing R&D operations in the country.Charter definition can be defined at various levels, depending on the market, ecosystem, competency, leadership and partnerships. The charter for a functional unit within the center can range from managed services leadership from India, social media support, IT leadership for Asia to all non-US English support. Similarly, the charter for a product unit that operates out of India can include reduction of engineering costs, extension of sunset products, competency-based leadership or even product leadership for the global market. However, the charter for an R&D center as a whole should be more holistic and should drive long-term engagement. This can range from innovation, to strategic outsourcing, or establishing connects with the vibrant startup and university landscape in India.The right charter can allow India centres to spearhead technology innovation, become a business driver and enhance the top line as well as bottom line. An ideal Charter outlines an organisation’s vision to leverage disparate business units and work cohesively to build solutions, develop a common technology platform for the organisation or contribute to the product roadmap through core research. Organisations are thus able to incubate adjacent/orthogonal global business units, build products for growth markets and influence revenue in specific regions.The next factor is getting the much needed buy-in from the appropriate and primary stakeholders within the global organisation. This can range from the CTO, followed by leaders of individual business or engineering units for technology-defined charters; the CEO, chief strategy officer and business leadership for business-focused charters and the CFO for organisations that take a bottom-line approach to the R&D vision.The maturity of the R&D center also plays a critical role. Centres at the lowest levels of maturity could be chartered with engineering support and aim for module leadership, while more mature centers have engineering leadership and product leadership as their vision. A well-defined charter is inspirational as well as ambitious and provides a common direction for talent to work towards achieving clear goals. It sets the context for increased innovation, successful products and ultimately, better business outcomes.Having said that, to have a clearly defined vision is one aspect, but leadership to make it happen brings it all together. Unfortunately, this is where the biggest gaps lie in India. Only 26 per cent of Indian MNC centres have a global role, despite consistent efforts towards building competency over the last decade. We also find that leaders who have grown up the ranks of the company are typically able to scale up both headcount and value than external hires. The need today is for inspirational leaders: they who have global influence and impact; and are able to articulate and drive the organisation’s vision towards higher-value contribution to the overall organisation. (The author is CEO, Zinnov, a management consultancy company)
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Anjali Singh has been working since 1994 but it is only about two years ago that she joined as VP, HR in Genpact. More and more companies including Genpact now believe in developing people by making them move through different roles. A result-driven professional, Singh has no problem understanding business-drivers as she spent most of her career in business and front-end relationship roles in financial services. Genpact, being a global company, focusses on experience and exposure while choosing its leaders.Following the global downturn, management and leveraging talent across global locations has become an integral part of the HR role. For the new age HR practioner, Singh's advice is one should understand the business and key drivers as much as HR domain. Excerpts:What made you choose HR as a profession?To be completely honest I didn't choose HR as a profession at the start of my career. I have spent many years in business and front-end relationship roles in financial services. A lot of companies now rotate talent and give people many different roles as they progress through their career. Genpact is a big believer in this philosophy and we like to develop people by moving them into different roles which makes them more rounded as senior professionals. I became the HR and training leader for our financial services and healthcare verticals about two years ago.What has been the biggest achievement in your career?After so many years of experience, it is difficult to pinpoint a single achievement. I have not focused on just "what" but also the "how" in achieving the goals in every role I have done. It has always created customers who trusted and valued my opinion. Establishing customer connect and being a true partner for their business outcomes has been an achievement I greatly value. Getting company and customer recognition at different points in my career has felt good but the real achievements are when you can change or improve something that goes beyond yourself and becomes a best practice you leave behind. I have experienced that a few times which has been more satisfying.What have been the primary traits or qualities that helped you reach your current position?I am very results driven and have always delivered what was laid out. I understand business drivers and enjoy the interaction with people which has helped me build strong lasting relationships with clients and people I worked with. The underlying principle I have operated with is to do the right thing in delivering results.What are the challenges you are facing in the organisation?In this role, the biggest challenge continues to be the ability to attract and retain top talent. We are constantly trying to make sure that we have the right people in the right roles globally to deliver business value. We are growing globally so it's important to correctly balance the overall strategic company goals with a good sense of local responsiveness.What are the steps a company should take to develop future leaders?The three big pillars of leadership development are education, exposure and experience. While we do have tieups with some of the best educational institutes where we send our key leaders, we tend to focus a lot more on experience and exposure ...we rotate our top talent, we are a global company and we allow people to move across geographies to get exposed to different cultures and roles. We constantly review how we can focus on job enlargement and job enrichment. We set up "coaching/ mentoring" programmes across the company for women and our high potential middle management whom we want to groom into senior leader positions over the years.What is your rate of attrition? How do you prevent it?We hope to end this year at a 23 per cent attrition rate which is on the lower side for the industry. We have developed some best practices for retention across employee life cycles and have tools which help us measure success. The key is in how we drive the rigour across the company for execution of those practices which help us succeed. Also, we continuously grow and develop our people. The best developed theories and practices fail unless execution follows through.What sets your company apart in terms of work culture?We are a very result-driven company with a merit-based culture. It's open, honest and transparent. Delivering value to the customer is our focus and is at the core of everything we do.What is the biggest challenge you face when selecting people?We have built our brand and we manage to attract some of the best talent in the industry. Since we have become a big matrixed global company, our focus is on how best to integrate leaders into the fold when we hire them in different places across the globe. We try to get a cultural fit as much as domain and functional expertise when we hire.How do you track employee satisfaction?We roll out an employee survey with a qualified vendor every 18 months which gives us all the analytics on our employee satisfaction metric. Other than this, there are internal informal dipsticks done at regular intervals for us to get a sense of the mood on the floor.How has HR been important to the bottom line of the company?Talent is a key component in any company. To ensure that there is a robust talent planning process in place, which is also looking at how to keep costs in control, has a direct impact on bottom line. Ensuring ready talent for key roles and delivering success across all people metrics is key to the success of the company.At Genpact, HR partners very closely with the business and is involved from the strategic planning stage till the close of execution. The people function has a valued place at the table and is part of all decisions about new geographies, people, client satisfaction, product development. Almost all of the people leaders have separate interactions with clients through governance models set up with Operations.How has the downturn affected HR?The downturn has brought about many changes in the world which had a spillover effect on the HR function to the extent that workforce management needs to be planned more effectively, and the value being delivered to clients through people teams has to be tangible and measurable. Management and leveraging talent across global locations has become an integral part of the HR role.What three things would you change in HR practice?Things to change or further improve would be :Understand the business and key drivers you support as much as HR domainHave more external focus: HR tends to have internal metrics and processes, how do we make them more outward focussed at every levelDomain: Enable expertise building in areas of growth and focus
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Several years ago, someone in the banking industry told me that 3-D secure would end online card fraud. But clearly the fraudsters weren’t listening. Today, banking fraud is estimated to gross more than $120 billion per annum worldwide – more than the GDP of New Zealand. Just as water finds a way around obstacles, so does fraud. And, just as a trickle of water can become a raging torrent, so fraud can quickly spiral out of control. It is a harsh fact of life that we are never going to stop fraudsters plying their trade. But we can make it as difficult as possible for them. The trends are not easy to spot, but over the years there has been a significant shift from crimes committed by individuals to crimes instigated by international criminal rings. The typical 1980s fraudster was an individual, preying on consumers’ credit cards to fund their lifestyle. Today’s criminals are more likely to be international syndicates working across borders, using insider knowledge and immense technical skill to attack banks at every point possible. New Technology, New Fraud Opportunities Because bank fraud systems are not as mature as card fraud prevention, we are inevitably seeing a rise in attacks in this area. Sophisticated crime syndicates will look at the whole customer rather than specific products. Criminals watch activity across all services, for example: how a card is used, how the current and savings accounts are being used, and how the three interact. The combination of Internet and smartphones offer fraudsters more scope. To highlight the problem, researcher Jon Oberheide at Scio Security published an Android™ application masquerading as a preview of the Twilight Eclipse film, attracting 200 teenagers to download it in just 24 hours. The application could be modified using remote server malicious code, turning devices into zombie-like ‘botnets’ relaying precious financial information to the criminals. Ten Smart Ideas To Attack Fraud While we cannot make fraudsters go away, there is a lot we can do to make it harder for them to turn a profit and mitigate the impact.Great DataThe more you know, the easier it is to prevent fraud. If your data is not reliable, your hands are tied. External data sources make a big difference too, so do not neglect regulatory input. And include positive data, so your customers are not incorrectly flagged as criminals when they make an unexpected purchase.Effective Actions You mayhave a massive amount of data andreams of management reports, but if they are not being used properly they are useless. Actions must be accurate and swift. Take the use of a fraudulent card to carry out a transaction.The fraud will increase 10 fold in the 10 minutes immediately after its first fraudulent use if you do not take action to stop it.Detailed Processes One size does not fit all. You have to keep reviewing your systems to make sure they arefit for purpose. For example, you cannot just rely on ‘scores’because, by definition, they are historical. To see where fraud is being perpetrated, you need bespoke analytics. Do Your Research Look for data that criminals are selling online: cards numbers, email accounts and so on. You need to be looking at the same material that fraudstersuse. Keep up to date you’re your technology research too. There are many fraud management systems around and you need experience to pick the right ones. Set Clear Goals Make sure your fraud team has a clear goal. Aiming to keep fraud low is not a good enough target. You need to be clear about the amount of fraud your organisation is prepared tobear. Integrate the fraud team with other departments in your organisation so everyone knows what to look for, and assess how many customers you might inconvenience by implementing tighter security measures. In the end, it will always be a balance between security and customer service.Employ World-class Expertise Employ the best systems and get the right people to run them. Often, businesses invest in great systems and buy expensive score cards, but if they are not using them correctly, this investment is wasted and fraud will inevitably run out of control. Encourage Flexible Thinking No two fraud attacks are ever the same. We often find it is most effective to put a manual solution in place before technical ones. People can spot trends and problems faster. Make the system work manually – and then automate it. Stay One Step Ahead Of The Fraudster Remain vigilant. Fraud does not keep office hours. Some businesses use only technology to cover the night-time, forgetting that fraud is a round-the-clock operation. Ask more people to look at data so that it is widely understood. We believe data will be shared much more widely in the future and we are currently looking at a fraud utility that breaks down the organisational silo mentality and allows more sharing.Implement Leading Edge Fraud Prevention Technologies You want the best, but financial organisations need to use fraud prevention technology wisely. The number of leading edge fraud prevention technologies that are emerging into the market is enormous and becoming more and more capable, flexible and effective. But with these developments come huge risks in both the selection of such technologies and the associated implementation strategies. As in Tip 6,it takes experienced fraud prevention teams to be able to make the right product selection. The team also needs to be strong enough to challenge implementation schedules that do not allow sufficient preparation time.Use An Experienced Provider It’s hard to keep track of changes in fraud activity, in legislation and in technology. By using an experienced provider to advise on key decisions you can get on with what you’re best at – running your business. The fight against the fraudster is a constant battle. The gains for the organised criminal fraternity are so substantial that we know they will never give up. Organised crime is a highly sophisticated, well-funded and technologically advanced business. We can only hope to stay one step ahead by matching them and using our collective experience to plug the gaps when they become exposed. (Raja Gopalakrishnan is Group Managing Director, Asia, FIS)
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If I were to sum up IMImobile's journey, I would say that it has been based on the twin phenomena of technical ignorance and business innocence. However, perseverance and the will to fulfil our vision has helped us evolve into a global mobile solutions company. The milestones of this journey have been determined by all the conditions that shaped me as an individual over the years.I was born to a family of farmers in Tarimela village of Anantapur district — a drought-prone but politically-fertile village in Andhra Pradesh. Our family grew paddy, groundnuts and sweet limes. My father was active politically and I was working in the party office during communist leader Tarimela Nagi Reddy’s election campaign, when I was barely six years old. The rub-off of the Communist ideology I was exposed to as a child resulted in inculcating the belief that undue exploitation of Indian resources by any forces should not be allowed. From this belief springs my desire to harness Indian intellectual resources in order to build intellectual property (IP)-based offerings and take on Western hegemony in this sphere.I studied to be a chartered accountant and company secretary. Thereafter, I worked as a finance manager of a manufacturing company in Bangalore, after which I moved to Hyderabad as the financial controller of a mid-sized pharmaceutical company. After my early years of work in accounting, I was clear that my joy was not in number crunching to prepare audits and financial analysis. Subsequently, I set up a company for the same promoters in the field of medical diagnostics. I decided to venture out at this point of time and my employers allowed me to incorporate Information Management India (IMI) Software, which developed software for design of transmission line towers and telecom towers — an IP in the field of structural engineering. Since this was a niche segment, we contemplated diversification by creating new intellectual property for international markets using Indian talent and resources.One day, in April 1999, while browsing the The Financial Times, London, I came across an article which talked about how data — not voice — would be the major driving force for mobile phone business in the future. This was my moment of epiphany. My belief in this trend was further reinforced when I, along with my technical director Shyam S Bhat, attended the first Symbian conference where all the speakers talked about data and its growing importance in the future. With the conviction that my non-technical background and Bhat’s technical background provided the right combination, we co-founded IMImobile, as a division of IMI, to cater to delivering data for telecom operators. At IMImobile, we zeroed in on developing a platform that would provide telecom operators a flexible foundation on which innovation and new services could be delivered to their subscribers. The platform (DaVinci Evolved Service Platform (ESP)) represents 720 person-years of investment and development. We combined this offering with a new model of engagement for operators wherein we hosted and managed services on a pay-for-use basis on their behalf which effectively eliminates both CAPEX and infrastructural risk for them. This ‘Software-as-a-Service (SaaS)’ model is now being increasingly adopted by vendors in the industry and has now come to be labelled ‘cloud services’.The initial period was tough for us as our business model were radical for that time. Those were trying times which continued for three years. However, we were firm in our belief that operators would see the economics of our offer and eventually come to us. Our perseverance eventually paid off when we finally won the mandate from MTN South Africa for a multi-territory deployment of DaVinci ESP in Africa in their operations in 17 countries. Our first major international deployment — based on the hub-and-spoke model — was successful as MTN achieved reduced time-to-market, increased Average Revenue per User (ARPU) and easier roll out of local services after implementation of our platform. As market entry strategy, we acquired WIN, plc. in the UK, which counted Vodafone, O2, BBC and Barclays Bank among its customers, to whom we up-sold our solutions. There was no looking back for DaVinci after this deployment and today it is deeply embedded in the business processes of 97 mobile operators, over 100 blue chip companies encompassing over one billion subscribers in over 72 countries. We stayed the course of our vision with our belief in our offerings even when no one was willing to take a risk. But we were confident about the market opportunity and our ability to deliver.The Road To SuccessI have always believed that knowledge travels in the shadow of ignorance: If an individual were to become an entrepreneur based on the assumption that one is an expert, he is prone to run into rough weather. But awareness of one’s own ignorance is one of the necessary conditions for a smooth journey forward.Ignorance manifests itself as the lack of awareness of one’s own self, desires, passions and motivations. This is caused by not understanding and deeply examining the factors that shaped oneself, and results in lack of understanding of what one would be passionate about and love to do. These factors go back to your childhood and the journey ever since. In my case, coming from a communist village, the instinct against western hegemony was ingrained in me as a child and has manifested itself in the desire to build an IP-based company out of India.This was, however, followed by the idea of business innocence. A businessman is caught up in end results; but at IMI we weren’t. Once you are not caught in the end result, all your energies flow to respond to the current challenges of the business.The next aspect is vulnerability: which means you are always aware that you are not omniscient or invincible. You never approach any situation with over-confidence but ensure that the mind is alert to potential missteps and pitfalls. When you are overcome with hubris, failure is inevitable. Finally, I believe that more than success and failure, it is the fundamental approach that is important. You do not control the outcome, what you do control is your own approach to a task, which must be one of utmost sincerity and should be undertaken with assumption of total responsibility towards all the stakeholders. When you do so, you will never do wrong.I have been deeply touched by J. Krishnamurti’s teachings and a lot of what I have stated might seem like a reiteration of his ideals. But my journey as the so-called entrepreneur is as much a journey inward as it is outward thanks to the exposure to his worldview.The ‘Lightbulb’ MomentThe Indian environment for entrepreneurs has never been as good as it is now. Most of it is linked to the phenomenal success of the initial Indian American entrepreneurs in the US who made their fortunes in US and are now helping entrepreneurs in India by pumping vast amounts of angel investments. A vindication that times are good for Indian entrepreneurs is the fact that Ernst & Young, last year, in a global study of G20 nations, had ranked India as the number one country in terms of entrepreneurship culture; education and training; access to funding; regulation and taxation and coordinated support. Given the lack of adequate infrastructure in the country, Indian entrepreneurs are adept at coming out with creative strategies to deal with systemic inefficiencies to deliver their products and services. Indian entrepreneurs are more determined to get things done, and creative – whatever the odds. I think the time has come now for both India and Indian entrepreneurs to go out seek forth opportunities. In technology and communications, I feel it is a tragedy that an innovation like Google did not come from India. India deserves product companies and I am confident that we will soon have world-renowned Indian product companies. (Vishwanath Alluri is the founder, chairman and CEO of IMImobile)
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As emerging and mid-market companies around the globe look to grow and develop innovative strategies to outperform competition, they actively seek opportunities to transform from a people-driven organisation to a process-centric market leader. As these businesses and entrepreneurs evolve, they continually look at ways to leverage standardised and automated business processes, and best in class technologies with zero capital outlay in technology, process or people.With the fast paced adoption of cloud taking place we are seeing over 5,000 large enterprises and over 10 million SMBs ready to consume IT, the $30-billion-plus domestic IT market is expected to grow between 15-18 per cent in 2013 as per Zinnov report. A fast maturing cloud market with many new entrants has grown in the region at $535 million in 2011 with over 70 per cent growth registered in 2012 and almost 50 per cent growth forecast for the next three years, (as per IDC report on India Cloud Market Overview, 2011-2016).Business priorities have changed in the recent economic times and are influencing the way cloud is being looked upon as a strategic tool to grow faster. Entrepreneurs and businesses are looking at focusing more on their core business functions and imperatives, whatever drives their competitive edge in the market. They seek to outsource all their critical non-core business functions such as finance, accounts, HR, legal, and IT to providers that can offer better quality, faster turnarounds and elastic scale up or down charge models. As we look at the worldwide trend in cloud adoption, fast growing SMEs in developed and developing countries will be the first to move their business critical applications and business processes to the cloud. These SMEs are more open to significant transformational changes than their larger counterparts, as typically these critical non-core business functions are challenging to manage due to rapid growth, and also challenges associated with change management related to technology, process and people. While still the adoption of cloud by SMEs is limited to basic services, mainly due to unavailability of end-to-end vertically integrated stack of services, we are now witnessing a rise in demand by such emerging companies. Typically the second generation leadership is willing to adopt new disruptive technologies and business management services. Therefore, the potential is huge for SMEs to scale up fast by adopting unique solutions which will transform them into a process-centric organisation and over time a market leader. The adoption of cloud-based productivity suites among emerging and mid-sized companies is directly dependent on bringing down the TCO (total cost of ownership) and increasing ease of use. The number of cloud services is expected to double over the next five years, and the number of small business using at least one cloud service will triple during that same period.The most commonly used cloud services by SMEs are email, instant messaging, and backup, but with the rising competition in the industries it has become all the more important for entrepreneurs to have a well-established cloud partner for their business, right in place from the beginning. There is a rising need to bridge this gap that can fill the time, mobility benefit and cost for enterprises. Now we are witnessing new forms of cloud platforms which are specifically focused on SMEs such as the Business Function as a Service (BFaaS©), which gives users on demand, pay as you go service delivery experience that businesses can leverage to outsource end-to-end and all their critical but non-core business functions such as F&A, HR, Legal and IT. The key items for consideration by both IT and business decision makers to opt for such services framework include:Personal attention to manage not requiredNo upfront capital outlaysControl and ComplianceNo vendor lock-insFlexibility & Rapid implementationMobility of workforceServices like BFaaS© are bringing a fundamental shift from the traditional BPO time, material and resource management type engagement to an objective outcome and result oriented model. The famous saying “What worked for you yesterday may not work tomorrow” is most apt in today’s cloud scenario. It is time that the emerging and mid-sized companies begin to adopt the change for a positive orientation and think big, start small and scale up fast.(The author, Vikram Dham is CEO & Co-founder Emkor Solutions Limited)
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The print media sector, with its rumoured Damocles’ sword, may have something to look forward to this coming year. According to a December 2012 report by Motilal Oswal Financial Services, Making Headlines Again, a rebound in advertising growth is imminent. Motilal Oswal believes that the print advertising cycle has bottomed out after the worst show in a decade, from where the sector’s ad revenues can only go up. The report estimates that the print media segment will clock a compounded annual growth in earnings of 17 per cent during 2013-15, compared with estimates of a 3 per cent growth in fiscal 2013 after an 11 per cent decline in 2011-12. Among the factors that will sway the verdict in print’s favour is an expected easing of interest rates that will be positive for categories like auto and realty — both heavy advertisers in print.The report estimates that print advertising will also grow by 11 per cent in the next two financial years against 3 per cent growth in the current financial year. This is not the first time analysts have taken a positive position on this sector. Even in the past, analysts have forecast fortunes only to be corrected when the vagaries of business cycles take their toll. Take the case of the FICCI-KPMG report on the media and entertainment industry in 2011, which predicted that the ad revenues of print media firms would grow more than 13 per cent in calendar year 2012. This is a far cry from the 3 per cent growth estimated by MOSF. The numbers released in the FICCI-KPMG 2012 from March last year are also fairly reserved. The report said that the print industry grew by 8.3 per cent from Rs 19,300 crore in 2010 to Rs 20,900 crore in 2011 (advertising revenues are estimated to be 41 per cent of that) — lower than the predicted 9.5 per cent growth. Some others are also cautious about Motilal Oswal’s predictions. “We don’t see a substantial increase in the fortunes of the print media in the next year. The expectations seem a bit too far-fetched,” says a senior media buyer on condition of anonymity. His rationale: in the past advertisers poured their budgets mainly into print and TV. Now, newer media like digital are gaining ground, taking up 8-9 per cent of a client’s total ad spend.Ravi Rao, leader, South Asia, at Mindshare, a leading media buying agency, says he expects an increase in newspaper ad revenues for 2013, though magazine ad revenues may go down. He goes on to add that digital media might become the third largest advertising medium in the country, replacing out-of-home advertising. In 2011, TV had overtaken print to become the largest ad medium, now the question is whether ads in the digital space will grow at the expense of both TV and print? “Yes, in some ways,” says Rao. So where does that leave the estimates by the analysts? “The growth of digital might not have an impact on ad revenues of print or television, as the absolute numbers of digital is no comparison to the size of print. Our estimate of print advertising growth rates takes into account the eventuality of any market share decline for print,” says Shobhit Khare, analyst at Motilal Oswal. But other media experts think it is too soon to take a final call just yet.
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From the Bajaj Group and Wipro to Pantaloon Retail, Cinemax or Provogue, corporate India has enough and more cases of companies that have executed demergers to unlock value for their investors. Last week there was one more addition to that list. Hair and skin care major, the Rs 4,008-crore Marico (FY 2011-12) announced a restructuring exercise across the organisation effective April 2013. On agenda was the consolidation of its FMCG business across the globe and a demerger of its skin care services business Rs 279-crore Kaya from the company. First, the details of Marico's restructuring in the FMCG part of its business. Till date, Marico ran its FMCG business as two entities. The domestic business called internally as Consumer Product Business (CPB) headed by Saugata Gupta and an International Business Group (IBG) headed by Vijay Subramaniam that managed Marico’s ventures from Bangladesh to Egypt. The product composition of the domestic and international businesses were also different. While the domestic FMCG business of Marico was mainly a hair care and health food range of products, the international business had an extensive personal care portfolio. The lines started to blur in this financial year when the domestic business acquired the portfolio of youth brands including Set Wet, Zatak and Livon earlier this year from Reckitt Benckiser. As a company statement acknowledges, "the portfolios of the domestic and international business were increasingly mirroring each other". Post the restructuring exercise, both units will be merged into a single business unit and report to Gupta who will remain CEO for the joint entity. Post regulatory approvals, the demerged Kaya will be listed separately as Marico Kaya Enterprises (MaKE, as the company proposes to call it) and be headed by Vijay Subramaniam who will take over as CEO for the services business. Once Kaya is listed as a separate entity somewhere around mid-2013, shareholders of Marico Limited will be issued one share of MaKE for every 50 shares they hold in Marico. Kaya has been a loss making venture for Marico and during the financial year 2011-12 the business made a loss of Rs 29 crore (PBIT) on net sales of Rs 279 crore, though it was a shade better than the Rs 33 crore loss that the Kaya business suffered in 2010-11. The company however says that the Kaya business is getting only stronger as same store sales have been growing at an encouraging pace. Currently, Marico’s exposure to Kaya stands at Rs 180 crore, with an equity investment of Rs 73 crore and an interest free loan of Rs 107 crore. “Marico intends to convert the loan into equity prior to the demerger,” says an Angel Broking report. Marico says that these initiatives will only help make the enterprise stronger in facing the future. “We strongly believe that for the next phase of our value creation journey, the Kaya business should be run in an entrepreneurial manner independently from the FMCG business of Marico,” says a company statement. Analysts at Angel Broking believe that the new arrangement will also be beneficial for Marico’s existing shareholders. “The demerger of the loss making venture would result in Marico turning into a pure FMCG play enjoying superior return ratios.” The announcement has had a mixed response at the bourses. Even as the BSE Sensex closed above the 20,000-mark, Marico's stock was trading at Rs 224.40 at the closing hours of Friday, 18 January, on the BSE, lower than the one-year high of Rs 230 earlier this month, and much lower than the Rs 250 mark the stock had touched in November 2012. businessworldonline (at) gmail (dot) com
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A recent Ernst & Young global survey showed that 75 per cent of the companies with a turnover of $500 million and more across 24 industry sectors find strong risk management essential for their long-term growth. Talking to BW's Joe C Mathew, Randal J Miller, Global Risk Leader, Advisory Services, Ernst & Young Global Ltd and Ram Sarvepalli, Chief Operating Officer, Advisory Services, Ernst & Young Pvt Ltd, explain why the risk management mechanisms have become the key to the growth plans of companies. The rule is applicable not just for the big players, but is also relevant to smaller enterprises, they argue.Excerpts:What do you think of the ongoing inquires of German Adidas into the financial accounts of its Indian subsidiary Reebok India or the US-based Walmart’s probe into the alleged bribery issues within Bharti-Walmart? Do you think adequate risk management practices could have avoided this?Sarvepalli: We would not like to make any company specific comments. The larger issue here is that whether you are an Indian company or a global company, when you are present across geographies, you would like to have an easy structure and low cost of doing business. But you should also understand the country specific risks and be prepared to manage it. For a multinational company wanting to operate in 10–15 Indian states, there are a plethora of local legislations to be followed and local approvals and compliances to be taken. Therefore, having a framework and a structure (for risk management) helps you address it in a simplistic manner at one level, but also tells you what all things that you can or cannot do.What’s the advantage of the system if it cannot prevent risks?Sarvepalli: Risk assessment helps you do businesses ethically. It will also help the company deal with risks, if something arises. An issue doesn’t mean that there is something wrong. In eight out of 10 cases, it only proves someone did not understand (the ethical compliance structure) very well. In some other cases, they might have failed to translate them into action. So a good (risk management) framework helps you do business in a consistent way over a long period.Miller: Companies that have strong risk assessment systems and processes around its management could perform better. In order to try and validate this point of view, we did a recent global study with 500 companies in a variety of industries (including 50 Indian firms). We looked at over 2,000 sets of reports and found that our point of view was true in terms of data. The companies that did have strong, robust, working risk management systems performed 20 per cent better in terms of bottom line than the others that didn’t have the system. We also found that institutional investors will pay a premium for those companies that had strong set of risk management functions.So companies that have a strong set of controls have an advantage from an operational perspective, and also value creation perspective. That applies for small companies and larger entities.How does it help small entities given the cost involved?Miller: The reporting requirements of small and big firms are almost similar. But, reputational risk say around a scandal or inappropriate payment, could be more harmful for a small enterprise one such incident can directly bring down a small enterprise very quickly. For a larger company, the outcome may be the same, but it may have more resources to manage that. So from my perspective, globally, risk is equally important across the spectrum of business size. It’s just the degree of formality that differs. What do you offer as part of your risk advisory services?Sarvepalli: These are directly linked to the client’s situation. We spend a lot of time helping our clients develop processes and systems that are focused on the risks that are there in their businesses. The idea is to make sure that there is a good, prioritised, set of identified risks. Though, one of the big lessons I learned is that those processes and systems are only as good as the people who are following it. Thus, people should develop a mindset within their hearts and minds, have risk assessment as part of their performance, and there should be accountability from the lowest ends of the business to the top. It helps avoid blowups in the system. Miller: We are spending a fair amount of time helping our clients on compliance review around risks to make sure they avoid big issues. We are also helping our clients to tie their risk management framework together, and to help them add some business value using those risk management systems. It could be cost reduction ideas, or market entry strategies etc How is it important from a strictly India perspective?Ram Sarvepalli, COO, Advisory Services, Ernst & Young Pvt LtdSarvepalli: It’s (important) at three levels. One, if you are a listed company, you are mandated by the listing agreement that you cannot list without a risk management system in place. Two, if you want to expand rapidly, and are seeking money, people do ask for this, especially private equity or institutional investors. Increasingly, banks are also taking a look at how companies are balancing their risks. And third, it is needed for people who have built their reputation in one line of business and want to expand to a new line of business, as because of their expansion, they are not only entering a new terrain of unknown risks, but also inviting a reputational risk over the existing ones. If an incident were to happen in one company, it will impact the brand as a whole. Therefore they have to be careful about it.What are the risks that you foresee at global level?Miller: With social media and cloud (international business environment) all is changing… We have a series of processes that we refresh every year to identify the top 10 risks. We can have a general top 10, it can be tailored by sector. The top three or four are similar across sectors. Geopolitical risks are also there. Environmental risks are almost universally in top 5. Taking these risks and actually twisting them country by country to put in a strategy to win is what risk management does. Since we have been in developing markets for a long time, our advice is not how to enter these markets, but how to win in these markets, how to balance risks and put a winning strategy. That’s where we spend a lot of time. "If you make a mistake in the US or China, it’s in the news the next morning in India or vice versa"How important, from a revenue perspective, is risk advisory business for E&Y?Miller: Our risk practices are very significant parts of our business. Of the 30,000 to 40,000 people we have hired globally in our advisory practices, around 15,000 are specifically looking at risk advisory practices. So it’s huge. Our functional and IT risk practice together generates $2.5 billion (in terms of annual revenues). We are investing very heavily in our risk practices. In India, we are the market leaders with substantial revenue growth.Sarvepalli: We have roughly 1,800 people in our risk practice (vertical) here (India). Telecom, technology, government and financial services, automobile and consumer products are all important segments that are undergoing big changes in terms of stability, prices, market, technology…and hence newer areas of risk management. Similarly, we are very strong in the media / entertainment segment. In an environment that we have today, people are paying much (attention) on compliance and less on expansion. When the growth will be accelerated, it (the focus) will shift again to expansion.What is the primary requirement of Indian companies?Sarvepalli: In the last two or three years, we have been working with a lot of Indian companies that are going overseas. People are going to Africa, or companies are acquiring firms in Latin America. We help them manage the risks from those markets. Similarly, we do a lot of work around compliance for technology companies. A technology company must be dealing with visa regimes of 30–40 companies. How do they manage all those compliances sitting out of India? We have been helping companies do that for big IT majors. If there is a pharmaceutical company, you have to manage the risk of delivering the same quality of medicines globally as different standards for different markets no longer apply.How long will be such assignments?Sarvepalli: It will vary depending on the type of assignment. In many cases, we would love to start the lifecycle of the relationship looking at the risks, then finding a risk management strategy, helping them in implementing those strategies, either by themselves or through outsoucing. So relationship can go from short term of six months to 12 months to build the risk management strategy or a multi-year or long term strategy, relationship where 3 years will be the base.What do Indian companies prefer?Sarvepalli: India is in stage 2. Lot of people are engaged in creating a framework. Maybe people thought they will do it once in two-three years. But the time cycle is shortening and they do it more often. Another major reason is that everything is more global today. If I make a mistake in the US or in China, it’s in the news the next morning in India or vice versa. So I can no longer manage each territory separately, as someone makes an assumption that the thing works well or doesn’t work well is universally acceptable. I think that is one big trigger for lot of companies to take a much differentiated approach to this business.
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