Dhawal Dalal, executive vice-president and head, fixed Income at DSP BlackRock Investment Managers, was sitting on 50 per cent on cash in its government securities (G-Sec) portfolio ahead of the monetary policy. “We were underweight and were lighter on our G-Sec assets", says Dalal. Talking to Businessworld, he says in the current market situation, one can't take a view beyond 1-2 months. That is why he has been investing in papers with 2-5 years maturity which can capture a price appreciation when interest rates decline and at the same time mitigate the risk of widening of credit spreads. He feels it is worrisome when downgrades are more than upgrades and one has to be very cautious about picking up the right paper. Concerned over the health of banks, he has also been searching for alternatives for certificate of deposits (CDs) and has been investing in commercial papers (CPs). Meanwhile, based on supply-demand dynamics and near-term pressure on inflation, he believes that G-Sec bond yields are likely to remain higher in the near-term – and go up to 8.40 per cent – before trending down in the second-half of the year. Excerpts from the conversation:Most of the market was hoping Reserve Bank of India would cut interest rates. Was no rate cut a disappointment and why?Surprisingly, this time, there was almost unanimity on no rate cut as the Reserve Bank of India (RBI) had clearly articulated the criteria for a rate cut in their June credit policy. Also, in the run-up to the policy in July, they were quite vocal about risks from inflation and need to contain fiscal deficit. Based on that, a majority of market participants expected the RBI to keep interest rates unchanged in their July policy. At the same time, there was a section of analysts who thought the RBI may participate in the coordinated action by various central banks which have reduced interest rates in their respective economies and therefore were expecting an interest rate cut in India as well. With no rate cuts do you see market still struggling for liquidity? When do you think the RBI will start cutting rates and why?Systemic liquidity is likely to improve gradually from here as declining credit off-take, government spending and likelihood of open market operation (OMO) bond purchases starting second-half of the year may generally contribute to improvement in the systemic liquidity. At the same time, market participants are cognizant of the fact that systemic liquidity could be adversely affected if there is a sudden FII outflow in case India’s sovereign credit rating is downgraded. Given, the RBI’s own projection of inflation this year and the prospects of suitable government steps to contain fiscal deficit, we believe that the RBI could look to reduce interest rates in the last quarter of 2012. Are these testing times for the Indian economy and market and why? When do you think we can see recovery?If one looks in the past, Indian economy has been able to cope with higher inflationary pressures so long as it was growing above trend-line. Same was the case for higher fiscal deficit. In the current scenario, our economy is facing a series of challenges from both external front as well internal front. These challenges have culminated in a dramatic slowdown of our economic growth. Higher commodity prices, weak currency and severe pressure on fiscal deficit has aggravated the situation. These market conditions are similar to what economists describe as stagflation (stagnant growth accompanied by higher inflation). Economists believe that stagflation-like conditions can be dealt with a combination of effective economic policies to promote growth, which is the government’s prerogative, and an environment of easy liquidity, which is the RBI’s prerogative. We believe that the government is poised to take suitable actions to spur economic growth. At the same time, the RBI is ready to reciprocate. Therefore, we remain cautiously optimistic on the prospects of economic recovery.What is your take on the recent cut-off of 10Y G-sec yield of 8.15 per cent? Where do you see the yields in the next 3 months which has already surged to 8.24 per cent?Indian investors tend to pay a premium for the newly auctioned benchmark 10-year government bonds. The premium ranges from 10 to 15 basis points. This premium tends to evaporate as more and more benchmark 10-year bonds are auctioned by the government and eventually, the bond may trade at similar yield to the old 10-year benchmark government bond. We expect the newly auctioned 10-year government bond yield to trade at a premium for a while. At the same time, looking at the supply-demand dynamics, future trajectory of inflation, the RBI’s bias and external factors give us an impression that the benchmark 10-year government bond yield is likely to trade in a range of 8.30-8.40 per cent in the near-term.Do you think it is good time to buy government bonds as further demand for government bonds will help in making some capital gains?In India, government bonds are more likely to react to supply-demand dynamics and the RBI’s bias on interest rates. In the current scenario, the Reserve Bank of India is pretty much done with rate hikes that started in early 2010. However, supply of government bonds is likely to remain on a higher side in case the government’s fiscal deficit overshoots the early estimates of 5.1 per cent of GDP. At the same time, market participants expect the RBI to step in and purchase government bonds in the second-half of the year by way of OMO. Based on this supply demand dynamics and near-term pressure on inflation, we believe that government bond yields are likely to remain higher in the near-term before trending down in the second-half of the year. Investors who understand and appreciate the volatile nature of the government bond market and have an investment horizon of more than 6 months should consider investing in the government bonds at these levels.As a fund manager how are you managing the money in your portfolio and where are you investing in this market? In the current market condition, where will you advise investors to invest?With RBI’s interest rate hiking cycle over, we expect a gradual decline in interest rates in India. Therefore, fixed income fund managers are looking to increase duration in their portfolios.At the same time, we are aware that credit environment is steadily deteriorating in India. Credit rating agencies have announced more downgrades in India this year-to-date than upgrades. We expect this situation to last for a while before things stabilise after some time. Moreover, current credit spreads are relatively tight for the existing credit environment. We expect these spreads to widen gradually from their current levels. Based on these factors, we are looking to invest in high credit quality & relatively liquid assets maturing in 2-5 year tenor. This portfolio strategy is aimed at capturing a possible price appreciation in the fixed income assets when interest rates decline and at the same time aimed at mitigating the risk of widening of credit spreads.What is your take on 1 year, 2 years, 3 years, 5 years and 10 years yield in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenor?The current term structure of interest rates for corporate bonds is a bit flattish. The spread between current 1 year & 10 years AAA PSU bonds is around 30 basis points as against a long-term average of 70 basis points. We expect the yield curve to gradually steepen as short-term yields are likely to fall in line with possible reduction in interest rates by the RBI. Also, interest rate cycles in India have shortened to around 3 years. That means time period from two interest rate peaks is around 3 years. From all these perspectives, we believe it makes sense to consider investing in 2-3 year AAA rated high quality liquid assets in the portfolio.
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Shashi Tharoor lives many lives. United Nations veteran, Parliamentarian and former foreign minister, the suave politician is also the author of about a dozen important works — both in fiction and non-fiction. The 1956-born writer’s latest book negotiates a subject Tharoor has always loved to write about: the future of India. Pax Indica: India and the World of the 21st Century was released last month in Delhi and BW's Vinay Dwivedi posed these questions to Tharoor. Is it true that you read 365 books in a year?(Laughs) Yes, that was a challenge I set myself when I was in school. I decided to read one book every day, cover to cover, for an entire year. And when the New Year came, I had managed 365, mostly not-very-fat books, many of the kind that could be read in a day. To be fair, of course, I cannot claim to have retained too much from them… so I wouldn’t recommend anyone else try it! Better to read for pleasure than to a target. Do you see yourself as an author first, or a politician?I would say politician, because while writing has for decades now been an essential part of my life, I regard it as something of a second career. My principal focus has always been my official work, first at the UN and now in service of the people of Thiruvananthapuram. To write, I have always had to make time outside the ordinary course: late into my evenings, on weekends and other holidays, and so on (though politics is no respecter of holidays, and weekends in my constituency are usually full!). In fact, for the last three months of writing Pax Indica I was literally sleeping only two or three hours a night, because I had to find time outside my responsibilities as a Member of Parliament to write it. Who are you targeting as your readers with Pax Indica?Pax Indica is meant for the intelligent reader with an interest in India and its place in the world. It is not a scholarly book with footnotes and extensive marginalia that is intended to break new academic ground (although I hope academicians will also find it insightful too). The whole idea is to contribute to public discourse on foreign affairs and to give an overview of how India is poised in the world today. My effort is to trigger animated living room discussions and debates so that foreign affairs becomes a matter of general public interest instead of remaining confined to academic and diplomatic dialogues. How big a role can trade play in improving international relations?Trade has always been one of the cornerstones of human society, and in our times its importance has mounted like never before. There was a time when even the junior-most diplomat in our missions would balk at the idea of consorting with a businessman. But today our Ambassadors see business promotion as part of their core mandate and we see Prime Ministers and Presidents leading massive trade delegations whenever they travel. And the economic cooperation they build most definitely affects international relations. If two countries have a stake in each other’s economies (which translates into jobs, livelihoods, incomes, and so on), they are bound to view each other differently than if they shared nothing at all. Countries become partners through business, they develop a stake in each other, and realise that if instability is promoted or even allowed, they will themselves be the losers. We saw that it was under President Bush that the Indo-US bonhomie really began...under President Obama, there have been a few hiccups, for instance, his remarks on outsourcing, the MMRCA deal issue and, now, his ‘outlining’ of trade policies for India — opening up sectors for FDI. Will it help India if the Republicans came to power?I think we need to remember that in an electoral setting, politicians everywhere tend to make remarks that will appeal to their constituencies. Nevertheless, even when political leanings affect actual relationships, we shouldn’t forget that the US, for multiple reasons, must necessarily be friendly with India today. There is a general direction in which our relationship is growing and even if hiccups, as you put it, appear, the chances that this general trend will be reversed or radically altered is very slim. It is in the US’ interests to be friends with us, and vice versa. And I see nothing inappropriate in President Obama expressing his country’s policy preferences, just as we tell the Americans we want more outsourcing or more H1B visas for Indian professionals! We have seen China’s aggressive stance vis-a-vis the South-China Sea. In fact, oil block number 128, which was contracted to ONGC for oil exploration by petro Vietnam, also fell under the blocks that China National Offshore Oil Corporation put up for bidding. Do we have to reconcile to the idea of getting bullied?No sovereign nation accepts ‘bullying’ and India certainly never will. You have said that because of a trade surplus that China has with India, it has more to lose in case there is a conflict. Do you recommend that India continue to maintain a trade deficit with China, as an insurance of sorts...a safety valve, perhaps?Not a deficit, necessarily. But definitely increased trade which, given the nature of our two economies, is highly likely to remain in China’s favour. On the other hand, if we produce something the Chinese really need and buy in vast quantities, it would have the same effect! Despite the ‘multi-alignment’ approach that you have put forth, we are seeing that India is aligning with the US and in its attempts to please Uncle Sam. Most recently, when it voted against Sri Lanka on the US-sponsored human rights resolution, then, India voted against Iran at the International Atomic Energy Agency...again toeing the US line...I disagree strongly that these were “toeing the US line”. Every one of these policy decisions had an Indian rationale, just like those decisions where we did not agree with the US. With Sri Lanka, we had a strong domestic constituency, mainly in Tamil Nadu, in favour of such a vote, and Colombo just hadn’t shown us enough progress in fulfilling their own promises to their Tamil people for us to conclude they had earned our vote. As to Iran, we have no interest in seeing further nuclear proliferation in our neighbourhood. We do have an interest in international legality. Iran chose to sign the NPT of its own free will and having done so, it has an obligation to abide by its provisions. That is the principle we upheld at the IAEA. Can we afford non-alignment and do we have the will for multi-alignment?The whole concept of non-alignment has changed completely. There are no longer two superpowers to be non-aligned between. Instead, as I first suggested when I was minister, we live in a new world where a single definite disposition or paradigm will never work, for there are far too many players and actors, of varying degrees of importance to us. We must deal with all of them, and they must with us. That is where multi-alignment comes in. So, we can remain with the non-aligned movement, which reflects our colonial experiences, while at the same time participating in the Community of Democracies, alongside the Western countries, since we are a democracy of 65 years’ standing. We belong to the G-77, the global ‘trade union’ of emerging countries. And yet we also remain in the G-20, which is the ‘management’ of the world economy. Multi-alignment is the ability to pursue different objectives with different allies and partners, and the whole world is increasingly oriented towards such a policy. To what extent do you think that the current concoction of low-growth and high-inflation is a result of bad policies, or, say, lack of initiatives by this government?There are a number of factors, including external ones. But the Prime Minister is determinedly taking charge and we can expect to see some further initiatives inthe weeks to come. How would you rate this government’s performance on a scale of 1-10?I wouldn’t presume to assign grades to my own government! businessworldonline (at) gmail (dot) com
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Spammers have been using interest around the Olympic Games to scam internet users into spreading and downloading malicious content, online security company Symantec has found.Symantec's July Intelligence Report found that attackers had been using Olympic-themed "hashtags" on Twitter to spread malicious code. Attackers are also attempting to compromise mobile devices by taking Olympic mobile apps and rebundling them with threats.This is not a new phenomenon, however. Similar sporting-themed attacks took place during the 2008 Olympics in Beijing and during the 2010 World Cup in South Africa. Some of the Olympic-related threats and scams are:Twitter BotsAttackers have been actively using Olympic-related trending topics on Twitter recently in order to entice people to click on malicious links. The Tweets appear to be generated by bots, with poorly constructed, ambiguous sentences.The shortened URLs lead to fake pages that appear to cover a variety of topics, including business strategy tips and health-related themes. However, the real purpose of these sites is to spread malware. An attack toolkit is set up on the back end of the pages and will attempt to install trojan back doors or fake security software on vulnerable computers that visit these Web sites. For instance, the attack might play out similar to this video.The accounts themselves are generally created the day the tweets are sent, rarely have any followers, and rapidly post a few Tweets each minute using a wide variety of hash tags linked to trending topics. Twitter has been quick to identify these accounts and suspend them, generally within a few hours of their creation.Fake Olympic ScandalsThere also have been a few instances of spammers attempting to trick users into downloading malware. For example, one spam email hints at a doping scandal, and includes a link to a website that mimics YouTube. The video in question is meant to be about the supposed scandal, but instead of playing the video, it tells the user to install a new version of Flash player. If the user clicks OK and runs the executable, they will infect the computer with a trojan. Android.OpfakeThe attackers behind Android.Opfake are going after apps related to the London 2012 Olympics. They are bundling their threat with a copy of a legitimate Olympics application. The legitimate app, a game promoting some of the more popular Olympic sports, was copied and repackaged with the trojan and then distributed on a Russian Android app marketplace.Olympic-themed Spam And ScamsThe spam rate has increased steadily for the most part, effectively doubling from late May to late July, when the Games began.The scams behind these spam runs are generally focused on gathering personal information from the user. Phishing AttackEven before the Summer Olympic Games began on 27 July 2012, online scammers had already taken the opportunity to target users. Phishers masquerading as a MasterCard promotion, created an eye-catching phishing site. The phishing pages, hosted in Brazil, included several fake offers such as “Win Free Trips to the 2012 Summer Olympics in London!”, “Participate and win laptops, cameras and many great prizes.” etc . On clicking a button, customers are redirected to the next phishing page that asks for the user’s confidential information. Fake Visa Gift CardsSpammers have also been targeting customers by using fake gift cards from Visa, reportedly worth $1,000. By clicking a link provided in the spam mail, the user would be redirected to a fake survey page where the user is required to answer questions related to the London Olympics. After the survey is complete, users are prompted to enter their email address to win the exciting gifts.
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On 15 August this year India will turn 65. In contrast to many other parts of the world and notably its neighbour China, it has an abundantly young population. Over 50 per cent of Indians are under 25; in 2020 the median age in India will be 29 (compared to 38 in China); and by 2050,with 1.6 billion people, India will be by far the world’s biggest nation. By definition it is a global “heavyweight”.Prior to some reflections on where India may be going to, some perspectives on where it has come from. When Gandhi was asked what he thought of Western civilisation he famously replied: “I think it would be a good idea”. His point was that there was a chasm between the ideals of western civilisation and the practices of the west. This is well illustrated in another of his comments: “If Christians would really live according to the teachings of Christall of India would be Christian today.”I first visited India in 1962 and have frequently returned in the ensuing half-century. What Gandhi said about Western civilisation could equally be said about Indian civilisation. It is magnificent and more than any other contains a superb combination of spirituality and humaneness. It is extremely rich in the arts and the sciences, in mathematics and philosophy, in architecture and literature. It is remarkably innovative. It is very much “alive”, not a dead civilisation composed of tourist monuments as with erstwhile civilisations such as Greece, Egypt, Cambodia and Peru.But for all the brilliance of its civilisation, contemporary Indian society stands out for its corruption, its hundreds of millions of poor, its malnourished children, its inefficiency, its inequality, its injustice and its more than occasional sheer cruelty. Indian novels such as Rohinton Mistry’s A Fine Balance or Aravind Adiga’s The White Tigerdescribe these tragic conditions very powerfully.It has to be said that the beginnings in 1947 were not auspicious. British colonial rule of 190 years above all sought stability and continuity. There was very little reform. Consequently the traditional “feudal” social arrangements of Indian society were maintained over which British colonists were superimposed.In the five decades that preceded independence India remained unreformed and economic growth was zero. As Britain departed, the vast majority of Indians were peasants, poor, illiterate and living in an obsolete feudal hierarchical social system. In addition there was the great malediction of Britain’s “divide and rule” policy, the Partition creating two states: Pakistan (which initially included West and East Pakistan, now Bangladesh) and India. The exchange of populations between the two new states constituted the greatest forced migration the world had ever seen and resulted in deaths estimated in the hundreds of thousands. The trauma and its consequences are brilliantly evoked in a must read for anyone wishing to understand the origins of this deep scar on both Indian and Pakistani societies: Midnight’s Children by Salman Rushdie.For the first four-and-a-half decades following Independence India’s society and economy were composed of a vast agrarian base on which were superimposed a centrally planned import substitution industrialised policy run by a combination of state and oligopolistic family enterprises. India’s weak growth throughout this period contrasted increasingly with its reformed, dynamic, export-oriented East Asian neighbours, which also invested significantly in mass education and a solid infrastructure.Then in 1991, India finally embarked on a reform programme resulting in what author and businessman Gurcharan Das described asIndia Unbound (the title of his book). India’s hour seemed to have come: its economy boomed, its Bollywood film industry gained global notoriety, it revelled in the reality and rhetoric of being the leading IT power, it became a major global policy player and nuclear power, and it established close geopolitical ties with the US. Thus the self-anointed labels initially of “shining India” followed by “incredible India”.On the eve of India’s 65th birthday, regrettably, things are not looking so good. Growth has plummeted, politics are mired in corruption, deep poverty remains and India’s image is tarnished.The somewhat dire perspectives notwithstanding, India remains a unified state; it is the world’s biggest democracy and likely, even if in a somewhat raucous manner, to remain so; it has a highly talented global diaspora;it is a laboratory of technological and scientific innovation; andIndian authors and scholars produce some of the most thought-provoking English language literary and academic publications. Indians have tremendous soft power and it is likely to grow.Yet the “mess” remains. As Ed Luce lamented in his excellent study of India, "In Spite of the Gods", whereas poverty in Africa may be a tragedy, in India it is a scandal. Thus, while 50 per cent of children under five go to bed hungry, as Sumit Ganguly has pointed out at least 30 per cent of Indian agricultural produce spoils because the country has failed to develop aviable supply chain.There is no secret to how the potential of India can be unlocked and how the massive demographic youth dividend it will be receiving in the decades ahead can be properly exploited. Social, political and economic reforms need to be pursued, indeed intensified, and especially huge investments are called for in developing infrastructure and mass education. These in turn also require a mindset change on the part of Indian social elites; so that, for example, they might pay taxes. Executing by 2020 the “good idea” of Indian civilisation into practice will be tremendous not only for the 1.4 billion Indians, but also for the remaining 6.2 billion inhabitants of planet earth. Indian civilisation, not only its past but also its present, is more than a good idea: it is a magnificent idea. We must hope and urge Indians to make it happen.(Jean-Pierre Lehmann is Emeritus Professor of International Political Economy, IMD, and Senior Fellow, Fung Global Institute, Hong Kong).
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It was a cozy and warm atmosphere in a bookstore in South Delhi — with plenty of cushions thrown on the floor — that I attended a delightful book launch for children. The book was displayed prominently, along with some fabulous original illustrations done by the author, from which the book illustrator had been “inspired”. I clicked some photographs with my smartphone. The publishers, based in another city, couldn't attend the event. So, I thought why not mail it to them, they are fraternity. Soon, a newsletter popped into my mailbox from the same publisher, with a lovely write-up of the book launch accompanied by my photographs, but with no acknowledgement given to me. I was disappointed. After pondering over it, I decided to bring it to the publisher’s notice. To me, it was the principle of recognising the IPR (intellectual property rights) of the creator and giving due credit that I felt was at stake here. This was the reply I received, “So sorry. It was a slip up as I had said that you should be acknowledged. But since that is not the usual practice — simply because no one had asked — it was overlooked.” An apology received and accepted. I did not stop at that. I requested that in the next newsletter it should be rectified and on the blog, the photographs uploaded should go with credits. To explore larger issues surrounding copyright, and for publishers in general, management of copyright is a very important part of their business. In May 2012, the Indian Parliament passed a few amendments to the Copyright Act. (It is still a bill, at the time of writing this column.) A victory to a large extent for the music industry, but it has made very little difference, so far, to the publishing industry. Plus, the debate surrounding Clause 2(m) of the Indian Copyright Act is still an open chapter. As per the clause, a book published in any part of the world can easily be sold here. Thus, diluting the significance or infringing upon an exclusive Indian edition. The Parliament Standing Committee investigating the pros and cons of Clause 2(m), made a “forceful recommendation” for its amendment, but it was not included in the bill. So the HRD Minister has referred it to an NCAER expert committee constituted. However, another amendment relevant to the publishing industry has been the increase in copyright term for photographs. “This will make using older photographs impossible without hunting down the original photographer,” says Pranesh Prakash, a lawyer and copyright expert and programme manager at Centre for Internet and Society. “So far, things have worked well because sepia-tinted photographs have generally become part of the public domain. But now, only photographs by photographers who died before 1951 are part of the public domain. This has shrivelled up the public domain in photographs since it is even more difficult to trace the photographer (and date of death) than to estimate the age of a photograph, determining whether a photograph is in the public domain is laden with uncertainty. The use of historical photos in books (and Wikipedia) will be badly affected.” Having been a publisher for years, I tend to be very careful about issues involving copyright. Dig deep and you will find anecdotes that illustrate the crying need for understanding copyright issues. For example, an illustrator submitting files to a reputed art director could be told that the illustrations are not up to mark. Unfortunately, when the book is published, the ‘new’ illustrations are pale imitations of the original line drawings submitted by the illustrator. Or for that matter, a playwright being asked to create a script, but is never acknowledged or even paid the royalty due since the director believes that the core idea for the play is hers. ‘The playwright merely gave it a form’ is a common retort. Or, a couple of editors discovering their original research (and highly acclaimed globally) has been blatantly plagiarised by a well-known writer and published by an equally prominent publisher. Despite having marshalled all the necessary evidence, the editors are unable to file a case, since the court fee is a percentage of the damages sought and is beyond their reach. So, these cases stagnate with no redressal and the creators are left frustrated and angry. The core issue is, how many professionals in the publishing eco-system actually know what is copyright or how to exercise their rights? After all, it is only a concept, albeit a legal one, which gives the creator of an original work exclusive right(s) to it for a limited period of time. Establishing and verifying the ownership to copyright is a sensitive issue. A good example of how an organisation can facilitate, disseminate, inform and empower a literary community on IPR and related topics is the Irish Writers Union. According to their website, it is “the representative organisation for one of the major stakeholders in any discussion about copyright: Irish authors. While we understand that copyright legislation might be a barrier to innovation in certain industries, the IWU believes that any change to copyright law must be managed in such a way as to ensure that no damage is done to Ireland’s literary activity. ...literature earns hard cash for Ireland. Both in the form of its contribution to the €2bn annual gain from cultural tourism and in the considerable revenues deriving from the success of sales of Irish works, Irish publishing and writing is an activity that should not be jeopardised by any legal change that weakens the value of copyright ownership to the creators of original literary works. ...We note that if anything, copyright law in regard to literature should be strengthened to protect rights holders.” As Shauna Singh Baldwin, a Canadian-American novelist of Indian descent, comments upon the significance of copyright in an e-mail conversation with me, “The breath of the individual creator, his/her imagination and speculation gives life to a work of art. To create something new, you take ideas from many sources, recontextualise them, find unexpected connections between them, and create something new — and beautiful. If we continue to be ashamed of our own imaginations and so fearful of mistakes that we must copy the tried and true, we will never create, only innovate.” As for the rejoinder and photo credits I had requested for my photographs, the publisher implemented it immediately. And I was glad. Jaya Bhattacharji Rose is an international publishing consultant and columnist.
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India Inc. has got so used to dealing with uncertainty in the business environment that one tends to forget how recent some of these changes have been. Globalisation has altered competitive landscapes across markets, restructured supply chains across industries, and redefined skill sets required of leaders to succeed. Competitive performances and corporate asset values are under siege. The current economic and business climate is uncertain, even volatile. In some parts of the world, growth rates are still sluggish, and throughout the world competition for customers and talent remains intense. Despite these challenges, some companies are taking decisive action to change their structures and strategies of leadership – and taking the lead in positioning themselves for success. Many C-suite leaders are taking to organisation restructuring as a tool to become more innovative and improve productivity in the hope of transforming their organisations. But most often than not, they fall short of the desired intent. What drives a business' need to organise or reorganise work, jobs and structures? The need could be identified by a line manager, a middle manager, a CEO or another executive who recognises that a group or groups are not cohesive or engaged. Or, the need to organise work might come from an external source — an upcoming merger or acquisition — or anticipated rapid growth, a new management team with new strategies or regulatory changes that will seriously change how work is done.In our experience working with organisations of all sizes and industries, clubbed with our research on leadership and innovation, we have identified principles that can work well towards improving the likelihood of success – in times of organisation restructuring. Identify specific problems the new structure needs to resolve:The primary reasons why organisations restructure is because they want to either expand to a new geography, create a customer or product focus, or improve operational efficiency to reduce costs. Reorganizing for these intents is fine, but they fail to address the real problems arising from this intent. They end up reassigning P&L accountability, with the hope to drive competitive advantage without diagnosing and addressing the problem they are trying to solve. Our research had found a new CEO in a large utility company who, determined to cut costs, slashed the HR budget, thus eliminating some services which HR provided. Aligning jobs with the organisation's mission seemed like a waste of time in a culture where "everyone pretty much knew their jobs." Eventually, engineers wrote company policies and tried their hand at corporate communications. organisation charts were discarded because executives believed that as long as everyone knew what they were doing, the company would continue to travel the course as it always had. The reality was that job accountabilities were vague, and no one understood the structure in detail. Inevitably, things began to slip. One executive described the situationas "5-year-olds playing soccer, with everyone having a rough time getting a handle on what they were supposed to do." Any restructuring should clearly organarticulate the challenges or problems caused by the new business priorities. For example, if a manufacturing company thinking of moving from a functional structure to a customer focused structure would face the problem of how to organise its production planning. The problem statement arises from the business agenda pursued by the organisation, regardless of the current structure. Develop clarity on the operating model and governanceOne of the key challenges of restructuring an organisation is to focus on the new governance – how the enterprise is actually run, day-to-day, and in particular, how key decisions about strategies and resources are made. Many attempts at change fail not because they affect structure but because they fail to change the basic mode of governance. Most restructuring teams focus on the structure rather than articulating what their operating model should be.When developing the operating model, the team should take an outside-in approach, starting from the customer and then seeing how their units can best be organised to deliver value to them. It should then focus on the governance of each process and where it should lie in the operating model.Not long ago, a US firm acquired a European competitor so it could gain access to expanding international markets. Before the acquisition, no unified sense of purpose existed. Between marketing and production, the only communication consisted of squabbling about internal resources. But after reorganizing into business units — each with globally unified product and market accountabilities — management was again focused on growth and profitability. It became clear why roles existed, how they added value to the new organisation, how they could share data, what their common goals were and why they had to work together for success.Design layer by layerMost CEOs use a top-down approach to redesigning their organisations. They restructure the top three levels and leave the cascade to middle-level managers. Such redesign only focuses on adjusting responsibilities, without addressing how work will really get done – how innovation will take place, how productivity will increase, and how product delivery will happen. Successful restructuring requires a step-by-step disciplined approach to implementation. This includes, unit design, design of processes, operating mechanism and so on. In practice, the design process is rarely sequential or as neat as desired. Restructuring is inherently messy, interactive, and iterative, involving a lot of back and forth between different levels of the organisation. One approach which has seen particular success (see Figure 1) is having different teams anchor different type of activities:the Senior Team to provide direction and signoff on any decision;the Design Team to do the diagnosis, clarify the design intent, and develop the structure; the Action Group to do the detailed design work; and theImplementation Team to focus on execution and act as the agent of change.Manage the informal networkThe informal network is a very important part of any organisation. It is a source for information flow, organisation learning, and the dissemination of values and culture. But more often than not, these informal networks are forgotten when designing an organisation. Many processes that are accomplished through informal organisations are unintentionally destroyed during reorganisation, crippling the company's ability to get work done. Go beyond roles and accountabilityOne of the most difficult things in a restructuring is to develop clear roles, accountability, and decision rights. It is the most difficult part not only because of the sheer volume of time and effort required, but because of the sensitivity involved. Most organisationsthat follow a systematic process of decision rights, role charter, and performance indicators can achieve the desired collaboration and alignment. But what most companies miss out on is the recalibration of capabilities required by the new roles. If capabilities are not recalibrated the role will end up doing the same work as before, with only an increasein the transactional cost due to the new, multiplereporting. Along with identifying activities to be done by roles, the restructuring exercise should also identify new capabilities required for each role. These capabilities should be primarily around problem solving, teamwork, and know-how. Our experience has shown us that organisations that have focused on increasing these capabilities have managed to reduce manpower and increase productivity and efficiency. They have also been able to delayer their structure and become more flexible and responsive. Designing jobs and organisations effectively is the most direct way managers can maximize their organisation's return on its total rewards investment.People and organisations perform best when workis assigned to well-designed jobs and when jobs are organised into effective units. When jobs have clear andexplicit accountabilities, people take initiative, they takeappropriate risks and they innovate as they understand their roles and how their work relates to the work ofothers in the organisation.Re-staff rolesTo achieve successful restructuring, it is important to ensure that the right people with the right skills are in the right places. Otherwise the most perfect organisation designs will fail. Thus, staffing becomes a major issue, particularly because old jobs disappear, many new jobs are created, and large numbers of staffing decisions are made in a short period. Restructuring creates jobs for which few people are prepared in the old organisation. For example, when an organisation moves from a functional structure to a business unit structure, the skills needed in the new organisation would be more about general management as opposed to functional expertise. This makes staffing decisions for the new roles very difficult.In these circumstances, organisations try to tailor the role redesign individual capabilities of a few executives,but by doing so put their long-term interest at risk.Organisations must take a pragmatic decision on the skills that are needed today and if they can be acquired from the market. They should then focus on building the rest of the skills. Focus on changing behaviours, beliefs and valuesThe organisation should focus on the softer aspect - the new culture required to make the structure work. Most organisations today are moving away from command and control structures to networked-based organisations. The onus of success is being shared down the front-line employees.Here, organisations need to align their values, behaviors and messaging to reinforce the new structure, yet many fail to do so. For example, one manufacturing organisation post-restructuring introduced self-governing workgroups for its front-line operators. For it to work, the value of trust was most important. Yet, the organisation kept multiple levels of supervisors and continued with archaic systems like time entry, which sent out a message of distrust. It was apparent that the self-governing work groups would fail and so would the restructuring efforts.Simply improving an organisation's climate can have a huge impact. This means creating an environment in which everyone is able to perform to the best of their abilities. Hay Group research has also shown that climate improvement programs can translate into a 30 per cent improvement in profitability.Build endurance to see it throughMost restructuring initiatives are a long drawn affair. They cause turbulence and disruption within organisations, and impact business performance in the short-term. Leaders at the helm are at times forced to take shortcuts and abandon the initial purpose. Research has showed that successful restructuring is achieved only if the leadership has an unwavering resolve to do what must be done to make the company great. This means putting aside egos and giving up power to break down organisation silos or stop the blame game when things do not go as planned.Collaboration is an enabling capability towards endurance. When ideas and leadership can come from almostany direction, a collaborative approach towork and leadership is absolutely necessary.The best companies have created reward structures to encourage collaboration, whileat the same time institutionalizing its practice. Our research on the Best Companies for Leadership 2010 found that Siemens has linked 20 per cent of its top executives' discretionary bonus payments directly to collaboration, as part of its One Siemens approach.Clearly, the level of commitment to organisational restructuring at all companies has to increase steadily– as a testament to the growing intensity of the challenges every business faces. To be productive going forward, organisations can't operate from the rules of the past, which were largely around optimisation and scale. They have to be dynamic, creative and networked. And those organisations that get there faster will be the future icons of industry.(The author is a consultant in the Hay Group)
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Right at this moment, I would not say no to a candy-pink keyboard. It would have to come from Microsoft and attached to a Surface – Microsoft's pre-new tablet, or rather, tablets, since there are two of them. And yet none, since these are not available yet. Microsoft has always had a thing for surfaces. In 2008, they demo'd at CES, a large table-like device called Surface on which you could interact with images, even 3D ones. Even today, despite tablets being all over the place, that demo is impressive. Sadly the technology never made it to a Microsoft tablet but it did to a restaurant table in Hard Rock Café. And then in 2011, again at CES, Microsoft brought the next version of the Surface; only 4 inches thin. It was still huge and still nowhere near the tablets we know today. But Microsoft's next Surface in its 3.0 version is very much a tablet and nowhere near the technology demonstrated earlier. And this means there are now three tech giants in the game: Apple, Google, and Microsoft. Take a look at the new Surface at http://surface.com.If you stop to see the introductory video, you'll find that the Surface is still very much a mystery. In fact, the video is full of mystery. You can see how good it looks and how it has a kickstand to make it stand up and a thin cover which doubles up as a keyboard. And of course that it's running Windows 8. But what else?Well, both are 10.6 inch screens (an inch bigger than the iPad), And yet lighter. They have a 3mm thin cover which at first reminds you of Apple's Smart Cover. There are in fact two covers: one that has a touch keyboard and a second thicker one that also had a trackpad in additional to regular keys for typing. These cases add hugely to how attractive the device looks. Of the two tablets, one runs Windows 8 RT based on the NVIDA Tegra chip and the other, runs on Windows 8 Pro is based on Intel's Ivy Bridge processor (the one that is in all the newest ultrabooks). Why there need to be two tablets is already a little puzzling Think of the Windows RT as being the lighter one with more play and entertainment (though it will have Office) and Metro apps, and the Windows Pro as the business-friendly version.Whatever few specs are available from Microsoft look fine, but how they work, how Windows works on them and most importantly what applications are there to be on both are still unknown factors.The greatest buzz around the Surface tablets comes from the implications. What happens to all the other companies making tablets with Windows 8 on them? Asus, Acer, Lenovo and many others? Will Microsoft now compete with its own partners? Or is this, as suggested by Gartner, a response to partners not doing enough yet? We can't forget too that Nokia, a company in considerable financial dire straits at the moment, was also rumoured to trying to make a Windows 8 tablet, along with all the Windows-based Lumias. In a strange parallel, Google, which is soon to launch its own Nexus tablet, is also doing something similar because all its partners, Samsung included, have tablets based on Android which will be used on the new Nexus.On the other hand, if Microsoft doesn't boldly step into the mobile and tablets space, it's standing to lose out. The tablet market is already predicted to be well over 200 million units by 2016, say many research firms. Where would Microsoft be if it depended only on others? With a single-digit market share as it has on mobile phones? In a world now referred to as "post-PC", this wouldn't do at all. In the PC world, Microsoft was, and still is, dominant.The iPad of course has been the tablet that started off the whole industry. But Microsoft can't afford to let it continue its dominance just as much as it can't let Google flood the market with Android tablets. How the battle pans out, we will have to see after the tablets launch for real.Another interesting dimension is whether the Microsoft tablets will end up competing with Ultrabooks, specially those with unusual form factors like those from Asus and Lenovo.Microsoft's Surface tablets will only surface around October or November this year, and that too is only speculation. Nothing is known on how much it will change, who, if anyone, will be involved in developing it further, where it will be available, and what it will cost. Although the RT version will likely be priced similar to existing tablets.If Surface arrives before the Mayan Calendar prophesy comes true and the world ends, I think I might change my mind and go for that red touch keyboard and cover.Mala Bhargava is a personal technology writer and media professionalContact her at mala at pobox dot com and @malabhargava on Twitter
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Family companies can be some of the most powerful and successful organizations in the world. Research suggests that they outperform their non-family counterparts financially, and they do an excellent job of fostering social progress and environmental preservation.On the other hand, they can also be complicated and difficult to manage. Some of the factors that contribute to their success, such as the family ties that shape and strengthen the firm's culture, pose potential problems, as can the need to balance family against those of the business. This becomes even more challenging as the business develops and control moves from the original founder to his or her children and then a larger and less closely-related group of family members.But family firms have an advantage that others do not: they can draw on their history to guide their future. If each generation learns from the one that went before, adds their own insights, and teaches the one that comes after, they should be able to create a company that has the right blend of adaptability and tradition for a sustainable long-term future.Prepare for the futureFamily members have a responsibility to ensure that the business they lead has the financial strength, strategic and cultural readiness, and governance infrastructure needed for it to continue to thrive for generations to come. How they do this is likely to change as each new generation takes the reins; each generation must find its own authentic path. Treading water or mimicking previous generations will only put the family and the company at risk.Each generation must therefore be adept at managing a complex system and find its own singular voice. Fortunately, most family members learn much about managing complexity from the time they can sit at the dinner table. Parents' stories about the business, philanthropy and family relationships are more potent than many realize. Next-generation family members will draw on all of these lessons as they collectively lead the firm. Their success in this undertaking will depend on how well they tackle four key issues:Harnessing individual strength to boost the team. Family business leaders must consider both individual competencies and the group dynamics of the people in their management team.Promoting incremental change. Charismatic CEOs and high-profile mergers gain attention but rarely contribute to longevity. Real, sustainable growth and profitability derive from small adjustments to the environment, as well as from innovation and other market variables, and from committed employees with skin in the game – something that family businesses should have in abundance.Balancing competing aims. Managing a business and managing a family require completely opposite ways of thinking and acting, but both must be balanced for a family business to thrive.Continuing the vision and values. It is the heirs' responsibility to prune, adapt and nourish the vision and values of the founder – often more powerful than may be immediately obvious – for the modern era.Learn from history: Zegna Group and Corporacion PuigThe Zegna Group traces its roots back to the turn of the 19th century, when Angelo Zegna opened a textile manufacturing plant in the Piedmont region of Italy. All ten of his children joined him at the factory, but it was his youngest son, Ermenegildo, who had the interest and talent to take over the business. He built on his father's commitment to quality by introducing the latest technology and labor-relations concepts, as well as a significant amount of charitable giving.His two sons, Angelo and Aldo, were involved in the business from a young age and eventually each took a 50 per cent stake in the company, which expanded into suit manufacture under their leadership.All members of the fourth generation were groomed for involvement; Paolo and Gildo emerged as natural leaders and have built on the company's reputation for high-quality fabric and clothing by launching a retail outlet. Other members of that generation have also found roles within the business that suit their particular talents: one is president of the family's philanthropic foundation, another continues environmental activities begun by Ermenegildo, and a third is the business's talent manager.Corporacion Puig took a different path. It was founded in Barcelona as a perfumery early last century and quickly developed a tradition of acquisition and diversification for growth. The founder's four children all worked in the business, but decided that the family should step back from the front line to work in a more strategic capacity, while a long-term employee was promoted to CEO.Things got more complicated with arrival of the third generation, and it became clear that the business required a new approach to governance. Family members initially remained hands-off but set up four new bodies to govern both the family and the business, including a family council, which creates and maintains a code of conduct for all employees; and an advisory board that includes a representative from each branch of the family. In 1998, the family added an executive committee to the other four initiatives; ten years later, there was once again a family member as CEO, another as vice-chairman, and a third leading Puig France.These two businesses are very different and yet their stories share one common feature: in both cases each generation has found its own way to contribute to the family and business using its unique skills, education, and experience. They show that not everyone has to aspire to occupy the CEO's seat to play a meaningful role: a well-rounded family business can offer a variety of positions for family members in succeeding generations. And, should the perfect role not be available, each founder must surely prove an inspiring role model for any of his descendants who want to start their own business.(Joachim Schwass is Professor of Family Business and Entrepreneurship at IMD, where he is the director of the IMD Global Family Business Center and Leading the Family Business program. He also teaches on Orchestrating Winning Performance and Program for Executive Development).
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