A Roller-Coaster Ride

This blog entry is dedicated to the unconventional and enriching experience that was the SM-2 course in term 4. The course and its delivery brought me out of my comfort zone. It challenged me intellectually and taught me how to think on my feet. The unconventional 'spiral' method of pedagogy adopted by the professor, Sandeep Mann, taught me how to link together various pieces of relevant information into one coherent whole. Attending SM-2 classes made me realize that any business problem needs to be approached holistically from different points of view. The analogy of a consultant to a doctor really resonated with me and I attempted to develop a surgeon's eye for observation and analysis of the case provided.

Tackling the professor's unorthodox posers in class gave me the confidence to conduct a detailed and thorough analysis of any given problem. The professor stressed how one can link different pieces of information into one streamlined unit that provides a crisp and comprehensive analysis of any situation.

Both the mid-term and the end-term exams were doses of the same medicine dealt out by the professor in class- tackling any unconventional problem using the knowledge and tools at your disposal. A question paper in which one frames questions rather than giving answers was a stroke of genius. However, this paled in comparison to the googly that was the end term exam. Never in my wildest dreams did I imagine that I would be writing my own biography in the exam. The end term exam was a fair reflection of the entire SM-2 course as a whole- unconventional, immensely challenging, intellectually stimulating and guaranteed to get one into the 'consultant mode'. It was a roller-coaster ride but  by the end of it I'm glad I was on it.

Female Leadership at P & G

When Procter & Gamble set out to sell Pampers in India five years ago, it faced a daunting marketing challenge. Use-and-throw diapers were just not part of the cultural norm and women believed it was only lazy mothers that switched from cloth nappies to diapers.

P&G realised it had to change that mindset. A female member of the Pampers marketing team, drawing on her skills as both a marketer and a mother, suggested that they market it on the lines of the baby's health. When you put a baby in Pampers, she said, the wetness doesn't spread; the baby remains dry for several hours and therefore has less chances of contacting a fever or a cold. P&G decided top act on this insight today Pampers is India's largest selling diaper brand.

P&G's former chairman AG Lafley often said: everything starts and ends with understanding and serving consumers better. Given that about 70% of P&G's target audience is women, the promotion of women executives translates into a real competitive advantage. But P&G is taking it beyond the most obvious marketing connection.

A year ago, it put in place its first ever 'corporate diversity and inclusion' strategy, spearheaded by CEO Bob McDonald, which clearly outlines the policies and practices that encourage women's advancement. The goals are clear: P&G aspires to have half of the company's leadership as women. At the helm of this initiative sits Linda Clement-Holmes, P&G's new global diversity officer who reports directly into McDonald.

According to a recent Accenture survey, a diverse workforce helps put companies ahead. The research shows a significant correlation between both gender and the international diversity of a company's executive board and stock market performance. Five out of 12 members of P&G's global board are women.

The Concept of Sensory Branding

The movie 'Avatar' achieved success, not just because it had a well-known moviemaker and it used 3-D as the technology. It became a box office hit because it also allowed the audience to touch and feel - literally. The stimulation and the sense of being in the thick of action in a fictional story is what the movie sought to achieve.

From the big screens to television, one comes across commercials by brands that look to stimulate the senses - from sight to taste to smell. But look for the same triggers on the ground and chances are brands more often than not fail the litmus test when it comes to sensory branding.

However, with consumers having access to a plethora of information, add to that the high speed of change, the thin line between real and reality and very limited time — sensorial appeal will play a vital role in enticing consumers towards brands.

And globally, there are examples of brands creating an experience that appeal to the senses. In a presentation by Lowe Counsel called 'Sensory Extra', auto brand Ferrari is opening Ferrari World in Abu Dhabi in 2011. "Ferrari theme park will host over 20 state-of-the-art attractions, each designed to bring various facets of the Ferrari story to life," the presentation states.

So one will feel the rush of speed as the G-force takes over, or learn from the legends themselves in the factory or at the pit stop, the presentation adds. Yet another example of multi sensory branding is Starbucks now roasting beans in-house to enhance the authenticity of aroma in store. Nissan, the presentation adds is taking a hint from the pleasant effect of forest air on people.

Nissan studied the effects of aromas on human mental activity and "the resulting forest AC system intermittently and alternately furnishes two unique aromas, borneol and leaf alcohol, to alleviate boredom and stimulate the driver's brain."

Zoe Lazarus, director at Lowe Counsel says the categories, which have embraced sensory branding, and looking at neuro-marketing so far are entertainment (6-D cinemas), food (food/art experience) and travel with the advent of extreme adventure and survival holidays.

"The challenge of sensory branding is to think more broadly about how people experience products in the real world and find ways to enhance these experiences," says Lazarus. In India, the advent of modern trade provides an opportunity of creating a sensorial experience.

Why the world is shifting to cloud computing

Cloud computing is fast evolving from a futuristic technology into a commercially viable alternative for companies in search of a cost-effective storage and server solution. In fact, Gartner Inc. predicts that by 2012, 80 percent of Fortune 1000 enterprises will pay for some cloud-computing service, while 30 percent of them will pay for cloud-computing infrastructure. While the technology has its fair share of drawbacks (such as privacy and security concerns), an undeniable silver lining is currently turning skeptics into enthusiasts.

Scalability: IT departments that anticipate an enormous uptick in user load need not scramble to secure additional hardware and software with cloud computing. Instead, an organization can add and subtract capacity as its network load dictates. Better yet, because cloud-computing follows a utility model in which service costs are based on consumption, companies pay for only what they use.

Easy Implementation: Without the need to purchase hardware, software licences or implementation services, a company can get its cloud-computing arrangement off the ground in record time — and for a fraction of the cost of an on-premise solution.

 Skilled Practitioners: When a particular technology becomes popular, it’s not uncommon for a whole slew of vendors to jump on the bandwagon. In the case of cloud computing, however, vendors have typically been reputable enough to offer customers reliable service and large enough to deliver huge datacentres with endless amounts of storage and computing capacity. These vendors include industry stalwarts such as Microsoft, Google, IBM, Yahoo! Inc. and Amazon.com Inc..

Frees Up Internal Resources: By placing storage and server needs in the hands of an outsourcer, a company essentially shifts the burden placed on its in-house IT team to a third-party provider. The result: In-house IT departments can focus on business-critical tasks without having to incur additional costs in manpower and training

Quality of Service: Network outages can send an IT department scrambling for answers. But in the case of cloud computing, it’s up to a company’s selected vendor to offer 24/7 customer support and an immediate response to emergency situations. That’s not to suggest that outages don’t occur. In February 2008, Amazon.com's S3 cloud-computing service experienced a brief outage that affected a number of companies. Fortunately, service was restored within three hours.

There is plenty of concern surrounding cloud computing and its attendant security risks. What a lot companies fail to understand, however, is that many vendors rely on strict privacy policies, as well on sophisticated security measures, such as proven cryptographic methods to authenticate users. What’s more, companies can choose to encrypt data before even storing it on a third-party provider’s servers. As a result, many cloud-computing vendors offer greater data security and confidentiality than companies that choose to store their data in house.

Indian Banking Sector- A Strategic Analysis

In 2008, when the global banking industry was being shaken by the tremors of the unfolding financial crisis, only one bank in India felt the aftershocks, and this, only because one of its overseas subsidiaries had made an opportunistic bet on debt issued by the failed investment bank Lehman Brothers. While the market valuations of all the leading banks in India slipped as equity prices tumbled, their businesses were not affected and their balance sheets remained healthy.

Most domestic commentators continue to hold up this episode as evidence of the inherent strengths of the Indian banking industry and have lauded the Reserve Bank of India (RBI), the country’s central bank and banking regulator, for sticking with its conservative approach. When regulators around the world were loosening their grasp over the banking and financial services industry, RBI steadfastly held on to the strings that prevented banks in India from making risky investments and following highly aggressive business practices.

Though some of the country’s younger banks have fast growing asset management and insurance businesses, the industry’s bread and butter is still industrial lending. Asset Backed Securities and Collateralized Mortgage Obligations are still unheard of in the country, while Indian lenders warmed up to the idea of teaser rate mortgages only after the global financial crisis. So far, they do not appear to be any worse for it.

The Indian banking industry is also well capitalized and capital ratios are above the global average. The average tier-1 capital adequacy ratio of the Indian banking industry is above 10%, when compared to the Basel III norm of 8.5% including the contingency buffer. The average total capital of banks in India stood at 14.5% as of March 31, 2010, compared to the Basel III requirement of 10.5%.

However, it can also be argued that the cautious regulatory controls have stifled the growth of the banking industry in India. This is the sector with the most entry barriers as the RBI has not issued new banking licenses for well over a decade. Foreign shareholdings in domestic banks are restricted and foreign banks have to wait years to get permission to start banking operations or expand their network. Except for a few cases where the large banks were encouraged by the RBI to acquire failing banks, the industry has not seen any meaningful consolidation.

As a result, while India continues to move up the ranks of the largest economies in the world, most Indian banks are significantly smaller than their global counterparts. They are no match to even banks in other emerging economies like China, and only one bank from India is ranked among the global top-100 in terms of asset size. Also the cost of financial intermediation is relatively high in India and banks enjoy wide net interest margins. Access to banking services is poor across vast areas of the country’s rural hinterlands and as a result, more than 40% of the population does not have bank accounts and only about 15% have received some form of bank credit. The World Economic Forum currently ranks India 37^th out of 55 countries in financial development, behind other large emerging economies like China, South Africa, and Brazil.

Banking regulation remains cautious

As in most countries, the central bank is entrusted with the role of banking regulator in India and the Reserve Bank of India is widely acknowledged as an efficient, but cautious regulator. The government still drives the broader policy framework for the industry, including setting the limits for foreign investments in the sector.

While the Indian government has opened up most sectors of the economy to foreign investors over the last two decades, it has been more guarded about banking and financial services. Accordingly, the aggregate foreign investment limit in domestic private banks increased from 49% to 74% only in 2004, but it remains at a low 20% in banks where the government is the major shareholder. The limit covers all investments by foreigners, including portfolio investments.

In addition, the RBI has other restrictions that are aimed at ensuring wider distribution of bank shareholding. Investments exceeding 5% of a bank’s equity capital by a foreign investor require RBI approval, and a single foreign investor cannot hold more than 10%. These restrictions have also been progressively applied to the domestic shareholders of the smaller private banks, but some of the larger and healthier banks have been given specific exemptions. Further, no bank can hold more than 5% of the shares of another bank, except when a bank on the verge of failure is acquired.

The limits on foreign investment do not apply to foreign banks starting a subsidiary or branch network, wholly-owned by the promoting bank. Like regulators in some other countries, in granting new banking licenses, the RBI often favours applicants from countries that have favourable policies for Indian banks seeking to open overseas branches or expand existing ones. As a result, it may take several years for a new foreign aspirant to get a license. More than a dozen applications from foreign banks for banking licenses now await RBI approval, including well-known names like Goldman Sachs. The RBI has also been careful when allowing new branches for existing foreign banks, but the number of branches approved has always exceeded India’s WTO commitment of a dozen new branches a year.

What’s more, the RBI also has policies to direct bank credit to sectors that are deemed socially or economically important by the government. Accordingly, all domestic banks are required to lend at least 40% of their total net credit outstanding to exporters, farmers, small businessmen, and low-income borrowers. For foreign banks, the requirement is lower at 32% of net credit. Limited deposit

insurance is available to customers of all banks, including foreign banks.

Though it influences the credit policies of the banking industry through specific lending requirements, the Indian government generally has less sway over banks when compared to select other emerging economies like China. By and large, banks in India do not boost or curtail credit flows at the government’s bidding. Though the government occasionally encourages the banks to increase credit availability, as it did during the global financial crisis, even the government-controlled banks are not forced to comply. This apparent autonomy, though limited in many ways, has allowed most Indian banks to follow prudent credit standards and prevent excessive bad loan losses. However, there have also been cases of banks being pushed to the verge of failure by corruption and political manipulation.

Some of the leading banks have also occasionally disagreed with regulatory policies and guidance, though the senior officers of all government-controlled banks are appointed by the government with the consent of the RBI. For instance, the State Bank of India recently refused to withdraw its teaser rate mortgages from the market though the RBI repeatedly expressed its dislike for such loans.

Consumer credit to drive future growth in banking

Like in most other emerging economies, the share of consumer credit remains very low in India, despite the recent growth. Average income levels are still very low and subsistence spending takes away most of the personal incomes of the lower income groups. This leaves very little earnings surplus available for debt servicing and reduces their creditworthiness, and banks will be hesitant to lend to them. Hence, the marketing efforts by banks to promote consumer finance products and services are now mostly limited to cities and towns where there is a larger concentration of higher income customers.

However, as average income levels are expected to rise further, the number of potential bank customers with sufficient earnings surplus will also grow. Though the growth of income levels is likely to be measured and the potential loan size will remain small, the aggregate market size for consumer credit will become larger because of the large population size. This market will be made more attractive by India’s demographic advantage of a relatively young population, who are likely to see faster income growth. Besides, younger customers are generally considered to be more receptive towards new financial products and services.

Even in business banking, India may continue to offer attractive growth opportunities. The ratio of total business credit to GDP in India is less than half the level in China. While this gap mostly reflects the substantially larger industrial sector in China, it also indicates the potential credit requirement if Indian industry sustains its growth. Bond markets remain grossly underdeveloped in India, while exchange risks reduce the attractiveness of international bond markets to domestic borrowers. Hence, it is likely that most of the increased industrial credit requirements will have to be financed by banks.

However, it is also widely accepted that the Indian banking industry may find it difficult to achieve its potential without further regulatory initiatives. It is evident that without increased competition, financial intermediation costs will remain high and banking services will not spread widely across the vast rural areas of the country. Also, to improve efficiency and compete better, it is believed that domestic banks in India need to build scale through consolidation. As past reports and policy statements by the Indian government and the RBI have made repeated references to these issues, it is hoped that entry barriers will come down in the banking sector and restrictive policies will be diluted. It is expected that the shareholding and investment norms will be further liberalized, while new banking licenses will be made available to both domestic players and foreign banks.

The government and the RBI have already announced a new policy framework to issue new banking licenses to domestic applicants. While the RBI is expected to maintain its preference for wider shareholding distribution in banks, corporations with good reputation and track record that have large public shareholdings, may also be allowed to promote new banks. Confirming the attractiveness of the Indian banking sector, it has been reported that nearly a dozen applicants, including some of the most prominent business groups, are eager to acquire licenses.

The banking sector is one of the most crucial sectors in any economy, and plays an instrumental role in promoting economic growth. In India, the sector is even more important as the expansion of banking services to rural areas may also play a significant role in reducing poverty and ensuring sustainable income levels. If favourable regulatory support is ensured, India will likely have a mature banking industry with sufficient scale and reach to support its fast growing economy.

The Strategy of Portfolio Diversification

Portfolio diversification is the means by which investors minimize or eliminate their exposure to company-specific risk, minimize or reduce systematic risk and moderate the short-term effects of individual asset class performance on portfolio value. In a well-conceived portfolio, this can be accomplished at a minimal cost in terms of expected return. Such a portfolio would be considered to be a well-diversified.

Although the concepts relevant to portfolio diversification are customarily explained with respect to the stock markets, the same underlying principals apply to all types of investments. For example, corporate bonds have specific risk that can be diversified away in the same manner as that of stocks.

Unfortunately, there's no concise definition of asset class. The definition of asset class is dependent on the context in which the term is used, the investment strategy employed in the management of a portfolio, and to some extent, the person who is rendering the definition. Suffice it to say that asset classes are significantly different investments.

Eliminate Specific Risk and Minimize Systematic Risk

It is assumed that all investors are rational and will therefore hold portfolios that are diversified to the point where specific risk has virtually been eliminated and their only exposure to risk is to that which is inherent in the market itself. Thus, the residual risk of a portfolio should be equal to market risk, a.k.a. systematic risk, and systematic risk can be reduced by investing over a broader market, i.e., a larger universe.

International diversification provides a good example of the effects of diversifying across asset classes. A portfolio invested 50% in domestic large-cap stocks and 50% in international large-cap stocks would have approximately half the residual risk of a portfolio comprised solely of domestic large-cap stocks, assuming that the investments in each market were sufficiently diversified to eliminate specific risk.

Some investors may choose to be exposed to specific risk with the expectation of realizing higher returns. But this is contrary to financial theory and such investors are therefore deemed to be irrational. Deliberate exposure to specific risk is unnecessary and is essentially gambling...unless you are trading on inside information, but we won't go there, as trading on inside information is a flagrant violation of the securities laws.

Moderate the Effects of Individual Asset Classes

Moderating the effect of individual asset class performance on portfolio value is another benefit of portfolio diversification. This is desirable because the lower the variance of your portfolio value, the greater the certainty of its value at any given time, which is extremely important if you have a need to liquidate all or part of your portfolio for some reason, not to mention the fact that lower variation will reduce stress and anxiety.

If you're saving for retirement, you should have a targeted value at the date you plan to retire. That value is considered to be the terminal value of your portfolio, a.k.a. your terminal wealth, at the end of your holding period, and your holding period would be from the present to that future date. As part of your planning, you must make projections of the average rate of return and the standard deviation of returns over your holding period. Thus, your terminal wealth is uncertain and can be assumed to be a range of values rather than a fixed value. This range is known as your terminal wealth dispersion (TWD).

If you take this thought process a step farther, you'll realize that your holding period is made up of an infinite number of shorter holding periods and that each period has its own TWD. Your TWD at any point in time is the risk you are faced with when liquidation is necessary. Reducing this risk to an acceptable level can be achieved by diversifying across asset classes with only a minimal cost in terms of expected return.

If, for example, you blend five assets that are not highly correlated and all of those assets have expected returns of 12% and standard deviations of 10%, your expected return will be 12% but the standard deviation of your portfolio's returns will be significantly less than 10%. If the assets were only slightly correlated and/or negatively correlated, your portfolio standard deviation would be very significantly less than 10%. Individually, these assets are equivalent investments based on their risk and return, but together they form an investment that is superior to each of the individual assets, which can be attributed to the lack of perfect correlation between the assets. Portfolio diversification is a very good deal. So be sure you take full advantage of it.

Asset classes tend to go through periods of under-performance and over-performance which tend to offset each other in the long run. However, as we don't get to select our holding periods after the fact, it's desirable to insure ourselves against the probability of liquidating at a time when under-performance outweighs over-performance within our holding periods. This is where the correlation between asset classes really comes into play. Asset classes that are not highly correlated can be expected to under- and over-perform at different times. Thus, holding a variety of asset classes that are not highly correlated is insurance against the probability of having a low terminal value when liquidation occurs during or shortly after a period of under-performance of a minority of the asset classes in a portfolio. In such cases, the other asset classes should moderate or fully offset the effects of the under-performing asset class or classes.

Postponement Strategy

Sensing customer demand is one thing, but profitably responding is another, especially when you offer a large array of options or highly configurable final products. In certain industries, however, customers are demanding more options to personalize products to their tastes and needs. With so many products and options, a company easily risks having too much nonselling inventory and too little of the hottest selling models available, mirroring the perils of the high fashion industry.

While fashion apparel or footwear isn't really capable of being configured into the desired style in store, several other types of products--computers, mobile phones and medical devices, for example--can be at a very late stage or even built-to-order.

There are challenges in product and option proliferation. With so many variations of final product configuration, a company's product design and supply chain strategy becomes critical to profitability. What demand-driven companies don't want to do is forecast a number for each configuration, make them, push them into the market and then hope they sell.

Designing products for postponement and performing late-stage product completion as close to demand as possible is vital for profitability. Companies must put the right products into the hands of the right customer at the right time for the right cost.

Designing products for postponement is key, and it means engineering products to be a set of core components, sometimes called platforms, where the options or configurations can be easily plugged together at a later time. In many cases, the options for final configuration might involve loading or enabling specific software or firmware options.

For example, a product like a popular mobile phone might have more than 2,500 variations a customer can select as part of the phone and service. However, if designed right, those variations can be assembled and configured from just 200 different components and software options. A company needs only to forecast, make and move the right amounts of those 200 different components and then, using late-stage product completion, build just enough of the 2,500 various options as customers demand them.

A few of the benefits with this model include:

--Minimize wrong inventory, expedited shipping costs and obsolete and markdown products.
--The use of low-cost country manufacturing of components becomes more effective.
--More options are available to customers without increasing costs.

In certain cases, outsourcing late-stage product completion makes a lot of sense, especially if the products are sold, distributed and fulfilled globally. Banta Global Turnkey, a third-party supply chain outsourcing company, specializes in just that.

With Banta's physical presence in a number of countries, including the U.S., Ireland, the Czech Republic, Mexico and China, companies are finding they can expand their postponement strategy to global markets rather quickly and cost effectively. Banta claims its additional value for customers comes not only from final configuration and fulfilment activities, but also from its specialization in the local sourcing of class-C products that are needed to complete many final product kits (think power cables and speaker wires that come with your new PC).

Aside from the general benefits of postponement mentioned above, companies that are outsourcing the product completion function find the following to be true:

--Global markets are reached faster, with fewer assets and capital.
--Richer customer insights are gained for new products.
--There is the ability to focus on innovation and product design for supply.
--There is time to concentrate on high intellectual property items and not mundane execution tactics.

As the relationship between the OEM and the service provider matures, with the provider showing proven performance in quality and efficiency, a level of trust develops. Companies report that when a strong trust-based relationship is in place, they gain results better together than as separate interacting entities. For example, service provider staff members interact directly with their peers at the OEM as part of a team in IT, product development, logistics and the like.

It is best to capitalize on product completion if you can. Not all companies are able to take advantage of postponement strategies and late-stage product completion (food manufacturers, for example). For companies that are seeing customer demand proliferate products and options, we do see the leading companies using postponement strategies and late-stage product completion to respond to the demand more profitably.

The Strategic Importance of CSR

Corporate Social Responsibility (CSR) is an organization’s obligation to consider the interests of their customers, employees, shareholders, communities, and the ecology and to consider the social and environmental consequences of their business activities. By integrating CSR into core business processes and stakeholder management, organizations can achieve the ultimate goal of creating both social value and corporate value.

As of late, CSR has gained notoriety as businesses have responded to two major changes in the last 5-10 years: the increase of public concern over the environment and the free flow of information afforded by the internet.

In the last several years, movies like An Inconvenient Truth and events such as Live Aid and Earth Day have brought climate change and protection of the Earth’s environment into the forefront of people’s minds. As stakeholders in any organization’s strategic plan, the public represents shareholders, customers, employees, suppliers- everyone. Whatever issues that the public sees as important, organizations should take notice of. An organization seen as harmful to the environment is very likely to be seen as socially irresponsible, and therefore risks the relationship with all of its stakeholders.

Another trend increasing the importance of CSR is the increased use of the internet to access and trade information. Whereas in the past, the details of a company’s actions may have been restricted to newspaper clippings from the business section or academic discussions in the classrooms of business schools, these days any company seen being socially irresponsible may show up in mass emails, Facebook postings or even on Twitter- seen by millions of people in a day. Today, more than ever, companies are under the watchful eye of their stakeholders.

So what is Strategic Corporate Social Responsibility? By taking a strategic approach, companies can determine what activities they have the resources to devote to being socially responsible and can choose that which will strengthen their competitive advantage. By planning out CSR as part of a company’s overall plan, organizations can ensure that profits and increasing shareholder value don’t overshadow the need to behave ethically to their stakeholders.

Ideally, a company’s CSR activities and core operations should be aligned. In case they are not, consumers may perceive the CSR activities as merely a marketing gimmick. For example, the oil company BP went for a major rebranding exercise- sustainability. BP now stands for ‘Beyond Petroleum’ rather than British Petroleum. The company undertook a slew of green initiatives. However, the oil spills that BP was involved in particularly the 2010 New Mexico oil spill undid all the good work. People started criticizing BP for being irresponsible and using its sustainability initiatives as only a facade for its environmentally unsafe practices. This resulted in a major loss of face foe BP. Thus any company that engages in CSR should embrace the concept fully. Otherwise consumers may identify any disparity between core operations and CSR activities as a marketing gimmick and the purpose of CSR from a strategic perspective would be defeated. 

Employer Branding in the IT Industry

The Indian IT industry is characterised by high attrition rates. The average attrition rate in 2010 across Indian companies in 2010 was 10%. The attrition rates for the IT industry in the same period were 15-16%. It assumes significance especially if one considers the findings of a joint NASSCOM and McKinsey study conducted in 2005, according to which nearly 75% of all engineering graduates in India were unemployable. Thus, attracting and retaining top talent is very important for IT companies, as skilled IT professionals are not easy to find and companies often find themselves competing for the same professionals. IT companies have realized this and are taking steps to ensure that they attract and retain the best talent.

The practice of employer branding has found wide acceptance in the IT industry. Employer branding has been defined as the sum of a company’s efforts to communicate to existing and prospective staff what makes it a desirable place to work, and the active management of a company’s image as seen through the eyes of its associates and potential hires. Employer brand management expands the scope of this brand intervention beyond communication to incorporate every aspect of the employment experience, and the people management processes and practices that shape the perceptions of existing and prospective employees. Employer brand management helps in the formation of an Employer Brand proposition, also regularly referred to as an Employer value proposition or Employee Value Proposition. This serves to: define what the organisation would most like to be associated with as an employer; highlight the attributes that differentiate the organisation from other employers; and clarify the ‘give and get’ of the employment deal (balancing the value that employees are expected to contribute with the value from employment that they can expect in return).

As employer brand management helps shape the image of the company in the minds of the employees and potential hires it is of strategic importance and most IT companies have employer branding campaigns in place. An example of such a campaign is HCL’s ‘Employee First’ initiative. However, the efficacy of campaigns of different companies varies. This is reflected in the variation in attrition rates in companies within the IT industry. For example, Wipro reported a voluntary staff attrition of 23.5 percent for Q2 2010. The attrition rate of Infosys stood at 17.1 percent in Q2 2010 while for TCS, attrition rate for Q2 stood at 14.1 %. While attrition rates are a product of multiple factors and not just employer branding campaigns undertaken by the respective firms, the image of the organization in the minds of the employees does play a major role. Thus, employer branding in the IT industry has vast strategic implications for IT companies.

In this context HCL is one of the IT companies that lays immense stress on employer branding.

HCL Technologies considers employer branding as a long-term strategy and short-term volatility does not impact its branding initiatives. With this philosophy, HCL has not cut back on its employee branding budget. The company spends around Rs 30-35 crore annually on its employee branding communication.

HCL Technologies has been named as one of the Top Employers 2010 by the Corporate Research Foundation (CRF) Institute, the independent business research organization, for the fourth consecutive year. It has been listed among the ‘Best Employers’ in Asia and ranked No. 1 in India by Hewitt in 2009.

HCL received the accolades, thanks principally to its 'Employee First' structure that attempts to align its people through a slew of programmes — such as U&I (an intranet forum where HCL employees can raise any issue related to the workplace, to be addressed by the CEO), Employee First Councils, Women First Councils, Smart Service Desk (an online HR initiative through which employees can flag a problem) and Mitr (an employee assistance program). HCL Technologies’ unique management philosophy of ‘Employee First’ has been recognized worldwide for empowering employees to become the drivers of growth. This approach puts employees on top of the organizational pyramid with the belief that the real value gets created in the interface between customer and employees, and has made the whole organization accountable to the person who has the potential to create this value - the employee. This philosophy guides HCL to create a work environment that provides ample opportunities to employees for personal development and career growth.

The results of the extensive employer branding initiatives are clear for all to see in the form of ‘best employer’ awards. This has played a vital role in HCL becoming one of the employers of choice in the IT industry. And in today’s war for talent employees are the most important asset for a company.

Strategic Lessons from Toyota Car Recalls

Toyota’s announcement of a technical problem with its sticky gas pedals – which lead to sudden acceleration problems – resulted in a nightmare situation for the company. It led to halting of sales and production of eight of its top-selling cars in the U.S. - and recall of more than 9 million cars worldwide, in two separate recalls .This resulted in operating losses amounting to billions of dollars. The Toyota brand, synonymous with top quality, took a heavy hit. It’s clear that Toyota’s crisis didn’t emerge full-blown overnight. Fixing the problem and ensuring that something like it doesn’t happen again will require an all-out effort, from assembly line to the boardroom.  Even then, there are no guarantees. Maintaining a good corporate reputation in the 21^st century is tricky business indeed.

Toyota’s case offers a number of valuable lessons for other business people and companies to consider. 

Get the facts quickly and manage your risks aggressively. One of the more troubling aspects of Toyota’s recalls has been the company’s differing accounts of the source of the problem.  The current recall, covering 4.1 million cars, involves potentially sticky gas pedals.  Late in 2009, Toyota also recalled 5.4 million cars whose gas pedals could get stuck on floor mats.  Plus, Toyota says there are some cars affected by both problems. Uncertainty is not an asset, especially when lives could be at stake. 

In cases such as this, investigators almost always start with two time-worn questions.  What did you know?  And when did you know it? Answers to those questions provide the groundwork for analysis of a company’s response and handling of a problem.  Were employees encouraged to flag safety issues to senior management?  Were sufficient resources devoted to investigating the problems?   When did the board become aware of the situation and what did it do about it?

Companies generally can’t predict when crises might occur.  However, good internal risk assessment programs can help identify those areas of the business where management should be on the alert.   Robust risk management programs help a company address problems as they pop up on the internal corporate radar screen – and before they explode in public.

The supply chain is only as strong as your weakest link. Auto companies make hardly any of their parts.  They assemble cars from parts made by others.  In this case, the offending gas pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana. It’s far from certain how much blame the parts supplier deserves.  In fact, CTS says Toyota’s acceleration problems date back to 1999, years before CTS began supplying parts to Toyota. The replacement gas pedal parts Toyota announced as a fix for the problem were made by CTS, suggesting a degree of confidence in the supplier. The overall message is that quality control means daily vigilance. No company can coast on its reputation. Supply chain monitoring is a critical factor for companies that rely on third-party suppliers. That’s increasingly true for a broad variety of industries, not just automobiles, as business grows ever more global.  Smart companies will know their suppliers and their respective strengths and weaknesses.

Accept Responsibility.  This is one area where Toyota did a good job, albeit maybe a year or more too late. Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it was the driver’s fault”. That reaction ultimately hurt Audi’s reputation. Toyota avoided the appearance of passing the buck. When pressed by the New York Times about problems that might have been caused by supplier CTS, for example, Toyota spokesman Mike Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has always been that Toyota is responsible for the cars.”

Accountability matters enormously. Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis management.  But that recall stemmed from the deadly act of an outsider (who has never been caught), not any problem with the product itself, as is the case with Toyota.

Take the Long View. The three leading factors burnishing corporate reputation these days are quality products and services, a trustworthy company and transparency of business practices.

Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely.  And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis.  The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades.  That reputation is a valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months ahead.

Value Investing

Value investing is an investment strategy that derives from the ideas of Benjamin Graham and David Dodd on investment in capital markets. Value investing involves buying securities whose shares appear underpriced by some form of fundamental analysis. As examples, such securities may be stock in public companies that have low price-to-earnings multiples or have low price-to-book ratios.

High-profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.

However, the future distributions and the appropriate discount rate can only be assumptions. For the last 25 years, Warren Buffett has taken the value investing concept even further with a focus on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.

Performance of value strategies

Value investing has proven to be a successful investment strategy. There are several ways to evaluate its success. One way is to examine the performance of simple value strategies, such as buying low PE ratio stocks, low price-to-cash-flow ratio stocks, or low price-to-book ratio stocks. Numerous academics have published studies investigating the effects of buying value stocks. These studies have consistently found that value stocks outperform growth stocks and the market as a whole.

Performance of value investors

Another way to examine the performance of value investing strategies is to examine the investing performance of well-known value investors. Simply examining the performance of the best known value investors would not be instructive, because investors do not become well known unless they are successful. This introduces a selection bias. A better way to investigate the performance of a group of value investors was suggested by Warren Buffett, in his May 17, 1984 speech that was published as “The Superinvestors of Graham-and-Doddsville”. In this speech, Buffett examined the performance of those investors who worked at Graham-Newman Corporation and were thus most influenced by Benjamin Graham. Buffett's conclusion is identical to that of the academic research on simple value investing strategies—value investing is, on average, successful in the long run.

Criticism of Value Investing

Value stocks do not always beat growth stocks, as demonstrated in the late 1990s. Moreover, when value stocks perform well, it may not mean that the market is inefficient, though it may imply that value stocks are simply riskier and thus require greater returns.

An issue with buying shares in a bear market is that despite appearing undervalued at one time, prices can still drop along with the market. Conversely, an issue with not buying shares in a bull market is that despite appearing overvalued at one time, prices can still rise along with the market.

Another issue is the method of calculating the "intrinsic value". Two investors can analyze the same information and reach different conclusions regarding the intrinsic value of the company. There is no systematic or standard way to value a stock.

Well Known Value Investors

Benjamin Graham is regarded by many to be the father of value investing. Along with David Dodd, he wrote Security Analysis, first published in 1934. The most lasting contribution of this book to the field of security analysis was to emphasize the quantifiable aspects of security analysis (such as the evaluations of earnings and book value) while minimizing the importance of more qualitative factors such as the quality of a company's management. Graham later wrote The Intelligent Investor, a book that brought value investing to individual investors. Aside from Buffett, many of Graham's other students, such as William J. Ruane, Irving Kahn and Charles Brandes have gone on to become successful investors in their own right.

Graham's most famous student, however, is Warren Buffett, who ran successful investing partnerships before closing them in 1969 to focus on running Berkshire Hathaway. Charlie Munger joined Buffett at Berkshire Hathaway in the 1970s and has since worked as Vice Chairman of the company. Buffett has credited Munger with encouraging him to focus on long-term sustainable growth rather than on simply the valuation of current cash flows or assets. Columbia Business School has played a significant role in shaping the principles of the Value Investor, with professors and students making their mark on history and on each other. Ben Graham’s book, The Intelligent Investor, was Warren Buffett’s bible and he referred to it as "the greatest book on investing ever written.” A young Warren Buffett studied under Prof. Ben Graham, took his course and worked for his small investment firm, Graham Newman, from 1954 to 1956. Twenty years after Ben Graham, Prof. Roger Murray arrived and taught value investing to a young student named Mario Gabelli. About a decade or so later, Prof. Bruce Greenwald arrived and produced his own protégés, including Mr. Paul Sonkin—just as Ben Graham had Mr. Buffett as a protégé, and Roger Murray had Mr. Gabelli.

Martin J. Whitman is another well-regarded value investor. His approach is called safe-and-cheap, which was hitherto referred to as financial-integrity approach. Martin Whitman focuses on acquiring common shares of companies with extremely strong financial position at a price reflecting meaningful discount to the estimated NAV of the company concerned. Martin Whitman believes it is ill-advised for investors to pay much attention to the trend of macro-factors (like employment, movement of interest rate, GDP, etc.) because they are not as important and attempts to predict their movement are almost always futile.