Thursday, July 31, 2008

Shekhar Kapur

I had the good fortune of meeting up with one of India’s finest film producer and director – Shekhar Kapur. Shekhar had come to my alma mater school – Kellogg School of Mgmt for an “India Day” event. While the other speakers were buoyant about India’s progress, Shekhar (while bullish) warned the audience that unless systemic issues like infrastructure, growing divide between the rich and poor, etc are not solved – sustaining progress would be tough.

During my chat with Shekhar he mentioned his latest project – Paani (which means water in Hindi). Paani (which is in the process of being made) is set in 2025 in a city polarised by water scarcity, a world divided into the haves and have-nots – those who have water and those who do not. Shekhar thinks that the next wars will be fought over water and not oil. As Global warming takes place, water will become the scarcest resource. Millions will die of thirst and countries will go to war to colonize the water resources – he indicated. People who know about the water challenges in India would understand the context.

The film is set in Mumbai. I am looking forward to the completion of this film by Shekhar. Visit Shekhar's blog on Paani to learn more about this.

Friday, February 15, 2008

Wayne Huizenga - the absolute deal maker

I just finished the audio version of the book – “The Making of a Blockbuster: How Wayne Huizenga Built a Sports and Entertainment Empire from Trash, Grit, and Videotape”. It is the story of Wayne Huizenga – probably the only person in history to have built 3 Fortune 1000 companies from scratch – Waste Management, Blockbuster and AutoNation. He also owns the Miami Dolphins and is the past owner of the Florida Marlins baseball team and the Panthers hockey team.

The book takes us thru Wayne’s journey of building Waste Management from a one-man shop to a mega empire thru tons of acquisitions. It showcases Wayne as a master deal maker. Wayne held fast to two rules: Don't loose a deal because you're not paying attention to it and never talk about it until it is done and in writing". Wayne is the ultimate deal maker, and the book demonstrates how he reached the highest levels of business success through intense hard work, and single minded determination and drive.

It also takes the reader thru Wayne’s intense negotiations with Sumner Redstone of Viacom. His passion was the service business. Blockbuster employees nicknamed him “Toilet Man” since he always used to inspect the bathrooms as he visited stores – if the bathrooms were not clean, it meant lack of attention or care for the customer.

It is a wonderful book that showcases the grit, determination and passion of a deal maker and a true business leader. Wayne is now 70 years old.

Saturday, February 9, 2008

How does the Fed pump money into the economy?

We hear on CNBC and read in financial journals that the “Fed is pumping money into the economy”. What does this mean? Does it mean the Fed works overtime and prints lot of currency? No, it does not work that way.

The Federal Reserve (Fed) has 3 methods to influence its monetary policy
i) Raise/Lower short-term interest rates
ii) Raise/Lower the amount of reserves that banks are required to hold
iii) Open Market Transactions

Short-term Interest Rates
When the economy is softening (current state), a rate cut improves things – since it makes things cheaper. On the other hand, if the economy is too strong, an interest rate cut slows down the economy.

If the Fed asks banks to raise their reserves, it means banks need to hold on to more money which in turn reduces the money supply and thus tightens credit. When the Fed asks banks to lower their reserves, there is more money that the banks can lend.

Open Market Transactions
Open market transactions are measures by which the Fed controls the money supply by buying and selling government securities, or other financial instruments. Of the three, Open Market transactions have the most immediate effect on the economy. If the Fed wants to squeeze money from the system, it sells bonds from its account. This deducts the amount from the dealer (bank) thus draining money from the system. On the other hand, if the Fed wants to “pump money into the economy”, it will buy bonds and pay the bank that sold them. This money then flows thru the system and that is how the Fed increases money supply.

The Fed has been buying a ton of subprime mortgage bonds (since there were virtually no buyers for it) in light of the subprime crisis.

Wednesday, February 6, 2008

Confessions of a Wall Street Analyst

I just read the book “Confessions of a Wall Street Analyst” by Dan Reingold. Dan was the superstar telecom analyst on Wall Street in the 1990’s. He tracks the “unplanned” journey from MCI to becoming a star analyst on Wall Street. Dan takes us thru the fast-paced life of an analyst traveling across the globe and responding to investors/customers around the clock with no respite. It takes us inside the firms like – Morgan Stanley, Merrill Lynch, and Credit Suisse First Bank.

He describes the (shady) dealings of Global Crossing and WorldCom – the failed telecom companies. The book focuses on his intense rivalry and fight with arch nemesis – security analyst Jack Grubman. It outlines their competition to get on top of the list of the “Institutional Investor” – which is considered the bible for rating Wall Street analysts. Jack was eventually banned for life from the securities industry.

It is a good read – albeit you get to hear just Dan’s side of the story. Will Jack write a book outlining his side of the story? We will have to wait and see.

Sunday, January 27, 2008

Cutthroat competition

I just read “The Running of the Bulls – Inside the cutthroat race from Wharton to Wall Street”. It is a fascinating book by Nicole Ridgway (now Senior Editor of SmartMoney) – that describes the life of an undergraduate at Wharton (arguably the best undergrad program in the US for finance). It outlines the intense competition, drive and hunger of the students in their 4 years at the school. The book takes us through the experiences of 6 students – as they go thru brutal interviews for the 10 week summer internship. Students work 100-120 hours seven days a week at firms like Goldman Sachs, Lazard Feres, Citigroup, McKinsey, General Mills, etc – just to keep up. The author then takes us into the interview process (case studies, quantitative technical questions, situational interviews, etc) with the jobs they land after graduation.

The author has selected the 6 students with enough diversity that their stories do not seem monotonous. One of them is Shreevar Kheruka (whose family owns Borosil group) - from my hometown, Bombay. It is an easy read that is sure to take you back to your school/college days.

The book also mentions Kellogg alum and the superstar of Lazard Feres - Gary Parr (Deputy Chairman). It outlines Gary mentoring one of the 6 students. Gary helped broker the $58 billion transaction that merged JP Morgan Chase with Bank One.

Friday, January 18, 2008

What does a Chief Strategy Officer do?

Recently, my friend Rohit Shyam joined Accelrys as their Chief Strategy Officer (CSO). This is a newer C-level title that is catching up in many companies. Traditionally, the CEO is responsible for strategy and company direction while the COO is in charge of operations. So, what does the CSO do?

From the title, one would think that the CSO is responsible for formulating strategy. That would be a very incomplete and misleading definition. In a recent issue of the Harvard Business Review, authors R. Timothy S. Breene, Paul F. Nunes, Walter E. Shill outline the CSO role in greater detail. For starters, the CSO role is not just a “(strategy) thinking” job. In fact execution is an integral part of this role. Typically, the CEO is bogged down by the ever growing complexity of the global business environment – political, regulatory, economic, shareholder and other stakeholder challenges. Add to that the pressure to deliver results at an ever increasing pace. Clearly, with all this pressure, it becomes tough for a CEO to ensure strategy refinement and execution.

That is the reason more and more CEO’s are hiring CSO’s – to help them with refinement and execution of strategy. The CSO typically reports to the CEO. The CSO is tasked with creating, communicating, executing, and sustaining a company's strategic initiatives. The CSO is not just a thinking/dreaming strategist; in fact they consider themselves as doers.

They help set and refine the strategy. Furthermore, they ensure that different departments/organizations within the company understand their role in the strategic plan and how it connects with the overall objectives. They also drive change across the company – to ensure the different arms of the organization march in tandem. Finally, the CSO validates the decisions made by the various departments to ensure alignment with company strategy. CSO’s help steer the top team away from groupthink and from focusing too much on past practices and accomplishments.

CSO’s are seasoned executives who have held P&L responsibilities and have had significant operational experience. Most importantly, a good CSO candidate should be: deeply trusted by the CEO, a master of multitasking and a jack of all trades, a star player, and a doer, not just a thinker. The CSO role is an apt successor to the CEO – since they get involved in almost all parts of the business. Having a CSO is no longer a luxury for a CEO – it is becoming mandatory to have a strong CSO in order for CEO’s to perform their job well. The COO role does not go away. They are still critical but their focus is on day-to-day tactics and operations.

I am very thankful to Rohit for clarifying the role of the CSO. I wish him only the very best in this new venture.

Sunday, January 13, 2008

Technology spending in 2008

Analysts across the board are predicting lower technology spending in 2008 compared to the previous year. IDC expects technology spending in the US to grow by 3-4% (softer than 6.6% in 2007). Gartner projects US technology spending to grow by 5.7 % (compared to 6.1%).Forrester expects the U.S. market to grow 4.6 percent, down from 5.4 percent last year.

Other than the different specific numbers, the consensus is that technology spending in 2008 will be lower than 2007. The credit crisis, subprime ripple effects and rising oil prices have not helped matters. When credit tightens, the first thing that takes a hit is capital spending and technology spending. Star (technology research) analyst - Laura Conigliaro at Goldman Sachs advised her clients that IT spending is less than comforting.

However, there is consensus that vendors that focus on developing economies in 2008 will reap benefits. IT purchases among countries in the Asia-Pacific region is expect to hit $535 billion next year, up 14%, following a 19% rise in 2007, says Forrester. The United States remains the biggest buyer of IT by far, at a projected $533 billion this year. China, which spent $117 billion this year, will surpass Japan, which spent $173 billion, as the second-biggest consumer of IT within a few years, Forrester predicts.

The major areas that firms will spend money - maintenance and upgrades. Since spending is going to be softer, cost saving initiatives will be looked at positively. We could see increased outsourcing contracts based on cost reductions and strong ROI models. Server Virtualization (VMWare,etc) will be another area that companies will look to spend money – to run their data centers effectively.

There is debate on the impact on SaaS firms. SaaS firms argue that since they do not require massive capex, it should be popular in a soft economy. On the other hand, MGI Research states that SaaS vendors will be hit harder if the economy heads downward than vendors licensing software in the traditional mode. SaaS vendors have more infrastructure costs to bear, and businesses will lower the number of subscribed employees if a poor economy stretches beyond nine months, MGI predicts.

MGI states that in a declining economy, SaaS companies may take a triple hit as they will see their initial transaction sizes trimmed, upsell opportunities reduced or eliminated, and then there is a possibility that users will aim to reduce the number of subscribed seats. Not that on-premise software vendors have it easy. SaaS vendors have challenges due to the heavy infrastructure burden. Also, in an enterprise model, the user provides first level of support, but in a SaaS model, most (if not all) support is provided by the SaaS vendor.

Net/net – Technology spending will be lower in 2008. Whether it is an on-premise software or SaaS, both will face its own set of challenges. Vendors will need to be creative to make the most of the soft spending. Emerging areas like SOA and virtualization are good bets. There will be a lot of focus on cost savings (read outsourcing). Upgrades are another prime area. Firms would do well to look (expand) overseas instead of just looking within the United States. Expanding into growing economies like China and India would be beneficial (see my blog on the Chinese currency appreciation at