IIN MAY 2007, when Manmohan Singh made his famous conspicuous consumption speech at the National Conference of the Confederation of Indian Industry (CII) in Delhi, some dubbed it a critique of capitalism. At a time when GDP growth was 9% and the Sensex was 15,000-going-on-20 ,000, the Prime Minister called on the gathered CEOs to be models of probity, moderation and charity and resist excessive remuneration to promoters and senior executives . What a party pooper. He even quoted Keynes, saying that if the rich spent their new wealth on their own enjoyments, the world would have long ago found such a regime intolerable.
Surinder Kapur was one of the CEOs attending the CII meet that day and he recalls being quite affected by the speech. There was a sense that quite a few things were going out of kilter in corporate India, including salaries, says the chairman of Sono Koyo Steering Systems . The downturn has shown that the PM was right. Corporates had far too much money available to spend and greed had come to be synonymous with success.
Temptation was everywhere and nearly every company ended up splurging during the boom in some measure . But now all those the expenditures on acquisitions, diversifications, real estate, talent, are causing headaches akin to hangovers after a binge, except that these after effects arent about to fade easily with time. Today, the toughest task before the downturn CEO is to work the
assets acquired during the boom.
As an auto component manufacturer, Kapur is one of the worst affected by the global recession. The leader in this sector, however, is Bharat Forge, a company that made several global acquisitions in the height of the boom. Chairman Baba Kalyani admits he was caught completely unawares by the severity of the global recession in the automobile sector. During the boom, we were focused on creating capacities ahead of the expected demand curve. We were making capital investments ahead of the curve, hiring people ahead of the curve, creating working capital ahead of the curve. Now we have to do just the opposite . The automobile industry is not going to return to previous demand levels anytime soon, he says. Its not uncommon for corporates to accumulate fat in good times some even make a provision for it. But as everyone knows, working off the fat is always much harder than putting it on, so the downturn CEO is forever on the treadmill. Kalyani, for one, is trying to diversify his customer portfolio and produce products for the global energy industry, which has been less affected by the recession. Thats actually a strategy adopted by many recession-hit CEOs. Rakesh Sarin, managing director of Wartsila India has seen demand for power plants dry up in the shipping sector, once the companys mainstay. Now the Finnish company is trying to open up the market for smaller capacity power plants of 300 MW and less, meant to serve small cities and metropolitan suburbs . You have to be creative in a downturn , he says. The CEOs job today is to go out and spot new business opportunities. The downturn has certainly changed the way the CEO allocates his time. Acquisitions are out and CEOs are no longer spending time with investment bankers. Instead, theyre spending more time with their staff, working out ways to deliver better products and services at lower costs. Labour and staffing policies cant be left to HR theyre strategic. Launching newer, competitive products and services for the shrinking market cant be left to marketing, theyre mission critical. With the dollar swinging from Rs 39 to Rs 52, forex contracts are no longer the CFOs prerogative, theyre strategic too. In a downturn, the only strategy is operational strategy, says Accentures Jaime Ferrer, who heads the firms consulting business in for Europe, Latin America, Middle East and Africa. The companies that come out of this recession better will be those that achieve excellence in their operations.
Since its become increasingly difficult to predict the economic weather, the downturn CEO is now busy building a boat that can withstand storms. This means envisioning worst case scenarios and building systems and structures designed to keep the organisation afloat if they actually occur . Several CEOs are having problems because they have been unable to sense risk, says Arun Maira, senior advisor, The Boston Consulting Group. Now, in order to grow their businesses in an uncertain environment, not only must the CEO have a mind that is permeable to a variety of ideas, but also an organisation that has permeable boundaries with the world outside.
No comments:
Post a Comment