The road to building successful and sustainable businesses, featuring Mr Alok Kumar,Sears. SPEED BREAKERS TO SUCCESS: OWNERSHIP AND SHAREHOLDER VALUE TAKING THE RIGHT TURN: MOVING TOWARDS LONG TERM BUSINESS SUCCESS MEETING AT THE CROSS ROAD: CONGRUENCE BETWEEN SHORT AND LONG-TERM GOALS

1. GOLDEN COMPANIES
6 THE ECONOMIC TIMES
DECEMBER 14, 2011
he turmoil in the world economy and financial
markets has brought to the fore age-old questions
on what constitutes a successful business or
industry. Companies are being chastised for measuring
success on the basis of short-term parameters that
mainly focus on their self interest and that of their
shareholders. Observers are questioning whether
market competition provides sufficient
discipline to drive and constrain businesses
simultaneously. And, of course, the market's
structural failures and ways to fix them are
recurrent themes for conferences, television
talk shows, blogs and newspapers
Impact
T
The road to
building successful
and sustainable businesses
When world economies were flourishing,
the so-called, Anglo Saxon model of dispersed
shareholding, mostly by institutional investors, seemed to be the best way of doing
business. An explosion of new players hedge funds, sovereign investment funds, private equity funds and others - has broken
down the premise of commonality of purpose.
Ira Millstein, an expert on corporate governance at Yale University, said in 2008 that
this change has created for corporations and
their boards a "zoo" of owners with different
stripes, teeth, sensors, claws. The underlying
shifts in ownership and investment structures
have promoted the embrace of shareholder
value - in particular, the fixation on shortterm results that it encourages.
In essence, the notion of shareholder value
suggests that the ultimate success of a company should be judged by how well it enriches
its shareholders, either through dividend pay-
ments or share price increases. With the stock
market as the judge and jury, strategic horizons shrank to a myopic fixation on shortterm results. Shareholders were quick to sell
when companies missed their own profit targets. Results were weighed heavily against expectations. And, executives, often nurturing
bonus packages linked to meeting yearly targets, adjusted their strategies accordingly.
The retreat from shareholder value was hastened by the global financial crisis. Many critics blame an excessive focus on share price,
especially in the financial services sector, for
the kinds of risky strategies that created a debilitating amount of toxic assets, brought
down Lehman Brothers and others, and sent
most of the world into recession.
The greatest challenge to the Anglo-Saxon
corporate model has come from the emergence of corporate giants from emerging markets, particularly India and China. The rise of
Lenovo from China and Infosys in India, for
example, has electrified the debate on ownership and governance models. Governments or
wealthy individuals or families are still the
dominant shareholders in many Asian companies, particularly in China. State or familyowned or -controlled enterprises face their
own obstacles to success but cultural traditions and the importance of personal relationships give many Asian executives a view of
their constituencies that go beyond shareholders to include their employees, community,
suppliers, and country.
➜
Founders, managers, board members and
most other stakeholders usually want their
companies to prosper indefinitely, and many
of today's corporate giants take pride in their
longevity. The recent focus on short-term
strategies and shareholder value has blurred
the view of the distant horizon, but has not diminished the general desire to reach it.
But, executives face two daunting challenges as they rediscover the value of longterm thinking and strive to create sustainable
companies. First, the genuine need for shortterm stewardship can distract managers, even
those with the best intentions, from their long-
"Every company aspires
to be excellent; but very
few, in a true sense,
achieve excellence"
ears India, which is the off-shore development centre for
Sears Holdings Corporation started its operations in
December 2009, providing technology solutions and
application support in the retail domain. Sears India currently
supports Sears Holdings and its group companies having
operations in North America. It handles a significant portion of
the organisation's technology needs including application
development, support, testing facilities and software product
development. “Since its inception, Sears India has seen rapid
growth in the technology domain and within just 2.5 years, has
more than 650 employees. The key reason for this growth has
been primarily because of the value generation which Sears
Holdings India (SHI) has been able to give to Sears. The value
generation amounted to higher than target savings in input cost
on the technology front, capability to market faster, better
quality and flexibility of services and innovation, which Sears
was not able to get through existing third-party IT service
providers,” expresses Alok Kumar, CEO, Sears Holding India.
Talking about the kind of growth they perceive in the
coming three years, Kumar says, “The global economy has
seen a lot of challenges over the last four years and it is
likely that the challenge to the economy may continue
over a few more years. However, this is the time when
the investments made by Sears in SHI will help the
organisation to bring down the cost of operations and
create higher value through innovative technology
solutions by helping the
business make better
profits.”
SEARS IT &
But, there are
MANAGEMENT
challenges that can
SERVICES INDIA impede strong growth
of the company as
PVT LTD
well. According to
Kumar, “The only
challenge, which might impede the growth
would be the global economic challenges
that might push organisations to do more
with less. The increasing cost of
operations in India may be a dampener in
the future, but that would not effect the
overall growth if the overall value
generation remains high for Sears."
Talking about what differentiates
them from their peers, Kumar further
points out, "Every company aspires to
be excellent; but very few, in a true
sense, achieve excellence. At SHI, we
have been able to achieve a lot in a
short span of time primarily because
of a high focus on the value
generation we bring to Sears. SHI
made a conscious decision to stay
away from low value work and
focus on the work, which cannot
only bring large savings for Sears,
but also make a difference to the
organisation's bottom-line. With
this approach, SHI today does
much of the technology
development work for Sears unlike
most of the captives in India."
TAKING THE RIGHT
TURN: MOVING
TOWARDS LONG TERM
BUSINESS SUCCESS
term vision. Second, defining the long-term
and embedding it into today's operations are
more complicated than they may seem at first
glance.
Creating long-term value does not negate
the need to tend to the immediate needs of a
company. When driving a car, it isn't enough
to just know your destination. You must also
be aware of the cars around you, the course of
the road, your fuel level and other pressing
matters. In the same way, companies must manoeuvre through today's market to make it to
the long-term horizon. However, managers
must also do a better job at recognising the
short-term pressures that needlessly interfere
with their longer-term goals.
➜
MEETING AT THE CROSS
ROAD: CONGRUENCE
BETWEEN SHORT AND
LONG-TERM GOALS
When managers try to steward their organisations toward a long-term vision, the crux of
the challenge is in creating a meeting point
where long- and short-term needs connect. If
The author, Arati Porwal is the Chief
Representative, CIMA - India Liaison Office and
is based on CIMA's report 'Building World Class
Businesses for the Long Term: Challenges
& Opportunites'.
To read the full report and other CIMA reports,
log on to-http://www.cimaglobal.com/ Thoughtleadership.
BLANCHARD
RESEARCH
AND TRAINING
INDIA LLP
S
“Every organisation
needs to motivate,
coach and develop
employees to their
desired levels of
competence”
or an organisation to function at its very best, it is vital
that its foundation focuses on not only external customers,
but also internal ones. The training industry is the current
sunrise industry and more organisations are focusing on people
as their key asset. Thus, looking at training and development as
core needs, the industry is likely to grow exponentially. Yogesh
Sood, MD and chairman, Blanchard Research and Training India
LLP elaborates, “We treat our employees, associates and vendors as our internal customers and attempt to have a strong
emotional connect with them. We believe that in our organisation, we need to motivate, coach and develop employees to
their desired levels of competence and commitment. Besides,
we offer products like ‘Situational Leadership II’, ‘Building
High performance Teams’, ‘One Minute Manager’, ‘Legendary
Service’, ‘Whale done’ and more. These have a high traction and
value in the marketplace and guide us in the right direction,
thus enabling us tremendously to deliver more than we commit
to our customers.”
Having been global leaders since 1979 in workplace learning,
productivity, performance, and leadership training solutions,
their vision is to unleash the potential of people and organisations for the greater good. “We work with some of the world's
largest organisations to drive lasting behavioural change that
has measurable impact. With significant growth over the past
three decades, we now reach a multinational client base with
programmes delivered in many languages throughout North
America, Europe, Asia, and Latin America. Blanchard Research
and Training India is KBC's Indian partner for the last three
years,” adds Sood.
So, how have the changing economic conditions affected the
future growth rate in this sector? “We are headed for uncertain
financial times, not far in the future. However, we see a sustained growth for our business since we stand on firm ground,
because we extend contemporary and relevant learning and development solutions to the market. Our business solutions are
aligned to the dynamics of fluctuating economic situations and
thus, are in a place to withstand market knocks. We also depend
upon the fact that we skill and re-skill our employees to handle
change and challenges far more effectively than most others in
the business,” concludes Sood.
F
ALOK KUMAR
CEO, SEARS IT &
MANAGEMENT
SERVICES INDIA PVT
LTD (SEARS
HOLDING INDIA)
YOGESH
SOOD,
MD AND
CHAIRMAN,
BLANCHARD
RESEARCH AND
TRAINING INDIA
LLP
PICTURE: RAJESH BHASIN
➜
SPEED BREAKERS TO
SUCCESS: OWNERSHIP
AND SHAREHOLDER
VALUE
immediate goals clash with long-term aspirations, the incongruence is a clear symptom of
an unhealthy company- in other words the tail
starts wagging the dog. If achieving quarterly
volume sales targets is a company priority, for
example, this can be quickly achieved by offering deals to buyers, but the long-term damage of devaluing a product or service can be
tremendous.
While planning for the long term, companies
must incorporate a much broader range of issues into their planning. Henry Ford in 1911
did not need to worry about a world without
petrol; his great-grandson William Ford Jr. in
2011 must. Resources from oil to water cannot
be taken for granted and global challenges including climate change, pollution, population
growth, and the loss of biodiversity have a direct impact on every business model, be it a
small microbrewery securing clean water to a
multinational crisp producer contemplating a
world with scarcer potatoes.
Being able to work with future uncertainty
and translate this into short-term action can
be a major competitive advantage. Along with
aligning the two horizons, communication and
commitment are critical factor for success.