You might have heard the story of the owl and the field mouse: lost in a dense jungle, a confused field mouse turns to a wise old owl sitting high on a tree and asks him, "Prey help me, how do I find my way out of here ??", "Simple", replies the owl, "just grow wings and fly out".
"But how can I grow wings?" asked the mouse. At this the owl gave him a haughty stare and said, "I don’t delve into details, I only decide policy!!"
Now, does that make you wonder what would happen if the corporate jungle only had policy makers who never bothered to delve into hows and whys and simply pronounce decisions?
The truth is, in business as in all other disciplines we are often blinded by the glamour of winning strategies and final results and tend to undermine the importance and contribution of pain staking research into the problems.What we overlook, is the fact is that, the strategies which work well for others might not be sustainable for us.
A lot of it has been driven by so called "Herd Mentality", what we fail to recognize is the ability to see our own inner strengths and true goals.
I think on our part, we have to undertake responsibilities of our respective journeys to self realization, coz self discovery is the only assurance to meaningful success.
Monday, November 17, 2008
India’s red hot Mobile telephony industry
Mobile telephony is the fastest growing market in the world with over 170 million subscribers and adding almost 65 million new subscribers every month, yet the current tele density or penetration is only 18% of the population. The projections are that by 2010 we gonna have close to 500 million subscribers and that’s what makes it interesting for a large number of global players to come and take a close look at the things happening in the mobile industry.
There are a number of interesting aspects of this industry like almost 86% of the revenue is actually accrued to the operator in prepaid format, so they get the money in before actually the services are used. In addition to that it’s also a fiercely competitive market. The country is divided into 23 different circles, each circle has approx. 6 operators and the result is some of the lowest mobile tariffs in the world. I believe that there are a series of complementary innovations that have taken place in the Indian mobile industry and these innovations coming together have really sort of created the perfect storm and which in turn had a direct impact on all levels of the society.
If we look at the lower level of the society that comprise of the daily workers, the taxi drivers, the maids, servants etc. this technology has really changed their lives. It has increased their livelihood. Taxi drivers can now make more trips per day as a result of better co-ordination. Maids in large cities can actually service more houses. Likewise at the middle of the economic layer, it’s more on an efficiency gain. So let’s take service sector, if you are a plumber or an artisan providing services, you would go out and put your mobile no. permanently on your business display, thus this becomes a way to drive the business.
If you move up at the high end of the society, mobile phones really are a fashion statement among the vibrant youth. People are known to change their phones roughly every 12 months (and I am talking about the higher end phones).
If you look at women and children, they see the mobile phones as a safety device. The younger generation which is almost the 75% of the market, they use mobile phones to create a virtual space to people they would like to talk to.
Now looking at India as an emerging telephony market, Nokia and Airtel are a good case study to get a better understanding the concept.
Nokia has invested in all aspects of the value chain. So they do R&D in India (Joint R&D with Texas Instruments in Bangalore) and because of this the low cost chip is an innovation that really powers the sub $20 handset. Nokia does manufacturing; they have large manufacturing facility in Chennai. And to really innovate you have to be close to the customer and I think one big lesson which we can take from Nokia. They have strategic partnership with many companies like HCL technologies for e.g. and because of this Nokia brand is visible across the country.
Similarly at the operator level, Airtel is the largest operator in the country right now in terms of the market share and they have really pioneered in a new way of operating this particular business in which what they do is really focus on customer acquisition and it’s relentless pursuit of getting new customers and enhancing the value of existing customers and they have outsourced all their non core activities not just IT and Technology part but even their network and that’s the first in the world.
So Airtel network is actually run by Nokia, Siemens and Erricson. It’s owned by them and they have partnership which is based on revenue sharing. So as Airtel grows so does its partners.
I think there is still a big chunk of the market which is still untapped and needs considerable thought among the various emerging entrepreneurs.
There are a number of interesting aspects of this industry like almost 86% of the revenue is actually accrued to the operator in prepaid format, so they get the money in before actually the services are used. In addition to that it’s also a fiercely competitive market. The country is divided into 23 different circles, each circle has approx. 6 operators and the result is some of the lowest mobile tariffs in the world. I believe that there are a series of complementary innovations that have taken place in the Indian mobile industry and these innovations coming together have really sort of created the perfect storm and which in turn had a direct impact on all levels of the society.
If we look at the lower level of the society that comprise of the daily workers, the taxi drivers, the maids, servants etc. this technology has really changed their lives. It has increased their livelihood. Taxi drivers can now make more trips per day as a result of better co-ordination. Maids in large cities can actually service more houses. Likewise at the middle of the economic layer, it’s more on an efficiency gain. So let’s take service sector, if you are a plumber or an artisan providing services, you would go out and put your mobile no. permanently on your business display, thus this becomes a way to drive the business.
If you move up at the high end of the society, mobile phones really are a fashion statement among the vibrant youth. People are known to change their phones roughly every 12 months (and I am talking about the higher end phones).
If you look at women and children, they see the mobile phones as a safety device. The younger generation which is almost the 75% of the market, they use mobile phones to create a virtual space to people they would like to talk to.
Now looking at India as an emerging telephony market, Nokia and Airtel are a good case study to get a better understanding the concept.
Nokia has invested in all aspects of the value chain. So they do R&D in India (Joint R&D with Texas Instruments in Bangalore) and because of this the low cost chip is an innovation that really powers the sub $20 handset. Nokia does manufacturing; they have large manufacturing facility in Chennai. And to really innovate you have to be close to the customer and I think one big lesson which we can take from Nokia. They have strategic partnership with many companies like HCL technologies for e.g. and because of this Nokia brand is visible across the country.
Similarly at the operator level, Airtel is the largest operator in the country right now in terms of the market share and they have really pioneered in a new way of operating this particular business in which what they do is really focus on customer acquisition and it’s relentless pursuit of getting new customers and enhancing the value of existing customers and they have outsourced all their non core activities not just IT and Technology part but even their network and that’s the first in the world.
So Airtel network is actually run by Nokia, Siemens and Erricson. It’s owned by them and they have partnership which is based on revenue sharing. So as Airtel grows so does its partners.
I think there is still a big chunk of the market which is still untapped and needs considerable thought among the various emerging entrepreneurs.
Diversification…A good corporate strategy or not.
Diversification is being bitten by a storm. You pick up any newspaper and gosh, theirs a new deal or a new merger or a new takeover.
The Big question is: Why are companies drawn to diversification??
Well, there are number of reasons for that.
->They wanna grow and they can only grow so much in their basic businesses.
->They wanna deploy excess Resources; they have Cash, Manpower and Reputation that can be used elsewhere that is underutilized in there core businesses.
Finally I think any discussion of diversification is ultimately going to miss part of the point if we do not recognise that there is a big chunk of ego and glamour involved in diversification. If you look at the covers of your major business publications, one of the best ways of coming on the cover is through diversification that is what the history tells us. I think the excitement of the chase and hunt in buying and selling is often invigorating to many managers.
The key to thinking about diversification is very simple but often forgotten and that is the diversification makes no sense unless the corporation you diversified in does not add value.
Diversification further can be broken into down into two broad categories, they are:
1) Unrelated Diversification
2) Related Diversification
In unrelated diversification we see a couple of schools of thought. One school of thought is that unrelated diversification is just managing a portfolio. You buy good stocks or buy good companies or motivate the managers to perform very well or even leave them alone and allocate resources from one to the other.
Well if we follow the history then I think it becomes clear, this concept doesn’t work at all. There’s another approach to the unrelated diversification and which is much more interesting, it’s called Restructuring. Instead of just buying companies and leave them alone, Good Companies look for companies that are under performing, where the management is not good, in contrast it’s lousy, where the management has left lots of unrealised potential on the table. Where the industry is fundamentally sound, the company has some underlying assets but where there’s just not been enough attention or energy placed on running the business efficiently.
These companies can be bought at a modest premium since they are not glamorous, not high performers; they are not sexy in the industry because in a sexy industry you’ll have to face a lot of bidders and so you will have to pay a high premium.
Instead, good companies go for dull, boring industries. They buy companies relatively cheaply and then they put them through the ringer. They change the management; they cut cost, slash overhead and thus breathe life into them.
They actively intervene; they don’t manage a portfolio in hands off fashion, thy actively intervene to restructure, to turn around, to transform what they buy.
History tells us that any kind of unrelated diversification is risky.
Related diversification as the evidence shows has much higher odds of success.
What do we mean by Relative diversification?
Well, it’s finding businesses where there is a synergy.
Now synergy means 1 + 1 = 3. If you are in a business and you get into another business, synergy means that the two together will create something more than either would do by themselves.
I think one think about corporate strategy is that there is no easy way to create a diversified company. I would like to know your views on this.
The Big question is: Why are companies drawn to diversification??
Well, there are number of reasons for that.
->They wanna grow and they can only grow so much in their basic businesses.
->They wanna deploy excess Resources; they have Cash, Manpower and Reputation that can be used elsewhere that is underutilized in there core businesses.
Finally I think any discussion of diversification is ultimately going to miss part of the point if we do not recognise that there is a big chunk of ego and glamour involved in diversification. If you look at the covers of your major business publications, one of the best ways of coming on the cover is through diversification that is what the history tells us. I think the excitement of the chase and hunt in buying and selling is often invigorating to many managers.
The key to thinking about diversification is very simple but often forgotten and that is the diversification makes no sense unless the corporation you diversified in does not add value.
Diversification further can be broken into down into two broad categories, they are:
1) Unrelated Diversification
2) Related Diversification
In unrelated diversification we see a couple of schools of thought. One school of thought is that unrelated diversification is just managing a portfolio. You buy good stocks or buy good companies or motivate the managers to perform very well or even leave them alone and allocate resources from one to the other.
Well if we follow the history then I think it becomes clear, this concept doesn’t work at all. There’s another approach to the unrelated diversification and which is much more interesting, it’s called Restructuring. Instead of just buying companies and leave them alone, Good Companies look for companies that are under performing, where the management is not good, in contrast it’s lousy, where the management has left lots of unrealised potential on the table. Where the industry is fundamentally sound, the company has some underlying assets but where there’s just not been enough attention or energy placed on running the business efficiently.
These companies can be bought at a modest premium since they are not glamorous, not high performers; they are not sexy in the industry because in a sexy industry you’ll have to face a lot of bidders and so you will have to pay a high premium.
Instead, good companies go for dull, boring industries. They buy companies relatively cheaply and then they put them through the ringer. They change the management; they cut cost, slash overhead and thus breathe life into them.
They actively intervene; they don’t manage a portfolio in hands off fashion, thy actively intervene to restructure, to turn around, to transform what they buy.
History tells us that any kind of unrelated diversification is risky.
Related diversification as the evidence shows has much higher odds of success.
What do we mean by Relative diversification?
Well, it’s finding businesses where there is a synergy.
Now synergy means 1 + 1 = 3. If you are in a business and you get into another business, synergy means that the two together will create something more than either would do by themselves.
I think one think about corporate strategy is that there is no easy way to create a diversified company. I would like to know your views on this.
Subscribe to:
Comments (Atom)