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think:act The global magazine for decision-makers by Roland Berger Strategy Consultants DOSSIER: Managing India. Managing Indian? Issue 15 OADBERGER ROLAND culture management European on Hambrecht Jürgen can do more than just cheap just than more do can Mastering complexity Mastering India and its companies its and India The art of productiveofart conflicts.The financeupheaval.worldinofThe PhilipKotler reinventshimself. and independence and money injustice, and justice on WalserMartin TAEYCONSULTANTS STRATEGY The global magazine for decision-makers for magazine global The su 15 Issue 07_15gb_02_03_Editorial 18.06.2010 13:19 Uhr Seite 2
Is there a European path to successful management? We think so!
… and therefore we would like to congratulate the following winners from the German round of our “Best of European Business” awards for successfully finding this path:
Dr. Jürgen Hambrecht, CEO of BASF SE, as best “European Manager”; Hartmut Ostrowski, CEO of Bertelsmann AG, for winning the “Strong Leadership” prize; and also both HOCHTIEF Aktiengesellschaft and Symrise AG as recipients of our “Growth Despite Crisis” award.
We believe that Europe’s companies have both the chance and the potential to make the coming years a European decade. 07_15gb_02_03_Editorial 18.06.2010 13:19 Uhr Seite 3
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If we want to generate sustainable growth for the future, we need to successfully connect the major challenges in the world—such as climate change and demography—with growth. In this effort, industrial expertise plays a decisive role. Why? Because both the green technologies that can help us address climate change, and the productivity gains that can enable us to generate growth with fewer employees, are based on superior industrial know-how.
The crisis has been a good reminder that the real economy—namely industry and highly-specialized services, especially in combination— plays a crucial role in the economic structure. That puts our priorities right back in order! And it places continental Europe, with its high industrial density, in a leading position.
However, the crisis has also revealed clearly that the Asian national economies saved us from crashing into a depression—and that they will remain the growth drivers for the next few years, with China as the model for successful Asian economic development. However, a growing number of people are beginning to ask just how long can China walk the tightrope between communism and capitalism? India, for example, is pursuing alternate roads to growth and prosperity. In this dossier we present our perspective on how real the opportunities for India as a boom region truly are.
One of India’s strengths is diversity, which can be advantageous for competition and progress. Yet one region in the world has potential for an even more stimulating environment: Europe. Nowhere else can you find more languages, cultures and countries in a smaller geographic area. This unique mix has led European businesses to develop a special outlook on management—a topic we present in-depth in many studies and books. For this issue, in an exclusive interview, we spoke with BASF CEO Jürgen Hambrecht for his insights on the opportunities inherent in a “European way of management.”
Have an enjoyable, interesting read.
Dr. Burkhard Schwenker CEO Roland Berger Strategy Consultants
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think:act is published in five languages (English, German, Chinese, Russian and Polish)
Mission deregulation. Sergey Tigipko is Ukraine’s new vice prime The meaning of justice. Renowned German author Martin minister. He is prescribing his country a significant reform program— Walser discusses this and other issues with Alexander Mettenheimer, even if it causes some discomfort. Page 8 CEO of private bank Merck Finck & Co. Page 58
A new way to new ideas. The easiest source of inspiration Kotler on service marketing. The marketing guru tells think:act for companies is their customers. However, many fail to successfully that sustainability and smart communication are the key to successful realize these ideas. We reveal some who have. Page 34 marketing for professional services. Page 44
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food for thought 20 Waking the giant business culture India’s agricultural market is now 6 Football: a billion-euro market attracting international investors. 50 Bracing for litigation The beautiful game is now a Management is a risky business. booming global business. 22 A lot of white shelves We investigate D&O insurances. Local stores still dominate 8 Sometimes politics can’t India’s retail trade. 52 Benefiting from diversity be popular BASF CEO Jürgen Hambrecht Sergey Tigipko’s fight for 25 Thirst for oil on European management reform in Ukraine India’s role in the global search for crude 56 Work in progress 10 Locking horns Why management conflicts 28 Trying to fuel the growth 58 “Only money grants independence” should not always be avoided India’s government looks to Exclusive: author Martin Walser domestic oil. in discussion with leading banker dossier Alexander Mettenheimer 31 Praise to the mother 14 The thrill of complexity Why are Indian CEOs so 61 “Don’t settle” as seen by Pietari Posti successful in global corporations? What drives Steve Jobs?
16 India innovates differently Why India’s companies can industry report regulars do more than just cheap 34 Customer consulting 3 First views Customers provide the ideas—how 62 Service | Credits companies reap the benefits
42 The big realignment ! How increased banking regulation DOSSIER #15 could bring new opportunities The country is booming—this much we know. But for some time now, there has been a great deal MANAGING more behind India’s growth than just an outsourc- ing destination for the developed world. Compa- INDIA. nies such as Tata are developing their own identi- 44 “All muscle and no fat” ty, while top Indian managers have experienced success in businesses around the world. And MANAGING India’s markets offer considerable growth oppor- Philip Kotler explains how to tunities for American or European firms. In this dossier, we take a closer look at the dynamics of INDIAN? a country that is currently changing the world. market professional services.
47 Journalism: first draft of history “India is not just about IT or business process Exclusive: think:act turns five. outsourcing. We see it as an incubator for giant global corporations driven by IT strategy.” CNN says congratulations. F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL 48 Future markets “The real interest in India is to find the next practice. To find the Artificial photosynthesis and unexplored innovative idea— one that can change the game.” microscopes for molecules BILL MCDERMOTT, SAP
Dossier Managing India. Articles that are marked with this Managing Indian? symbol can also be listened to on our Starting on page 13 audio CD (page 63).
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WORLD OF NUMBERS Football: a billion-euro market The 2010 FIFA World Cup, to be held in South Africa, shows once again that football has become a worldwide business. The World Cup is a playground for iconic brands such as Adidas and Nike. Top clubs are now run like companies, with the aim of conquering growth markets. But here, just as in the business world, “the result is everything!”
The football clubs with the highest revenues worldwide in the 2007/2008 season Source: Deloitte Growth market Asia With 85 million active players, Asia represents the biggest contingent within FIFA, football’s global governing body. However, with this figure equivalent to just 2.2 percent of the total population, it has the lowest participation rate within the FIFA confederations. FC Barcelona €308.8 million FC Bayern München €295.3 million
3.46 Chelsea FC €268.9 million seasons was the average employment period of a team manager in the top European leagues in 2009. England’s Premier League relies the most on long- term collaboration (9.7 years), which has proved successful in recent years. The German Bundesliga had the fastest turnover in coaches. Mobile professionals: In the last several years, players in Europe’s five top leagues have Source: PFPO – The Professional increasingly demonstrated a willingness to switch teams. On average, football stars leave their Football Players’ Observatory clubs 3.47 times over a 10-season period; in 2006, that figure was 3.28. Italians are the most mobile, averaging 4.24 transfers a decade. With an average of 4.21 moves over the same time period, African players show a similar inclination to seek new challenges. Source: PFPO – The Professional Football Players’ Observatory
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food for thought f England’s Premier League generates €200 million from overseas marketing, making it a champion in that mar- ket. In comparison, Germany’s Bundesliga takes in only about €20 million abroad. The English clubs do have to work to earn their money, though: extensive global promotional tours are the norm, while even the possibility of staging a round of regular 4 percent of the world season fixtures in different countries has been discussed. population actively plays football Of the 265 million players, 90 percent (239 million) are men. However, the number of female football players is increasing. From 2000 to 2008 alone, Football beats the overall economy it increased by 19 percent to 26 million. The football business represents a very promising growth environment. For example, in 2009 the DFL (the company that governs Germany’s professional leagues) raised its revenues from the marketing of television rights, income Number of players as a percentage from advertising and player earnings to €2.4 billion. This represents an increase of the population of 5 percent compared with the previous season, and the fifth consecutive year of record sales. In contrast, the European Union posted an economic growth of just 0.9 percent. Costa Rica Source: DFL 27 %
20 % Germany
Manchester United €324.8 million Real Madrid €365.8 million Faroe Islands 17 %
China rising rapidly FIFA is projecting an increased demand in China for football as a con- 16 % sumer commodity. By 2020, the number of active players in this country will climb from 26 million to more than 40 million. FIFA is expecting Guatemala that China will see an increase in the purchasing power geared toward football-related markets, from $50 billion to $250 billion, as a result of its per capita income tripling by 2020. European clubs, associations and companies are tapping new sales mar- kets through strategic alliances. Top clubs like Real Madrid Chile and Bayern Munich are using training camps, pre-season games, exhibition tournaments and youth football acade- mies to enter the Asian market. 16 %
Source: FIFA Source: FIFA
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Sometimes politics can’t be popular It’s the political resurrection of a reformer. Despite knowing he never really stood a chance, Sergey Tigipko decided to run in the Ukrainian presidential elections. Now he is vice prime minister, waging a battle against over-regulation and bureaucracy—very much the progressive politician.
When politicians allow themselves to be medium-sized enterprises. “In my country, reforms. I’m ready to do that, and I’m con- :profiled in men’s magazines, they are con- many people mistakenly believe that these vinced that this will also be demanded by veying a message. That also applies to Sergey types of companies will cause the economy Ukrainian politics,” he says confidently. Tigipko. When the banker decided to run in more harm than good,” says the vice prime Immediately after assuming office, he estab- Ukraine’s presidential elections, he wanted minister. The reason for this misconception lished a 60-day program that provided for to stand out from the established class of is that these companies supposedly make up short-term changes such as doing away with politicians, so he did a photo shoot for the a large percentage of Ukraine’s underground various bureaucratic provisions. He also had cover of Men’s Health. economy. Yet Tigipko feels that government the 2010 national budget prepared with the After years of political abstinence, the multi- support and tax benefits will help to build assistance of the International Monetary millionaire re-entered the scene as a presi- up, stabilize and firmly establish this eco- Fund (IMF). Many Ukrainians now have to dential candidate in the fall of 2009. Without nomic sector, saying, “Without small and say goodbye to cherished comforts that the a party or a parliamentary seat, he still medium-sized businesses, we can forget government had once paid for. Next year, received 13 percent of the vote and came in about integrating with Europe.” for example, the price of gas for private third behind the favorites Viktor Yanukovich To date, innumerable Ukrainian govern- households will be scaled according to and Yulia Tymoshenko. After his electoral ments have sought in vain to enforce income levels. success, he was courted by all political reforms. But that is something Tigipko now BANKS THAT DON’T SPECULATE BUT ACTUALLY camps. In March 2010, the new Ukrainian wants to change. The man who sold his SERVE THE REAL ECONOMY government appointed him to be the Vice insurance group, TAS, to Swedbank for Prime Minister for Economy. In his present $1 billion in 2007 is considered a clever In particular the Ukrainian banking sector— position, Tigipko is particularly keen on strategist and tactician. which suffered tremendously from the glob- implementing reforms that the country has In the fall of 2009, accompanied by consider- al economic crisis and only survived an been putting off for two decades. able media coverage, Tigipko went into the imminent collapse thanks to assistance from month-long election campaign armed with a the IMF—is facing major changes. “Most of UKRAINE IS PROMOTING SMALL AND political and economic manifesto that had the Ukrainian banks cannot be compared in MEDIUM-SIZED BUSINESS—AND TIGIPKO been carefully tailored by an international any way to those in Europe or the US,” says BELIEVES IT’S THE RIGHT THING TO DO team of consultants. Experts estimate that Tigipko. The equity ratio of the financial In a meeting with think:act, he makes it can- his campaign may have cost him in the institutions is generally much too low and didly clear why, after leaving the world of region of $300 million. that is why most of the banks struggled as politics in 2004, he now wants to use his With that event now behind him, the vice the crisis intensified. prominent position to reshape things. “Our prime minister prefers to discuss economic In the future, the national bank should economy must be completely deregulated,” growth. He wants to help Ukraine reach impose stricter rules and monitor their com- opines the 50-year-old. higher growth rates—even if painful meas- pliance, he says. In addition, the banks Tigipko believes that control must be quickly ures are required. And Tigipko is convinced should become partners with the real econo- regained over the rampant bureaucracy, that the people will still stay with him: “On my and not tie themselves solely to specula- widespread corruption and the lack of will- any given day, most Ukrainians experience a tive activities. “In Ukraine, many banks have ingness to pay taxes. In the meantime, lot of things that don’t work. It is the job of devolved into casinos,” complains Tigipko. Ukraine has begun to support small and politicians to push through unpopular Furthermore, the vice prime minister wants
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You can also listen to this article on our audio CD (page 63).
these sales markets, especially for the metal, chemical, and agricultural industries. The vice prime minister relies on his image of a successful manager. Wearing an immac- ulately tailored dark suit, he asserts, “Old politicians cannot serve new politics.” Tigipko represents change—and embodies it, too. Men’s Health readers learned that the spry, athletic-looking man swims and jogs on a daily basis. Meanwhile, other media also regularly carry stories about his domestic life with his fam- ily. His wife Viktoria describes her husband as the “protector of the family.” Not only does he chop wood and perform minor repairs on the house and car, he also packs the picnic basket for family outings. This kind of behavior goes a long way in Ukraine. During the election campaign and the peri- od in which the government was being formed, various political camps courted Tigipko in an attempt to win him over to their side. Former Prime Minister Yulia Tymoshenko had offered him many lucra- tive positions, even the job of prime minis- ter. All he would have had to do in return was support her in the run-off elections. However, Tigipko, ever the tactician, chose to maintain a low profile, which proved to be a smart move. After Viktor Yanukovich was elected president, the new leadership “In Ukraine, many banks have devolved into casinos.” appointed Tigipko as the vice prime minis- Sergey Tigipko ter. In this strategy, Ukrainian experts see Tigipko preparing for another run at the presidential office the next time around. to promote greater involvement from for- the economy missed opportunities in the Under President Yanukovich and Prime Min- eign banks. “Anyone who operates according past to introduce Ukrainian products in ister Asarov, both of whom are over 60 years to honest commercial practices is welcome newly created markets like China and old, his prospects seem better than they to do business here,” he says. “I support a India,” he says, criticizing his predecessors. would have been under the ambitious and combination of European, Russian and In the last five years, neither the country’s younger Yulia Tymoshenko.. Ukrainian banks. It’s good for the competi- president nor any of the heads of state had tion and it’s the only way to revive the busi- considered it necessary to visit these coun- ness sector,” Tigipko emphasizes. tries. While other nations sent trade delega- This portrait is based on an interview that He would also like to see a similar mix in tions to Asia, the old Ukrainian leadership Nina Jeglinski, dpa correspondent in other segments of the Ukrainian economy. ignored the emerging world powers to a Kiev, conducted exclusively for think:act. “The political realm and other branches of large extent. Tigipko sees good prospects in
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You can also listen to this article on our audio CD (page 63).
Locking horns According to conventional wisdom, conflict in management should be avoided. But is this really true? Can struggles between the top managers of a company also be constructive? They can—provided they are properly managed, as shown in the case of Google, among others.
US President Barack Obama has learned In fact, a difference of opinion at the highest compromises. Each idea, each step was chal- :two things this year. Firstly, anyone who level can be most beneficial because it lenged. No decision was taken until it had wants change must also be able to accept forces everyone involved to strive to find the survived a process of constructive conflict. change; and secondly, the most painful best solution. This culture has been deliberately carried blows often come from one’s own camp. As a In the past, conflicts of these kinds were over to the behemoth corporation they visionary Democratic, Obama had expected avoided. Management teams often worked founded. The success of Google vindicates the Republicans’ resistance to his health side by side in the same company for the approach of Page and Brin—especially care reform plan—but that the stiffest oppo- decades. The members of these teams knew since the company is also highly successful sition might come from his own party proba- each other well enough to know what they on the employment market. It seems that bly came as more of a surprise. Suddenly, could, and couldn’t, get each of the others to talented workers do not want a cosseted the calls of “Yes, we can” rising from the agree to. Friends and enemies alike knew existence at any price. party faithful were mixed with whistles and everything they needed to know about the ANYONE CAN CONTRADICT—EVEN even booing. Several key delegates in his attitudes, strengths and influence of their THE SEASONED WARHORSES own party opposed his plan to provide associates at the top. Topics that might lead health insurance for all Americans. to disagreement were simply glossed over, Micropolitical sensitivities, born of age dif- Nevertheless, with one show of strength, the often creating an atmosphere of resignation ferences, for example, are completely disre- president ultimately imposed his will on his and stalemate. Of course, these differences garded. In order to make disagreement pro- opponents, both internally and externally. in ideas, approaches, and interests always ductive, it is important to refrain from treat- Obama can live with the fact that he is no existed, they were simply never articulated, ing older employees with kid gloves as well. longer loved by every member of the Demo- meaning that their positive effects were Google CEO Eric Schmidt has personal crat Party. He has demonstrated the strength never realized. experience of this. He often recounts how he of his leadership and, as a result, definitively These days, managers often spend no longer argued with founders Brin and Page about stabilized his position in the American than four or five years in the employment of technical questions, even while interview- power hierarchy. a single company, which increases the ing for the job. The founders are in their potential for conflict: executives must strug- mid-30s now, while Schmidt is 20 years their WHEN CONFLICTS GO UNSTATED, gle to get their ideas adopted and establish senior. But the veteran manager, who had THE RESULT IS OFTEN STALEMATE themselves in their team’s power structure. already contributed substantially to the suc- Obama’s experience is also played out regu- This is good for companies because it rouses cess of Sun and Apple, remembers this inter- larly in companies all over the world. One’s them from the unproductive slumber of view as one of the most entertaining he had own ranks are seldom closed. On the manag- “business as usual.” had in a long time. And Brin and Page ing boards of large corporations, it is practi- Accordingly, one of the most rapidly grow- respected the opposition of this experienced cally unheard of for all the members to be of ing companies in the world deliberately businessman, who never avoids an argu- one mind. And it is precisely when ground- builds conflict into its management culture: ment and is even prepared to question his breaking decisions need to be made that dif- even when they are working together in a own views. fering opinions and methods frequently garage, refining their ideas for a new kind of As CEO, Schmidt continues to propagate this collide. This can often be exhausting, but it search engine, Google founders Larry Page culture, which is based on questioning also has positive effects for the company. and Sergey Brin would accept no lazy everything and hiring the most widely
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diverse people possible to pursue their close the gap on Nestlé. Suddenly, no one also the person who is best able to imple- objectives with commitment and passion. believed she could pull the deal off and her ment it. Of course, this person also tends to He actively promotes a culture of confronta- support within the company collapsed. Key be someone who does not give up easily tion and discussion in the company. For investor Warren Buffett humiliated her with under pressure. example, important decisions must always an open letter calling upon Kraft sharehold- One manager who will be leaving his com- be made by at least two people. The result: ers to overthrow the single-minded boss. pany in the near future is easyJet boss Andy no solution is reached without prior discus- But Rosenfeld was not intimidated, and in Harrison. He is one of the main protagonists sion. Managers and employees at Google are the end, with much diplomacy, she got her in a massive conflict of visions with majority expected to pursue the widest possible way. After six months of takeover poker, shareholder and founder of the airline, Ste- range of goals, and then defend them Cadbury was hers and Kraft was still in hot lios Haji-Ioannou. He has said publicly that against opposing objectives. According to pursuit of rival Nestlé. Rosenfeld owed her he wanted the group to grow more slowly. Schmidt, this energy through friction is the victory not only to her persistence, but in Instead of continuing to invest, he wanted to source of the dynamism in a growing com- equal measure to her ability to fight an distribute a dividend. The company man- pany like Google. apparently overwhelming opponent for a agers had other ideas. In other corporations, while argument is not solution that would benefit the company. EVERY SUCCESSFUL CLASH ENHANCES explicitly sought, it is used to generate a con- And this is important, too: good managers THE PROFILE OF A TOP MANAGER structive outcome. Take food giant Kraft, for must not only be able to create visions, they example. CEO Irene Rosenfeld is combative must also be able to realize them, even in Harrison and his colleagues on the manage- by nature. When she took over the job, she the face of opposition from the management ment board had previously shied away from promised that she would create growth. or supervisory board. They may cause this change in strategy, and had evidently Rosenfeld promptly replaced half of the offense along the way because, at this level estimated correctly. In 2009, easyJet was management team, with no regard for loss- of management, there are losers as well as among the very few airlines in the world es, to ensure support for her strategy, before winners. Refusing to acknowledge this that posted a profit. But this did not mollify radically restructuring the entire company. means that all too often unpleasant deci- Haji-Ioannou. He recently resigned his posi- Then came the economic crisis and her sions are avoided. tion as non-executive director under protest. promise of growth crumbled. She was forced With that said, it is inevitable that some dif- Despite this, Harrison will still leave the to sell the US frozen-pizza business to arch- ferences of opinion in business will not company. His position in financial circles rival Nestlé. always be beneficial for everyone. An inter- has been clearly established through his dif- nal conflict often ends with a short ference of opinion with the founder of the HOW ROSENFELD WEATHERED announcement in the finance section of the company. Harrison has enhanced his profile THE STORM AS KRAFT CEO newspapers along the lines of “The manage- as an independent, top-level manager— Suddenly, the warrior found herself alone. ment is leaving the company by mutual con- something he will undoubtedly benefit from Rosenfeld’s critics within the company and sent.” But this result does not necessarily in future disputes, whether at easyJet or among shareholders balked at her growth have to be detrimental to the company. elsewhere. One thing his management strategy in particular: she wanted to buy the When managers disagree, not only is it usu- board colleagues now know for sure—he is British chocolate manufacturer Cadbury to ally the best solution that wins through, but not one to avoid a good argument..
12 07_15gb_13_DOS_Einstieg 18.06.2010 13:16 Uhr Seite 13 DOSSIER #15 The country is booming—this much we know. But for some time now, there has been a great deal MANAGING more behind India’s growth than just an outsourc- ing destination for the developed world. Compa- INDIA. nies such as Tata are developing their own identi- ty, while top Indian managers have experienced success in businesses around the world. And MANAGING India’s markets offer considerable growth oppor- tunities for American or European firms. In this dossier, we take a closer look at the dynamics of INDIAN? a country that is currently changing the world.
“India is not just about IT or business process outsourcing. We see it as an incubator for giant global corporations driven by IT strategy.” F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL
“The real interest in India is to find the next practice. To find the unexplored innovative idea— one that can change the game.” BILL MCDERMOTT, SAP 07_15gb_14_15_DOS_Illu 18.06.2010 13:14 Uhr Seite 14
DOSSIER #15
The thrill of complexity as seen by Pietari Posti
Pietari Posti may be Finnish, but his illustration that opens our dossier sec- tion is based very much on an Indian aesthetic. Like the goddess Shiva, India’s top managers sometimes seem to have more than one pair of arms— not only are they dealing with the complexities and problems in Indian socie- ty, but they are actually finding clever solutions to them. To do this, they are operating on an increasingly international scale, while the global players of this world have long discovered the attractive markets India has to offer. This dossier looks at both their opportunities and restrictions as well as dis- cussing whether there is such a thing as an Indian management model.
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Managing India. Managing Indian? DOSSIER #15 07_15gb_16_19_Dos1_Titelstory 18.06.2010 13:13 Uhr Seite 16
DOSSIER #15 Managing India. Managing Indian?
You can also listen to this article on our audio CD (page 63).
TATA GROUP, TATA MOTORS Tata Motors, a part of the Tata Group India innovates differently empire, is India’s largest carmaker and a market leader in the commercial vehicles sector. The company has generated They can do more than just cheap. Indian companies are developing business models from enormous interest, not only with its which their Western counterparts might learn a thing or two. In particular, they are thinking acquisition of Jaguar Land Rover, but innovatively—not so much in terms of technology, more about their customers’ budgets. also by producing the cheapest microcar in the world: the Nano.
THEY ARE ASKING THEMSELVES the really big Tata Group, India’s economic colossus. No other con- questions:s how do you invent a reliable mode of trans- cern has had such a pervasive effect on the Indian port for millions who don’t own a car? How do you economy and society as this empire, which was connect a billion people who earn less than $1,500 a founded in 1868 by Jamsetji Tata. Tata products and year on average? How do you show people who can’t services are ubiquitous in India. The businesses read how to open a bank account and make wire owned by this family-held company generate transfers—in regions where the nearest bank is 200 between 3 percent and 5 percent of the country’s kilometers away? It is not only the country’s leading gross national product. decision makers who are asking these questions— “I expect the Tatas to be Indian businesses are, too. And they not only are they ALL INDIANS ARE PROUD of Tata’s success. Like much larger in 100 years finding the right answers, but they are also earning no other business in India, the threads of tradition and than they are now. But money with them. “There are no precedents for our the future, trust and incorruptibility, profit and social more importantly, I hope problems—their sheer scale puts them beyond any- responsibility, are held firmly in the hands of the the group of companies will thing in human experience. So let us find our own unassuming Ratan Tata. He has already unleashed be the most respected in solutions!” India’s leading industrialists have heeded one revolution, when, at the end of the last millenni- India—on the basis of our processes, our products this call to arms from strategy guru C. K. Prahalad, um, he transformed the elephant that was Tata into a and our value systems.” and they are finding solutions that are inconceivable pouncing tiger. The tiger’s first leap took it into the ter- in the West. It is in the emerging nation of India that ritory of the world’s biggest steel producers. Now it is RATAN TATA, CHAIRMAN, TATA SONS the business models of the future are being config- gathering itself for an attack on one of the most fero- ured today. ciously contested reserves of the old industrialized
Commercial vehicle sales from March India’s industrial production is growing at an nations—the production of luxury cars. to April 2010 in comparison with average rate of 15 percent a month. Sales of cars by “The acquisition of Jaguar Land Rover by Tata the same period last year: Tata Motors or Maruti Suzuki India have risen by 25 Motors is the expression of a new self-confidence,” percent in the last year. Most manufacturing concerns says Ralf Kalmbach, head of the Competence Center +38.31% in all sectors of industry are approaching the limits of Automotive at Roland Berger Strategy Consultants. their capacity. India’s major corporations are growing “Their unassailable domination of the commercial Midsize and heavy commercial vehicles (M&HCVs) up 33.55 percent; by as much as 40 percent. In almost every industry, vehicle sector at home has given them a sense of light vehicles up 42.67 percent managers are struggling to keep up with demand. belief that they can compete at the top of the interna- At the same time, they are planning a takeover tional automobile business.” After 40 years of resist- offensive. Arcelor and Corus were just the beginning. ance to change, and having fallen into the wrong Stock market price for Tata Motors While the multinationals in the West are weakened, hands, the British luxury brand Jaguar looked as if it The price per share for Tata Motors the management teams of Indian companies, like would follow its venerable, elderly customer base into has risen in the last few months. Investors evidently appreciate the auto parts supplier Bharat Forge, electrical equipment extinction. Then came Tata. “With his clear vision, company’s strategy. manufacturer Crompton Greaves, engineering firm Ratan Tata showed the former colonial power how its Larsen & Toubro, or pharmaceutical developer Dr. once revered status symbol can be driven into the Reddy’s are gearing up to change not only their coun- future,” continues Kalmbach. try, but also its position in the world, for good. Lead- The result was revealed at the last Geneva Nov. Dec. Jan. Feb. Mar. Apr. May ing the charge is Ratan Naval Tata, chairman of the Motor Show in the shape of new flagship model, the
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Managing India. Managing Indian? DOSSIER #15
XJ. It is barely recognizable in comparison to its pred- form of transport for people at the bottom end of the INDIAN STRATEGIC SENSE ecessor. Younger, more aggressive, it expresses a income scale. What are leading Indian and US managers devoting most time to? repositioning of the brand—and, at the same time, the In order to put the vehicle on the road, Tata (Red = US) conquering spirit of India. Recently, Tata posted a prof- broke every convention in the car manufacturing rule- it for the luxury carmaker, which many had already book. “The approach is different in every way from LESS TIME MORE TIME written off. According to Kalmbach, “This initial suc- what is typically done in the automobile industry,” Regulation questions 2% 98% cess, unparalleled during the crisis, is an indication of explains Kalmbach. “Instead of starting with what was 24% 41% the determination and managerial skills that were technically possible, calculating what it would all cost Reports to the supervisory board brought to bear in India to reinvent the brand.” and then overrunning the cost targets by the usual 50 1% 78% percent, Tata established a radical costing framework 17% 41% NEVERTHELESS: the success with Jaguar is and calculated downward from an immutable end Shareholder relations being played out in the uppermost segment of the price, which influenced every aspect of the project.” 4% 58% 31 % 41% automotive food chain. But Tata is also involved at the Everything in the development was subordinate to other end of the spectrum, where it has unceremoni- one magic number: 100,000 rupees, just over Defining strategy 9% 47% ously reinvented the car itself, with the Nano. The idea $2,000. And cutting costs did not mean cutting qual- 0% 93%
to create the first internationally competitive subcom- ity, but rather redefining what is meant by top quality. Media relations pact car came to Ratan Tata on a rainy day in Mumbai, How do you build a simple, sturdy axle for a mere frac- 11% 31% when he saw one of the countless tiny motorcycles tion of the cost of all standard commercial products 17% 31% weaving through the streets carrying a family of five. without sacrificing safety and comfort, for example? Day-to-day management 27% 28% “Surely it must be possible to provide this family with To answer questions like this, Tata convinced 55% 24% a safer, more comfortable means of transportation?” high-end suppliers like Bosch, Continental and Source: Harvard Business Review, March 2010 he thought. And so the idea was born: create a new Freudenberg to completely rethink the way they
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produced high-value auto parts. “For many parts sup- World, Bharti has outsourced almost 90 percent of its BHARTI AIRTEL was founded in 1985 by Sunil Bharti Mittal. Today, it is India’s pliers, the Nano became a test laboratory for a busi- corporate processes to Western providers. Since its largest mobile wireless network operator ness model, to discover how it is possible to make foundation, the company has been growing so rapidly and one of the fasting-growing telecom- munications companies in the world. It is money with parts for simple, inexpensive, environ- that Indian technological capacities have not been currently expanding massively through- mentally friendly vehicles,” Kalmbach explains. “The able to keep pace. “We realized that we can capitalize out the African continent. Bharti Airtel was Nano was a wake-up call to the automotive industry, a on the strength of our partners by outsourcing,” recently named in Businessweek as one of the six most successful technology warning to finally change their strategy of expecting explains Jagbir Singh, Group CTO Mobility Networks of companies in the world. customers to buy a bigger, and thus more expensive, Bharti Airtel. model every time they changed cars.” Because that is Network development and operation, network precisely what is not working any more. “The car man- design and system optimization, everything is done ufacturers in the US, Europe and Japan will never by Ericsson. With a constant stream of multi-billion- again see absolute growth in their traditional battle- dollar orders, it has been India’s Bharti that kept the ground of big, expensive vehicles,” says Kalmbach. crisis-wracked European mobile wireless company “The growth of the future is taking place in the emerg- afloat. Other contractors, including Nokia Siemens ing nations, with small, affordable cars that allow mil- Networks and IBM, are also dependent on the boom lions to move around.” of the Indian model for success. Yet even Tata had to learn that dispensing with The profits that this business model generates time-honored development structures in the automo- are so enormous that Bharti Airtel is preparing to “The Indian telecommunica- tions market is currently bile industry is a feat of strength that can only be expand into markets that the conventional telecom- going through a hypercom- pulled off when pursued utterly without compromise. munications providers have studiously avoided until petitive phase, but we are “Time and again, the development of the Nano now. Most recently, the company paid $9 billion for still making a profit. Simul- reached a point at which it seemed impossible to hold access to the African market. Its acquisition of shares taneously, we will continue to the upper price limit of 100,000 rupees,” says in Kuwaiti telecom provider Zain is the second-largest developing detailed plans to Kalmbach. “But Ratan Tata had given his word to the in India’s history—and it comes with another 45 mil- expand into markets world. And against this background, he forbade his lion customers. beyond the borders of India organization to waver from its goal. His maxim: Bharti is also currently planning to enter the and southern Asia.” a promise is a promise!” banking services sector. An estimated 41 percent of SUNIL BHARTI MITTAL, FOUNDER, CHAIRMAN all Indians do not have their own bank account. Con- AND GROUP CEO, BHARTI ENTERPRISES BHARTI, INDIA’S LARGEST telecommunications ventional big banks have no idea how to manage the provider, has turned the practice of amassing huge enormous number of tiny bank accounts without revenues from millions of small transactions into an making a loss. Bharti does. With its mobile technolo- art form, by enabling an impoverished population to gy, the company has the access and the capacity to join a communications network. India is the fastest- receive deposits, store the amounts and manage Sales were up 7% on the previous year, to 396 billion Indian growing mobile telephone market in the world. There withdrawals made by more than 100 million residents rupees, in fiscal year 2009/2010. are currently 500 million cellular phones in use, and in the rural reaches of the country—the customers The EBITDA rose by 6 percent. by 2013 this figure is expected to top 900 million. pay by cell phone. More than 120 million current users are supplied by The technology for mobile payment is provided Bharti Airtel. No one in the world offers a cheaper price by the company A Little World, which is one of the Sales growth per minute—currently half a US cent. Revenue per call most creative technology providers in the world. The four-year trend is minuscule. But Bharti Airtel is making enormous Headquartered in Mumbai, A Little World has already shows Bharti Airtel is continually expanding. profits as more and more customers in rural areas are revolutionized the mobile payment sector several brought into the fold. At the moment, the company is times. The latest phenomenon is the Zero-Platform. registering an impressive 100,000 new customers This technology converts a smartphone, a lockbox every working day. and a fingerprint scanner into a portable bank branch, 270.2 bill. 270.2 bill. 369.6 116.2 bill. 116.2 bill. 185.2 2006 2007 2008 2009 While India’s current strength has grown out of which enables rural India to connect to the bank net- Volume in rupees; Source: Businessweek its role as a service outsourcing provider for the First work and obtain microcredits. Eventually, they expect
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to connect 50 million customers in this fashion. To staggering speed, with boundless creativity and date, they already have three million. commercial energy. There are, of course, many prob- Smart mobility, cheap telecommunication, lems in India, for which solutions are still to be found. mobile banking services—these products are not just Take conventional electricity, for example, which is useful, but they also enable people in even the still twice as expensive as in China, while rail travel remotest corners of the world to become entrepre- costs three times as much. But these problems are neurs themselves. no longer intractable burdens—they have become the According to C. K. Prahalad, this is the key to next selling point for the next innovative business India’s social development. “The poor must be able to model. India is making its own solutions with both join forces with others as entrepreneurs. And compa- vision and pragmatism, creating business solutions nies must earn money by providing the poor with that are being gratefully adopted by an increasing entrepreneurial opportunities.” Indian businesses number of other emerging countries. intend to make a profit from precisely this kind of empowerment. The results are a flourishing entrepre- neurial culture, a rapidly growing middle class and an cal manufacturer Dr. Reddy’s plans to make optimistic outlook for the poor. DOING WELL BY DOING GOOD How India’s elite social healthcare affordable all over the world entrepreneurs live through inexpensive medicines. And Infosys THE MOST INNOVATIVE EXAMPLE: Reliance Indus- intends to show the world India deserves a tries. You can buy practically anything in the branch Adulation on the streets, loyalty from their place alongside global technology leaders. In stores of India’s largest retailer—from vegetables to employees, respect from their competitors— short: profits are a by-product, not the pri- an education to gasoline. But what sets the $30 bil- not many captains of industry around the mary purpose of a company’s activity. world can lay claim to these accolades. But Many top companies have put their money lion company apart from other retail giants is its Indian bosses can. The reason? Many of them where their social ideals are. For example, 65 astounding degree of vertical integration: not only are serious about social responsibility. Their percent of the profits of every company in the does Reliance tailor and sell suits under its own brand commitment to social causes “goes far Tata Group goes to charitable foundations; name, it also produces the fabrics from which suits beyond the interests of their companies,” only 3 percent goes to the family. While the can be made, the cotton threads from which the fab- says Peter Cappelli, from the Wharton School company executives live in demonstrably rics can be made and the machines for producing the of Business. He recently conducted what is modest style, their foundations finance probably the most comprehensive survey of India’s leading universities and research threads. In this way, the company offers several leading Indian managers ever undertaken: institutions, campaign for education, health, points of contact for the business ideas of people as “Every executive we interviewed described food and clean drinking water. Dr. Reddy’s entrepreneurial “prosumers.” This year, Reliance was the most important purpose of his company finances healthcare for more than 40,000 the only retailer included in Fast Company magazine’s in terms of a social mission. And not in order children. Infosys equips entire hospitals and list of the world’s most innovative businesses, and to make money from it.” According to the sur- schools with IT services and has launched a this example shows why. vey, shareholder value is ranked fourth on nationwide program to develop IT skills their list of priorities. among young people—a visionary idea that might benefit First World countries as well, as MORE AND MORE INDIAN banks are providing the they struggle to replace their declining tech- necessary startup capital for those who have no more “India’s large companies do nical workforce. “Indian companies are not security to offer than a business idea and the courage well because they do good.” just successful in addition to doing good for of their vision. Since Muhammad Yunus developed the society. There is plenty of evidence to sug- Peter Cappelli, Wharton School of Business concept of microcredits, the bank service of granting gest that they are so successful because these tiny sums of money is attracting the fastest- they do good,” Cappelli states. For example, Bharti Airtel wants to put mobile And the population expresses its appreciation growing clientele in the world. Recently, it has also phones in the hands of people for whom any to those who run these companies. Ratan Tata been gaining ground beyond India’s borders: the US, chance of telecommunication was a pipe has not only been awarded the “Padma Spain and Germany are all copying this system of dream, until now. Indian banks, such as ICICI Vibhushan”—India’s second-highest civilian state aid to the “New Poor” of the First World. Bank, provide starting capital for people who honor—he has also been voted the most After 300 years of economic stagnation, a have not had access to credit. Pharmaceuti- trustworthy man in India. vibrant nation has awoken and is reinventing itself at
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Waking the giant India is one of the world’s biggest agricultural markets. Until now, small-scale farmers worked the fields, but now farming companies from around the world are increasingly heading to India, hoping that its agricultural sector will evolve into a growth driver.
THE ONLY SOUND that travelers hear in the rural Indians to be fed, prosperity is increasing, especially areass of Rajasthan, a state located in northwestern in urban centers, and eating habits are adapting to India, is the chugging of motorized pumps. The water Western standards. “Urbanization and the demand for canals stemming from the days of the “Green Revolu- high-quality food is one of the growth drivers for tion” that took place shortly after 1965 are old and the India’s agricultural market,” points out Kapil Mehan, pumps don’t look much younger either. Their main CEO of Tata Chemicals. The subsidiary of India’s competition are the oxen that pull long chains to lift biggest corporate conglomerate focuses solely on the buckets full of water out of the wells. Most of what domestic market in the agricultural business. grows on the small plots is destined to feed the own- ers and their families. WHEN IT COMES TO FERTILIZERS, for example, Around 730 million Indians lead an existence India is the world’s second-biggest market. Besides as subsistence farmers out in the countryside. They state-run and local, privately held suppliers, interna- work on 120 million farms, with 60 percent of them tional companies have had a foothold here for quite working on plots of land that are less than one hectare some time. The US-based seed producer Pioneer “For our company, in size. India’s agricultural sector is still far from entered the market more than 30 years ago and sup- India is a key market.” matching the economic growth already achieved by plies 1.5 million customers in India. Part of the mar- Sekhar Natarajan, CEO, Monsanto India its service and industrial sectors. While automobile keting strategy includes public-private partnerships suppliers from around the world have manufacturing in which companies and the government work togeth- operations in the industrial stronghold of Pune, and er with farmers. In February, Pioneer, along with the more IT programmers work in Bangalore than in Sili- agricultural authorities in the state of Uttar Pradesh, con Valley, agriculture in some parts of India has not initiated a collaborative project to train farmers. “We changed much since pre-industrial times. Millions of believe that new seed types and services associated well-trained engineers, physicists and doctors have with their use are critical to making India’s agriculture allowed the service sector to now account for more more productive,” says Pioneer CEO Paul Schickler. than half of India’s gross domestic product. In con- However, the collaboration between the gov- trast, Indian agriculture accounts for only 17 percent ernment and business does not function as well else- of the total economy–a trend that has been decreas- where. “Right now, it’s the government especially that ing for years. is stepping on the brakes,” reports Michael Timm, an agriculture expert with Roland Berger Strategy Con- DESPITE, OR BECAUSE OF THAT, the Indian market sultants. And that despite the fact that the Indian gov- is highly appealing to agricultural companies the ernment had made the country an agricultural trend- world over. One reason is the sheer scope of it: after setter for a while. In the 1960s, the Green Revolution China, India is the world’s second-biggest market. “For brought progress to the fields. After periods of drought our company, India is a key market,” says Sekhar and widespread famine, the socialist government Natarajan, CEO of Monsanto India, a subsidiary of US- stepped up its efforts and pushed ahead with the based Monsanto, which is involved in the seed busi- planting of high-yield crops that could be harvested ness. Fertilizer and pesticide producers also have several times a year. The massive use of pesticides India in their sights. There are more than 1.1 billion and mineral-enriched fertilizers as well as the expan-
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sion of irrigated land have left behind obvious marks, the group benefiting from the boom. In fact, they hope though. For example, tremendous environmental that the subsidies will be enough just to survive. With problems related to over-fertilization are an everyday more than 300 million Indians living under the pover- issue in India. ty line, that’s not always the case. To make matters worse, little has changed in Climate change is exacerbating the situation terms of technology since the days of the Green Rev- and, in 2009, the country saw its strongest monsoons olution. Very little remains of what was once progres- in almost four decades. To top it off, the population is sive technology. The archaic pipe systems are losing growing; the government estimates that by 2017, huge amounts of water by today’s standards, and the there will be almost 1.3 billion people living in India. most prevalent types of towing vehicle in many parts Monsanto came to learn that small-scale farm- of the country come in the form of water buffalo and ers are an absolute necessity. The company is cur- zebu cattle. “The utilization of machinery is still very rently working on obtaining the first approval for “We believe that new low,” emphasizes Timm. genetically engineered vegetables in India. However seed types and servic- after nationwide protests, India’s Minister of the Envi- es associated with WHEN COMPARED INTERNATIONALLY, agricultural ronment, Jairam Ramesh, relented. “The public is productivity in India does not measure up well. against it,” he realized in early February and their use are critical to According to the World Bank, India only grows one- announced a moratorium. However, the head of making India’s agricul- third of China’s volume in rice and only half of the Monsanto in India is still hopeful that his company ture more productive.” amount produced by much smaller countries like Viet- can roll out new seed types on the market some day, Paul Schickler, CEO, Pioneer nam and Indonesia. In addition, the weak infrastruc- as he believes that high-yield seeds are prerequisites ture prevents exports from being successful. Accord- for agriculture to be more productive in India. ing to the World Bank, transporting grapes from India to the Netherlands is twice as expensive as from IMPETUS FOR INNOVATION is already coming from Chile, even though India is only half the distance. the private sector, such as in the form of contract That is why improved efficiency is so impor- farming. Containing provisions pertaining to quality India as an agricultural tant. One rupee invested in agricultural development and quantity, contracts are being negotiated by glob- problem area would generate 9.5 rupees for the economy in terms ally active food companies on-site with farmers in all Arable land in hectares per person of economic performance. However, the US-based major sales markets, including in India, too. For exam- International Food Policy Research Institute has ple, McCain Foods, a US-based company, has been determined that the additional subsidization of fertil- working with 400 farmers in the state of Gujarat for 2.52 Australia izer by the same amount would only generate 0.85 several years. They plant potatoes that McCain then 1.39 Canada rupees. Intelligent watering systems that would add processes into frozen French fries in nearby factories fertilizer drop-by-drop directly into the water could to be sold to McDonald’s subsidiaries throughout 0.88 Russia reduce costs while simultaneously protecting the India. “Urbanization and consumption patterns that 0.61 USA earth from over-fertilization. “Instead, farmers just are strongly oriented to Western habits certainly sup- throw the nitrogen-based fertilizer on to the fields by port such models,” says Michael Timm. “But to date, 0.35 Brazil the kilogram and wait for it to rain,” Timm says. such contracts are rare in India.” 0.28 Thailand Despite this, the government’s reform-oriented Executing such contracts is no simple matter zeal has visibly faltered over the years. It considers either. McDonald’s came to India in the mid-1990s and 0.16 India itself more as a protective institution that shields the needed several years to set up a functioning supply 0.10 China army of small-scale farmers from fluctuating market chain. But the effort paid off, and not only for the fast- Sources: World Development Indicators prices. “They represent millions of critical votes,” food chain; in Gujarat, agricultural growth is matching Database, Datamonitor, Roland Berger explains Timm. These Indian farmers are not part of the rest of India’s rapidly expanding economy.
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A lot of white shelves
The world’s multinationals want to move in on India’s retail trade. Their biggest You can also listen to this article competitors aren’t Indian companies, but the local mom-and-pop stores that are on our audio CD (page 63). proving to be masters in logistics and customer focus.
INDIA IS TRULY A COLORFUL country. But those more than two-thirds of the gross national product whos base their impressions on consumer experiences (in China, it is less than one-third). In other words, in food stores won’t see much of this color—the coun- Indians are buying their way out of the crisis. try’s shelves have a distinct lack of it. Oil is sold in transparent plastic bottles without any labels, while GOVIND SHRIKHANDE, CEO of Shopper’s Stop, one sugar and rice are available in brown paper bags or of India’s biggest retail chains, is also seeing a gradual burlap sacks. Surprisingly, many products are dis- upswing in consumer behavior after the economic played entirely without brand names. crisis and the terror attacks in Mumbai. “They (Indian For multinationals, this brandlessness repre- consumers) are certainly loosening their purse sents an opportunity. Innovative sectors such as strings. They were on a shopping diet for a long time.” processed foods and personal care, in particular, are Shopper’s Stop operates 28 department stores in still highly underdeveloped, according to an analysis addition to several subsidiaries of the stylish Hyper- conducted by Roland Berger Strategy Consultants and CITY supermarkets. And these are not just located in its Indian partner company, the Tata Strategic Man- downtown Mumbai or in Gurgaon, one of Delhi’s most agement Group. When it comes to soaps, detergents modern suburbs, where almost all Indian and foreign “They are certainly and lotions, Indians spent $8.7 billion in 2008, which companies have their headquarters. In the future, is projected to increase by almost 20 percent annu- Shrikhande wants to penetrate into new regions loosening their purse ally. Also, the $115 billion processed foods market and cities, such as Aurangabad, Amritsar and strings. They were (2007) is expected to almost triple by 2016. Coimbatore—places that the international business on a shopping diet for Forecasts suggest that in 2025, India will be elite haven’t heard much about to date. a long time.” the world’s fifth-largest consumer goods market— In India, consumer business focused for a long leaping up from 12th place in 2007. “Despite that, India time on a small, affluent class that formed the cus- Govind Shrikhande, CEO, Shopper’s Stop is still not high enough on the priority list among tomer base for Gucci boutiques, Armani flagship many international consumer goods manufacturers,” stores and Bentley dealerships. Luxury goods manu- says Andreas Bauer, head of consumer goods and facturers should continue making good money from retail at Roland Berger Strategy Consultants. A recent this class in the next few years, however the major Nielsen Global Consumer Confidence Study revealed business lies in transforming the masses living in that India had already moved into second place in the rural areas to brand consumers. Ultimately, only 28 spring of 2010. percent of India’s 1.14 billion people live in cities. “The After India’s economy had grown by 9 percent market for luxury goods is largely developed,” opines annually between 2007 and 2008, the country still Andreas Bauer. “The future focus is on average people managed to grow by about 7 percent in the crisis and high-volume business.” years. However, economists are back to projecting a figure of 8 percent for 2010—and an average growth IN THE LAST DECADE, India’s rural economy grew rate of 6.3 percent annually until 2030. One reason up to 40 percent faster than in the cities. Now, rural for the surprisingly stable trend is that the Indian regions account for more than 50 percent of the GNP. economy is bolstered by rapidly increasing domestic The purchasing and economic power stemming from demand. Domestic consumption already accounts for the countryside is increasing steadily, fueled by
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tremendous, government-driven economic stimulus companies into the Indian economy could do some and infrastructure programs. It is anticipated that by good. Specifically, they would bring with them “inter- 2025 more than 300 million of the rural poor will national best practices,” he says. become members of the lower middle class. As it is, for the next 20 years, kirana stores are As a result, their consumer behavior may likely to remain fixtures in India’s consumer reality, change, too. To date, most Indians tend to shop in a believes Bauer. Companies that want to be success- traditional way. Only 6 percent of the consumer goods ful on the Indian consumer market can choose business is handled through modern warehouses and between a presence as a niche brand and developing supermarkets. Instead, the majority of this trade “a bona fide Indian business model.” This would takes place in “kirana stores”—small shops with nar- encompass the entire value chain, from production all row shelves and a limited selection, located on the the way to setting up a multi-level distribution sys- ground floor of almost every Indian apartment build- tem. For international companies without historical ing. The kirana stores (also known as mom-and-pop roots in India, integrating themselves into the kirana stores) are usually family operated. They benefit from stores’ distribution network is no simple matter. minimal personnel costs, geographic proximity to According to industry experts, doing retail business customers and their excellent service (including in a city like Mumbai alone would require contracts home deliveries). Especially important is the fact that with several dozen wholesalers and distributors. they offer competitive prices, in contrast to the same Nevertheless, penetrating the market is not type of stores in Europe. impossible. How a medium-sized European company can get a foothold in this booming area of growth has THIS EXPLAINS WHY THE TRULY GREAT retail revo- been demonstrated by Perfetti Van Melle, the confec- lution has not happened yet. According to estimates tionery manufacturer and producer of the mint- made by the Retailers Association of India, sales flavored candy, Mentos. Perfetti Van Melle holds a through modern retail channels will increase by share of about 30 percent in India’s candy market. around 20 percent in fiscal year 2009/2010. Faster There are two main reasons for the firm’s success: restructuring is also being prevented by the fact that first, its advertising commercials carry a distinctly foreign companies are prohibited from making direct Bollywood aesthetic; second, Perfetti Van Melle sup- investments. Walmart, Carrefour and other global plies more than a million retailers and shops, and players can officially hold only a minority stake instead of offering candies in large packages, it made in joint ventures with Indian partners. Shopper’s the canny decision to sell its Mentos in small mono- Stop CEO Govind Shrikhande also doesn’t expect packs that cost just a few cents. the investment barriers to be raised in the next sev- Herein lies one of the main challenges for inter- eral years, even though the entry of international national companies—designing their products and processes in such a manner that they are appealing Purchasing power of Indian consumers on the rise and affordable to Indians. The mobile phone giant Nokia experienced a flop a few years ago when it Income distribution of the population by household attempted to sell phones at something approaching Income measured in 100,000 rupees the level of “Western” prices. Then it developed the Premium >12 2 4 8 1100 model that, thanks to its dustproof case and integrated flashlight, was tailored to the needs of Mass Affluent 2.4–12 17 28 47 India’s rural population. What’s more it only cost $10. Mass 1.1–2.4 53 75 103 This strategy helped Nokia to acquire an impressive Basic >1.1 132 114 78 market share in India of 60 percent (of a total 800 million mobile phone owners) and also gave its inter- 2005/2006 2009/10 2013/14 national strategy a boost; the Nokia 1100 has become Source: World Development Indicators Database, Datamonitor, Roland Berger; figures starting with 2009/10 are based on estimates. a global bestseller.
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OIL- AND PETROCHEMICAL-RELATED INDUSTRIES: DIFFERENT PROBLEMS Thirst for oil Indian oil companies go globetrotting in search for crude, which means that the global exploration heat is growing. Meanwhile, the Indian home market is still rather restricted.
ON DECEMBER 4 LAST YEAR, when oil barons investment by a strategic operator of industrial arounds the world gathered in India’s IT capital Banga- assets can add substantial value.” The company’s lore for the annual World Oil & Gas Assembly (WOGA), attempt to acquire assets of LyondellBasell was seen the pressing concern in the minds of the attendees as a brave step by an Indian private company to was not just whether recoverable supplies will expand. Reliance also signed a deal with Colombian decrease faster than they can be replaced with alter- state oil firm Ecopetrol for two deepwater blocks in native sources. The big issue was the need for an Colombia. alternative business model. “We need evolution in this business rather than revolution,” said Tony Hayward, AND IT IS NOT JUST RELIANCE. All major Indian oil CEO of British Petroleum. He was endorsed by Khalid companies—government and private—have stepped A. Al-Falih, CEO of Saudi Aramco, the world’s largest oil up the exploration heat around the world. Essar, Video- company. “Three Ts—technology, talent and team- con and ONGC Videsh have been tapping into the glob- ing—can do a lot to meet the resource shortfall,” said al oil pool with some success. Al-Falih. Mukesh Ambani, India’s top oil man and one In the absence of resources, the low-cost of the hosts at the event, couldn’t agree more. Despite refineries could become the main attraction for for- the lack of direct resources, his company—Reliance eign companies to India. At the moment, Indian com- Industries Limited (RIL)—has become a major force panies are focusing on upstream activities to secure in the South Asian oil market. oilfield assets, says Narendra Taneja, oil expert and a commentator with Upstream, the world’s largest oil AMBANI, WHO HAS SET UP a giant 580,000-bar- and gas newspaper. He calls it a battle for energy rels-per-day refinery in the city of Jamnagar in west- security, especially as almost 75 percent of India’s ern Indian state of Gujarat, is now aggressively crude requirements are met through imports, conser- importing crude oil and is looking for overseas acqui- vatively billed at $124 billion a year. Twenty years sitions to meet the growing demand. Low production from now—when India is expected to consume more and logistic costs will drive further expansion of Indi- than double of what it does now—its crude import bill an refining capacity, says a senior consultant on oil is likely to soar to more than $248 billion. and energy from Roland Berger Strategy Consultants. Oil analysts say the fight for world oil is global, “Proper investment planning and controlling as well but that special attention should be paid to the activ- as cost-conscious global sourcing will be key to fur- ities of major Chinese oil companies. China consumes ther success of downstream players,” he adds. Indian more than one-third of global oil supplies. crude oil demand of 161 mt per year (2009) has been Recent experience has shown that Indian com- growing at 4.8 percent over the last five years. panies are often losing out to the Chinese. In August Buzz about RIL’s international expansion 2009, India’s largest public-sector oil company, ONGC, became louder when it raised around $700 million by lost its bid to acquire Swiss oil exploration firm Addax selling its treasury shares. “RIL is reviewing a number Petroleum. It lost to Sinopec, a subsidiary of China of global opportunities for growth in its core busi- Petrochemical Corporation. China’s second-largest oil ness,” says a company spokesperson. “The difficult company shelled out $7.2 billion to seal the deal. operating environment of the past year has made Again in December 2009, ONGC lost its bid to develop available several interesting opportunities, where an Iraq’s giant Halfaya oilfield to a consortium backed by
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China National Petroleum, which easily undercut the bio-ethanol and bio-diesel. Addressing concerns, it Indian company’s offer of $1.76 per barrel. has declared that bio-diesel production will be taken Despite a war chest of $283.5 billion in the up from non-edible oil seeds in waste, degraded and shape of foreign reserves, for years it has been out- marginal lands. Bio-ethanol already enjoys a conces- bid for overseas energy acquisitions. And what’s sional excise duty of 16 percent, and bio-diesel is worse, says ONGC chairman RS Sharma, India does exempted from excise duty. not even have a sovereign wealth fund, which is cru- cial for acquiring global energy assets. It has been reli- AS THE INDIAN ECONOMY continues to grow ably learned that the Indian Finance Ministry could quickly, its energy needs are mounting rapidly. It is eventually agree to set up a $20 billion sovereign clear that Indian oil companies will not be able to meet fund to help Indian oil and gas explorers compete with the requirement, and soon the market will be opened their international rivals. for international players. The central question is when and how. EVEN AS THE INDIAN COMPANIES start a global oil shopping tour, the entry of international players in India has remained restricted. The retail oil market continues to be subsidized and controlled by the gov- INDIA AND ITS OIL ernment. However in recent times, it has shown signs • Oil India plans to disinvest by selling of loosening its grip. “We do expect a new form of reg- 11 percent of its equity. ulation which improves the balance between afford- • Essar has projects in Vietnam, Myanmar, able fuels for the public competitiveness of Indian oil- Madagascar and Nigeria. cos and necessary subsidization by the Indian state. • Videocon and BPCL have oil blocks in This should enable state owned companies as well as Mozambique. their private competitors to succeed,” says Walter • Reliance is present in Oman, East Timor, Australia, Peru, Columbia, Kurdistan Pfeiffer, oil expert and partner at Roland Berger and Yemen. Strategy Consultants. “Lower subsidization will drive • A $20 billion sovereign fund is expected to significant efforts to increase efficiency across all help Indian oil and gas explorers compete with downstream operations.” their Chinese rivals. Sustainable biofuel is seen as a direct alterna- tive to oil and gas in the country. “India has regions which could perfectly profit from investments in sustainable second generation biofuels,” says the expert. The government has already decided to decrease the dependency on crude oil imports and is encouraging investment in alternative areas that are sustainable in the long run. The country’s bio-diesel processing capacity is estimated at 600,000 tons per year. Bio-diesel in India is virtually a non-starter. There are many reasons for that, the main ones being the non-availability of vegetable oil and government policies. The edible oils are in short supply, and the country has to import up to 40 percent of its requirements. The Indian bio-fuel policy was announced in December 2009. The government has set a target of 20 percent by 2017 for the blending of bio-fuels—
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DOSSIER #15 Managing India. Managing Indian?
OIL- AND PETROCHEMICAL-RELATED INDUSTRIES: DIFFERENT PROBLEMS Trying to fuel the growth The government of India is trying hard to change the image of the petrochemical sector in the country. It is offering sops and tax holidays to attract foreign players.
ON APRIL 03, 2010, India’s largest public-sector industry currently operates out of 25 major clusters, scommercial enterprise, Indian Oil Corporation (Indian with the western states accounting for 65 percent of Oil), entered into a joint venture with Taiwan’s TSRC them. The states of Gujarat and Maharashtra are host Corporation and Japan’s Marubeni Corporation to set to most of the refining, petrochemical and down- up a state-of-the-art styrene-butadiene rubber (SBR) stream chemical complexes. unit at Panipat, an industrial town around 130 km from New Delhi. The unit, with a capacity of 120,000 THE PRODUCTS FROM THESE STATES are facing metric tons per annum, is expected to produce high- steep competition from cheap Middle Eastern quality synthetic rubber used in the manufacture of products. “The single most important automotive tires, conveyors and fan belts. question is how the Indian petro- This is one of the many projects that have chemical industry, especially on recently been signed between leading international the west coast, is able to com- companies and India’s public-sector petrochemical pete with Middle Eastern prod- corporations. The country has a major unexploited ucts. This will be extremely dif- market with immense growth potential. India’s cur- ficult, and tariff barriers seem rent per capita consumption of polyester is 1.4 kg and to be India’s only defense,” it accounts for 3.1 percent of the total world polymer says de Leeuw den Bouter. consumption of 200 million tons per year. In order to enable India to leverage the critical success HOWEVER, IN RECENT TIMES, there have been factors for the development of instances when these agreements haven’t lasted the chemical industry, the gov- long. Some foreign players have withdrawn from key ernment has launched special projects. In 2009, French petrochemical major Total economic zones (SEZ) called pulled out its investment from a venture to set up a Petroleum, Chemicals and Petro- greenfield refinery-cum-petrochemical project worth chemicals Investment Regions around $7.1 billion in Vizag in the southeastern state (PCPIR). of Andhra Pradesh. Apart from Indian public-sector giants like GAIL, OIL and HPCL, the venture boasted IT IS PROVIDING BENEFITS such as better road Mittal Energy as one of its partners. and rail linkages and income tax holidays for 10 years “Indian projects are continuously delayed. It to attract investment in these clusters. According to will be a challenge to make them happen on schedule, Tata Strategic Management Group (TSMG), the PCPIR within budget,” says Arjen de Leeuw den Bouter of policy is expected to open up tremendous business Roland Berger Strategy Consultants. The Indian petro- opportunities in the chemical and petrochemical sec- chemical sector, which is one of the country’s faster- tor. Both the central and state governments have growing industry segments, at 13 percent per annum, announced incentives such as fast-track clearance faces a number of challenges as it tries hard to attract from respective ministries to induce public-private foreign partners. High costs of energy and raw mate- partnerships and continued fiscal benefits. The gov- rials, and access to basic infrastructure, are among ernment plans to establish three PCPIRs with a likely the major troubles of this sector. India’s chemical investment of $92 billion (as estimated by TSMG). In
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Managing India. Managing Indian? DOSSIER #15
the state of Gujarat, a PCPIR is being set up in investment from a greenfield project in 2009. Govern- Bharuch-Dahej with an investment of $10 billion. ment-owned petrochemical company HPCL is the India’s largest petroleum company, ONGC, and the anchor tenant of Vizag SEZ and plans to invest a state’s Gujarat State Petroleum Corporation (GSPC) are whopping $62 billion on a core area of 270 square km. partnering to establish a petrochemical investment region on a core area of 181 square km, on the shores IN ORDER TO MAKE THE INVESTMENT regions more of the Arabian Sea. In the eastern state of West Ben- accessible, the government has also invested heavily gal, the Haldia petrochemicals refinery is being fur- in infrastructure. For example, in Vizag the gov- ther expanded to 7.5 million metric tons. The second ernment spent around $440 million to upgrade the PCPIR has been approved here. port. Similarly in Haldia and Bharuch-Dahej, huge amounts have been spent to create infrastructure INDIAN OIL CORPORATION and Spice Energy plan requirements such as roads, rail networks, water to invest $20 billion over a core area of 108 square supply and water treatment plants. Apart from the km, on the shores of the Bay of Bengal. Cals Refineries three approved PCPIRs, three more are being planned Ltd. (Spice Energy) plans to set up a crude-oil refin- in the southern states of Karnataka (Mangalore) and ery complex in Haldia with a capacity to process 5 mil- Tamil Nadu (Cuddalore), and in the eastern state of lion metric tons per annum of blend crude in the first Orissa (Paradeep). All SEZs are well connected with phase of the project. The third approved PCPIR is in the sea. “We expect such steps to help foreign play- Vizag in the southern state of Andhra Pradesh, where ers to look at the Indian petrochemical industry more French petrochemical company Total withdrew its positively,” says a senior official in the Department of
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Chemicals and Petrochemicals. With foreign com- panies allowed to own 100 percent of Indian sub- sidiaries, the government hopes to attract more foreign players in this growing segment.
AND FOREIGN COMPANIES do not just bring in money. They also provide new technology, application knowledge and a global client base, says de Leeuw den Bouter. In fact, for the private sector, investment is not the main problem, says Tushar Pania of Reliance Industries Limited. Reliance is one of the major pri- vate players in this field, with a number of refiner- ies in the western states of Gujarat and Maha- rashtra. The most famous of them is Jamna- gar in Gujarat, where Reliance has recently added a giant 580,000-barrels-per-day refinery. Though the company failed to buy assets of bankrupt petrochemical giant LyondellBasell, it continues to “review a number of global opportuni- ties for growth in its core business,” says a Reliance spokesperson.
WILL THE IMAGE OF INDIAN petro- chemical sector change after so many sops, so much investment, and such big ambitions? “Only if it delivers,” replies de Leeuw den Bouter.
KUNAL MAJUMDER is a correspondent with the Indian news weekly Tehelka. You can follow Kunal at twitter.com/kunalmajumder and Tehelka at www.tehelka.com
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Praise to the mother Pepsi, Adobe, Unilever: Indian managers are rising to the top of the world’s biggest companies. What makes them so attractive to foreign employers? Part of their secret: a strong family orientation—and a capacity to deal with complexity.
A NEW BREED OF MULTINATIONAL CEO is emerg- business. With the US model of capitalism under You can also listen to this article sing: charismatic, sleek and eloquent—with an Indian attack, Western businesses might look to Indian CEOs on our audio CD (page 63). background. PepsiCo’s CEO Indra Nooyi; Shantanu for leadership inspiration. “Whereas China’s growth is Narayen, president and CEO of Adobe Systems; or based on low-cost labor, the manufacturing sector and Sanjiv Kakkar, chairman of Unilever in Russia, Ukraine a huge government role, India is thriving despite its and Belarus: These executives share the experience adversity,” says Cappelli. Or, as Edward Luce wrote in of growing up in India. In Spite of the Gods: The Strange Rise of Modern India, Apparently, Indian managers bring multination- the slow-moving and fractured Indian government, al companies insight on leadership and management with its dozens of political parties and messy parlia- that home-grown executives may lack. According to mentary democracy, is not getting in the way much. Peter Cappelli, the joint author of the recent book The Indian Way, Indian managers have a special knack for PERHAPS POLITICIANS HAVE LEARNED a lesson empowering people by creating a sense of mission. from the blind spot that led to the rise of the software And they’re prone to address critical internal matters industry in India. The government failed to regulate rather than focus too exclusively on external affairs, the industry at the outset because it was new. This such as investor relations, M&A and share prices. gave companies a critical chance to flourish in the hands of entrepreneurs. BUT PERHAPS IT IS THE CLEAR VISION with which Scholars have bickered for decades about Indians lead multinational companies that is most which country will rise faster—India or China. They striking. Some 61 percent of Indian leaders said that now seem to have tired of this debate and are examin- articulating a path to the future, strategic thinking and ing the interlocking economies of both countries. Just guiding change were the factors most critical to their look at how many multinationals are using Indian IT exercise of leadership, according to a study performed services for their Asian operations—in China. by Cappelli. Unilever’s Sanjiv Kakkar says: “It’s not only Indeed, India looked over the border to see important that I have the clarity, it’s important that my China’s rising tide at the beginning of the last decade. entire team and the entire company share that clarity “Indians took notice that another poor country was on what we are trying to achieve.” moving fast,” says Soumitra Dutta, Roland Berger Cappelli’s research is part of his efforts to for- Chaired Professor of Business and Technology mulate what is unique about the Indian way of doing at INSEAD. Dutta says that he grew up sensing an
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unspoken feeling of failure among Indians who com- leaders unique? First, one must consider that these pared the situation of their country with others. leaders—such as Nandan Nilekani, former CEO of Infosys, Vikram Pandit, CEO of Citigroup, and Arun “THERE WAS A SENSE OF FRUSTRATION. People Sarin, former CEO of Vodafone—are a biased sample said, ‘We’re not in great shape because of the colonial of the elite, says Amlan Roy, the head of Global Demo- history.’ It was unspoken and fatalistic.” The self- graphics and Pensions Research at Credit Suisse in doubt was compounded in 1967 when the country London. Roy, an Indian who has spent much of his had to devalue its currency and once again in 1991 working life abroad, says these managers are well- when the government was essentially bankrupt. educated and well-traveled. They are good speakers “From a cultural and emotional point of view, that and teachers, and they have risen to the top of the was very painful. It was an important trigger for the Indian meritocracy. country to open up,” says Dutta. That unspoken fear of inferiority has now been HOWEVER, DESPITE THEIR SHELTERED upbringing, largely replaced with entrepreneurial zeal and a ram- such Indian managers are likely to be comfortable with Indra Nooyi, CEO of PepsiCo. At a family visit, pant sense of achievement among much of the popu- the masses and in multilingual, multicultural environ- her mother got compliments for raising such lation. Even the poor are becoming owners of small ments, given the hodgepodge of India’s languages, cul- a good kid. businesses and seem to have internalized the mes- tures and religions. They may possess a sensitivity to sage that education is a ticket out of poverty, as evi- non-Western cultures that Westerners lack and be able denced by the sacrifices that parents are willing to to use that understanding to their advantage to rise make for their children. “Some parents would rather within the hierarchy of a multinational. skip a meal than not send a kid to the right school,” Indian managers are typically comfortable amid says Dutta. complicated or even chaotic environments, says Roy. Most foreigners are struck by the air of pandemonium CONSEQUENTLY, THE MIND of an Indian CEO is that is a part of everyday business and interaction. The more likely to have been imprinted with such stories whole country seems to be in motion at one time. How- of overcoming adversity than with lingering regrets ever, people who know the country well claim the chaos about the past. Since colonial rule ended in 1947, in India is deceiving. It’s a meta-chaos that masks those Indian leaders currently at the helms of multi- orchestrated, large-scale endeavors and the creative nationals didn’t experience British rule personally. use of limited resources, he says. When Luce recounts But they have benefited from some of its positive his own wedding, he reports he wasn’t sure the cere- legacies: English is widely spoken, and Indians have mony would actually take place since his wife’s parents a built-in starting point for understanding Anglo-Saxon hadn’t made any arrangements. But the ceremony went traditions. off without a hitch. Luce says that what often looks like So how have the attitudes of Indian leaders madness is actually a complex system, similar to the of multinationals been shaped? What makes such apparent chaos in a swarm of bees.
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For Roy, upbringing in this type of environment ignored her and went straight to her mother to com- is prime training for managers who want to lead large, pliment her on raising such a good kid. complex organizations. They can deal with complexi- ty because they are capable of managing people. AND THEN THERE’S INDIA’S educational system “Indian managers know how to build relationships to based on British remnants and Jawaharlal Nehru’s get what they want,” Roy says. Vineet Nayar, chief legacy of investing in primary schools and universi- executive of HCL Technologies, described in a news- ties. The system fosters a learning culture among paper interview how he took his organization in one many strata of society. And today, it’s evident in India’s direction and then abruptly changed courses: “I used companies as well, Cappelli and his co-researchers to write a blog every week because I thought people found. For instance, a quarter of new hires in the Unit- wanted to know what was going through my head. But ed States receive no training of any kind in their first one employee told me, ‘Actually, we want to partici- two years of employment, while the Indian IT industry pate in solving a problem.’ So, the blog got converted provides new hires with about 60 days of formal train- into me asking a question: ‘This is a problem I’m ing, according to a study by the Kauffman Foundation. having. How will you solve it?’” As India’s culture of educational achievement China was moving Another explanation for the success of Indian has taken root, children have been placed under high CEOs abroad could be built-in tolerance resulting from pressure to perform. The country trains 1 million engi- fast—and India the country’s multicultural population, which includes neers a year, compared with less than 100,000 in the took notice of that. believers in Hinduism, Islam, Buddhism and Christianity. United States and Europe: It is home to an elite univer- Dutta: “Those executives who were raised in India and sity system that has catapulted India’s scientific and came to the West may have fewer biases than others.” technical capacity to third in the world. Hence, when young people arrive in a competitive work environ- SPEAKING OF TRADITION, MANY INDIAN executives ment—at home or abroad—they’re accustomed to the may have a different understanding of what a family demands placed on them. means than their non-Indian counterparts. Family plays an overarching role in Indian society, and it is VODAFONE’S FORMER CEO SARIN, now a senior defined as far more than the core parent-child rela- advisor at the private equity firm KKR, told a TV pro- tionship. Extended Indian families are likely to be gram: “Being an immigrant clearly had an influence involved in critical decisions about young people’s on my drive because you want to succeed. You’re in education and jobs. Consequently, Indian managers the new country and you say, I want to do good. And may be accustomed to making decisions in consen- you kind of learn discipline and hard work early in sus or in collaboration, says Dutta, and their success your life and then you apply that with higher educa- may be seen as a reflection of the whole clan rather tion and in wider circles as it were. So I think clearly than just the individual. For instance, PepsiCo’s Nooyi being an immigrant in America drove me a little bit told an online magazine that at a family visit, relatives harder and faster which is a good thing.”
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p industry report
BUSINESS IN FOCUS Customer consulting Companies are looking for ways to work more closely with customers during the innovation process. One idea: directly including end-users in product development. This works in both industrialized nations and developing markets. The prerequisite: companies need to open up.
It is a well known problem: the search for Franz Liebl, a professor of strategic market- world. The growing group of consumers with :successful product ideas is more difficult ing at Berlin University of the Arts, observes purchasing power in developing nations are today than ever before. A GfK study revealed how people tinker with things and adapt increasingly willing to provide input them- that the flop rate for new product develop- their usage to solve a personal problem or selves, instead of settling for pared down ments in the fast-moving consumer goods work around a manufacturer’s lack of imagi- products from industrialized countries. They sector lies at 70 percent. In some fields, such nation. This can often introduce real innova- generate innovations for processes, products as the food industry, it’s over 90 percent. In tions in the process. Liebl calls it “bricolage” and services. Yet there are very few compa- manufacturing branches, 87 percent of all or “hacking.” nies with an R&D department that has been product developments never even make it to Some figures offer encouragement: according able to fully exploit the innovation potential the marketplace. The pharmaceuticals indus- to the International Innovation Report, 40 per- in emerging markets. try discusses the issue of “innovation deficit,” cent of all successful innovations today stem In order to do this, they first need to know where rising development costs on one side from customers. It is possible to utilize their more about what is happening in developing are faced by a dwindling number of mar- countries. Anil K. Gupta is currently working ketable products on the other. The Interna- “This sudden tilt toward consumer on establishing a broader knowledge base tional Innovation Report produced by expert involvement is a complete Lazarus with his Honey Bee Network. Honey Bee has auditors at Grant Thornton also highlights move: we thought that died a long compiled data on over 150,000 innovations that fewer winning ideas are coming from time ago.” Kevin Kelly created by farmers and grassroots inventors. R&D departments. Gupta’s employees are constantly traveling Software design giant Terry Winograd, who productive power, especially for companies throughout the country on the hunt for local currently teaches upcoming inventive hot- that observe how customers grow and devel- innovations, inventions and traditional shots at Stanford University, captures the op online. “There is an enormous innovative knowledge practices—potential sources for essence of the problem: instead of thinking of power that no manager had considered even globally successful innovations. users, companies often just think about tech- just a few years ago,” states Yochai Benker, a It is precisely this local knowledge that can nical feasibility and planning. And yet, it is a law professor at Harvard University and provide relevant signals regarding the most well-known fact that the only path to innova- visionary in the open-source movement. This urgent problems facing a population—and tion leads right through a company’s cus- has generated growing competition for com- ideas about how they can be solved. These tomers. The goal should be to incorporate panies that must be taken seriously, not just days, the real trick for businesses lies in find- them into the innovation process as much as in the area of software production, but in ing innovative ways to access this enormous possible. The willingness is certainly there on every area of information and culture pro- pool of human creative and productive the customer side. According to C. K. Prahal- duction—from encyclopedias (Wikipedia), to power, and incorporate it into their innova- ad, customers want to interact with compa- the news (Huffington Post), to entertainment tion strategies on a broader scale. nies, but many businesses have a difficult (YouTube). Therefore, a company needs to be time being truly open to their customers’ as well informed as possible about produc- Companies need to open up their innovation ideas—for the moment. tion processes from the consumer side, in processes. A few pioneers are already doing this The basis for this type of cooperation—draw- order to offer options for collaboration that successfully, as we reveal with some exciting ing innovative drive and good ideas from the consumers will accept. But these efforts don’t examples over the next few pages customer base—is growing steadily. just address target buyers in the developed
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[Design vision—saving the world]
DESIGNERS RETHINK—SOLUTIONS INSTEAD OF PRODUCTS “Design thinking”—it is under this heading that a number of design concerned about: development, energy, health, education.” Clad in schools are undergoing a radical shift in their approach. A new gener- outdoor gear instead of fancy suits, the designers set forth to solve ation of designers is coming on the scene, who not only want to problems in developing nations together with the locals there. The make pretty things prettier, they also want to improve the world. And objective is to create solutions rather than products. A real-world at the center of innovation methods stand the people who should example from Stanford: how can you have light in regions without benefit from what is being designed. “Don’t concern yourself with electricity? The exciting idea is not only to create robust lamps with the little things,” is the advice Terry Winograd gives his students at solar power modules, but also to keep their manufacture and sale in the d.school in Stanford. “Think about the big things that the world is the most remote regions below a price of $20.
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[Juicy discovery]
OPUNTIA—HOT NEW DRINK FROM A CACTUS? Food and drink manufacturers serve taste-testing customers, have The Honey Bee Network’s SRISTI laboratory (Society for Research every ingredient analyzed by experts and send trend scouts out into and Initiatives for Sustainable Technologies and Institutions) is test- the hottest restaurants. But sometimes it still doesn’t taste good to ing the juice and developing it for mass production. They are current- customers. Meanwhile, a collective of women in the Indian village of ly negotiating with Indian Railways on serving the cactus drink on its Saurathra are brewing up what may be the next big drink on the trains—18 million potential customers a day. The lesson: perhaps it scene. The juice from the Opuntia cactus, a.k.a. the prickly pear cac- would be worthwhile for global food producers to take an occasional tus, became the public favorite at one of India’s booming regional glance at provincial tradeshows. Or do you already know what peo- agricultural trade fairs, the Stavik Food Festival, in late 2009. ple eat for breakfastUntersatz in Mongolia?
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industry report f
[Climbing equipment for suppliers]
MARICO—BETTER PICKING Coconuts drive people crazy. They are one of the hardest natural Kerala, they found a farmer who had invented a simple but clever products around to harvest. Many competitions have been spon- piece of climbing equipment for his own use. It enabled pickers to sored to solve the problem of how to get them out of the trees effi- climb the palm trees more safely and faster than any device devel- ciently—without success. Marico, the Indian beauty products com- oped by the engineering elite from around the world. Marico’s CEO pany, may have resolved the problem. The company, whose prod- Harsh Mariwala sat down to collaborate with the Coconut Develop- ucts are based on coconut oil, began having issues with supply ment Board on fashioning a commercial version of the climbing shortages and stumbled upon a solution where no one had ever equipment based on the farmer’s prototype. Some innovations thought to look. In a remote area of the southern Indian state of require Untersatzthe willingness to think outside your own box.
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p industry report
[The Lagerfeld in us all]
THREADLESS—T-SHIRTS THAT DESIGN THEMSELVES Jake Nickell and Jeffrey Kalmikoff launched their company, Thread- vote on the designs they like the best. Hundreds of thousands use less, with $1,000 of startup capital. Today, the business brings in the platform to chat, blog, date, pose as models, take catalogue pho- over $5 million in revenue with a 30 percent profit margin—all with tos and purchase massive quantities of t-shirts. t-shirts that customers design themselves. The company premieres The key question for US-based Threadless: how do you motivate con- dozens of new products on the market every month without adver- sumers to participate and be creative? One key element behind their tising, professional designers, salespeople or merchants. success seems to be their strategy to remain entirely in the back- How? They sponsor design competitions in an online social network. ground as a company. Instead, Threadless manages the creativity of Members provide the ideas—more than 800 per week—and also its customers.
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[World’s largest patient research]
PATIENTSLIKEME—MORE KNOWLEDGE FOR BETTER PRODUCTS Pharmaceutical companies seek information from the real lives of with other patients benefits real-world usage. What’s more, the story patients—information beyond that found in the artificial conditions is true: brothers James and Benjamin Heywood founded the compa- of clinical studies. Now there is a website to help: ny when they were searching for information about their brother www.patientslikeme.com. When you click on an illness here, you Stephen’s illness. Another secret to success: transparency and find the experiences of thousands of patients—clearly organized, mutual clarity among interested parties. PatientsLikeMe sells the easy to understand and statistically prepared. aggregated, anonymized data to pharmaceutical companies such as But why do patients simply give out information about themselves? Novartis or UCB—and states it openly. The patients do not mind PatientsLikeMe functions like a global self-help group; the contact because they will certainly benefit from new medications.
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[Research can happen anywhere]
GE—TURNING INNOVATION ON ITS HEAD One of the world’s largest companies has turned its innovation from overseas development. Recently, GE built its newest fully- processes upside down. For General Electric, the days of developing fledged R&D location in Bangalore. As an example of the advantages innovations on their home turf, to be marketed there first and then possible, this facility developed a portable ECG device for $1,000. adapted for export, are over. Under the banner of “reverse innova- That makes it 90 percent cheaper than its predecessor. But the real tion,” promising new products and services are being developed innovation is in GE’s thinking: reverse innovation only works if a directly in emerging markets—at prices that are locally appealing. company’s R&D locations abroad are taken just as seriously as the And what proves successful abroad can always be exported to the former innovation center in the USA. It would seem that this works market back home to further benefit from cost advantages arising very well at GE.
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industry report f
[The doctor as a product developer]
ETHICON—INPUT DIRECTLY FROM THE OPERATING ROOM No one knows what a surgeon needs in the operating room better ers constantly analyze opportunities for improvements, test prod- than a surgeon. So what could make more sense than sharing expe- uct innovations and share ideas. If needs change in practical applica- rience and ideas with them before developing new surgical materi- tions, the company can adjust its products quickly to suit those als? That is the thinking of medical supplies manufacturer Ethicon. needs. However, to keep its co-developers involved, Ethicon must The company created a global network of 8,500 highly-specialized always be fully prepared to rework its product portfolio to meet the users—surgeons, specialists, scientists and nursing care staff—and changing requirements of medical professionals. Why? Because if has maintained it for years. At its core is a closed online community, you ignore their feedback, doctors will quickly lose interest in the where experts working in real-world situations and product develop- cooperative arrangement.
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The big realignment Following the global crisis, regulation in the financial sector has tightened. The business environment for banks and insurance companies is going through radical changes. As well as new risks there are also ample prospects.
The global financial crisis was precisely adapt to. For example, in the future, banks institutions have already begun with the :that, causing massive upheaval every- will have to comply with stricter constraints expenditure element. They are working on where. It brought the worldwide financial regarding their assets on deposit and with improving their efficiency and streamlining system to the brink of ruin. It swept up higher liquidity requirements. Their prof- their structures. However, the strategic ori- banks, companies and even entire itability will decrease as a result because if entation is proving to be more difficult. After economies. The consequences for the finan- additional equity must be kept on deposit, all, some banks had to be supplied with capi- cial sector were valuation adjustments on a then this will not be available for the actual tal during the financial crisis. If they were to scale never seen before. business of issuing loans. “In the future, a pay it back now, they might lack the funds to Political bodies throughout the world have closer interlinking of capital and liquidity undertake a strategic realignment. made it their stated objective to prevent this prospects combined with a medium-term CORPORATE BANKING BECOMES from ever happening again. For that reason, time frame will be a major factor for suc- MORE APPEALING international task forces such as the Basel cess,” says Markus Krall, the partner respon- Committee on Banking Supervision (BCBS) sible for risk management at Roland Berger. Where could additional funds come from? are in the process of developing guidelines The industry can make adjustments in two One idea is that banks could pull out of non- to “increase the elasticity of the banking sec- areas: the cost side and strategic orientation customer-related investments such as real tor, to thereby provide more sustainable over the medium term. Many banking estate financing. In the coming years, other growth, both over the short and long term,” business areas could become more interest- as Stefan Walter, general secretary of the ing, such as corporate banking, especially BCBS says. FINANCIAL SERVICES for small and medium-sized companies. This business area of Roland Berger has 30 According to one rule of thumb, if the gross PROFITABILITY IS UNDER PRESSURE partners and 250 consultants in more than 20 countries around the world. Its key com- domestic product were to climb by 1 per- Consequences for the financial industry are petencies lie in risk management–recently cent, earnings from corporate banking unavoidable. “The requirements drafted stregthened by Roland Berger’s takeover of would increase by about 3 percent. There within the scope of Basel III for banks and KDB Business Consulting–strategy consult- are two reasons why this business would be Solvency II for the insurance industry are ing for banks, and in the insurance sector. especially lucrative now. First, the market Specific areas of expertise within risk man- changing the playing field—they are chang- generally restructures itself during phases agement include credit and liquidation risks ing the framework conditions for credit in the banking sector following the discus- of economic recovery. To make use of this institutions and insurance companies,” says sions surrounding Basel III, as well as the phenomenon, companies must invest consis- Udo Bröskamp, head of the Competence new regulations for the insurance industry tently. To do so, they require fresh capital Center Financial Services at Roland Berger. under Solvency II. once the potential of their own working cap- These are changes that the industry must ital is exhausted. Second, some banks need
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to withdraw from this hold some appeal. One should note that the mobile applications in the area of micro- business due to the conse- profit margins are under pressure there financing,” adds Bröskamp. However, not quences of the crisis. With a since the end customers are increasingly every country can claim the same degree of clear focus on this area and a requesting simple, less high-margin prod- potential. “Those planning to enter such broad portfolio of high-quality prod- ucts after their experiences coping with the markets must have in-depth knowledge ucts, credit institutions can benefit from financial crisis. Also, the net interest margin about them,” he warns. Ultimately, the insur- this situation. is low due to increasing refinancing costs. ance business is affected, too. Not only does Nevertheless, there are attractive opportuni- it have to deal with stricter capital invest- RETAIL BUSINESS ON THE RISE ties in this business area. “These could ment regulations but it may also have been Another segment that could be attractive include serving customers more efficiently affected by the debt crisis suffered by coun- within the scope of a medium-term strategic without losing customer proximity, for tries in southern Europe. Government loans alignment is the customer-related capital example,” says Bröskamp. New information that used to generate steady and predictable market business, which involves a strategic technologies also offer new solutions. In returns have ultimately turned out to be decision. In the future, banks that engage in Spain, banks have fewer branch offices, with low-margin and very volatile. Insurers are proprietary trading will have to retain con- half of the transactions in the retail business thus faced with the challenge of finding siderably more equity capital on deposit for handled online and another 5 percent car- alternatives for their investments. However, the customer-oriented capital market busi- ried out on mobile devices. The retail sector there are prospects out there, and as ness than before. Therefore, banks must might also benefit from taking a look at the Bröskamp points out, “A portfolio consisting then decide whether they wish to pursue core markets. “Given the dynamic growth in of corporate credits can accomplish precise- proprietary trading or not. From a strategic many developing countries, these present ly what insurance companies or pension perspective, the retail business could also tremendous potential as exemplified by funds need.” .
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Professional services in particular need strategic You can also listen to this article marketing. The core problem, though, is deciding on our audio CD (page 63). what makes service companies truly unique.
“All muscle and no fat” Marketing is becoming more important in the professional services industry. But how does one market non-visible products? According to expert Philip Kotler, you use credibility. Revealing a previously unseen socially conscious side, he recommends combining sustainability and smart communications.
The Dow Jones Sustainability Indexes are Now, high-end service providers might want In his book Corporate Social Responsibility, :the conscience of the investment industry. to rethink the situation. At least, that’s what he examines how companies perceive the Companies identified as “supersector lead- marketing guru Philip Kotler is urging. In a obligation of giving back to society. When ers” not only receive the blessing of critical meeting with think:act, he recommends that American Express promotes education and customers, they will also be among the service companies change their way of tourism projects in developing countries, or favored billion-euro funds that focus on ethi- thinking because what they really do is when IBM participates in social issues, these cal conduct. As a result, sustainability has deliver trust. However, they first need to actions contribute to the companies’ authen- become a firm part of the marketing strate- earn that trust via responsible conduct. ticity, he says. “It’s always better if a compa- gy of global companies. Kotler is at the forefront of the reform move- ny draws attention to itself through its phil- This used to apply especially to manufactur- ment, even though he previously represent- anthropic projects,” rather than by means of ers of consumer goods—until now, at least. ed more traditional marketing approaches. traditional product advertising. 07_15gb_44_46_IR2_IR4_Servicemarketing 08.06.2010 9:40 Uhr Seite 45
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KOTLER AND POLITICS In the last several years, Kotler has spent more and more time on marketing for nonprofit organizations. His orientation to social marketing is conveyed in books such as Up and Out of Poverty: The Social Marketing Solution (1999). He is continually striving and hoping for more improvement, as he also conveyed in his interview with think:act. At the end of the discussion, he offered a statement regarding the political situation in his home country. “I am in a cautiously upbeat mood, and I would be even more positive if the political parties in the US would finally work together for the common good. Instead of thinking for themselves, politicians stick only to their respective party line. They do that to be re-appointed by their party. I hope the time will soon come when politicians can be free and independent in their reasoning. And when that hap- pens, I hope that people will have more respect for politicians.”
In principle, long-term service marketing world. For them, close personal relations buzzword in future, particularly within the begins with a company’s core processes. The with clients are crucial. This skill can be service sector. public will see right through any “green- acquired and it goes by the name of “behav- Looking at seemingly straightforward serv- wash.” Consumers and customers are no ioral marketing.” ices, two-way communications (preferably longer passive participants in the marketing Freshfields Bruckhaus Deringer is one law demand-oriented) with the customer are process: people will find out if a European firm that demonstrates how the concept becoming more significant, and that extends logistics company is marketing itself as works in practice. It draws clients by having all the way to complaint management. The green while at the same time running poorly teams that specialize in various industry sec- Pizza Hut franchise chain, for example, maintained, pollution-spewing trucks in its tors. Team members must not only be right prints its hotline number on every pizza box transportation operations. up-to-date with the latest legal news devel- to take calls from unsatisfied customers. The On the other hand, a substantial social com- opments, they must also be proactive in franchise manager then has 48 hours to mitment offers more than just external keeping the client informed. Thus, in a resolve the problem. gains. It makes companies smarter by creat- broader sense, every good attorney also The luxury-hotel chain Hyatt is also known ing dialogue platforms. They increase in- serves as the client’s counsel. for its fast response times to customer com- house expertise and ensure that manage- plaints—you can even send them to manage- EXTERNAL AND INTERNAL ment understands not just financial markets ment using the in-room television and its COMMUNICATIONS BELONG TOGETHER but also social trends. remote control. However, the desire to hold a long-term Behavioral marketing also fosters a world- DOES DEMARKETING CREATE position is crucial, especially in this competi- wide exchange of information internally. A NEW SENSE OF TRUST? tion for dialogue platforms. And this is Knowledge of global events and issues is where marketing, which often pursues only useful to customers if it is available For Kotler, such trust-enhancing measures short-term effects, needs to rethink its game, around the world. are just a small part of the imminent market- as exemplified by promoting social initia- When it comes to efficient marketing, Fresh- ing revolution. “We want to develop meth- tives. Kotler warns about reducing socially fields combines specialization with the ods that will actually reduce an otherwise oriented commitments too quickly in turbu- advantages inherent in a large-scale compa- continually increasing demand,” is Kotler’s lent times: “Management does save money ny. For example, one of its objectives is to position, which is surprising from a market- in the short term, but will lose it again in the represent clients who were acquired in the ing perspective. The essence of this long term once the situation improves.” finance or corporate sectors in the labor law approach is to perceive “demarketing” as a Companies that abandoned community area, too. Cross-selling is also used as a mar- source of trust. According to this notion, organizations when these needed support keting support tool—if cases span sectors, keeping certain types of customers away most desperately will see interest groups Freshfields will offer a price discount. from your product may actually be a positive and customers losing trust in them. Clear positioning is necessary and becomes marketing approach. Kotler is convinced that services require at all the more difficult as more companies One might be inclined to think that this atti- least as much marketing substance as tangi- seek it. And this dictum applies to Fresh- tude is naïve. But that’s not necessarily so, ble products. In fact, the latter are fairly easy fields and its competitors as it does to every says Kotler, although it does have to be to advertise. Things get a little more compli- service industry. “There’s no sense in spruc- grasped properly in-house. “First, one has to cated when it comes to corporate consulting ing up a commercial if you’re putting out the identify values. And then one has to hire or internationally active commercial law same message as your competitors,” says people who believe in these values and firms, like the Lovells and Linklaters of the Kotler. In other words, “focus” will be the embody them.”
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Crises always represent crucial tests for “They’re probably doing the right thing,” So how does marketing even remain respon- Kotler’s value-based marketing. For exam- Kotler explains “Especially if other banks sive during times of never-ending turbu- ple, in difficult times, how do companies have to address some rather uncomfortable lence? According to Kotler, having one deal with clients that are late with pay- questions on this point.” “script” for bull markets and one for bear ments? John Deere, the US-based agricultur- markets is no longer sufficient. “Companies IT’S EASIER TO SEPARATE THE al equipment manufacturer, may serve as a often get into trouble if they don’t have an GOOD GUYS FROM THE BAD GUYS role model, he says. “John Deere helped early-warning system in place. They see the farmers, while rival International Harvester These questions are certainly being asked, warning signs but don’t counter them.” unceremoniously seized its machines.” not just in the industry but publicly as well. How does one set up an early-warning sys- John Deere’s level of generosity is rarely The growth of social media makes compa- tem? In Chaotics, Kotler mentions two suit- found among service providers, even though nies an ongoing subject of debate. Internet able methods: scenario planning and flexi- times of crisis are a perfect opportunity to portals where consumers can discuss their ble budgeting. In other words, smart mar- create new customer loyalty. Kotler recom- experiences make it “easy these days to dif- keting managers create the ability to expect mends to banks and insurance companies in ferentiate the good guys from the bad guys.” the unexpected. And they have flexible particular that they fully understand the From a marketing perspective, turbulent response systems. Take Regal Entertain- acute problems some of their customers may times are actually good times, according to ment, for example, which is the biggest be facing. He also thinks that their advertis- the tenor of Kotler’s new book Chaotics. movie theater chain in the US. It continually ing requires a different tone. “The financial “Ryanair is an example that says a few monitors attendance figures for individual crisis compelled many service providers to things about seizing an opportunity that movies—should the figures decline, it imme- rethink their marketing and advertising arose from the crisis,” he states. During the diately stops showing the movie in question. strategies.” Solidarity is the new mantra, he crisis, Ryanair ran a massive advertising Their reasoning is that an outdated offer says. For example, Morgan Stanley’s Euro- campaign and thereby tapped customers’ will not draw anyone in and will show that a pean advertisements promote their high magnified price consciousness. The outcome company does not know its customers—and equity ratio compared with other banks. was a substantial gain in market share. that could result in losing their trust. .
KOTLER’S “KEY” POINTERS FOR SERVICE MARKETING MANAGERS.
“QUALITY IS KING” “KNOWLEDGE IS POWER” Nowadays, customers have precise expectations of services they utilize. According to Kotler, the requirements of many customers have changed Social media platforms such as Facebook increase transparency, which as a result of the financial crisis. Former knowledge about customers is means customers now define quality. no longer valid; customers and their needs have to be re-examined. “BUILDING THE MARKETING ORGANIZATION” “YOU CANNOT NOT COMMUNICATE” Building up long-term customer relationships is more difficult today than In these times where social media prevail, everything a company says ever before. Customers are fickle. Marketing must quickly adjust to new must be true and clear. Many service providers ignore this aspect—and situations and therefore needs to have, first and foremost, a very flexible will get stung. For example, the US website airlinemeals.net, replete with organization. thousands of evaluations and photos of in-flight food, has already repudi- ated a fair number of advertising promises. “THE FIRM CAN'T BE ALL THINGS TO ALL PEOPLE” Opportunities for service companies to differentiate themselves from one “BUILDING MEANINGFUL RELATIONSHIPS” another are on the rise. They can be socially oriented or maintain higher Based in France, Targobank demonstrates that the crisis can be a learn- environmental standards than their competitors. It’s all about accessibili- ing experience. Its bank consultants are subject to pay cuts if they give ty. The physical presence remains irreplaceable. For example, online customers investment recommendations outside of a risk category banks in Europe are currently setting up “finance lounges” in major cities. previously set by the customer.
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ROLAND BERGER STRATEGY CONSULTANTS
The global magazine for decision-makers 15 issues (so far)
Finance communication for decision-makers? One example is this magazine. Five years ago, Roland Berger started to provide business journalism for key stakeholders. CNN journalist Charles Hodson says congratulations.
CHARLES HODSON anchors CNN Journalism: first draft of history International’s “World Business Today” which rounds up the day’s business and financial market news. The show also FIVE YEARS is always a long time in business, and think:act includes keynote interviews with major deserves our congratulations as it celebrates its fifth birthday. It has business players and updates on stock been our companion throughout what will surely qualify as the toughest market developments around the world. half-decade most of us will experience in our business lives. We are get- ting used to the breathtaking pace of change in the technical world, and the powerful devices we now carry around in our pockets and briefcases are a constant reminder of those achievements. But the speed and depth of the continuing financial and economic crisis—and its painful that process, but the broader and increasingly important G20. Third, the persistence—have surprised and shocked many of us. Those who were entire world of communication and marketing is adapting to the develop- well informed in 2005 would have spotted the beginnings of three dis- ment of new media. tinct trends that were already reshaping the world. Sure, back in 2005 we knew the Web and digital communication were Events since then have turned the steady flow of these changes into transforming the way we do business. But few of us foresaw the rapid raging floodwaters—and they have washed away many of the assump- development of social media, or the way conventional media like daily tions we made then. First, money, risk and regulation are moving within newspapers and even terrestrial television would now be struggling to new parameters. It will be a while yet before the financial system and survive. Journalism, famously, is the first rough draft of history. As we the global economy recover from the destruction of value and confi- chart our daily progress into the unknown through such CNN programs dence that started with the US subprime mortgage crisis. Credit will not as “World Business Today,” it is best to be humble about the future. It be easy again for a long time, while the severity and extent of new bank- may be an exciting place, but as we march unstoppably toward it, peer at ing regulation remain to be seen. Second, the dynamism of the top it and try to map it out in our minds, it can play us many a trick. We need emerging economies was recognized in 2005, but what has startled and a dependable guide. And that is where think:act comes in. There is a encouraged many of us has been the way that they are leading the way need for high-quality writing about the challenges we face today and out of recession. It is now clear that a fundamental shift in economic tomorrow. But if you want disciplined analysis and inspired thinking power has taken place, with China, Brazil, Russia and India now sitting at from some of the best minds in the world, look no further than this exclu- the top table. We cannot speak of globalization as we did five years ago; sive publication. it is no longer the G7 nations and their corporate titans who dominate I wish think:act well for the next five years, and for many years after that. 07_15gb_48_49_IR3_Zukunft 08.06.2010 9:42 Uhr Seite 48
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FUTURE MARKETS
Printing will be faster in the future. Plants are teaching us about energy production, while IBM is revolutionizing the world of electric batteries. And propeller-powered flight is experiencing a revival.
artificial photosynthesis
Plants grow thanks to the process of photosynthesis.
With the help of sunlight, water and CO2, they produce sugar molecules that form into wood fibers. In other words, plants store energy that they release at a later point in time when they are burned in the form of wood, coal or petroleum. Now, researchers are looking for ways in which photosynthesis could be used to store energy without going through the biomass formation phase. Instead, the plan calls for solar energy, combined with
CO2, water and a catalyst, to be transformed directly into synthetic fuels such as hydrogen in order to produce envi- ronmentally friendly electricity in a fuel cell when need- ed. Experts call the concept “artificial photosynthesis.” The difficulty lies in finding the right catalyst. It would seem that US-based Sun Catalytix has made turbo-ink technology tremendous progress in this quest. The company was founded by Dan Nocera, a professor at the Massachusetts Those with a high volume of printing or copying to do Institute of Technology (MIT) in Cambridge, near Boston. must still rely on the xerographic process that was devel- He and his team claim that they have found a way to gen- oped back in the 1930s. The toner is transferred to the erate enough electricity to meet the daily energy require- paper by means of a complex interaction of lighting ele- ment of a family home using around nine liters of water ments and rotating rollers. And because the printing and some sunlight. The US government also sees promise device must run like clockwork, procurement and main- in the research and pledged $4 million in early 2010 for the tenance of these machines is expensive. company to make the process market-ready. So far, anyone looking to print more than 40 pages a minute was left disappointed as this simply wasn’t possi- ble—until now. Several companies have introduced proto- types that are based on ink technology that enable faster printing speeds. For example, the Australian company Silverbrooks Technologies is planning on manufacturing 60-page-a-minute printers for around €250 using its “Memjet” technology. The Japanese company Kyocera, though, claims to have set a new world record in full- color, high-speed printing with its KJ4 print head. With a resolution of 600 x 360 dpi, the print head has a printing speed of 330 meters a minute. In addition, turbo ink technology offers a competitive advantage. Since it does away with rotating components, maintenance costs drop substantially. If Memjet keeps its promise, office printers might even become disposable.
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An open rotor engine from US company GE
open rotor
Rising energy costs and stricter climate regulations are forcing the aviation industry to develop more efficient propulsion systems. The “open rotor” concept appears to hold much promise, with fuel savings of up to 30 percent. In 2007, the easyJet aviation company introduced its idea for an “eco- jet” based on this concept, and it plans on being able to halve
CO2 emissions by 2015. In 2009, a group of suppliers includ- ing Boeing, Rolls-Royce, RUAG Aerospace and Deharde Maschinenbau agreed to conduct joint research in this field. engines use air less to drive the rotors and more for thrust It has long been known that propeller aircraft are more purposes, their efficiency is much higher than that of jets. In fuel-efficient than jet-engine airplanes. Back in the 1970s, addition, the open rotor concept benefits from the fact that during the first oil crisis, the aviation industry had tried to bigger rotors can be used because a heavier housing is no find ways to use this technology for modern wide-body air- longer needed. One design seems very promising: it has an craft. Research was soon abandoned when oil prices dropped enclosed engine and two exposed rotors with sickle-shaped and the problem of high noise levels appeared unsolvable. blades that turn in opposing directions. This configuration is However, now equipped with high-tech computers and new meant to decrease the energy loss resulting from vortices. All high-performance materials, the industry is taking another in all, one airplane with a capacity of 100 to 200 passengers
run at the issue. equipped with such propellers would reduce CO2 emissions To a large extent, a propulsion system’s efficiency to 10,000 metric tons annually and see fuel savings of around depends on what the intake air is used for. Because propeller $3 million per year.
microscopes for molecules of Utrecht, IBM researchers from Zurich have achieved a breakthrough in nano-scale measurement technology. For the Zircon-ceramic surface Electronic memory storage first time, they were able to measure the charge state of indi- devices are based on crys- vidual atoms using an atomic force microscope (AFM). Per- talline silicon technology. forming measurements with the precision of a single electron Because they keep getting charge and nanometer lateral resolution, researchers suc- smaller, they will presum- ceeded in differentiating neutral atoms from positively or 7.4 µm ably soon reach their sys- negatively charged ones. An AFM resembles a tuning fork tem-related limits. What all with a vibration amplitude of about 0.02 nanometers, or one- future developments have tenth of an atom’s diameter. If the tip of the AFM is placed in in common is a molecular and atomic architecture, in which close proximity to a sample, the resonance frequency will electronic circuits consist of individual molecules, carbon vary depending on the forces occurring between the sample nano-tubes, as well as cluster- and supra-molecules. A prereq- and the tip. In this way, one can determine the tiniest differ- uisite to make this all happen is a measuring technology that ences, using this differential to make extremely precise meas- can deal with such small structures. In collaboration with sci- urements. IBM hopes to use this procedure to develop new entists from the University of Regensburg and the University components for the field of information technology.
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Bracing for litigation Despite prudent decisions and the best possible advice, corporate directors face an increase in legal actions that can impact their personal assets. think:act examines what top managers should look for in corporate D&O (directors and officers) programs.
The Enron scandal of the last decade eral hundred thousand euros a year for mil- more likely to be sued, and more likely to be :transformed corporate governance. It also lions in coverage, essentially let individuals sued for larger amounts, than in the pre- had a lasting effect on the D&O insurance hedge the personal financial risks they face subprime era. Whereas class-action lawsuits market, given CEO Jeffrey Skilling’s legal by playing in the top league. At the same were once common only in the US, such law- bills estimated at $23 million: The case time, the policies are a tool for making corpo- suits—with their massive potential for finan- piqued interest in the coverage that protects rate entities responsible for the actions of cial damage—are gaining popularity outside company officers from personal financial lia- their employees and protecting corporate North America as part of governance reform bility if they are sued. And, as insurers assets. aimed at securing recourse for shareholders. assessed the riskier business climate, premi- According to Advisen, an insurance research D&O POLICY HOLDERS ARE MORE ums began to rise. firm, cases settled since 2005 in Europe were LIKELY THAN EVER TO BE SUED Like malpractice insurance for high-level for average settlements of €117 million. managers, the “directors and officers” insur- In the aftermath of the subprime financial Although some anti-corporate activists argue ance forms a worldwide market today, worth crisis, companies as well as their directors that the coverage creates an incentive for $8.8 billion in 2008, and covers top managers are advised to be even more cautious about misbehavior, scholars find no evidence that in the event of a breach of duty and a result- potential financial liability for their manage- the coverage motivates mismanagement, just ing lawsuit. Usually reserved for companies ment decisions, says attorney Kevin M. as carrying auto liability insurance hardly with a fair share of assets and management LaCroix, the author of the D&O Diary and a gives drivers a reason to cause an accident. board structures, the pricey insurance poli- director of OakBridge Insurance Services. Suits against managers can come with a host cies, with premiums that can reach up to sev- That’s because D&O policyholders are now of punitive effects, including reputational
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D&O COVERAGE: 11 QUESTIONS YOU SHOULD ASK
1. Do my employer’s by-laws and indemni- fication contracts protect me to the fullest extent permitted by law against paying de- fense and other costs of actions against me? For instance, will the company cover eligible loss, jail time and possible fines in the event defense costs up to the amount of the policy company’s subsidiary may be involved in a of a scandal. Enron’s Skilling is serving a deductible or advance my legal fees? legal tangle, she says. 24-year term in prison and was fined To avoid potential problems, Colwell tells $45 million. Fines are typically excluded 2. Under which circumstances can my executives to consider D&O coverage for off- company bring an action against me and from a policy’s benefits. shore subsidiaries placed by the corporate limit the amount of money I receive for D&O coverage tends to be best advised on by defense and other costs? headquarters, or as local laws require, placed lawyers and specialized insurance brokers. in the subsidiary’s country. An important The specialists recommend that policies go 3. Does my company receive information consideration for buyers is to make sure the far beyond the basic requirements of being and solid advice on D&O coverage from an company’s D&O broker has access to partner insurance broker and from legal counsel? large enough to cover the cost of settlements. brokers abroad. “We need insurance policies They stress that policies must be tailored for 4. Does my company regularly review and programs that can adapt to various each individual buyer, depending on the and approve the terms and coverage indemnification scenarios, so that individu- area of business and the risks present. amount of our D&O policy as part of our als are protected in all jurisdictions.” In the US, a large number of D&O claims are risk-management program? Hartmut Mai, the Global Head of Financial made for a manager’s conduct related to 5. How is the “wrongful act” definition in Lines at Allianz Global Corporate & Special- human resources, such as hiring and firing our D&O policy worded? Am I covered if I am ty, a major provider of D&O insurance, says decisions. But an increasing number of acting outside my capacity as a director policies used to have global reach but are claims are being filed against directors and (i.e., if I am acting as a professional advisor now increasingly subject to local regulations. officers for securities-related misconduct. or shareholder)? He recommends one-stop shopping for D&O What’s more, American law is known to have 6. Does my company’s D&O policy specify coverage at larger insurance providers that a long arm from which managers around the that the exclusions for major personal can meet needs in all territories and advise world might need to defend themselves. Wit- misconduct must be for “deliberate” or on peculiarities. Mai also advises that man- ness the Enron-related case of the NatWest equivalent misconduct? In other words, agers who are trying to steer their company’s Three. The British bankers involved were am I covered for inadvertent misconduct? D&O program insist on close contact with extradited to and tried in the United States, 7. Will my defense costs be paid even insurers to foster a mutual understanding of where they also served prison terms for wire for excluded claims, assuming I am proven risk exposure. “Keeping in constant commu- fraud committed in the UK. innocent? nication is not just good for underwriters, it’s Megan Colwell, an expert in management also good for the client because the client 8. Does our coverage contain a provision liability insurance at Woodruff Sawyer & Co., begins to understand how the underwriter that would limit my own exposure in the a California insurance brokerage, offers her event of fraud or misconduct by one of my thinks and what he is looking for in the risk- clients a choice of roughly 10 to 15 insurers. colleagues? assessment process,” says Mai. Her firm is paid by commission from insur- David Walters, who manages the commer- ance companies or consulting fees from the 9. What is excluded from my employer’s cial D&O business of Chartis Insurance in the D&O insurance? Which exclusions are client. Colwell recommends that companies UK and Ireland, a part of the former AIG and typical and which should raise a red flag? with international operations acquire spe- one of the world’s largest D&O insurers, also cialized advice to align their corporate D&O 10. Does my coverage apply if I am sued recommends that companies communicate program to the risks in different countries. by my own employer or another company frequently with their insurance brokers and officer? insurers about business developments that THE BIG QUESTIONS FOR MANY MANAGERS: 11. How does corporate insolvency affect could potentially change a company’s risk SHOULD YOU GET OFF THE PLANE? the D&O policy? What happens to my profile. According to Walters, companies In some cases, these risks can impact the sub- coverage if the ownership of my company should treat their D&O providers just like sidiary organization’s directors, officers and changes while I’m serving as an officer? one of their stockholders—and for good rea-
managers. In others, executives from the Adapted from a Chartered Accountants of Canada brochure son: “At the point of crisis, if the communica- home territory may be at risk: Some have written by Richard J. Berrow in 2008. Title: 20 Questions tion has been two-way and open, a solid rela- Directors Should Ask about Directors’ and Officers’ Liability even been known to question if they should Indemnification and Insurance tionship would be in place to back up the get off the plane in countries in which their claims process.” .
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JÜRGEN HAMBRECHT was born in Reutlingen in 1946. He is married and has four children. He earned his doctorate in Chemistry from the University of Tübingen in 1975. Hambrecht has been CEO of BASF since 2003. Before that, he served the company in various capacities around the world for almost 30 years. He is also chairman of the Asian-Pacific Committee of German Business. In this year’s “Best of European Business” competition run by Roland Berger, Hambrecht was honored with the prize for best European manager. According to the award citation, Hambrecht helped transform BASF into one of the biggest companies in Europe without losing sight of its origins. 07_15gb_52_55_BC1_Hambrecht 18.06.2010 13:07 Uhr Seite 53
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Benefiting from diversity Europe’s mix of styles and cultures give it a competitive advantage, says BASF boss Jürgen Hambrecht. But to remain competitive on a worldwide scale, the continent’s economy must focus on sustainability, innovative energy and globalism.
THINK:ACT Dr. Hambrecht, the effects of the Is there such a thing as a European manage- think it would help to encourage it artificially. economic crisis were felt around the world ment style? Candidates must fit the company and their and we are still living with its aftermath. With the Societas Europaea (SE) we do have a respective sphere of responsibilities. In our com- How do you think Europe performed during European corporate form, but in my opinion pany, all members of the executive board must the crisis? there is no uniform European management be able to demonstrate substantial internation- JÜRGEN HAMBRECHT One of the most impor- style. The question is whether it is even desir- al experience. This is also the goal for the man- tant effects of the crisis was to reveal where the able. One of Europe’s greatest strengths is its agement levels below that. Almost 80 percent of problems lie and intervention is needed. We in enormous cultural diversity. A mix of manage- our managers have already worked abroad. Europe must now learn from this. We are still ment styles and cultures is a competitive facing the most significant challenge: it is cost- advantage, not only in the European market, What is your opinion of a “Europe quota” ing us an enormous amount of time and energy but in the world as a whole. It is no coincidence on executive boards, along the lines of the to protect the European Economic and Mone- that diversity in the workforce and at manage- women’s quota? tary Union from erosion. The crisis also showed ment level is being promoted most actively by It goes without saying, we need more women quite clearly that responsibility and sustain- companies with a global presence. and more international representatives in our ability cannot be disregarded. European corpo- executive boardrooms—that must be a perma- rations are undoubtedly among the leaders in Can you give any examples of this? nent objective in the long-term development of sustainable economic development, but we BASF has created a program dedicated to pre- management staff. But I am completely must establish a global economy based on sus- cisely this end. With “Diversity & Inclusion” we opposed to the idea of quotas of any kind. The tainability and responsibility. That is the best intend to harness the potential of the diversity principle must be that the best person for the protection against crises. The world of politics in our own enterprise more effectively. We are job occupies the position, regardless of nation- can certainly learn from business, here. convinced that heterogeneous teams have an ality or gender. advantage: they are more creative, better able The chemical industry serves as a bell- to solve complex problems, they comprehend a The BASF executive board is dominated by wether for the economy as a whole. Many wider range of customer needs and markets, Germans. Do you aim to change this? chemical companies, including your own and, importantly, it is exciting and inspiring to The composition of our managers of the next as the industry leader, are posting improved be a part of such a team. I experienced this generation is becoming more and more interna- figures again—is this an indicator of sus- myself when I worked as a manager in China. tional—at the moment over a third of our can- tained recovery? Seeing the world from a perspective that was didates for senior management positions come The crisis year of 2009 was stormy. We are not Eurocentric had a profound effect on me. from outside of Germany. This will have a sub- looking forward to better weather now, but stantial impact on the makeup of the executive there are still a few dark clouds in the sky. And One has the impression that the European board in the future. we cannot be sure that 2010 does not hold some concept is largely disregarded in the compo- surprises. This has been demonstrated by the sition of many boardrooms. Do we need It sometimes seems as if Europe is success- crisis in the Eurozone, which had been foresee- more pan-European executive boards? ful despite policies that are inimical to busi- able for some time. Certain risks will still per- The fact that executive boards are becoming ness. Do you subscribe to this opinion? sist in 2010 despite the anticipated recovery. increasingly international is a good thing. But No. Policies in Europe are not generally Caution is still advisable. this movement needs time to develop; I don’t designed to obstruct businesses. Of course, there
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are many difficult issues, particularly for our education. Finally, Europe needs a transparent, industry: how to proceed with regard to plant clear set of rules. Regulations must not arbi- biotechnology, emissions trading and the trarily put any individual industries or regions REACH regulation to name just a few. But one at a competitive disadvantage . must also see that the EU Commission has adopted entirely proper approaches in terms of Some time ago, you stated that you thought its industrial policies in the past. On the other Europe was obstructive to progress. Has hand, much greater effort will be required in much changed in the last few years? order to ready Europe for global competition. I’ll give you an example: in March 2010, the EU In particular, we need a larger pool from which Commission approved commercial cultivation to draw innovation. We need better education of the genetically optimized starch potato, and research and we need clear, transparent Amflora, which we created at BASF. We had rules for everyone. run a marathon lasting 13 years to get this far—the potatoes were tested again and again As a member of the “European Round Table by the authorities. All results clearly indicated of Industrialists” (ERT) you recently helped that the potato is safe. Such a drawn-out and “If we confuse safety with 100 percent to prepare a “Vision 25.” What does this uncompromising procedure can certainly not risk elimination, then we are stand- vision consist of? be called helpful to progress. In other regions, ing in the way of our own future.” We want to make sure that in 2025 Europe is comparable approval procedures take barely a an attractive place to live in, offering sufficient year, as shown by the recent approval of a high- jobs and a reasonable standard of living. The yield soya plant in Brazil. The fact is, we can European Union announced similar objectives only maintain our European standard of living ten years ago in Lisbon, which were to be by embracing innovation more actively. In the achieved by 2010. We can judge for ourselves face of cheap labor in other regions of the the success of this approach today. This is why world, we can only compete in the market by we must learn the lessons of Lisbon 2010 for the producing a steady stream of great ideas. Of new EU strategy for 2020 and turn these les- course, all new technologies and products must sons into tangible steps. The ERT wants to con- be evaluated thoroughly according to the high- tribute to this process. est standards in European industry. But if we confuse safety with 100 percent risk elimina- What are the most important steps? tion, then we are standing in the way of our Firstly, Europe must lead the world in terms of own future. sustainable economic growth. This means achieving harmony between economy, ecology You consistently generate 60 percent of your BASF SE has its headquarters in Ludwigshafen am Rhein, Germany. In and social responsibility. Secondly, Europe sales in Europe. Will this remain the case? terms of both sales and market capitaliza- must be well integrated in the global markets. Europe is our domestic market and our largest tion, it is the largest chemical corporation Ultimately, Europe will be weakened by protec- market. We employ almost 68,000 people in the in the world today. BASF currently employs tionism of any kind. Thirdly, Europe must region. Europe will continue to represent the almost 105,000 staff in 170 countries remain a powerhouse of innovation. This factor highest priority for BASF in the long term. worldwide. In 2009, the group posted sales is particularly important to me. There must be of €50.5 billion and EBIT of €3.7 billion. The corporation is listed on the Frankfurt Stock enough money available for research and edu- About 80 percent of BASF investments are Exchange, and its shares are also traded in cation, even in hard financial times. It must be made in the EU region. What skills do you London and Zurich. our objective to dedicate at least 10 percent of want to continue to concentrate in Europe? our gross domestic product to research and A major part of our international research
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WHAT MAKES EUROPE’S LEADING MANAGERS TICK? In a current study, Roland Berger investigates the values of European managers. In comparison with their US counterparts, the results show: Europe’s bosses are almost as profit-oriented as the Americans, but don’t see themselves so much as strategists or motivators
WHICH AIMS ARE MOST IMPORTANT FOR TOP MANAGERS
GOAL CATEGORIES (in %)
network is located in Europe. The main sites Profitability 42 39 are Ludwigshafen and, since the integration Market positioning 21 23 of Ciba, Basel. We continue to invest heavily Market performance 18 15 in research and development even during 2009, even increasing the level slightly. Power and prestige 77 We are also investing in our growth markets, Financial goals 57 such as the European gas market. Here, we are working mainly on expanding the Social goals relating to employees 55 natural gas infrastructure, for example with Aims relating to society 24 the Nord Stream pipeline in the Baltic Sea, a joint venture with Gazprom, E.ON Ruhrgas, and Gasunie. The consortium is investing a total of €7.4 billion in the pipeline, ROLES OF THE IDEAL TOP MANAGER which is over 1,200 km long and will ROLE IMPORTANCE contribute substantially to securing Europe’s very important not important energy supply. 1 2 3 4 5 6 Strategist Strategist is considered less important Following the acquisition of Ciba, you now Doer have to consider the interests of a Swiss company. Does it help that the national Organization shaper
cultures of Germany and Switzerland are INTERNAL Motivator Motivator and entrepreneur so similar, or is it only corporate cultures Entrepreneur are considered less important that matter here? We decided to buy Ciba because their products Representative complement our portfolio and they fit with Spokesperson our strategy of becoming more economically Networker Networker and philan- resilient and competitive through specialist EXTERNAL thropist are clearly con- capabilities. When companies are integrated, Philanthropist sidered more important the objective is to merge different corporate Europe USA cultures. Nationalities are somewhat less important, especially as Ciba was also an international organization. Incidentally, COMPARISON: EUROPEAN VERSUS AMERICAN MANAGEMENT STYLES the integration went extremely well, more quickly than expected, and is now complete EUROPEAN TOP MANAGERS AMERICAN TOP MANAGERS for the most part. Profitability most important GOALS Profitability most important Internal management roles like IDEAL ROLE External management roles like One final question: Do you consider · Strategist · Networker yourself to be first and foremost a German, · Motivator a European, a resident of Ludwigshafen, Requirement for more doing ROLE IN PRACTICE Requirement for doing and or a citizen of the world? motivation of employees I am a Swabian by birth, who feels at home all over the world. At the same time, Less doing—more time for AIMS Less doing—more time for strategy and people networking I am a committed European and have chosen to live in the Pfalz region of Germany. .
Source: Roland Berger Strategy Consultants 07_15gb_56_57_BC3_WIP 08.06.2010 9:46 Uhr Seite 56
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WORK IN PROGRESS
One current study explains paths to growth, while another describes the prospects of the aerospace industry. In a new book, consultants show why “green” business is a huge topic for Roland Berger. And a project with the University of Oxford seeks the fundamentals behind good reputation management.
RESTRUCTURING Top issue: growth
Upswing in Sight?: Business Development After the 2009 Catastrophe is the title of the current Roland Berger study on the topic of restruc- turing. The consultants interviewed more than 500 companies in western Europe, the EEC, Asia, the Middle East and the US. The Competence Center Corporate Perfor- mance’s key questions were: Which indus- tries and regions have overcome the crisis and how did they do it? Initial findings are already available for Ger- many. These state that four out of five com- panies pushed ahead with their restructur- ing measures during the crisis. The compa- nies were able to reduce their personnel costs by 10 to 15 percent—without relying on more reorganization-related layoffs. After focusing on cost reductions, future growth and sales initiatives are at the top of the agenda, the report says. Most decision-makers consider manage- BOOK The book initially provides an overview of ment’s commitment and an integrated con- Green benchmarking the market, outlining the unbowed cept as critical factors to success. Rapid dynamism of green business models in a implementation remains important, but is More and more companies are now seeing diverse range of industries. However, it also somewhat less of a priority. that making money via environmentally raises the question as to how much different sound business is not just a realistic possibili- approaches to regulation and technological ty, but actually an alluring way to tap new developments, in particular, will influence STUDY sources of revenue. As a result, Roland Berg- potential yield in the future. Having high- Challenges in the sky er has chosen the theme of “Green Business” lighted these questions, the book then turns as one of this year’s five main topics. In addi- its attention to a collection of examples from The European aerospace industry has devel- tion to a number of individual studies, the individual sectors and markets in search of oped swiftly in the last two decades. The consultants are currently working on a book the answers. Lastly, the authors address the industry’s consolidation created various that summarizes both the various aspects question of how individual countries com- world market leaders, on both the OEM and that make up green growth and the compa- pare internationally, thereby providing an supply side. Growth, solid profit margins and ny’s considerable experience in this field. international green benchmarking index. the success of key space missions demon-
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analysis is to provide approaches geared MORRIS Unlike consumer product sectors, toward improved visibility and recognition where customers are willing to overlook the of a brand, while generating local and inter- quality of employees or focus on the product national image effects. The project team is rather than the people, in the service sector the also preparing a case study pertaining to quality of consulting is the product. Quality is international brand management that it difficult to determine from an outsider’s per- intends to publish anonymously in an inter- spective and therefore a company’s reputation national science magazine. Research part- is a critical signal of quality. ners include Tim Morris, head of the Centre for Corporate Reputation, and Will Harvey, a What is the main mistake companies make research fellow at the center (see the inter- in their reputation policy? view below). HARVEY Firms tend to take a scattergun approach; that is they do a lot of things but with little focus, and neglect to make a consis- INTERVIEW tent investment in their reputation over time. Five minutes to ruin They also fail to understand how clients make a company a difference in shaping their reputation, nor do they properly understand how clients make strated the industry’s strengths. However, THINK:ACT Professor Morris, what is the aim judgments based on reputation. challenges are looming. The demand stem- of the Oxford/Berger project? ming from national governments could TIM MORRIS Our focus is on the reputation of What outcomes are you expecting from wane as may their support for the industry. Roland Berger across different groups, in par- the project? Regulatory measures will also likely ticular amongst partners, strategists, clients MORRIS We aim to provide a comprehensive decrease. This means that companies’ busi- and non-clients. We are also interested in ana- analysis of the reputation of Roland Berger and ness models, product portfolios and opera- lyzing its reputation across different country produce a detailed executive summary and tional performance will be headed for the offices as well as in a variety of company areas presentation of our findings. Although it is testing area. A current Roland Berger study such as restructuring, corporate finance, mar- impossible at this stage to say what our exact begins its examination at precisely this point, keting and information management. outcomes will be, one of our preliminary with consultants taking a look at major observations has been that the decentralized trends and the primary factors behind suc- Why is reputation such an important issue autonomy of different national offices appears cess in the aerospace industry. these days? somewhat at odds with the centralized WILL HARVEY Warren Buffett is quoted endeavors of the headquarters. This presents as once saying: “It takes 20 years to build major challenges for achieving a unified and RESEARCH PROJECT a reputation and five minutes to ruin it. global reputation. How to manage a If you think about that, you’ll do things brand’s reputation? differently.” Today, reputation is more impor- tant than ever before because firms in most How does one manage a brand’s reputation? sectors are not only faced with increasing TIM MORRIS is professor of management The University of Oxford has chosen Roland global competition, but also a greater exposure studies and program director in the Centre for Berger as a case study for best practices asso- and accountability to the public. Consequently, Corporate Reputation at the Saïd Business School, University of Oxford. He is also a fel- ciated with international brand manage- the most competitive organizations will be low of Green Templeton College. ment. Together with experts from the Centre those that have the best reputation across a for Corporate Reputation at the Saïd Busi- string of different groups. WILL HARVEY is a research fellow in the ness School, Roland Berger’s marketing con- Centre for Corporate Reputation at the Saïd sultants will analyze the company’s reputa- What is specific about reputation manage- Business School, University of Oxford. tion among various target groups. Aim of the ment in the services industry?
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“Only money grants independence” In his novel Angstblüte (Blossom of Fear), German author Martin Walser portrays a dealmaker. As part of Roland Berger’s “Literature Meets Business” discussions, he met with Alexander Mettenheimer, CEO of the private bank Merck Finck & Co. On the agenda: justice and independence.
THINK:ACT Gentleman, what do you sponta- about injustice. Because that is the only thing And the main impact this religion had on me, neously associate with injustice? that I have experience with. and not just on me, of course, was that we ALEXANDER METTENHEIMER That not every- wanted the world to be a just place. That was- one can live off of their wealth. You recently said in an interview that n’t a theory, it was a feeling. Everything I have MARTIN WALSER I have a confession to make: you are still a socialist as far as justice is expressed in a political context could only be When I learned that this discussion would be concerned. an extension of this youthful experience, that about justice, I felt deeply incompetent and WALSER Even though I don’t remember saying there should be greater justice out there. I’ve could convince myself to participate only if I that, it would probably be true. I was raised a given up on that by now, however. I merely would not speak about justice at all but rather Catholic and a rather devout Catholic at that. talk about injustice these days.
The author Martin Walser often explores the nature of capitalism in his works.
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Because there is no justice? Mr. Walser, in your works you express that METTENHEIMER I do agree with you here. But WALSER How can there be justice? We’ve all injustice arises from injuries, violations the reality is that money and independence are experienced that socialism is incapable of creat- resulting from dependence. two entirely different things. You can also have ing justice. Now I can even say: There is no WALSER Of course. We all know this. mental independence. social order that can possibly create justice. If WALSER It is an ideology to believe that such a someone claims that it can, then it’s always just So are we all injured, violated? thing as mental independence existed. an ideological promise that can never be kept WALSER If we weren’t, we wouldn’t be here. My METTENHEIMER That is not an ideology. People in reality. You can only make people more sen- most recently published stage of this develop- have an ability to form an opinion independ- sitized about injustice. ment is Karl von Kahn, an investment consult- ently. This doesn’t depend on money. I consider ant from Munich, who said: “Because people it unjust that the state doesn’t give more people Mr. Mettenheimer, you once said in an inter- are the way they are, we need to become inde- the opportunity to build enough wealth to view that the wider the gap between rich pendent of them. Theologians and philosophers allow them to live off it, that the majority of cit- and poor, the better. can argue about freedom. There aren’t two ver- izens are financial transfer recipients. That is a METTENHEIMER It is easier when you think in sions of the word independence. Independence structural failure of our society. We need to cre- extremes. If we’re all equal, then we’re living in is the most desirable status.” My Karl von Kahn ate a state where each person is responsible for the former East Germany. And if we’re some- goes on to say: “Merely money grants independ- their own life first of all. Where everyone also place completely unequal, perhaps Nicaragua, ence. Money is the only way.” has the goal of supporting themselves from where the gap between rich and poor is among In that regard he is quite different from anoth- their own wealth. If that doesn’t work, then we the widest in the world, then we have a mini- er man, someone whom he has every reason to truly have an unjust state. mal number of people holding the greatest por- respect: American investor George Soros, who tion of wealth, and everyone else is poor. And has said that he would like to earn enough Then how should we understand the title of somewhere in between is where we in Germany money that other people are dependent on him. your article “Wealth Is a Flaw?” all feel comfortable. The question is: Where do My Karl von Kahn contradicts him in this METTENHEIMER Please don’t overlook the ques- we place ourselves? regard and says: “I don’t want anyone to tion mark at the end. It appears in the context depend on me.” He is my mouthpiece and that of placing the focus on high earners, the And where could that be? is the essential point: You can’t be dependent wealthy. Those are just a very few people. If you METTENHEIMER The renowned German econo- on anyone. Everybody you depend on will take look at tax statistics, you’ll see that only 12,500 mist Wilhelm Röpke once said that any advantage of it. That is called power. Power people declare €1 million in income. attempt to found an economic order based on can only be abused. There are no philanthrop- morals that are higher than the social average ic ways of using power. Power is always some- Who report it … will end in coercion. And we’ve seen that in thing illegitimate. I can’t imagine that there is METTENHEIMER There are 250,000 people who socialism. Now we want to establish an order a person anywhere who does not seek to be report an income of more than €250,000. Con- that enables the greatest possible number of independent from that. sidering the size of Germany, that is too few. people to take advantage of the benefits with- And they get called on for everything. Extra out taking too much away from them. That will So we are dependent on money, after all … duties, affluence taxes, high inheritance taxes. be different everywhere. Yet statistically speak- WALSER That’s what you say. I say: Only The attitude: Take it from the rich. ing we can prove one thing: Economy growth money makes you independent. That does not rates are the strongest where the gap is widest. mean: I am dependent on money. It is probably understandable when a mem- That may be unjust from the individual’s per- METTENHEIMER I’d like to contradict you when ber of the precarity says “I’d like to have spective, but better for the collective whole, it comes to independence. I have seen many their problems.” because a growing economy is better than a families with plenty of wealth and their mem- METTENHEIMER Yes, but it’s completely irrele- stagnant one. bers are terribly dependent. vant to the economic reality. The reality should WALSER On what ? be that the majority of the people should pay Then are such contradictory statements METTENHEIMER On a collapse, a total failure of the majority of the taxes. When we have more about justice self-deceiving? the situation they find themselves in. Where recipients than contributors, then you realize METTENHEIMER We all know this: We are not money rather harms them. In some cases, that justice has transformed into injustice. The all equal. The state can only treat people equally, wealth is experienced as a burden. People can’t collapse in Greece is unjust to the population. but to claim that we are all equal is simply false. deal with it, don’t know what to do with it. Why? Because more money was spent than If I demand that the state offers equal opportuni- They sometimes attempt to escape. was available. If we do the same, then that is ties to everyone, then equality is the right princi- WALSER But individuals are indeed in control of what awaits us. I consider that unjust. Every ple. But do I expect that everyone will earn the that! You are not actually dependent on others hotel owner treats his best-paying guest the same afterwards? Then I have to say: No. in that situation. best. Only our government says: Hammer the
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ALEXANDER METTENHEIMER is the CEO and a personally liable partner with Merck Finck & Co., a private bank. The 57-year-old management spokesman has been with the bank since October 2001, and is responsible for the Financial Markets department as well as the Research, Legal, Communications, Auditing and Central Administration departments. He learned the subtleties of banking with Citibank in London.
MARTIN WALSER is one of Ger- many's most renowned authors. He has received many awards for his lit- erary works, including the Georg Büchner Prize in 1981 and the Peace Prize of the German Book Fair in 1998. In his body of work, he often writes about business as well, most recently in his novel Angstblüte (Blossom of Fear) about finan- cial investor Karl von Kahn.
rich again. The media does it. Politicians do it. Very well, but what about women? WALSER Let me—please accept my apologies— But that just can’t be right. Money comes from WALSER What women have to say, they should offer an example from one of my novels. Xaver, the businesses. No one becomes wealthy from say for themselves. a chauffeur, has a wonderful boss, Dr. Gleitze, a doing nothing. METTENHEIMER I started out at a bank, which Mozart lover, musical and cultivated. And nev- WALSER The way you reacted to my word is a real meritocracy. There they always said ertheless, the relationship between them is “independence” makes me shiver. I don’t know that it’s not a question of age, gender or race. A unequal, a non-relationship, and Xaver says if you can imagine the condition of others hav- person who is efficient will receive more than the following about this non-relationship, ing power over you, and not being able to do one who does less. And I think that’s absolutely which also ultimately makes him ill. He says: anything other than accept it. And that is right. But who decides that? Justice is not some- “He thinks about his boss at night, and he dependence. Dependence deforms people. And thing abstract, but rather the total outcome of knows that his boss doesn’t think of him at in civilized, meaning non-dictatorial, condi- our actions. Someone, somewhere said: “I night.” That’s what makes him unhappy. tions, there is nothing so deforming as being would like to offer you this job.” And the other METTENHEIMER Yes, that’s certainly true. But dependent on this, that and the other. People person accepted it. These are two parties in a no one forced him to stay there. would not be so dependent if they had money contract who have taken action. WALSER EVERYTHING forced him to stay and their only problem was where to put it. WALSER Do you think that justice can be estab- there! It’s a wonderful job. There’s none better. METTENHEIMER I agree with you. I started out lished in such negotiations, even in a dependent METTENHEIMER You see, that is the freedom with 800 German marks in my pocket … relationship? that you have as a writer. But in reality, he WALSER I’ve never met anybody who didn’t say, METTENHEIMER I have always taken guidance needs to make a decision if he feels it’s making “I started out with 500 marks.” from what I read by German philosopher Josef him ill. I have moved during my life, because I Pieper about St. Thomas. He divides justice wanted a job that I found more appealing and Yet society has learned to deal with inequali- into the principles of just exchange and distrib- because it paid better and because I gained ty, after all. utive justice. “I sell my house and receive a cer- experience there. . METTENHEIMER What does “just” mean ? This tain price for it.” These are decisions that is a simplification, but: A police officer who everyone would like to make. Every person This interview was conducted in cooperation lives in the eastern part of Germany pays a needs to ask him- or herself: “Have I hired with the magazine Wirtschaftswoche, where it will also be published. In the “Literature totally different rent than the officer who lives someone after offering that individual an Meets Business” discussion series, Roland in Munich. Both do the same job, but they will unfair contract, after I have coerced or exploit- Berger aims to offer new perspectives on have quite a difference in net income left over ed someone to make them relent?” That would economic interdependencies. after paying the rent. be unjust behavior.
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Steve Jobs’s rulebreaking affects think:act, too. Starting with this issue, this magazine is also available in an iPad version. “Don’t settle” Soon, think:act will be available on the iPad. The iPad! is the latest stroke of genius by Apple CEO Steve Jobs. Jobs is the ultimate rulebreaker. But what drives him? Some personal insights …
JOBS ON turned 30. And then I got fired. had been rejected, but I was still DROPPING OUT How can you get fired from a in love. And so I decided to start “I naively chose a college that was company you started? Well, as over. almost as expensive as Stanford, Apple grew we hired someone I didn’t see it then, but it turned and all of my working-class par- who I thought was very talented out that getting fired from Apple ents’ savings were being spent on to run the company with me, and was the best thing that could have my college tuition. After six for the first year or so things went ever happened to me. The heavi- months, I couldn’t see the value in well. But then our visions of the ness of being successful was it. I had no idea what I wanted to future began to diverge, and even- replaced by the lightness of being do with my life and no idea how tually we had a falling out. When a beginner again. It freed me college was going to help me fig- we did, our board of directors to enter one of the most creative ure it out. So I decided to drop out sided with him. So at 30 I was periods of my life.” and trust that it would all work out—very publicly out. What had out OK. It was pretty scary at the been the focus of my entire adult JOBS ON time, but looking back it was one life was gone; it was devastating.” LOVE of the best decisions I ever made. “I’m convinced that the only thing The minute I dropped out I could JOBS ON that kept me going was that I stop taking the required classes STARTING AGAIN loved what I did. You’ve got to that didn’t interest me, and begin “I really didn’t know what to do find what you love. And that is as dropping in on the ones that for a few months. I felt that I had true for your work as it is for your looked interesting.” let the previous generation of lovers. Your work is going to fill a entrepreneurs down—that I had large part of your life, and the JOBS ON dropped the baton as it was being only way to be truly satisfied is to BEING FIRED passed to me. I met with David do what you believe is great work. “Woz and I started Apple in my Packard and Bob Noyce and tried And the only way to do great parents’ garage when I was 20. to apologize for screwing up so work is to love what you do. If you We worked hard, and in 10 years badly. I was a very public failure, haven’t found it yet, keep looking. Apple had grown from just the and I even thought about running Don’t settle. As with all matters of two of us in a garage into a $2 bil- away from the valley. the heart, you’ll know when you lion company with over 4,000 But something slowly began to find it. And, like any great rela- employees. We had just released dawn on me—I still loved what I tionship, it just gets better and our finest creation—the Macin- did. The turn of events at Apple better. So keep looking until you tosh—a year earlier, and I had just had not changed that one bit. I find it. Don’t settle.”.
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FOLLOW-UP READING TIPS
Reformer takes over at Harvard In his new book, Chaotics, mar- Since its founding, think:act has closely followed keting expert Philip Kotler offers discussions pertaining to management training strategy-related ideas for turbu- programs. Issue 4 initiated this coverage with a lent times. It’s comforting to pro/con analysis of whether the MBA is still rele- know that even though strate- vant today. One individual may give the debate gies are changing fundamental- new impetus: Nitin Nohria, a professor of business ly, developing and implementing administration, will be taking the helm as dean of them is still possible, according the Harvard Business School. He is an unconven- Pinault may make a move to Kotler. Professor Peter Cappel- tional thinker who is critical of the standard con- As we report in think:act 14, PPR CEO François li outlines the rise of the Indian tents of traditional, elite MBA courses. Harvard’s Pinault wants to create a new concept of luxury. management model in The India decision-makers did not have an easy time with his Pinault’s understanding of luxury has a lot to do Way—worth reading for anyone appointment, evidenced by the string of regular with the exclusivity of hand-crafted perfection. seeking a better understanding meetings held by 12 faculty members over recent One name that would fit nicely into this philoso- of India’s economy and culture. months. President Drew Faust also felt compelled phy is luxury designer Hermès, whose patriarch For those seeking more on India, to solicit external input. It will be exciting to see Jean-Louis Dumas recently passed away. Now British finance journalist where Nohria will there’s speculation that with his passing, PPR Edward Luce gives an outsider’s tighten the screws could take over Hermès. views on the many contradic- first. Observers have tions of the country’s society in high expectations— Is the percentage of women relevant? In Spite of the Gods. How impor- as Financial Times In Issue 12, we covered the debate about the per- tant the Internet has become in writer Stefan Stern centage of women in the ranks of top managers. terms of generating new ideas in put it, “By appointing The University of Michigan has now shrewdly today’s society is addressed in Prof. Nohria, Harvard asked: what has the Norwegian percentage Yale professor Yochai Benkler’s University has sig- actually changed? Well, the average experience of weighty The Wealth of Networks. naled that it is not top managers dropped; more female CEOs have Nitin Nohria—to what extent will he frightened of debate, MBAs; and more are likely to come from middle reform Harvard’s MBA program? or reform.” management than from other senior positions.
MASTHEAD PHILIP KOTLER: PUBLISHER AUTHORS Jim Krantz; p. 40: gallerystock/Derek Swalwell; p. 41: Chaotics Prof. Dr. Burkhard Schwenker, CEO Nina Jeglinski (Kiev), Frank Gruenberg, Gerd gallerystock/Christopher Griffith; p. 43: Illustration: Roland Berger Strategy Consultants Huebner, Christoph Hus, Kunal Majumder (New iStockphotos/zubada; p. 44: gallerystock/Christopher Am Sandtorkai 41 Delhi), Tobias Moorstedt, Marcus Schick, André Griffith; p. 45: gettyimages/Bloomberg; p. 47: iStock- 20457 Hamburg, Germany Schmidt-Carré, Guido Walter, Rhea Wessel, photos/blackred, pr; p. 48–49: iStockphotos/Thomas Tel.: +49 40 37631-40 Johannes Wiek Vogel, Memjet; p. 49: Science Foto, General Electric; p. 50: Illustration Sylvia Neuner; p. 52: ullstein bild/ DIRECTOR CONTRIBUTING AUTHORS Reuters; p. 54: Roland Berger Strategy Consultants; Torsten Oltmanns Charles Hodson (New York) p. 56–57: Illustration Sylvia Neuner; p. 58: Sven Paus- PETER EDITORIAL ADVISORY BOARD ENGLISH EDITION tian; p. 60: Roland Berger Strategy Consultants; p. 61: CAPPELLI: Roland Berger Strategy Consultants Geoff Poulton, Patricia Preston, Asa C. Tomash Apple, corbis/Kim Kulish; p. 62: Harvard University The India Way Dr. Christoph Kleppel †, Felicitas News Office/Stephanie Mitchell GRAPHIC DESIGN Schneider Andrea Huels, Ngoc Le-Tuemmers, Sabine Skrobek PRINTER PUBLISHING COMPANY Pinsker Druck und Medien GmbH, 84048 Mainburg PRODUCTION BurdaYukom Publishing GmbH Wolfram Goetz (resp.), Franz Kantner, COPYRIGHT Konrad-Zuse-Platz 11 Silvana Mayrthaler, Cornelia Sauer The contents of this magazine are protected by 81829 Munich, Germany copyright law. All rights reserved. Tel.: +49 89 30620-0 PHOTO EDITORS EDWARD LUCE: Beate Blank (resp.), Michelle Otto, Benno Saenger NOTICE MANAGING DIRECTOR Opinions expressed in the articles of this magazine In Spite Dr. Christian Fill PHOTO CREDITS do not necessarily reflect the views of the publisher. of the Gods Cover: Illustration Pietari Posti, ullstein bild/ EDITORS IN CHIEF Lieberenz, imago/Rolf Braun; p. 9: dpa/Vladimir; Alexander Gutzmer (resp.), p. 10: dpa/Patrick P; p. 14–15: Illustration Pietari [email protected] Deputy: Tobias Knauer Posti; p. 16: AFP/Manan Vatsyayana; p. 17: gallerys- Do you have any questions for the ART DIRECTION tock; p. 18: gettyimages/Bloomberg; p. 20–21: pr; editor or the editorial team? Would Blasius Thaetter p. 22: gallerystock/William Caste Photo; p. 23: getty- images/The India Today Group; p. 26–30: gallery- you be interested in learning more YOCHAI MANAGING EDITOR stock/BIWA, pr; p. 31–33: Illustration Pietari Posti, about studies by Roland Berger BENKLER: Marlies Viktorin pr; p. 35: Benno Saenger; p. 36: imago/ Strategy Consultants? Just send an The Wealth EDITORIAL David Ewing; p. 37: gallerystock/Richard Maxted; e-mail to [email protected] of Networks Tobias Birzer p. 38: gallerystock/Geof Kern; p. 39: gallerystock/
62 07_15gb_63_CDSeite 18.06.2010 13:05 Uhr Seite 63
Highlights from this issue on CD
Listen to the following articles:
INDIA INNOVATES DIFFERENTLY (P. 16) kWhy India’s companies can do more than just cheap
A LOT OF WHITE SHELVES (P. 22) kLocal stores still dominate India’s retail trade—for how long?
PRAISE TO THE MOTHER (P. 31) kWhy are Indian CEOs so successful in global corporations?
SOMETIMES POLITICS CAN’T BE POPULAR (P. 8) kSergey Tigipko’s fight for reform in Ukraine
LOCKING HORNS (P.10) kWhy management conflicts should not always be avoided
“ALL MUSCLE AND NO FAT” (P. 44) kPhilip Kotler explains how to market professional services 07_15gb_01_Umschlag_aussen 18.06.201013:20UhrSeite1
think:act The global magazine for decision-makers by Roland Berger Strategy Consultants DOSSIER: Managing India. Managing Indian? Issue 15 OADBERGER ROLAND culture management European on Hambrecht Jürgen can do more than just cheap just than more do can Mastering complexity Mastering India and its companies its and India The art of productiveofart conflicts.The financeupheaval.worldinofThe PhilipKotler reinvents himself. and independence and money injustice, and justice on WalserMartin TAEYCONSULTANTS STRATEGY The global magazine for decision-makers for magazine global The su 15 Issue