Musical notes

Great interview on the state of the music industry with Tom Silverman in Wired Magazine.  Also some really interesting factoids in Fast Company.  A few extracts:

* Sweden is probably one of the few places in the world where music sales were up last year – and this is the land of the Pirate Bay

* Despite the promise of myspace and self-publishing, its actually become quite difficult for an artiste to make it on his/her own.  In 2008, only 10 artistes broke the 10,000 album sales number by themselves.  215 had a label behind them.  And the number of people breaking 10K is falling

* 80% of the records released in the US have sales of under 100 copies.  Almost 20% sold just 1 copy

* Music labels apparently buy their own songs on itunes to drive up the hype (Maybe we’re overly harsh on Indian companies).  Sidenote: You can also buy twitter / facebook followers to boost your popularity (more on that here)

And in case anyone was still wondering about the future of music albums, heres a graph:

Who’s your Shyamalan?

Reposted from Marginal Revolution, a simple graphic on the life and times of M Night Shyamalan

One great movie, a couple of interesting ones… and ten years of mediocrity (or undelivered promise).  I stopped watching after The Village… but clearly the studio bosses believe there is a lot more promise than the public sees.

We see this all the time in cricket –  players persisted with beyond their sell-by date – because they did something spectacular a long time back.  And if they happened to do it on debut, the rope is longer.  Occasionally they deliver – and the thrill is higher –  our patience gets justified in our minds.

We see the equivalent in the workplace too.  People hired with great track records.  The star who cracked tough accounts once upon a time.  The hero who got the plant back on line.  The young grad who destroyed the competition.  Now happily ensconced in the bureaucracy and feeding off the system.

How long do we let people live off their past glory?

Death of the kirana shop

According to an ET report today (based on a Nielsen study), modern retailers have been taking the lead in price cuts and are now able to exploit economies of scale.

Early this year, when escalating prices were crunching household budgets, modern retailers were more responsive in cutting or holding prices of day-to-day products than traditional retailers, thanks to their ability to check operational costs, bargain hard with suppliers and launch private labels.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

You can read this another way.  Modern retail is killing the kirana shop.  A small shop doesn’t have the scale (and hence bargaining power) to get lower costs from suppliers and will increasingly find itself uncompetitive with modern retailers – who offer superior shopping environments and lower costs.  Yes, this story still has some time to play out and the kirana shop still has some tricks up his sleeve – but we’re at the beginning of the end.  Even if the current generation of neighbourhood shops survive, it’s hard to see the next generation taking up the mantle.  More likely they will become a franchisee of another chain to leverage their assets and relationships.

So, in what way are modern Indian retailers better than foreign retailers?  A week back, a political party in India re-emphasized its opposition to foreign retail with the argument that “multinational corporations with their predatory pricing and large cash reserves can crush India’s existing retailers”

Umm.. isn’t that what modern Indian retailers are doing anyway?

How much cash does a company need?

There is widespread evidence of companies hoarding cash these days.  Given the risk levels in the environment, it is natural for companies to want to keep a little something for a rainy day.  This is especially true for younger, unproven companies and high-tech companies – where the risk levels are higher and the ability to raise funds (in case of a crisis) may be limited.

One study for US companies (quoted here) suggests that the cash-to-asset ratio for companies has more than doubled between 1980 to 2004 – going up from 10.5% to 24%.

You’d think that 24% is a pretty large number as an average – but the report points out that number is skewed by some large companies like Exxon Mobil, GE, Microsoft, Apple, Google, Cisco, Johnson & Johnson, Verizon, Altria, EMC, Disney, Oracle.   Tech companies have an average cash-to-asset ratio of 27%, with Google at a monstrous 58%.

So it’s not necessarily the small, tech startup that’s raising the average (27% vs 24%).  It’s probably the big old economy players.   And I haven’t yet seen evidence of the stock-market punishing them for that (unlike what we read in B-school).  It really seems to be a case of everyone (with the ability to) trying to hoard cash.

Closer to home, Indian IT services firms have been traditional hoarders of cash.  So I did some quick numbers on them.  Even by their standards, the pile-ups seem to be phenomenal.  Between 2006 and 2010, Wipro’s cash/asset ratio has gone up from 13% to 24%.  TCS from 3% to 22%.  Infosys went up from 48% to 51% in 2009 and is now “down” to 44%.

You could argue that cash/asset ratios aren’t the best metrics for a services company – where the risk levels and uncertainty are lower than for product companies.  What you should look at is cash/operating expenses – how many month’s oxygen does a company have if all it’s revenue streams run dry.  There again, Infosys is up from 54% to 71% (about 8 months of expenses).  Wipro from 13-24% (3 months) and TCS from 2 to 21% (2.5 months).

So the question is how much cash does a company really need to keep on its balance sheet?  One could make several arguments about how the big IT companies could do with lower cash reserves (most of them are also quite unleveraged and have pretty significant real-estate assets).  However, it doesn’t seem like the stock market cares much for this ratio – and may actually reward cash hoarding tendencies!  There are many theories out on the subject, but the unifying argument seems to be missing.

Let’s see how things change once the recovery is more certain.. watch this space.

Water, you saying? Firangi Pani, and how!

There’s a fantastic bar restaurant in Bangalore called Firangi Pani. I always go to their sister restaurant, called Saheb, Sindh, Sultan. I was reminded of this bar (which, by the way, translates as “Foreign Water”…in their case referring to alcoholic beverages), when I read this story on Fast Company. Here is the link.

There is a company that is planning to ship water from pristine sources in Sitka, Alaska to India. I was in Alaska a couple of weeks ago and can confirm that, yes, indeed, the water is pristine! Being a desi, I can confirm that water is indeed in short supply in India. QED, no!?

Just in case you think this is crazy, I’ll have you know that one of the first self-made millionaires in the US was a New Englander gentleman called Frederic “Ice King” Tudor, who shipped ice from US’ east coast to the Carribean and, ahem!, India way back in the 1800s. The business model works, despite what our intuition might suggest!

Will add a new twist to the firangi pani story. Hopefully they won’t price it at the same level as Evian.

IT Results season: How long will the Salmon season last?

As many of you know, I am working with Basab Pradhan on a book on Offshore Services. We’re offering an insider’s view into the industry, and explaining the workings of the industry as part of the book. In a recent post, Basab talks about the quest for higher bill rates, which is one in a series of recent posts leading up to the book.

The book is due out early next year.

Well, earnings season is upon us, and all the IT Services and BPO companies will be unveiling Q1 (of the Indian financial year) results this entire month. The financial markets are waiting with bated breath- this quarter will be a sign of how the rest of the year will turn out.

Many within and outside the industry have asked the question: Has competition and commoditization increased in the offshore services space, now that there are several large Indian IT Services companies? Competitive differentiation continues to be challenging, and companies are yet to evolve completely new ways of competing with each other. As of today, however, the investor presentations from the large companies seem mutually inter-changeable. The strategies look similar, and in fact, the sections on “competitive differentiators” read like they were minted in the same PowerPoint mill. Check out example one (page 10), and example two (full document).You’ll see a notable exclusion in the links, but you can Google the investor presentations from *all* the other major companies (!). They all say the same thing.

Reminds me of the famous “It’s different!” ad campaign for a ketchup brand in India…no one would say exactly “what” was different, but just repeat that “it’s different”. Same thing here, I suppose. “We’re a different kind of IT Services company”.

So, Is the party over for offshore companies? You’ll, of course, have to read the book to find out. But here, for this post, let me offer an analogy.

I was in Alaska on vacation a couple of weeks earlier, and the local tourist outfits were preparing for salmon-season. You can look it up online, but basically salmon like to lay their eggs in the exact same spot that they were born in. Every year, in July, the salmon start returning back to their source streams to lay eggs. When the season is in full swing, the streams are full of red colored salmon “climbing up” the stream, trying to find their way back to their original birthplace. At it’s peak, salmon can be seen jumping all around the streams in Alaska. Brown bears come down to fish during this season. Given the plentiful jumping salmon all around, the brown bear have to do nothing additionally in order to be successful at fishing. All they have to do is (1) stay in the stream, (2) keep their mouth open, and (3) wait for the salmon to drop into their mouth. It’s that simple. Here’s a great photo series that tells the story.

In many ways, the Indian IT Services companies have been the beneficiary of an offshore mega-trend. Over the last 10 years, offshore has moved from being a peripheral activity, performed by the trend’s “early adopters”, to being center-stage, when everybody is doing it. All large companies have had to respond to the pressure to offshore. Companies that were initially reluctant to join this rush to offshore, 10 years ago, ended up being influenced by the positive examples of companies who had offshored and reaped the benefits of cost reduction and assured delivery. A cascade effect was set into motion, as each new convert to offshoring influenced many others to join in, and so on. To be successful in this business, the large offshore IT Services companies merely had to (1) be in the market, and (2) have a willingness to sign deals, and (3) wait for the deals to flow in.The cost of sales for these companies is at its historical low, while the margins are still near their historical  peak. It’s logical- Why invest more in a sales force when the mega-trend is in your favor? The results have been no surprise: Other than one US based offshore company, all the other companies have grown within the same range, and have each stated similar “breakthrough strategies” all the while.

Is salmon-season over for the big bears of IT services? The results coming out this month will tell us if the big bears have learnt new hunting tricks. Or, are they still standing in the stream with their mouth open?

Photo credit: Peter Roundie on Flickr.

Companies covered: INFY, TCS, CTSH, ACN, WIT, PTI

Poll: Returning to India-What factors are important?

Building on the response to my earlier post on “Mathematics and Thematics for NRIs“. Here’s a quick poll to check which factors are important to you. Click “View Results” at the bottom to see what people have said so far.

Friends at the workplace…who needs them?

This links together my previous posts on large company malaise (and Amit’s fantastic post on fun*work). Here are the links: Flawed 9-to-5, Juggernautistic, Fun*Work.

I had another series of posts on why people leave their jobs. Another one about the Exodus of friends at my employer.

Update: Amit had an earlier post on Talent Factories, that agrees with the assertions below. It’s not that easy for people to move jobs and retain performance in their new “tribe”. Also, look for the great piece about Hindustan Levers, and how their managers spend 35-40% time to “groom” their team. How peculiar, that the same term is used for monkeys and managers!!! Other than nit-picking, I am hoping! 😉

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Mrs. Rhesus Macaque- Engineer, Business-Monkey. My engineering college gave us ample opportunity to observe monkey behavior first-hand. The four years we spent at the college were spent in the company of college friends and several troops of Indian Rhesus monkeys. (Yep, the same monkey whose name adorns our blood group classification). There was an ancient Hanuman temple near our college, and therefore these monkeys were a protected-and-well-fed lot. The monkeys had little by way of real work, given that worshippers at the local temple left tasty treats for them. This left the monkeys to engage in true monkey business- they spent their time on our college playground fighting each other, grooming each other, and establishing superiority over each other in that typical monkey fashion. All out in the open.

I was reminded of this after my last post on the flawed 9-to-5 work-day model. In one of the responses on LinkedIn, one of my friends had a comment about how small companies can spend their time in meaningful meetings and work schedules, while larger companies have to rely on systems and processes. That brought my thoughts to Dunbar’s number.

According to Robin Dunbar, an anthropologist, based on the relative brain size, a human being can maintain close relationships with around 150 people at most. This number, known in popular press as Dunbar’s number, has acquired cult status in recent years as the official limit for all sorts of things. The number of friends one could maintain in life, the number of people in a tribe, the number of people in a work-place, the number of girlfriends who Tiger Woods could remember…all manner of social groups haven been shown to have this limitation. There’s more stuff on this limit on the Wiki entry, and a generic google search would bring out counter-arguments as well.

The other very interesting thing that Dunbar states is that in order for any of these groups to stick together, a full 42% of the time would be spend in social grooming. That means human beings, like monkeys, have to spend a lot of time getting to know each other and in social etiquette and graces. This helps them establish mutual trust, a relative pecking order, and an ability to trade “favors” over time. This shared time- time spend meaninglessly in sharing gossip, jokes and tips- is seen an important social glue in all human social groups. That’s what keeps the group together.

So, is it useful to think of the workplace as another social group engaged in a shared activity? You bet! The real question is- do we realize that people need to be friends even at the workplace in order to work together? In order to be friends, we have to bond with each other, which means we have to engage in a 42% of social bonding time. Which  company actually spends that much time in internal team-building efforts?

Not the big companies.“Company culture” and organizational processes take the place of social bonding rituals. It is no wonder that people join and leave the group quickly. Dilbertian office meetings are a result of this lack of social cohesion, and the shortage of time spent in getting to know one’s colleagues. Meetings with formal agendas, all-day-workshops with death-by-powerpoint schedules. All these are comically opposite our basic human nature.

We humans are a social species, and we look at our workplace as another source of friends in our social network. The modern large-company-workplace seems designed to be de-humanized and boring. People leave these companies- never having connected to their colleagues. It doesn’t have to be that way.

Onboarding should be a team activity. Meetings should be opportunities to assert friendships. Trust should be built over multiple transactions. Gossiping- not the malicious kind- may be encouraged. Work should be seen as a way for people to find better connections.

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The Art of Choosing

Our batchmate Niranjana (featured on the blogroll on the right) has taken it upon herself to keep up the book reading averages for the entire MBA batch. On her fantastic site you can see her reviews of gazillion books. One that I’d like to point special attention to an interview she did with the author or The Art of Choosing, Sheena Iyengar.

Sheena was also featured in a recent NYTimes interview around the same book, and she has a few snazzy YouTube videos about her book as well. Niranjana’s interview can be found here, and is excerpted below:

If Sheena Iyengar’s name seems familiar, it’s probably because you read about her research on consumer choice work in Malcolm Gladwell’s Blink. Iyengar, a professor at Columbia Business School, now has her own book out. The Art of Choosing deals with choice in all its aspects, across fields as varied as music, art, and medicine, and draws on everything from pop culture to brain imaging technology. Iyengar also mines her personal life for this book, and her choices — to study psychology at Stanford, to marry a man from outside her religion, to use sighted language although she is blind — are at least as fascinating as her research findings.

…

Can we really be choosy choosers when it comes to branding? You mention in your book, for instance, that Lancome’s Mousse Makeup and Maybelline’s Mousse Foundation are made in the same factory, are nearly identical in their composition, and that experts have detected no difference in their performance, but L’Oreal, which owns both brands, sells the first at $37 and the other at $8.99. You cite several such examples of nearly identical products being branded and priced very differently. All this almost suggests to me that we consumers are often the dupes of these large corporations.

Are companies trying to manipulate us? Yes. Companies use branding to create differentiation when there’s very little actual difference because the market is so crowded.

Should we worry about being manipulated? Only if it’s in a domain that’s important to us. You need to decide what’s important to you, and that list can’t be long. For those things, you really pull out everything, use your gut, reasoned analysis, gather information from other people. For other things, find the acceptable one. If that means you’re being manipulated, so be it.

But companies need to give a lot more thought to how they should be branding in a more honest way. It’s good for the customer and for them — they really don’t need to add irrelevant options. One of the things they can sell to the customer is that every choice we offer really counts, that it is meaningfully different from other choices.

Check out Niranjana’s other reviews at her blog.

The latest on the war against cheating

Now, anyone who has been to college (in India or US) knows that there is a continuous tussle between “the system” and the students. Cheating at exams is a common problem, and in a unique case of competitive evolution, both parties find newer ways to beat the other side.

Here’s a fantastic article in the NYTimes that talks about the latest ammo purchased by the colleges to beat the cheats. Fascinating stuff, really.

As the eternal temptation of students to cheat has gone high-tech — not just on exams, but also by cutting and pasting from the Internet and sharing of homework online like music files — educators have responded with their own efforts to crack down.

As an extreme example of life-time learning, one student tried the Ghajini approach to cheating:

As for Central Florida’s testing center, one of its most recent cheating cases had nothing to do with the Internet, cellphones or anything tech. A heavily tattooed student was found with notes written on his arm. He had blended them into his body art.