Mr. S. Pramanik Managing Director 5 th November, 2009 BUSINESS ISSUES IN THE CHANGING PROFILE OF CORPORATE INDIA 37th National Convention of Company Secretaries

Mr. S. PramanikManaging Director

5th November, 2009

BUSINESS ISSUES IN THE CHANGING PROFILE OF CORPORATE INDIA

37th National Convention of Company Secretaries

Presentation by

GULF OIL Corporation Limited

The world has entered a significant recession, perhaps the largest since the 1930s.

Industries worldwide continue to convulse from sharp declines in demand.

These declines, coupled with severe financing restrictions, have already injured companies in many industries.

Governments around the world have scrambled to save the financial system, led by the United States, which stepped in with roughly $8 trillion in bailouts, stimuli and other guarantees – an investment worth nearly half the entire U.S. economy.

GLOBAL SCENARIO

Growth in Indian Economy due to large domestic savings and corporate retained earnings are financing investment. Sluggish labour market and wealth has hit urban consumption. But low export dependence, a large consumption base and the high share of employment ( 2/3 ) and income ( 1/2 ) coming from rural areas has sustained consumption.

INDIAN ECONOMY BLOG ( 16.8.2009 )

Pre-election spending, especially in rural areas and high government expenditure have also been pulses. Timely monetary and credit measures have played a key role in improving private demand, liquidity and short term rates and reducing the risk of loan losses. Credit is largely channeled by domestic banks, especially State controlled ones which have low loan to deposit ratios and little exposure to toxic assets.

INDIAN ECONOMY BLOG (contd…)

Failure of major Global Financial Institutions / Banks

Crash of All Asset Classes mainly real estate / housing.

Steady Direction by RBI / Finance Ministry

US Election Results

Satyam Computers Ltd. episode – Focus on Governance

Election 2009 Results in India

Launch of Nano

DOCOMO – Pay by the second

GAME CHANGERS

The growth journey is not a straight line that slopes smoothly upwards, and is not for the faint hearted. Growth organisation leaders and their people must expect bumps, and cannot lose their nerve when they hit those bumps.

- Ram Charan and Noel M. Tichy ( 1998 )

ORGANISATION GROWTH

There is no such thing as growth industry. There are only companies organised and operated to create and capitalise on growth opportunities.

- Theodore Levitt

GROWTH INDUSTRY

ORGANISATIONAL CHANGE

Periodically, all successful Organisations have to change. Once crises has occurred any Organisation will change, but waiting for crises is not often the route to success. Lack of leaders willing to take their Organisation through fundamental change.

ORGANISATIONAL CHANGE (contd…)

Waxing pessimistic is one of the easiest ways to masquerade as wise. And there is plenty to be pessimistic about.

“No pessimist ever discovered the secrets of the stars, or sailed to an

uncharted land, or opened a new heaven to human spirit” - Helen Keller

.

“Pessimism never won any battle”

- Dwight D. Eisenhower ( 34th President of USA).

Establishing the plan represents at most 5% of the challenge. 95% of the challenge now lies in execution.

- Carlos Goshen, Nissan

Execution is not only the biggest issue facing business today; it is something nobody has explained satisfactorily. Execution is a specific set of behaviours and techniques that companies need to master in order to have competitive advantage. It is a discipline all its own.

- Larry Bossidy & Ram Charan, Execution, 2002

PLAN AND ITS EXECUTION

Recessionary periods often act as fertile incubators for newborn companies with innovative new technologies and business models, in part because they clear room in markets by culling weaker participants.

Analysis shows organisations that have followed deep cost-cutting strategies through current and past downturns have lost value relative to their industry sectors.

On the other hand, players capable of going on the offensive in difficult times while holding their core investment strategies steady typically outperform their peers in share value.

BUSINESS ISSUES

A company’s relative market power results from a number of factors, including its presence in attractive segments, its customer access, the attractiveness of its product and its sales power. Recessions change this equation in several ways, as customers shift buying behaviours, competitors slash prices and buyers almost instantaneously gain additional leverage over sellers.

Financial power measures a company’s access to cash and cost of capital, which the downturn has altered as well. Managers who a year ago viewed financing as a cheap and ready commodity now prize it as a scarce and crucial element of success.

BUSINESS ISSUES (contd...)

Severe economic downturns can quickly overstress company income statements and balance sheets, causing declining revenues and margins, productivity problems and cash shortages.

BUSINESS ISSUES (contd…)

Every aspect of a business will be tested during a downturn, and the right strategy will differ depending on the issues :

An innovative company that can maintain volumes and pricing power is in a good position, as is a firm with a

variable cost structure and the ability to protect gross and operative margins.

A sound level of capital and a lean asset position can provide the flexibility to go on the offensive.


Companies that in flush times developed these traits can continue their existing growth strategies without interruption, or use their strong competitive positions to acquire weaker competitors at a discount.

Companies with revenue and margins threatened by recession must form a strong defensive line, including liquidating non core assets and reassessing their cost structures.


SUGGESTED AREAS OF FOCUS

Executive Agenda (AT Kearney) – Number 2, 2008

1. Get Smart with Your Marketing Spending

Effective stewardship of marketing expenditures can easily save 10 to 15 percent of a company’s total marketing budget.

SUGGESTED AREAS OF FOCUS (contd...)

2. Break the Classic Rules of Pricing

Are you focusing on your customers’ ability to pay rather than willingness to pay ? If so, having intimate knowledge of your customers is crucial.


3. Get Creative with Customer Interactions

By improving the deployment and effectiveness of field resources, you can reach growth targets without slashing field forces.

Target your most attractive customer segments, acquire the high potential ( large and profitable ) customers within those segments, and serve them through the right channels – doing all of this while also keeping cost-to-serve at an appropriate level.



4. Gain Control of Out-of-Control Complexity

Complexity must be controlled so companies have a clear path to the next growth frontier.

Optimize the overall product portfolio based on customer needs

Creating the appropriate transparency on revenue and the cost impact of complexity

Taking a comprehensive value chain perspective

Installing the right processes and governance to ensure sustainable results.



5. Streamline Research and Development without Stifling Innovation

Innovation leaders achieve roughly 70 percent higher earnings over a four-year period than companies without an explicit innovation focus.



6. Cut Direct Material Costs

In tough times, companies often attempt to “squeeze the last penny” out of their suppliers, thus opening the door to years-long confrontations. Smart companies, however, avoid the conflicts and instead try to understand their suppliers.



7. Slash Demand and Indirect Materials Costs

When the economy sinks, so do costs.

With demand management, companies can cut 10 to 20 percent off their addressable spending in certain categories; savings can begin in as little as three months.

Demand management fundamentally changes the way organisations acquire their goods and services.



8. Take a Tough Approach to Manufacturing

Do we have the right manufacturing footprint ? Should we consolidate facilities ? Can we reallocate production to lower-cost sites ? Should we be in the business of manufacturing at all ?



9. Avoid the “Whack-a-Mole” Approach to General & Admin Cost Cutting

Companies often view back-office functions such as finance, IT, human resources and legal as non-value-added areas and ideal for cost cutting.



10. Unlock Millions ( Billions ! ) of Dollars in Cash Flow

Companies can unlock millions of dollars in cash flow – delivering immediate and substantial bottom-line benefits – by systematically identifying gaps and problems in the complete order-to-cash cycle.



11. Design a Leveraged Organisation

The best companies today are modular, where joint ventures, alliances, pooling, shared services, offshoring and outsourcing are common tactics.

In an economic downturn, survival will depend on maximizing a wide range of opportunities for every piece of the value chain.

Work smarter. Work Cheaper. Work bigger.



12. Become a Selective Acquirer

Deals made in downturns create more value than those made in upturns.

Deals can be made at more favourable prices, although equity stakes are higher and financing is more expensive.



Finally look after your PEOPLE, especially, during a downturn

FOCUS ON HR

As tomorrow’s economy and society take form, all of us individuals, companies, organisations and government alike – now face the wildest, fastest ride into the future of any generation.

It is, when all is said, a fantastic moment to be alive - Alvin & Heidi Toffler

Revolutionary Wealth (2006 )

THANK YOU

Documents

Mr. S. Pramanik Managing Director 5 th November, 2009 BUSINESS ISSUES IN THE CHANGING PROFILE OF CORPORATE INDIA 37th National Convention of Company Secretaries