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It gives us immense pleasure to present to you the third edition of “Stratelogue”, the monthly magazine. Our aim with this magazine is to cover the various dimensions of strategy and bridge the gap that exists between theory and practice. In this edition we have covered various strategy topics including comparisons between war and business strategies, international business and associated risks, CSR as well as various strategic issues in business and politics.

In our endeavor, the Industry view of strategy in this edition has been brought forward through articles by Commander Arun Jyoti (Retd.), COO, Shyam Indus Power Solutions Pvt. Ltd. and Mr. Atul Batra, Managing Director, DVB Group Ltd. We have also tried to incorporate the academia’s perspective through an article from Dr. S.K. Tapasvi, Professor, Public Management and Policy Area, MDI Gurgaon.

Supriya Aiyer (PGP-HRM, MDI Gurgaon) has contributed a student article. Other articles have been contributed by various members of Team Strategist. We have the ‘Did You Know?’ section through which we bring across interesting facts and trivia to the readers.

We reserve a special mention for Utkarsh Choudhary, who helped out with the designs of the magazine. The editing for the magazine has been done by Aarushi Chaturvedi and Supriya Aiyer with essential inputs from Aiswarjya Mahapatra and Avishek Agarwal.

Let us know if you have any feedback for us at strategist@mdi.ac.in.

Team Strategist

MDI, Gurgaon

EDITORIAL

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Editorial

September, 2016

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Table of contents

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Table of Contents

Editorial……………………….………... ……….……... i Team Strategist

The General’s (CEO’s) Dilemma…………………........... 1 Commander Arun Jyoti (Guest Column)

Hong Kong – Business Opportunities & Risk Mitigation 4 Mr. Atul Batra (Guest Column)

Social Welfare and Corporate Responsibility................. . 5 Dr. S.K. Tapasvi

M & A’s: How Culture Can Eat Strategy For Breakfast… 8 Supriya Aiyer

The Art of War Business……………………………..... . 10 Siddharth Gupta

Auctions: A Critical Analysis……………………………...... 11 Rahul Kasera

Assumptions & Decisions………………………………...... 13 Aiswarjya Mahapatra

Did You Know? ……………………………………................ 14

Team Strategist………………………………………….. 15

The lonely General stood erect on his ground. His gaze went far as his eyes could see the unfolding battle. He was not lonely because he was left alone or deserted but he was lonely in his thoughts. His grey cells were busy placing the options in the right corners of his brain. Watching the dust rise on the battle field, he was concentrating hard to bring forth his tactics. He was pushing himself to generate the best attack philosophy and had an onerous task of fighting against a mighty enemy. The advantage was that the battle was being fought on his home ground and the infiltrating Army had surrounded the General’s domain. The General had established himself as a reputed warrior and a philosopher. His reputation had started travelling to the nooks and corners of the World as a grand strategist. He was a keen student of SWOT Analysis and had developed a unique capability to penetrate the enemy’s mind. He had developed the capability to achieve loneliness, shut disturbances of the World and could generate thoughts which would churn out the battle game. His thoughts firmed up and he issued clear instructions and explicit commands to his battle ground commanders. General Sun Tzu then waited and watched as his Commanders decimated the enemy’s Army which was 10 times larger than his own Force. The victory established the General’s travelling credentials into a firm belief.

Sun Tzu’s commanders fought fearlessly as they knew that there was no turning back. The Kingdom had to be defended and the costs had to be paid by the enemy and not their men. War, after all, is a matter of life and death. Like the General in a War, the CEO’s in today’s business world are always fighting an uncertain future. The strength of adversaries today cannot be calculated and the big data poses its myriad challenges to “not so lonely” minds. The matter of death by the surrounding enemy motivated Sun Tzu’s soldiers so that they could live to see another day. Today, the CEO’s face the same General’s dilemma as they push the employees to achieve higher ROIs to keep their brands afloat in the churning oceans of global businesses.

General Sun Tzu had a considerate King as his ruler. The King understood that his limitations would not let him survive the onslaught of the marauding enemy. He subdued his own dilemma by entrusting General Sun Tzu and then letting him achieve his loneliness. General Sun Tzu was a keen practitioner of three Golden Rules:-

• The key to success lies in intelligence.

• Outwitting the enemy was more important than winning the battle on the first day.

• A limited Force should not go head to head in a battle unless death is the only option.

With no external influence, all that Sun Tzu had to worry was for his own actions. His crystal clear thoughts flowed out into a guerilla strategy against a more heavy and slow enemy. Sun Tzu’s warriors attacked the outposts of the enemy relentlessly and destabilized the enemy forces. Today’s CEO’s could do much better with constant and calculated maneuvers, deceptions and surprises. Resources have to be well utilized and each resource is to be accounted to capture more business. The elements of costs have to be controlled at each step as each failure leads to higher costs to the business. Controlled guerilla tactics and precise calculations can avoid bigger losses due to hasty and mighty expenditures to meet project timelines. What more- precise calculations by most modern computers, best trained minds bought at a price and new generation analytical techniques are always available to the CEO’s of today. The resources have immense flexibility in their operational modes and need the correct tweak at the opportune time.

In War, sheer numbers does not accrue a tangible advantage. Brute military power has seen many a debacles during the conflict. Similarly, a CEO needs to understand that mere numbers may not lead to more revenues. Limited numbers with precise maneuvers and supporting environment can crunch the numbers to the best advantage for a CEO. The in-depth knowledge about the environment and the competition puts a CEO in a position of advantage. The CEO must keep an eye on the horizon and the signs of rising dust must be analyzed correctly. A joining force can also support the enemy forces and fritter the advantage of the

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Commander Arun Jyoti (Retd.) COO, Shyam Indus Power Solutions

“It is essential for victory that Generals are unconstrained by their leaders.”

Sun Tzu

The General’p (CEO’p) Dilemma

The General’p (CEO’p) Dilemma

winning General. A wise General keeps his supporting forces at standby and has a constant connect with the counterpart General. Invoking support means loss of precious time to mobilize the support mechanism. This time gap can decide the fate of the battle. The CEO also has to keep his supporting elements ready for any eventuality.

General Sun Tzu demonstrated a moral influence. He remained unfazed as his smaller force kept the tirade against a larger enemy. His explicit orders and clear commands aptly supported his moral fiber element. He was willing to accept his failures and celebrated his success as the success of raw courage of his men. He dreamt and let his men achieve his dream. A CEO has to equally demonstrate his moral thread to his team. He has to take the final call when required and keep a sharp look out for the failures in his team. The team has to be churned and goals have to be portrayed clearly. The CEO’s actions cannot display ambiguity. A lonely General is not disturbed by his King and likewise a lonely CEO is under watch, and should not be disturbed till a trend emerges. After all, there is one big difference between a General and a CEO- the War may die any day, but a competitive Company is always at War.

A General, who has to win the War, analyzes his battlefield first and this analysis is absolutely thorough and meticulous. This analysis can be impartial provided the General is lonely. His thoughts should only be towards his strategy towards the War and nothing else should disturb his peace and tranquility. After all, the General is on the battle ground and not the King! Loose inputs and doses of wishful thinking can derail the best of the plans. Each order has to be weighed correctly and keeping all the circumstances in the calculation matrix. The enemy behind the closed door is not visible to the naked eye. A smoke screen can hide the cannon and it can be moved to a position of great advantage. A calm General keeps his gaze steady on the theatre and his eyes pick each movement. He does not let the enemy open the door and emerge with a cocked gun pointing at him. A CEO also keeps analyzing the trends of market and his reaction is well thought when the market opens. He listens carefully, analyses thoroughly and acts quickly. The General and the CEO both have to act at a quick pace to capture the open ground.

The General does not let his commanders die in vain and neither does he let them get routed in battle. A rout, if it is happening, can be clearly seen. The battle worthy soldiers has to be motivated to lead a final assault to derail the winning enemy. This might spring a new surprise or even demoralize the enemy. It is a fact truth that societies start growing again, even after a rout, albeit in a different form. The General whether in win or in defeat keeps the challenge alive for his enemy. The enemy should weigh the challenge and decide future actions. A CEO also faces the similar dilemma as the Company’s fortunes start oscillating. He has to fight with his might and smell opportunity even under tight circumstances. CEO’s decisions can lead to twists in the corporate plans and he should be wise and bold enough to make those changes.

The General and the CEO are two sides of the same coin. If the General is the symbol of authority, then, the CEO is the symbol of prosperity. Authority and prosperity are invariably and

inexplicably linked to each other. They are rather always entwined in a close embrace. The dilemma is the beginning of a grand strategy or a deep pitfall. Lonely General and lonely CEOs look hard at the horizon to align their thoughts and keep striving till they reach their desired end states. In every clash, one side has to accept the defeat. Sometimes, it is best not to fight at all and rehash the complete strategy paradigm.

The General and the CEO have to stay behind and oversee the unfolding game. The Commanders would look back for the correct advice. The high position gives ample opportunity to decipher and generate the correct action. Ensure the action and let the dilemma fade away into oblivion. Do not let the enemy behind the closed door to come out all guns blazing. It is better to blow the door away if it is amply clear that the enemy is hiding within the premises. After all, the cost of replacement of a door can never equalize the loss of a well-trained human. Suppress the dilemma and ensure the action.

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ABOUT THE AUTHOR Commander Arun Jyoti (Retd) is an alumnus of National Defence Academy, Naval College of Engineering, IGNOU and Defence Services Staff College. A die hard Submariner, he hung his Naval Uniform after 22 years of Commissioned Service. He is now based out of New Delhi and handles the operations of Shyam Indus Power Solutions Pvt Ltd, an EPC Company. He can be reached at arunjyoti1971@gmail.com

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is that a typical business can be ‘run’ successfully from a laptop with an Internet connection. Since the players have multiplied manifold and most of them have access to similar tools, the competition has increased, directly impacting margins. In recent years, burgeoning e-commerce options have obviated most middlemen from the transactions. Thus, the efficiency of a business plan is paramount with special emphasis on controllable expenses.

An ideal location of a business would help to harness overheads, minimize expenses and enjoy tax exemption while being based in a respectable jurisdiction. Incorporating a limited liability company (LLC) has never been easier but the choices are narrowing after each of the infamous ‘leaks’ of database belonging to the ‘tax havens’. These jurisdictions bestowing privacy of ownership have been hit by scandals and the immediate fallout is disfavor with the operatives. Hong Kong has thus emerged as a popular and ideal location to base a business. The Regulatory transparency gives it much needed respect and acceptability amongst banks and foreign Regulators. In my opinion, Singapore comes a close second.

One needs to follow simple steps in setting up an International business starting with deciding on the location, structuring the ownership pattern, incorporation process, obtaining regulatory approvals (if required), opening bank account(s), setting up credit facilities, tax registration and other statutory filings. The location depends on proposed activity or purpose of the Company. Ship ownership has preferred jurisdictions such as Panama and Cayman Islands. Investments are better held under a British Virgin Islands or Seychelles incorporation. Some businesses need to be based out of Europe if they are focusing on e-commerce and have to rely on online payment gateways. Hong Kong and Singapore are better suited for trading outfits. Currently it is recommended to keep the ownership pattern simple without intermediate layers

A BUSINESS, also known as an enterprise, company or a firm is an organizational entity involved in the provision of goods and services to consumers^. Arthur O’Sullivan has given this basic description, which over the years has become quite expansive in terms of its interpretation. The dynamics are controlled by three operatives; the originator, the consumer and the market. While the operatives have largely remained the same, the process has evolved over time. We have been tweaking the business model and fine-tuning it to meet contemporary requirements. Academically, Business Studies as a subject is a great medium for dissemination of knowledge and skills to achieve desired goals. Thus every individual strives to formulate a business model in tandem with market situation earning profits presently or in the foreseeable future. However, it is now being realized that efficient ‘structuring’ of the business model is the most important aspect of creating a business plan.

Technology has defined not only ‘how’ a business is run, but also ‘where’ it can be based. Thanks to Tim Berners-Lee and his ‘www’ both the above aspects of a business plan are largely taken care of. The computer and the Internet have together ensured that location of the aforesaid operatives (originator, consumer and market) is no longer an issue. Major points of concern while setting up a business, such as language and distance, are no longer points of concern. The web has also helped in shortening the operating cycle, which is critical. With a given working capital, the originator can now manage more cycles thereby generating a higher surplus. This more than compensates for the shrinking markets and declining margins.

Banking is the cornerstone of success in any business and an efficient system can extend the reach and usefulness of the capital employed by the operatives. The banks all over the world have shown tremendous adaptability to advancement in technology through upgrading their hardware, training internal teams for software support and developing new banking products to exploit availability of technological bandwidth. This has translated directly into shortening of transaction timelines and ultimately helping the operatives get faster rotation of their working capital employed.

The marketplace has now become ‘global’ and available to the common man. The most important aspect in present day scenario

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Mr. Atul Batra Managing Director, DVB Group Ltd.

Hong Kong – Business Opportunities & Risk Mitigation

An ideal location of a business would help to harness overheads, minimize expenses and enjoy tax exemption while being based in a respectable jurisdiction.

O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 29. ISBN 0-13-063085-3.

ABOUT THE AUTHOR Mr. Atul Batra is a Finance professional of 28 years’ vintage. He is currently based is Hong Kong and takes pleasure in helping clients make more money. He is passionate about golf and anything showing on the TV. He is always game for hosting and entertaining guests. He can be reached at atul@dvbgroup.co.

of Trusts and Foundations. This was a common practice till about five years ago. However, stricter Know Your Customer (KYC) norms have forced the stakeholders to simplify upstream ownership. Efficient banking channels are necessary to speed up transactions. It helps to complete all necessary filings upfront and to be fully compliant at all times. This follows the famous dictum – well begun is half done! At the same time, a hurriedly framed structure can prove to be unsuitable, costly to amend and even disastrous at times. It is better to be prepared than to engage in patchwork for ad hoc re-structuring.

Hong Kong (HK) has evolved over the past four decades from its reputation as the epicenter for crime and drug trafficking to a world-class metropolis vying for the top spot in most rankings. In the World Bank’s rankings measuring business regulations, HK is rated at #5 under ‘Ease of Doing Business’ (comparatively, India ranks 130 out of 189). A correctly structured business in HK is easy to run, economical in terms of maintenance expenses and can provide a zero tax environment, all within a legal and legitimate framework. This frees the entrepreneur from bottom line hassles and the person can concentrate on expanding the top line. Supportive Government policies and departments, no currency exchange control and excellent banking support have provided the much needed impetus for both startups and established entrepreneurs. HK also has the geographical advantage of being the ‘gateway to China’ that seems to manufacture almost everything and is supplying to every country. The pressure on space in HK has transformed the erstwhile small manufacturing base to a pure economy supported by services alone. The Government has managed to build an infrastructure to be proud of and the people work tirelessly to maintain its efficacy.

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Hong Kong – Business Opportunities & Risk Mitigation

Hong Kong has evolved over the past four decades from its reputation as the epicenter for crime and drug trafficking to a world-class metropolis vying for the top spot in most rankings.

A typical trading business being run from HK draws its strength from a mechanism that provides complete isolation of the supplier and the buyer. Transferable Letter of Credit is the single most effective banking product employed in HK. The banks are attuned to rendering expeditious turnaround and servicing switched documents. Last but not the least, HK has so many similarities with India stemming mostly from being subjected to English domination. The added advantage of responsive Government departments and supportive organizations such as the Trade Councils and Chambers of Commerce helps in comforting the entrepreneur. Also, English is the commonly acceptable medium of business communication.

All businesses have inherent risks and entrepreneurial prudence lies in mitigating the various risks. Modern communication systems have reduced product risks and pre-shipment inspections can be conducted and reported instantaneously. Cargo and

Marine Insurances take care of the logistics. The transactional risks are met by means of Insurance products such as Credit Insurance and Banking products such as Letters of Credit, Bank Guarantees and hedging of Currency risks.

Herein lies the secret of most modern successful businesses: cover all risks (even if at a cost) and shorten the transaction period to get faster rotation of working capital. A seasoned professional can provide the best-suited business model with fail proof mitigation and an empowered support system to plug knowledge gaps, enhance dividends and always be prepared for crisis management. As it seems, Murphy’s Law has stood the test of time especially when related to business circles!

In fact, there is a great amount of intertwining in the working of governments, businesses and societies. This needs to be tapped for welfare maximization by identifying collaborative models of delivery. Companies which would miss such opportunities and would not like to supplement welfare creating functions of the state and its agencies, may not remain part of the business ecosystem which is rapidly changing its focus and priorities in most advanced countries of the world.

In this paper, we have shown that CSR initiatives as approved by Board of Directors of companies in compliance to the Companies Act, 2013 open up opportunities for them to create social welfare outcomes which would transform them into organizations contributing to sustainable development. As the idea of sustainable development is central to the emerging global paradigm of human progress, companies have no choice but to incorporate it in their value chain activities. The agencies of the state, on the other hand, would find corporate partners who are willing to work in a collaborative fashion on schemes which are designed on the basis of convergence of short-term and long-term objectives of all the partners involved in such collaborative endeavors. The paper has been organized into four sections. Section I has introduced the central theme of this paper. Section II discusses the significance of CSR related clause in the Companies Act, 2013. The agenda for collaboration and convergence is elaborated in Section III. Last but not the least, directions for future research and concluding remarks are elucidated in Section IV.

II. CSR and Companies Act, 2013

Companies Act, 2013 is the beginning of a new era of relationship between state and corporations. The Act has many novel provisions like, auditor’s liability, one person company, need for one-third independent directors etc. However, the section related to CSR (Chapter IX, Section 135) has drawn maximum media attention and anxiety among corporate managers. The most contentious issue that Section135 addresses is regarding the financial resources to be spent on CSR initiatives. This is a landmark provision ‘…as it makes India first among the nations to have social welfare spending as part of company statute by law’ (Dawan, 2013). The estimates vary regarding the annual spending on CSR initiatives by companies

I. Introduction

‘Why corporate social responsibility (CSR) is relevant to welfare policies of the state’ is a question that has not been answered adequately in contemporary discourse on the subject. Even the design of social and environmental initiatives by companies and their implementation do not address this dimension of government-business-society relationship. At best, companies which are investing part of their profits for social and environmental causes use the welfare outcomes of their initiatives as a brand-building option. The PR and HR departments and the managerial workforce therein use companies’ social initiatives for employee engagement and/or community welfare around areas where their plants/facilities are located. Some big companies use CSR budget for philanthropic donations with no clear-cut short-term or long-term objectives to supplement the efforts that governments are making in the form of social/environmental sector schemes. Philanthropic contributions are largely discretionary and are used as per the desires of owners/promoters of companies. There seems to be a clear disconnect between welfare creation function of the State and CSR choices/options of corporate entities.

The amount of public expenditure incurred on social welfare schemes has grown exponentially during last one decade. Similarly, there are dedicated budgets for social initiatives in many corporations. While public schemes may be criticized as tools for political legitimacy and popularity among electorates, it cannot be denied that there exist vast unmet needs of deprived sections of the population which if not addressed by public agencies may lead to social unrest and anomie in the society. There are many evidence to show that felt needs of deprived sections of the population have not been met despite huge public/private funds allocated for targeted social welfare programmes. Paradoxically, the role of various government agencies/departments at all levels of governance viz., central, state and local, is shrinking, both in size and significance, during the post reforms period. Not only the government bureaucracies are experiencing rapid changes in an age of Right to Information, Performance Management, and Governance Ratings, but there are also other actors, both market-based and civil society groups, who are playing a significant role in public affairs. The space for creation of public/social good has evidently widened.

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Dr. S.K. Tapasvi Professor, MDI Gurgaon

Social Welfare and Corporate Responsibility: Can the State and Corporations Work Together?

businesses in order to creating public/social good in a rapidly changing Indian society. The desire to reach to a new radically transformed social order as different from the current iniquitous and conflict-ridden situation passes through a stage that meets the challenges of transition which involve the inculcation of a new mind-set of contribution and collaboration.

Governments across the world, particularly in modern democracies, draw legitimacy from citizens and constituents by creating social welfare outcomes. Companies, on the other hand, are into the business of creating shareholders’ value for investors and promoters. Ostensibly, the raisons d'être of governments’ and companies’ role in a society are seen as mutually exclusive. However, seen in terms of the principle of synergy and collaboration, which entails a win-win situation for mutually interacting partners, welfare and wealth creation are both linked in a positive sum game. So, while companies are anxious to frame their strategies in order to respond to CSR provisions of the Companies Act, 2013, there is a need to see these as source of opportunities for both government and companies. In this way, CSR is strategic to both governments and companies. The need is to give a coherent shape to this strategy both for national competitiveness as well as for global competitive advantage for companies.

III. Agenda for Collaboration and Convergence

The collaborative mind-set is required at all levels of activities wherever network of organizations are engaged in seeking convergence to their actions. In the case of CSR projects undertaken by companies, there is a strong need for this approach. The changed circumstances of managing public affairs call for an agenda of collective action involving organizations from all sectors including government, market, civil society, media, and creative/entertainment industry.

The idea of welfare state is under criticism since the 1980s. The main point of criticism is against the extensive public sector which has failed to deliver welfare for citizens in a cost-effective manner. The measurement of outcomes as against output of development intervention has conclusively shown that actual impacts are miniscule. A new approach “mixed economy of welfare” has come in vogue as a result of these criticisms. It gained ground during the 1990s as a result of growing recognition to the fact that welfare provisioning is not the responsibility of state alone. In fact, the existence of actors other than the state is now taken for granted in welfare and development sector. These actors include corporate foundations, civil society organizations, trusts, charities, media groups, community-based organizations, faith-based organizations etc. The contemporary “mixed economy of welfare” analysis categorizes these actors as: (i) the public sector; (ii) the commercial sector; (iii) the non-profit sector; and (iv) the informal sector. This clearly indicates the presence of multiple spaces in which welfare is produced beyond the realm of state. In fact, there are several instances of co-production where state, market and voluntary sectors have come together to create co-effective outcomes for those whose needs are not met when anyone of the sectors is providing these services.

As an illustration, let us take the case of public health care system in Indian context. As health care provisioning is in the State List, the onus lies with different state governments to

which come under the ambit of this law. However, the more important question to ask is as to how much social impact can be created by companies in a society which is abound with social inequalities despite state sponsored social welfare programmes. Whereas governance deficit, implementation inefficiencies, corruption, rent-seeking etc., are much talked about problems in public action, there are very few attempts to understand the synergies that exist between public and private initiatives to create welfare outcomes.

A noteworthy feature of the social role of corporate responsibility as envisaged in the Companies Act 2013 is its voluntary nature. This indicates a persuasive rather than a punitive approach to compliance with the law and has significance with regard to diverse kinds of social needs that companies can voluntarily address. Thus, while the CSR spending has not been made compulsory, ‘every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more, or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.’ The Board of every such company has been entrusted to ‘…ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. Keeping in view the voluntary spirit of the CSR provisions in the Act, it has been provided that ‘if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.’ This is again a unique provision emphasizing an approach peculiar to Indian socio-political and legal realities. The uniqueness of this approach is indicative of state’s desire to work with corporate sector for meeting welfare objectives of the society rather than completely rolling back of its functions and allowing the market forces to shape the future course of our society. This is a call for all stakeholders to come together and pursue common social goals while putting things in order in their own domains.

The activities to be undertaken as part of CSR spending of the companies are clearly mentioned in Schedule VII of the Act which are: (i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortality and improving maternal health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability; (vii) employment enhancing vocational skills; (viii) social business projects; (ix) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief, and funds for the welfare of the Schedules Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matter as may be prescribed. The inclusion of such areas and concerns in the CSR Policies of the companies is an indication of the collaborative relationship between governments and

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Social Welfare and Corporate Responsibility: Can the State and Corporations Work Together?

ABOUT THE AUTHOR Dr. S.K. Tapasvi is currently a Professor in Public Management and Policy Area. He is currently associated with the School of Public Policy & Governance at MDI Gurgaon. He can be reached

at tapasvi@mdi.ac.in This paper was presented at the Thinkers and Writers Forum during 34th Skoch Summit on Corporate Role in National Building, 12-13 November, 2013, New Delhi.

IV. Concluding Remarks

This paper has analyzed the problem of disconnect between different welfare providing actors in the ‘mixed economy of welfare’ that has gained ground after the public sector reforms got initiated during the 1990s. In the backdrop of Companies Act, 2013 and the clause related to CSR in India, we have shown that companies can leverage this as new opportunity for growth and corporate sustainability by working with state agencies and civil society organizations. This agenda for working together hinges on a 5-C model of a CSR strategy which needs to be dynamically worked out just like other aspects of corporate strategy. The mandatory constitution of CSR Committee at the level of Board of Directors and formulation of CSR policy of the company would greatly facilitate a strategic approach to CSR and its implementation. The real issue however is of new set of competencies that need to be mapped for all the organizational actors which are involved in welfare provisioning.

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References

Birla, Sidharth (2013), “Legislation which makes the Future a Better Picture”, New Delhi: Economic Times, Saturday 31st August, 2013

Brejning, Jeanette (2012), Corporate Social Responsibility and the Welfare State: The Historical and Contemporary Role of CSR in the Mixed Economy of Welfare, Surrey: Ashgate Publishing Limited.

Dhawan, Ashish (2013), “How can India Inc. make CSR a Game-Changer?” New Delhi: Economic Times, Thursday 5th September, 2013

Paper presented at the Thinkers and Writers Forum during 34th Skoch Summit on Corporate Role in National Building, 12-13 November, 2013, New Delhi.i

invest in health care infrastructure, adequate number of medical doctors, paramedical and auxiliary staff at district, block and village levels. In reality, all four sectors viz. public, private, non-profit, and informal constitute the organizational landscape of health care provisioning. This is a clear evidence of the existence of the ‘mixed welfare provisioning.’ The problem occurs when there are competing interests that create issues of poor access due to cost of private health care provisioning, inefficiency causing delays and poor quality in public health provisioning, and the small scale of voluntary health-care services leading to poor output due to dependence on donations from philanthropic and development organizations. The role of informal sector in health care sector is full of risks to patients with serious as well as not so serious ailments. Nevertheless, all these sectors continue to exist in the health care provisioning space, indicating a re-look, both at the level of policy formulation and its implementation. The big national level programmes like, National Rural Health Mission (NRHM) and National Urban Health Mission (NUHM) are created as centrally sponsored programmes. At the implementation stage, however, there are rampant cases of inefficiency and corruption leading to poor outcomes.

Where can we find the solutions to such messy problems? One of the ways to decipher a solution to such problems is to evolve a new functional division of welfare operations into regulating, funding and provisioning. Alternatively, the intended form of welfare outcome can be produced by different sectors in combinations.

We are proposing an agenda for effective co-production of welfare in different walk of life and to those who really need these outcomes. The basic contours of this agenda are work in progress. However, at a very elementary level of analysis the following points are suggested for discussion among stakeholders:

• How to create convergence of objectives among service providers?

• What competencies are needed for co-productions of these services?

• What are possible models of collaboration at inter-organizational levels?

• What is going to be the commercial aspects of relationships between partners?

• What are going to be the rules/institutions for collective action?

Each of these 5-Cs are linked to a particular aspect of the agenda proposed here. For instance, convergence is related with planning, strategy and programme design. The competencies need to be mapped at the level of knowledge, attitude and skills. Collaborative models of service delivery are the subject of organization design, change and development. Commercial aspects of co-production of welfare are directly linked with financial allocations for welfare programmes. The institutionalization of collective action is again a subject of legislative oversight of subordinate rules that implementation agencies formulate for executing an act or policy.

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Social Welfare and Corporate Responsibility: Can the State and Corporations Work Together?

• Dealing with low morale: M&A’s can be very stressful for employees. M&A’s can lead to lay-offs and employees are cognizant of this fact. Managing their worries and preventing resentment towards the new company can be a major challenge. As a natural, unconscious reaction, people are resistant to change. These feelings of mistrust can ultimately spoil the efforts of trying to bring to companies together. Creating an environment of trust and openness becomes essential in tumultuous times.

• Solving employee benefits issues: There are also basic functional HR issues that crop up. For example, companies can have different pay structures and completely different HRIS systems as well (think Oracle versus SAP). HR cannot act as a strategic business partner when the administrative issues are not resolved. In the case of M&A’s this can even cause the entire strategy to fall apart: frustration needs to be managed and smooth transitions of HR systems and processes need to be ensured. The HR department of the buyer company particularly evaluates the benefit structure of the seller company to discover the likelihood of any imminent problem such as inadequate funds for pension plan or continuation of any medical insurance plan that may cost an arm and a leg to the organization in the long run. For example, with respect the imminent merger of State Bank of India (SBI) with its associates, Managing Director (National Banking Group), Rajnish Kumar, believes that integrating the balance sheets will be an easier process as they share the same IT platform. The more complicated part will be the potential ‘HR issues’.

Towers Watson’s research on ‘M&A HR Readiness’ reconfirms that “deals can be significantly more successful when organizations address people and culture issues early, strategically and with discipline.” This is something we can see in Figure 1 as well. These companies stressed on cultures that align with and support strategic goals.

A classic example of the failure of a merger is the Daimler-Benz and Chrysler merger. The nine year merger of $36 billion was dissolved for a mere $7.4 billion. People very close to the company sighted significant cultural issues as one of the major

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Mergers and acquisitions are an integral part of the strategy of many companies to grow inorganically. The global scenario has become so competitive that this presents an effective way for big and small businesses to secure competitive advantages. It not only helps in enhancing market share but also helps to multiply organizational capabilities and helps to share proficiencies.

When we think of mergers and acquisitions, the first thought that comes to our mind is valuations. We think of talks with investment banks, scintillating news and figures galore. However, when we look at why M&A’s fail so often, the reasons have nothing to do with these aspects. A messy and weak understanding of HR issues can be a thorn in an absolutely rosy scenario. The Human Resources department plays a vital and pivotal role in M&A’s and a proactive HR department can help demystify M&A issues.

There are various roles that HR plays in this context:

• Decoding the Organizational Cultures: Two organizations could have evolved very differently and hence usually have very different ways of working, thinking, behaving and feeling. The job of HR is to figure out how different they really are and whether they are compatible enough to become one. It is then HR who spearheads the process of ensuring a smooth transition. This is can be more complicated than it seems. M&A’s can turn sour due to cultural clashes, leadership issues, absence of common objectives and weak change management. An example of this would be AB InBev’s merger with SABmiller. While both are companies producing the same product, they are based out of different countries and have vastly different cultures. AB InBev is known for its cost-cutting and centralized control, which some analysts have said may be tough to impose on all corners of SAB’s business, with its joint ventures and equity stakes in markets such as Turkey and Africa. These cultural differences need to be understood in order to deal with potential issues that could crop up.

• Understanding the demographics: Two organizations could have widely different generations of employees. For example, for companies that want to acquire start-ups, it becomes essential to understand that these organizations comprise largely of Gen Y and a more traditional organization will need to understand this in order to create a collaborative environment.

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M & A’p: How Culqure Can Eaq Sqraqegy For Breakfapq

Supriya Aiyer PGP-HRM 2016-18

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reasons for the dissolution. Potential synergies were also over estimated. “You had two companies from different countries with different languages and different styles come together yet there were no synergies” said Dave Healy, analyst with Burnham Securities.

Thus while mergers and acquisitions present huge opportunities to organizations; a clear understanding of the factors beyond the financials becomes critical to ensuring the success of a transaction. That is not to say that companies with different cultures cannot merge. For example, Verizon believes its strength is engineering while a company like AOL is based on aggressive sales strategy. These two companies have successfully aligned their cultures and have created a successful working relationship. However ‘cultural due diligence’ must also be kept at the forefront of the initial proceedings. Additionally, as we have seen previously, HR plays a huge role is ensuring the success of even the most complicated of unions. Thus, companies just need to pay very close heed to Peter Drucker’s advice - “Culture eats Strategy for breakfast”.

(Source: Towers Watson report on M&A HR Readiness)

M & A’p: How Culqure Can Eaq Sqraqegy For Breakfapq

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The Art of War Business Siddharth Gupta

The Art of War Business

These were lines said by Kevin O’Leary, co-founder of Softkey and O’Leary Funds. He described what business is today, in a ruthless but accurate way. Over years, businesses and business strategies have evolved and businesses across the world have become increasingly competitive. If business is war, the strategies couldn’t be very different from those of war. Hence, it is no surprise that many modern business strategies are inspired from war strategies.

Businesses learn a lot from military warfare. In World War II, German forces used Blitzkrieg (or lightning war) to win Poland in 1939 and then successfully invading the Netherlands, Belgium and France in 1940. In 1940, The German army crushed the combined forces of four nations in less than 6 weeks. In 1941, it drove Soviet forces back by more than 600 miles to the gates of Moscow. The strategy itself was very simple yet very effective. Germans would concentrate the offensive weapons (such as planes, tanks and artillery) together along a narrow front. They would together breach the enemy defence lines, permitting armoured tank divisions to penetrate and roam freely behind the enemy lines causing shock and disorganization among the enemy lines. By the time they realise what is happening, it would be too late for them to regroup and respond.

The war strategies are not always limited to war grounds. Google followed a similar strategy to crush RIM and Nokia when it launched its Android operating system. After launching its first android handset in 2011, it tied up with HTC, Sony, T-Mobile, Samsung, LG and a host of other mobile companies for providing its operating system within 3 years of its launch1. An open source software and wide spread acceptability led the developers and users to flock to it. Just like the French and polish forces in World War II, RIM and Nokia were unprepared and clueless. RIM’s market share in North America declined from 54% in 2009 Q1 to merely 13% in 2011 Q22. Nokia had a 38.6% market share in 2009 but was reduced to 6.6% by the end of second quarter of 20123. The company later had to sell its smartphone business to Microsoft who eventually had to write-off the entire investment. In less than half a decade, a company which was once values at a staggering $245 billion was gone4.

“Business is war. I go out there; I want to kill the competitors. I want to make their lives miserable. I want to steal their market share. I want them to fear me and I want everyone on my team thinking we're going to win”

Another, very popular form of warfare is guerrilla warfare. With all its military might, United States was still brought to its knees by the North Vietnamese Army as they engaged in guerrilla warfare. The Vietcong guerrilla fighters would sneak up to the unaware U.S. troops, attack them and leave before risking capture. More than 50,000 U.S. soldiers died eventually in this war. Telekom Romania (erstwhile Cosmote România) followed a similar strategy in 2005 as they rebranded and launched themselves in the Romanian telecom market. They invested over €500 million5 over three years to improve the coverage to 95% of the residents flanked the post-pay service segment which was strongly dominated by two incumbents and instead focused on prepay market for young people with low budget. Their revenues increased from €43 million in 2006 to €457.6 million in 2013.

The approach to warfare has spilled over into business competition leading the companies to design and implement strategies similar to those of military. Not that these strategies are always successful, companies will continue to use them in their battlefield.

References:

1History of Android Phones : https://www.cnet.com/news/a-brief-history-of-android-phones/

2Reference: http://androidandme.com/2011/06/news/android-and-its-blitzkrieg-strategy-are-about-to-overrun-blackberry-kill-rim-in-the-process/

3Reference: https://www.statista.com/statistics/271496/global-market-share-held-by-smartphone-vendors-since-4th-quarter-2009/

4Reference: https://techcrunch.com/2010/06/22/the-sad-tale-of-nokias-sinking-market-cap-where-i-come-over-all-nostalgic/

5Reference: http://steconomiceuoradea.ro/anale/volume/2008/v4-management-marketing/024.pdf

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Auctions: A Critical Analysis Rahul Kasera

Auctions: A Critical Analysis

Background

On September 29, 2016, nearly 2300 megahertz (MHz) of airwaves is available to be sold, which is expected to garner Rs.5.6 trillion in revenue. Also, the highly efficient 700 MHz band is on sale – the government wants to improve the Quality of Service to the end consumers. However, the incumbents are viewing the reserve prices to be too high to be reasonable given that they are already under high financial leverage – this attitude has made the analysts skeptical of a lukewarm response to the auctions

Commentary

With the spectrum auctions lurking around the corner, an air of anxiety can be seen among the telcos and the various commentators associated with the telecom space.

Before delving further into the not so straight-forward world of auctions, it is important to understand why governments opt for auctions in the very first place. Wouldn’t it be much simpler to allot the spectrum through a randomized process, designed for all telcos who meet the minimum infrastructural and financial requirements?!

Well, allotting spectrum through this random process was the norm until the US government found out the shortcomings of the process – more precisely, a few companies who were allotted these spectrums were incapable of generating sufficient returns!

Now, looking at it from the government’s perspective keeping in the mind that allotting these spectrums are a significant source of revenue, auctions tend to increase the amount collected as each person pays as per their perceived value of the spectrum thereby driving greater returns.

Also, the reason why we mentioned at the very outset that auctions are not as ‘straight forward’ as shown in movies is due to the fact that the auction process, if not carefully designed, can lead to dire consequences. To lend credibility to our argument, consider the spectrum auction held in New Zealand in the 1990s where the entire spectrum was auctioned off for just NZD 6!

It is primarily for this reason that renowned economists and game theorists are often roped in by the government to design the auctions.

It is important to look at a few well accepted auction methodologies:

• First price sealed bid auctions – The participants enter their bids in a sealed envelope which are handed over to the auctioneer. The highest bidder wins the auction paying an amount equal to his bid. These are also known as simultaneous or static first price sealed bid auctions.

• Second price sealed bid auction – Also known as Vickery auctions and similar to first price sealed bid auction, the highest bidder wins the auction. However, the price paid by the winner is equal to the second highest bid!

• Open Ascending bid auctions – This is something that all movie-goers are familiar with. The auctioneer usually stands with a hammer and announces increasing bids. The last person standing at the current bid wins the auction and pays an equivalent amount.

• Open Descending bid auctions – Also known as Dutch auctions, these auctions happen in exactly the opposite direction as that of the open ascending bid auction. The prices are progressively lowered and the last person standing at the current amount wins the auction. Such sights are very common for the bond auctions wherein the yields are lowered through the course of the auction.

Shifting our focus back on the possible shortcomings of the auctions, a few prominent ones are as follows:

• Winner’s Curse: As we mentioned earlier that auctions are all about the bidders paying what they perceive to be the true value of the object. However, one important thing to note is that these perceptions arise from information and not everybody has the access to all the information!

While a bidder outbids all the others, he ends up paying more than what the others would have, had their bids been the highest!

This is precisely the basis for the winner’s curse which implies that the winners might end up paying more than what the object is worth since the true value is a function of the optimistic views held by the highest bidder and no so optimistic (pessimistic) views held by the other bidders!

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• Collusion: Imagine two fruit sellers for whom selling fruits is the way to sustain their families. In all practicality, they would tend to undercut each other in an effort to sell greater volumes. But does this maximize their combined profits?!

If they were any smarter, they would instead join forces and artificially drive up the prices, maximising their combined profits. This is exactly what the concept of collusion is all about.

In auctions, collusion happens when co-bidders ‘ingeniously’ signal each other of their respective intent.

For instance, in the UK spectrum auctions held in199x, bidders indicated their interest in specific regions by affixing the last two letters of the respective pin codes to their bids. Such collusion is prevented by mandating that bidders have to select from a drop down menu of bid increments when deciding how much to bid in a subsequent round.

• Entry Deterrence and Predation: A major area of concern of practical auction design is to attract bidders, since an auction with too few bidders risks being unprofitable for the auctioneer (Bulow and Klemperer, 1996) and potentially inefficient. As a result, other firms have little incentive to enter the bidding, and may not do so if they have even modest costs of bidding. While ascending auctions are particularly vulnerable to lack of entry, other auction form scan result in similar problems if the costs of entry and the asymmetries between bidders are too large.

While we have a listed just a few prominent shortcomings of the auction designing process, we hope it gives the reader a brief idea of the complexities involved with designing the auction process and the need for designing a full proof mechanism.

One mechanism that we as a team felt that could yield effective results is the use of the Anglo Dutch mechanism of auctions.

Anglo Dutch Auctions

A combination of the ascending English auctions and Dutch sealed bid auctions.

The entire auction process is divided into two different phases:

• First, English phase, in which bidders are asked their willingness to pay at a specific price. It helps in establishing a provisional market value for the good. Bidders have an incentive to continue in the auction while the closing price is lower than their valuation.

• Second, the Dutch phase, in which bidders are encouraged to bid as soon as possible in a concealed manner

This design seeks to counter the shortcomings of the traditional auction constructs. While the English phase leads to an efficient outcome and reduces the chances of “entry deterrence and predation”, the Dutch phase ensures “reduced collusion” and “lower entry barriers”.

Source: Klemperer, P., What really matters in auction design, August 2001

It remains to be seen what the outcome of the spectrum auctions would be but for game theory enthusiasts , it will be an interesting unfurling of events considering the race has just heated up with Jio coming into the fray.

Auctions: A Critical Analysis

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Assumptions & Decisions Aiswarjya Mahapatra

Assumptions & Decisions

Assumptions are a core part of strategic planning and decision making. Well-considered assumptions make your plan smart and relevant. They give you a logical foundation and a consistent grounding in reality. The only catch is that assumptions have an extremely high rate of either being inaccurate or turning obsolete. False assumptions not only result in sub-par decisions but also loss of reputation. Hence, most successful decision makers try to keep themselves in tune with existing realities. The effects of assumptions on decisions are best captured in politics. The curious case of Mikhail Gorbachev is one in which these effects are observable. In 1985, when Mikhail Sergeivich Gorbachev stepped onto the world stage as the leader of the Union of Soviet Socialist Republics (USSR) he realised that he needed to do something different from his predecessors. Although the Soviet Union had achieved military parity with the USA, its economy was struggling and its citizens were chaffing under relatively poor living standards and a lack of freedom. Gorbachev assumed that rapid modernisation and increased worker productivity would resuscitate the economy. But it turned out that his assumptions were wrong. There was a deeper malaise in the system and hence he initiated an overhaul of the economic and political system. The two important cornerstones of his next steps were glasnost (openness) and perestroika (restructuring). Through these he, in line with popular sentiment, democratized the electoral system, introduced a freer market, reduced the USSR’s nuclear warheads and gave the press the freedom to criticise the government. All such activities would have been considered sacrilegious during Stalin’s totalitarian regime. He openly voiced support to all reformist communists in the Soviet bloc. These actions lead to the fall of what was, at that time, known as the Iron Curtain. The success of Gorbachev’s strategies drew the ire of a majority of the members of the Communist party and he faced a coup in 1991. But the then democratically elected Russian President Boris Yeltsin came to his rescue. The people empowered by Gorbachev had saved him. To strengthen his position Gorbachev entered a strategic political alliance with Yeltsin. Unfortunately for him, all Soviet structures were falling apart and leaders of member states started asserting their power. Eventually the Russian government, under Yeltsin, assumed the functions of the

collapsing Soviet government. Finally on December 25th 1991, Gorbachev resigned from the presidency of the Soviet Union, which ceased to exist that same day. Strategies are formulated based on assumptions. Mikhail Gorbachev’s story shows the impact of inaccurate assumptions on strategy. He makes such assumptions at multiple instances during the course of the story. Gorbachev was a staunch believer in Communism and assumed that the Soviet people also believed in it as much as he did. Thus, he tried reinvigorating the Soviet economy by superficial measures. Unfortunately, his strategy fails due to the obsolescence of his initial assumption. The people desired betterment in their livelihoods but unfortunately the Communist Party and the communist way of life had become a hindrance to swift reforms. Two years later he realized his folly and unleashed a radically different strategy of glasnost (openness) and perestroika (restructuring). He assumed that these two measures would enhance both his international stature as well as consolidate the Soviet Union’s position. At this point he believed that he could coax the fossil called the Communist Party into democratic reform. Although he won a Nobel Prize for his actions, the entire Soviet bloc crumbled. Finally he assumed that he could control the nation, without Soviet institutions like the KGB, in spite of the growing powers of democratically elected leaders. Unfortunately for him his strategy backfired again. Boris Yeltsin, the Russian leader, banned the Communist Party from Russia and with it Gorbachev’s beloved USSR collapsed. Gorbachev might have had the best of intentions but unfortunately he failed to deliver. Politicians rarely admit mistakes, but again Gorbachev is of a different class. He even went on to publicly admit that the erred at a few instances during is tumultuous reign. Most of these errors (like clinging on to Communist principles, trusting his arch-rival Boris Yeltsin etc.) can be directly attributed to the fact that his assumptions were not in sync with ground realities.

References:

http://www.history.com/topics/cold-war/perestroika-and-glasnost

http://www.bbc.co.uk/history/people/mikhail_gorbachev

1. The Thinkers50 is a biennial ranking of the most influential

management thinkers in the world. It was first launched in 2001

and have been described as the ‘Oscars of Management

Thinking’.

2. IBM was granted the highest number of U.S. patents in 2015. Its

total of 7355 patents is higher than that of Google, Microsoft and

Apple combined.

3. Clayton Christensen, a Harvard Business School professor, coined

the term Disruptive Technologies in 1995. He later replaced it

with the term Disruptive Innovation because he recognized that

few technologies are intrinsically disruptive or sustaining in

character.

4. Amazon recently announced that it would be experimenting with

a 30 hour work week for select employees. The program will have

a few technical teams made up entirely of part-time workers.

Did You Know?

5. Company of the Month – Volkswagen AG

a) Annual revenue 2015 - $237 billion. This was marginally higher than Toyota,

which currently is the world’s largest automobile manufacturer by volume.

b) In German, Volkswagen means ‘the People’s Automobile’. Other than the

flagship brand it also owns brands like Audi, Bentley, Bugatti, Lamborghini,

Porsche, Skoda and Ducati.

c) Diesel Emissions Scandal – It led to a revenue drop of 12%, a record loss of

$1.5 billion as well as a change in CEO. In a bid to reinvent itself Volkswagen

has also changed its slogan to ‘Volkswagen’ from the popular ‘Das Auto’.

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Team strategist

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Team Strategist

ABOUT STRATEGIST Strategist is the strategy and consulting club of MDI. The club strives to retain, extend and leverage the interest of the students in the area of strategy beyond classrooms. It acts as a pillar of the strategic activities in the institute. As strategy fits with all the functional areas - finance, marketing, IT, and HR; Strategist works closely with all other academic clubs to gain synergies and provide a holistic approach. Members engage and promote various activities like M&A Vista, deals analysis, sector study, regular discussions on varied topics including consulting to develop strategic bent of mind. The club comes up with theoretical compendium and games to make learning strategy more fun and interesting. The club has strong ties with the industry and invites prominent CXOs as guest speakers.

The club undertakes regular consulting assignments under the guidance of eminent professors. These projects provide an opportunity to students to apply theoretical knowledge to practical problems and come out with innovative solutions.

CONTACT