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Dominant assets in focus
The influence of intangibles and Brands in particular on sustainable value creation has been discussed by us at EQUITORIAL in the past. The recent media interest on this subject in the wake of some high profile brand valuations and the impending IFRS puts this discussion in sharp focus again. Here is the clipping of an interesting episode of CNBC TV 18 ‘Storyboard’...
Managing Consequence
Ramesh Jude Thomas
President & CKO, EQUiTOR Consulting
Some time in March, I was in the middle of some performance management workshops around India. The introductory session is always about how to capture progress and performance. And to bring home the point about measuring how we are doing, we choose the ubiquitous fitness program as a classical model. How do we know its working? “Simple", they say. "I check my weight …inches … muscle mass on a regular basis”
A quieter HR type once perked up and suddenly asked “Does it have to be only in physical change? “Explain please”, I ask.
She quips “I go to the gym regularly, but I measure my progress in the number of compliments I receive.”
Think about it. The funniest thing I find about management as a practicing science is the widely held belief that many things cannot be measured and better still, that some things should not be measured. Things happen because of instinctive managerial talent that abounds. “She will do it. She is a brilliant manger”
Usually it’s only the standard measures like sales and profits that finally get captured, because that’s the stuff that goes into the books, determines increments, promotion and bonuses. Not very different from the stock market, what?
But how do we manage the bits that get us results? E.g. How do we know people might come into our shops? How do we know whether they will buy? How do we know that they are willing to spend on us?
It’s worth reminding ourselves that any shareholder commits capital to a business for an appreciation in its value. And real changes in shareholder value can only happen through performance that can be sustained. Sure there are earthquakes and meltdowns. But those are exceptional.
We keep wondering how the behemoths meet their massive targets. They don’t actually see big targets. They break it down into smaller bits, smaller geographies, smaller time-frames and smaller customer groups. And we have an interesting dinnertime phrase for it: “manageable portions” implying, that consequence happens when we can predict and manage causes and effects.
Simple enough. Then why don't most of us? Because we are usually managing a boss or an expectation or a budget sheet, rather than a consequence.
Managing Consequence
Sorry, we are facing a technical error. Please revisit Equitorial to read the post.
What would you rather lose?
Ramesh Jude Thomas
President & CKO, Equitor Consulting
Last month two defining headlines caught my eye. The first was about the venerable State Bank of India granting a USD 400 million loan to Kingfisher Airlines (ET). The second was the insuring of Christiano Ronaldo’s legs for 90 million dollars.
What attracted my attention about the first was not the generosity of SBI to an airline in the current turbulence, as much as the fact that the loan was secured against the Kingfisher brand. And then the SBI were willing to go out and actually speak about it.
The case of football’s most prized hoofers reminded one of another famous Latino asset that was reported insured a few years ago for over USD 300 million (although her spokesperson chose to finally neither confirm nor deny it).
Why did Ronaldo and Jennifer Lopez decide to insure what they did? And what does this have to do with Kingfisher’s loan?
Let’s begin with the prima donnas. Ronaldo, Jennifer and their respective commercial brains simply focused on those assets that had the highest impact on their value to the world. (For Ms Lopez it certainly wasn’t her voice or her face!!)
Now think of why it made perfect sense for State Bank to safely dole out USD 400 mn against the Kingfisher brand name. Like for Ronaldo and Lopez, this was about the company’s most prized asset. The one that Mr. Mallya would most hate to lose. More than his planes or his breweries.
Companies (and regulators) often miss the point about how value is created and captured. That it is best served by the most valuable assets in their possession. And to find out what these really are, just ask owners what they are most afraid of losing. Malaysia’s oil, Apple’s unique design capability, Coca-cola’s brand name…you get the drift?
The Voyager Series
Below is an inspiring clip of Ramesh Ramanathan at the last Voyager session, where he discussed some of his own shortcomings with Janaagraha.
At the same session, in response to a question, he talked about how we can all be artisans of our destiny:
The Voyager Series
An evening with an unusual traveller
Ramesh Jude Thomas
President & CKO, EQUiTOR Consulting
What is the VOYAGER series really about? Hearing another set of achievements which we all are very familiar with or another public figure who is easy on the ear and sometimes the eye. So why waste a perfectly good Friday evening?
About a year ago, my son and I went to Crossword and picked a children's biography series by Lucent called "Heroes and Villains". In Martin Luther King's biography, the foreword provides a very interesting and inspiring definition of a Hero. He says " a Hero is someone who put his (or her) conviction ahead of his(or her) existence. EVERY TIME.
God knows we are starved of heroes, outside the Bollywood Pantheon. But , I assure you the VOYAGER is neither about heroes nor heroics.
It is about the conviction bit.
Conviction almost always means the road less traveled, which is why its often at loggerheads with comfort and conformity. That is when it all starts to go wrong. And we hate things going wrong.
So we teach our children, our employees and our communities not to take chances and minimize risks. And we end up as a nation of fixed depositors. Then we wonder why we have so little innovation (even compared with our low cost manufacturing obsessed neighbour)
If we really want to break new ground, build enduring institutions and create thought leadership, embrace fragility and failure. JK Rowling in her 2008 Harvard address argues articulately for the virtues of failure:
"Rock bottom was the solid foundation upon which I rebuilt my shattered dreams."
So when we first spoke about the VOYAGER series, Ramesh Ramanathan asked "this is a very unusual brief. How do you visualise the talk?"
I responded that the picture was in 3 parts: as a base camp, the journey and the peak of his life with Janaagraha so far. The base camp is known to many. The peak has been written about, spoken about, admired and advocated.
But the climb? Now thats the better guarded secret. Because nobody really wants to hear about the weight of the rucksacks, the temper of the sherpas, the lost climbers, the frostbite, the fatigue and the loneliness.
Ramesh has shared with us his loneliest most fatigued moments. His midnight hours of despair. His trials and tribulations. And what made him stick in spite of it all.
Because this character is what constitutes the better part of any worthwhile journey. This is what determines whether we will complete the climb. This is what we want to take back to those whom we lead and guide at our workplaces, our homes and our communities.
Look out for the video on the session.
The Voyager Series
Real life stories of daring always inspire and provoke us. The courageous people behind these stories are individuals with a very unique sense of purpose and conviction.
EQUiTOR Consulting, in association with the British Library, is creating a very special forum, christened 'The Voyager Series'. Through this forum, one very unusual journey will be shared at the British Council, Bangalore, every month, starting May, 2009.
At the inaugural session of 'The Voyager Series', Ramesh Ramanathan, Co-Founder, Janaagraha, will take us through his saga of courage and conviction from his days as a high profile international banker to ushering in participatory democracy in India.
Update: Thank you for your overwhelming participation! Registrations are closed for the Ramesh Ramanathan session on the 29th.
For those among you who would miss it, we'll tell you about the event through a report, pictures and AV clippings soon. We look forward to your participation for the next session, a month from now.
Co-creator
Ramesh Jude Thomas
President & CKO, Equitor Management Consulting
Over a series of performance workshops we recently held, one of the elements being debated was the role of Employee Satisfaction in driving shareholder value. According to a Wharton Research, between 1998 and 2005 Fortune magazine’s “ The 100 best companies to work for in America” consistently outperformed the stock market by a factor of 2. The outperformance was consistent in both booms and recessions, and held steady when the sample was pulled back to 1984.
If we agree that capital and technology are essential but not substitutes of people, then what drives people to drive value…?
We often hear responses like “ responsibility, empowerment, personal growth,compensation, enabling environment” et al. If you notice, each of these seem to re-inforce the notion that generating share holder value is the responsibility of the organization as some amorphous entity and not the individual. In which case why is it that winning organizations are always about a group of highly motivated individuals(Infosys, Nike, Virgin, Microsoft,) and the rest are about alibis for mediocrity.Why is that there are so many more of the second type than the first.
To explore the difference between these two types of organizations, I used to let loose the word “Co-creation” in the late afternoons . It certainly woke them up but they just rubbed their eyes and thought “what is this new consulting concoction”?
Just as they were ready to doze off again , I asked “have you ever heard of a dog that made a rocket, or a cat that wrote a piece of software?”
The fact is that of the 1.6 million odd known species that inhabit our planet, many share common Maslovian needs of Physiology, Safety, Intimacy and Acceptance. However the only species that ever been invited to “actualization’ is the human being.
The sad reality is that most of us choose “co-existence” over “co-creation”, i.e. managing our insecurities rather than our individuality. Two outstanding examples might help make the point:
Steve Jobs built one of the most influential organizations of all time around the notion that man was born to create. Then why do so many of our species prefer to stand by and watch?
Australia’s dominance of world cricket for over the last one and a half decades was founded on the premise that every player is and must be a match winner in his own right if he wants to keep his place in the team. How many times have we seen them pull out of impossible situations, with one guy each time taking the opposition apart.
Do we think organizations really understand the power of hiring and inspiring for individual contribution. Or will we always prefer to wait for one Tendulkar to deliver Shareholder Salvation?
IPL is the Bluest Ocean Around
Ramesh Jude Thomas
President & CKO,
EQUiTOR Management Consulting Pvt Ltd.
Last week an old colleague of mine who runs Interbrand Australia mailed in for a ringside sense of the IPL phenomenon. And that’s exactly what it is. As much as we all have issues with the way cricket is run in this country, one has to admire the sheer audacity of the idea and indeed the way it has been executed and administered so far.
My mind went back instantly to a Blue Ocean session at INSEAD where I had used Kerry Packer as an outstanding example of breaking market boundaries. What IPL has managed is to successfully do a Packer on the “traditional” one day format. I can’t think of a better example of classic Blue Ocean than IPL.
1. Like Packer, IPL demonstrated brilliant business thinking which extended far beyond cricket. IPL is actually a new entertainment medium in this country. It competes seriously with Bollywood. And if ever proof was required here it is: some multiplexes have already decided to screen the IPL matches instead of the scheduled movies on the match dates
2. Like the Low Cost Carrier or I-tunes, it has successfully brought in new customer segments into the market. Housewives, old in-laws and young kids are prepared to give up F1, dinner or video games during matches.
3. Its most laudable achievement is that it has finally monetized the dominating share of mind the game has always enjoyed amongst 1.5 billion people across 8 countries. It was a shame that with the fan following it had, cricket as a legitimate commercial activity has always remained a fraction of the value of tennis, FI or even golf.
4. The most telling evidence of its reach and power is the attention it has received from the politicians. IPL shifted to SA only because the politicians tried to bully them out of the original schedule which clashed squarely with the general elections. In fact South Africa is a great blessing because the 4 hour time difference will now allow Indians to return from work and watch entire matches.
Any organisation can take a leaf out of Lalit Modi’s business leadership book: for sensing big opportunity, outstanding execution and smart conflict management.
How resilient are your intangibles?
Ramesh Jude Thomas
President & CKO
EQUiTOR Management Consulting Pvt Ltd
Most of us spend large amounts of time and effort building our attitude, capabilities, special skills or indeed our reputation for something in particular. We try hard to be known for our sense of humour or kindness or diligence or whatever. Do we ever know how well we continue to command these? Do we know whether they are being impaired.
Testing for impairment is a significant measure for understanding the change in asset value other than due to prescribed allowable depreciation. This has come into sharp focus particularly in an era in which the lion’s share of what we pay for in acquisitions are the intangible assets of the firm. Unfortunately, even today it is publicly referred to as “testing for the impairment of goodwill.” This reflects the continued denial of the existence of real intangible assets (viz. brands, patents, consumer bases, proprietary technology) that drive cash flows independent of the balance sheet assets.
This has two important implications:
- with such large amounts(beyond the balance sheet) being paid for acquisitions now, there is still no separate due diligence done for the value of the intangibles as business assets
- Although balance sheet items like cash and machinery are checked easily for changes in status and captured in reporting, there is very little recognition of the change in the status of the larger assets that were acquired. Thereby having leaving management with little idea of how value creation could be impacted hereon.
Today more than two thirds of enterprise value lies in the intangible assets. It then stands to reason that at least two thirds of our attention needs to be focused there. When we are reviewing an individual for suitability (interview, marriage, partnership etc.) do we only look at the physical attributes? If not, can we afford guesswork on the non physical?
After having acquired the asset, we still need to keep checking as we go along, about the continued value (utility) of the asset. Impairment testing is nothing but this. But just like the physical assets, we need to know what we are looking for to measure.
SAFE CAPITALISM
Ramesh Jude Thomas
President & CKO, Equitor Management Consulting
Last week someone sent me three questions to be answered for publishing in a leading newspaper. They read like this:
Which are the sectors that are still hiring?Which are the sectors that are going down? Should new courses be introduced at this hour of crisis and what are these courses?
But don’t dismiss them yet. It reflects the concerns of the society at large in the current downturn. They might be worth considering individually:
1. Which sectors are still hiring?
Having worked through two downturns even before this one, it is too simplistic to look at sectoral trends. There are fundamentally strong companies that do well, and there are companies that do badly even without a recession.
So the IT industry, the toast of our economy, has taken a severe beating and are laying off people too. But there are sound firms ( you know) which are still net hirers. They have a strong business model and continue to serve satisfied customers and generate good earnings. On the other hand, while telecom as a category continues to show strong growth and forecasts, there are some companies being sold, some reducing costs and so on.
2. Which industries are going down?
Again there are sectors that are now being labeled with poor hiring reputations like retail, advertising, media, textiles and garments. However in each of these there are good, sound performers looking for quality people. The point is this: we are not a socialist economy with an employment target. We need high performance companies, powered by high performance individuals. We have too few of both. I think the past few years have been a great joy ride for both companies and job seekers. So even when the downturn passes we need a more realistic approach to the job market. There is no free lunch.
3. What new courses can create new jobs?
Even here I think the current courses need to focus on producing a better quality professional rather than on employability. Having said that there are any number of new opportunities in an emerging economy like India, but too many fly by night operators pretending to getting us ready for these. How many good institutes teach communications, photography, graphic designing, or catering? But then look how a training company like Frankfinn went public or the unqualified success of Naukri.
There are no broad generalized solutions to this crisis. We all need to contribute to performance, not just hope to reap the benfits.
As long as we understand that we cannot be Socialists who want to live like Capitalists we will ride out any number of crises.
Bad times and big opportunities
So, it’s real and present. And, it’s probably one of the worst ever. Now, that being the case, one can only look for what good can come out of it. And that’s what was precisely articulated by Ramesh Jude Thomas at a recently held B-School seminar under the ET in Campus initiative on ‘Brands in the boardroom’. See a video clip of the event here.
Brands in the Boardroom
“Why don’t we see a single Indian brand in the Business Week league table?” This question raised by an aspiring manager at the recently held ET in Campus seminar on ‘Brands in the Boardroom’ put the issue of understanding and managing DNA right in focus. Successful organizations world over have nurtured strong brands with unique consumer connect experiences over a period of time. Indian corporates would have a better chance of multiplying their EVs and getting counted among the big guys out there if they focus more on the demand side management and not just the supply side. Read on... .... (ET dated 29th Jan. 2009, section – Business & IT, Page 6)
http://epaper.timesofindia.com/Daily/skins/ET/navigator.asp?Daily=ETBG&login=default&AW=1233236248953
‘Focus on intangibles key’
Publication:Economic Times Bangalore; Date:Jan 29, 2009; Section:Business & IT; Page Number:6
Our Bureau BANGALORE
THE success of any enterprise in the next three decades will be determined more by its ability to use intangible assets than by its ability to control the physical ones, said Ramesh Jude Thomas, president of Equitor Consulting, speaking at ‘ET in Campus’ event held at Christ University Institute of Management. Delivering a lecture on ‘Brands in the Boardroom,’ organised by ET in Campus, an initiative of the Economic Times, Mr Thomas said that brand is a unique relationship that creates and secures future earnings for the company. Explaining the case of the world’s top two brands, Coca-Cola and Microsoft, he said that the total brand value of these two companies in 2007 was $129 billion, which was higher than the GDPs of many countries. According to him, the companies with established brands appeared more credible. Detailing the role of intangible assets in mergers and acquisitions, he said that when Procter & Gamble bought Gillette for $57 billion, a little less than half the price was for the brand alone. Dwelling on the reason behind the absence of Indian brands on the league table, Mr Thomas said: “As long as we continue to focus on cost, someone else will beat us at our own game. The need of the hour is to focus on creating value through brands.” “In the very near future, companies will be valued around the quality of their brands. Other assets will be valued only for the support they can provide to the brands,” Mr Thomas said.
Ramesh Jude Thomas, president and chief knowledge officer, Equitor Management Consulting, speaks on ‘Brands in the Boardroom’ as part of the ET in Campus ‘Leaders on Leadership’ lecture series, at Christ University in Bangalore on Wednesday. —ET
Brands and Bad Times
Ramesh Jude Thomas,
President & CKO EQUiTOR Management Consulting Pvt. Ltd.
The biggest analysts and pundits could not see a 20k market could go into free fall. No one imagined that some of the most revered names in the financial world would disappear overnight. And then I saw the darnedest sight: An ad for Merrill Lynch in The Economist. Were these guys completely cuckoo? Consider this. The Bank of America paid $ 50 bn for this company with one leg in the grave. What were they thinking? To answer that we need to ask why the really smart guys retain their marketing budgets in bad times? 1. In a downturn most companies will slash their marketing spends. The entire expenditure in the category falls. Guess what? The guy who retains his marketing spends suddenly has a much higher share of voice. When there is less noise in the market, you can only sound louder. 2. When the media market shrinks, deals abound. You end up getting much better value for the same budgets. 3. Your confidence infects the entire eco system. The trade pushes your product harder. 4. Finally, when things turn around, folks will always remember the good stuff that they used in bad times. When 9.11 happened, most airlines were dead certain that the world will stop flying from 12th September. In the face of this gloom, a certain Mr. Ahmed Makhtoom ordered $ 26bn worth of aircrafts and kept advertising. Emirates haven’t seen a drop of red ink since then. How many airlines can claim a similar record. Apple has not cut back a penny from their original plans or got rid of a single person in an economy that shed over a million jobs by the close of last year. In November this year, Bharti unveiled a 15 crore logo to reflect its $10bn ambitions. Are these guys gamblers? Or just fool-hardy fruitcakes with king-sized egos? If you go a little below the surface some interesting threads begin to show up: Great confidence in their reading of the market, a very well thought out, distinctive offering and an almost arrogant sense of conviction. But what really separates the men from the boys is a management which seriously believes that their brands are real business assets. If you were certain that over half the value of your business exists only because own the word COKE or INTEL or DISNEY, would you starve it? The moral of the story is that sound offerings with quality leadership will always back themselves to win under any conditions. At the worst of times, enough people have to fly, borrow capital, stay in hotels, and buy a meal. The million dollar question is will it be your meal or capital that these folks will buy.
Quiet Market? Sound Louder
Amidst the global trend of shrinking marketing budgets, I saw an ad in The Economist (no less) for for a marquee investment bank that was sinking. What were they thinking, when even the most profitable companies were cutting back?
When the media market shrinks, deals abound. You end up getting much better value for the same budget. Read on...
http://www.livemint.com/articles/2009/01/13222155/Quiet-market-Sound-louder.html
Brands and Bad Times
Ramesh Jude Thomas,
President & CKO EQUiTOR Management Consulting Pvt. Ltd.
The biggest analysts and pundits could not see a 20k market could go into free fall. No one imagined that some of the most revered names in the financial world would disappear overnight.
And then I saw the darnedest sight: An ad for Merrill Lynch in The Economist. Were these guys completely cuckoo?
Consider this. The Bank of America paid $ 50 bn for this company with one leg in the grave. What were they thinking?
To answer that we need to ask why the really smart guys retain their marketing budgets in bad times?
1. In a downturn most companies will slash their marketing spends. The entire expenditure in the category falls. Guess what? The guy who retains his marketing spends suddenly has a much higher share of voice. When there is less noise in the market, you can only sound louder.
2. When the media market shrinks, deals abound. You end up getting much better value for the same budgets.
3. Your confidence infects the entire eco system. The trade pushes your product harder.
4. Finally, when things turn around, folks will always remember the good stuff that they used in bad times.
When 9.11 happened, most airlines were dead certain that the world will stop flying from 12th September. In the face of this gloom, a certain Mr. Ahmed Makhtoom ordered $ 26bn worth of aircrafts and kept advertising. Emirates haven’t seen a drop of red ink since then. How many airlines can claim a similar record.
Apple has not cut back a penny from their original plans or got rid of a single person in an economy that shed over a million jobs by the close of last year.
In November this year, Bharti unveiled a 15 crore logo to reflect its $10bn ambitions.
Are these guys gamblers? Or just fool-hardy fruitcakes with king-sized egos? If you go a little below the surface some interesting threads begin to show up: Great confidence in their reading of the market, a very well thought out, distinctive offering and an almost arrogant sense of conviction.
But what really separates the men from the boys is a management which seriously believes that their brands are real business assets. If you were certain that over half the value of your business exists only because own the word COKE or INTEL or DISNEY, would you starve it?
The moral of the story is that sound offerings with quality leadership will always back themselves to win under any conditions. At the worst of times, enough people have to fly, borrow capital, stay in hotels, and buy a meal.
The million dollar question is will it be your meal or capital that these folks will buy.
Evaluating brand value in an intangible environment
Did you know that an industrial business such as the General Electric Co.or GE, commands a brand value of nearly $47 billion? Procter and Gamble Co. acquired Gillette Co. for a whopping $57 billion, with almost half of that going for five brands. The top 10 global brands are worth $390 billion, three times the GDP of Thailand. Read more at:
http://www.livemint.com/2008/09/30212353/Evaluating-brand-value-in-an-i.html
The sound of music
Jingles which strike the right chord amass a wealth of brand recall. No wonder then that firms prefer to retain the decades-old tunes generations have identified the brand wit. Read more at
http://www.livemint.com/2007/11/25233032/The-sound-of-music.html?pg=1
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