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Nikhil Vora / Swati Nangalia / Varun Kejriwal(M) +91 –9821132471/9820774251 / 9004291117(Dir) +91-22-6622 2567 / 2576 / [email protected] / [email protected] / [email protected]
Changing Changing DNADNA
2
Over the last five decades, only 60 companies have consistently appeared in the
Fortune 500 list !!!
Ever wondered why?Ever wondered why?
3
What led to the so many flip overs...What led to the so many flip overs...
Yahoo, the inventor of search engines and the largest player of late 1990s… With market cap on par with Google in 2004…
…is today 1/10th the value of Google!
Nokia, world’s largest electronic equipment provider and with profits 14x that of Apple in 2004…
…today generates 1/6th the profit of Apple & is at 1/16th its value!
HUL, the largest consumer company in India, has seen its market valueerode in the last decade… …while peers have given 20x
returns!
4
……and the greatest creations being and the greatest creations being ‘‘lostlost’’ today?today?
Xerox, among the largest ‘brands’ created which actually got translated into a verb (photocopy = Xerox!)…
…has lost 50% of its value in the last decade!
Polaroid, the innovation that makes the name synonymous to instant photography, and a US$3bn company in 1990s…
…filed for bankruptcy!
Intel, the heart of machines, with 80% of world computers running on it…
…has seen 50% erosion in its value since 2003!
5
When markets shift, you will fail if you don't
realize that longevity requires you to change the
Success Formula…or your DNA!!!
6
The organizationThe organization’’s DNA needs to be s DNA needs to be ““ALIVEALIVE””!!
In its lifecycle, each organization needs to go through a change in its DNA…in order to WIN or even survive!
Changing with time and trends
Accept failures and recoup success
Ability to fuel “new”growth
Ability to foresee the long-term prospects
Translating vision into success
Adapt Learn Innovate Vision Execute
7
Innovate
?
8
The The ‘‘strugglestruggle’’ of Unileverof Unilever……
Statement from Unilever CEO Statement from Unilever CEO –– Paul Paul PolmanPolman
"We have lost the connection with the world top. If we want to
grow consistently the next five years and again want to become
one of the bigger companies, we have to change the culture."
9
…’…’magnifiedmagnified’’ in its Indian counterpart!in its Indian counterpart!
Focus on “share of wallets” rather than “larger share of a wallet”
1990 - 2000 2000 - 2010
No successful launches
≠
0
550
1,100
1,650
2,200
HUL Pepsi Colgate(US)
Coca-ColaL'Oreal P & G Nestle Sa-Reg
Danone Unilever BAT ReckittBenckiser
Colgate (I) ITC Nestle (I) Dabur Marico GCPL
(%)
HUL – the worst performing consumer
stock globally in the last decade
Focus on mass…and not class!
Distribution/ Reach Lack of INNOVATION
“Overplay” strength
Biggest strengthFailures
Increase rural reach by 3x in
2yrs!
HULInnovation in ‘vain’!
10
Execute
?
11
Polaroid Polaroid –– no reason to no reason to ‘‘smilesmile’’!!
Vision
Business modelSomething akin to selling razor blades.
Buy the shaving kit (camera) & replace razors (or film) as you go.
Innovation
In 1989, 40%+ of R&D budget spent on exploring digital imaging technologies!
Lacked execution
Polaroid was well prepared technologically for the shift to digital imaging
It even had a sensor of 1.9 megapixel in 1989
But it was never prepared in terms of marketing and business models
‘Do not undertake the program unless the goal is manifestly important and its achievement nearly impossible. Do not do anything that anyone else can do readily.’
- Edwin Land, annual report 1980
2,157 2,168
839
265
FY1995 FY1997 FY1999 FY2000
Lost 90% of its value!
Mkt cap (US$ m)
12
Xerox Xerox –– failed in failed in ‘‘copyingcopying’’ its brand!its brand!
VisionI knew I had a very big tiger by the tail."
– Chester Carlson, Founder of XeroxCreated the
“Xerox” brand
What would a company with a strong brand like Xerox and revenues of US$1bn (in 1961) do?Move into brand extensions and innovate?
Innovation• Moved into to computer technology and data processing• Fax Machine• Technology based office products
Xerox is today remembered only as a photocopier!
Brand extensions failed and Xerox failed to create scale
Mkt cap (US$ bn)
16.138.8 60% erosion
Xerox did exactly that…
1998 2010
Lacked execution
13
Adapt
?
14
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to
change!”- Charles Darwin
15
The The ‘‘King CanuteKing Canute’’ philosophy!philosophy!
‘Adaptability’ has been THE MOST important DNA change required within an organization…
Inability to identify the “Changing trends”!
Obsession with core
My core business is my identity and will always remain my
focus!
Key issues with successful companies
Arrogance“I am the largest
and no competitor can get close!”
Complacency“My products will
always sell!”
16
“Get out of your comfort zone… if you do not change you
can become extinct!”- Dr. Spencer Johnson
“The biggest threat to McDonald's lies within - and that is us as a
company becoming complacent. There are a lot of companies that
get fat, dumb and happy and take their eye off the ball and forgetabout serving customers.!”
- Charlie Bell
17
Nokia Nokia –– the biggest innovators of its timethe biggest innovators of its time……
Vision & Innovation
Nokia 1011
1992 1994 1994 2002 2005
First satellite
call
First WAP handset
3G phone
N series Multimedia
Execution World’s largest mobile and camera company!
NokiaNokia
Nokia sells 452m mobile handsets a year and Apple ‘just’ 40m…
Then why the Then why the disconnect?disconnect?
Revenues (US$ bn) Mkt Cap (US$ bn)
Nokia
Apple
76
5 38
268
FY02 FY10
65
28
6
56
FY02 FY10
18
"You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll
want something new!”- Steve Jobs, founder of Apple
19
……is losing the is losing the ““connectionconnection””??
Changing consumer: Design consciousness, Faster operations
Launch of iPhone
1990 2001 Jan 2007 2010 2011
Adapting!
Failed to adapt to the changing consumer
needs!
Nokia’s first touch screen phoneNokia
1011N series
Multimedia
Struggling to remain a relevant computer
vendor
Largest music vendor, tablet maker,
smartphone provider & the most valuable
tech co in the world
1992 to 2005 July 2008
Nokia 59%
Apple 400%in last 5yrs
20
Yahoo!...the inventor of searchYahoo!...the inventor of search……
Yahoo, is the originator and the largest search engine of 1990s…
…then why do we all only remember Google today?
Dominant search engine of 1990s
The advertiser is the
customer…not search engine
users!
ARROGANCE
Search only an ‘accessory’!
21
……is now being is now being googledgoogled out!out!
Responsive to changeLaunch of products like Gmail, Google maps,
Android, Orkut, Youtube, & Google +
Customer comes first and “simplicity” is key Yahoo ‘succumbs’ to Google!
……and the results are apparent!and the results are apparent!
52 5322
191
FY04 FY11
YahooGoogle
Market cap (US$ bn)
1x 10x
22
Learn
?
23
IBM IBM –– a classic case of a classic case of ‘‘revivalrevival’’ DNA!DNA!
IBM70%
IBM40%
Revenues Profits
5x size of rivalbut growing at 6%!
• Cut 125,000 jobs and US$28bn in charges
• 27% of revenues from services
1990
1993
2001
Today
“Dangerous mix of arrogance and complacency”
“Adapted” to change
1990
1993
2001
Today
6
-8
8
15
65
32
83
180
PAT Mkt cap
More than 400 strategic planners within IBM !!!
“Everyone is too comfortable at a time when the business is in crisis” – CEO in 1990
Sold PC business to Lenovo for US$1.75bn in 2004
• 60% of revenues from services
Figures in US$bn
24
But does it suffice for the But does it suffice for the ‘‘organizationalorganizational’’ DNADNA to be to be
A.L.I.V.E.A.L.I.V.E.??????
May be not!!!May be not!!!
25
‘‘MavericksMavericks’’ create businessescreate businesses……
*peak market cap
Education
Retail
Media
Exchanges
Innovation in businesses……& creating
VALUE!
Renewable Energy
Biggest innovator in the Media space –
broadcasting/DTH,etc
ShantanuPrakash
Kishore Biyani
SubhashChandra
Revolutionized the ‘private’education sector
Spearheaded ‘organized Retail’ in the country
Jignesh ShahCreated commodity
markets and new age exchange businesses
US$2bn
US$2.8bn
US$4.5bn
US$3bn
Largest media conglomerateRaghav Bahl US$2.7bn
Tulsi TantiPioneered wind energy in
the country to become World No.3
US$12.3bn
26
……and at times and at times ““killkill”” it too!it too!
Learnt the ‘rules of the game’ of private education…and how to ‘play’!
Growth hungry promoters…but also capital starved…Cash flows never a focus.
Undermined the need for corporate governance in the ‘regulated’ private edu space
Undermined the need to build a strong back-end
Took on the regulator –SEBI!...for MCX-SX
Underinvested in core business; unwilling to look at
the changing face of competition
Success led to ‘contextual’ arrogance? Result(Mkt Cap Rs m)
88,873
18,842
30-Sep-09
Today 79%
125,131
64,052
31-Dec-07
Today 49%
204,048
112,976
31-Dec-99
Today 45%
119,377
39,608
30-Sep-09
Today 67%
132,862
35,665
30-Jun-07
Today 73%
Too much too soon…Reckless expansion,
in retrospect.
Largest retail industry ‘brand’ & hope of FDI to result into eventual sale to a global strategic investor
Biggest “innovator” in media – across broadcasting, distribut ion, etc
Created marquee properties across genres and assumed they will always have takers (easy access to capital)
Established the largest Exchange network, with MCX being the biggest success (valued at US$1.1bn in 3 yrs of ops)
Became World No.3 in wind energy579,852
85,225
31-Dec-07
Today 85%
27
But, potential for But, potential for ““changechange”” in DNA remains!in DNA remains!
Classical Case of everything wrong – Diversification, Over-
leverage and non-performance (1992-2002)
Classical Case of everything wrong – Diversification, Over-
leverage and non-performance (1992-2002)
The loss
Jain Irrigation
Bajaj Auto
Nestle
‘Result’
Catered to the consumer of yesterday…a mass player in a
declining market (scooters); Struggling (mgt) internals and an aggressive external environment
Catered to the consumer of yesterday…a mass player in a
declining market (scooters); Struggling (mgt) internals and an aggressive external environment
The underlying core of the organisation was – to beat Indian
GDP growth! (until 2003)
The underlying core of the organisation was – to beat Indian
GDP growth! (until 2003)
CCHHAANNGGEE
Jain Irrigation
0
25,000
50,000
75,000
100,000
Jun-93 Jun-96 Jun-99 Jun-02 Jun-05 Jun-08 Jun-11
(Rs m)
The biggest success story of the past 10 years…Stayed
committed to the core.
Bajaj Auto
0
125000
250000
375000
500000
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11
(Rs m)
Became the game changer in the space….Innovated and let go of an hitherto
successful DNA!
Nestle
0
90,000
180,000
270,000
360,000
450,000
Jun-93 Jun-96 Jun-99 Jun-02 Jun-05 Jun-08 Jun-11
(Rs m)
Belief in the fact that it was under delivering on own capabilities.
Re-aligned internal targets . Growth now at 3x GDP
`Mavericks`Mavericks’’ can recreate SUCCESScan recreate SUCCESS……
Need to emulate…to Recreate
Succes
s
Arrogance
Changing
DNA Painful
transitio
n
29
ConsumerizationIndustry is moving towards
premium, but key players are not
ConsumerizationIndustry is moving towards
premium, but key players are not
DistributionOnline wave - a threat to brick-n-
mortar distributors!
Spaces that demand a DNA change
Media – access to contentNewer avenues of viewership to take over traditional TV viewing
Media – access to contentNewer avenues of viewership to take over traditional TV viewing
Print mediaIndia to map the structural change
underway globally
Print mediaIndia to map the structural change
underway globally
Intermediary businessesNo brownie points for
intermediaries…yields to squeeze!
EnergyRenewable energy is the inevitable
savior!
30
The Indian consumer is changingThe Indian consumer is changing……
Premium growth
25% of the cars sold are sedans (above Rs0.6m)
Premiumization – The trend is evident!
Regular IMFL Premium IMFL
3x growth
All global majors at record sale and setting shop in the country
Pernod Ricard, World No.2 liquor player, is most profitable Indian liquor company
““India to rank among our top 3 markets (in value terms) along with the US and China as rising incomes spur demand for our brands”
– CEO, Pernod Ricard
50% of industry profits
10% mktshare
BUT
Automobiles
Liquor
Premium players
1
31
……but are companies but are companies ‘‘adaptingadapting’’ to that?to that?
Maruti / USL - a structurally de-rating business model over the longer run?
Positioning
Distribution channel
Best sales & services network
48%
Largest reach in a govt regulated
distribution
55%
78% sales at hatchbacks
‘fuel-efficient’ & value-for-money
buy
70% of volumes in the economy
segment
Affordabledrinking!
Dominant market share
Focus on mass
Perception
Strength
Lack the DNA to adapt
Unable to change ‘mass perception’
Competition can play spoil sport
Attempts such as Baleno and Kizashi failed
Audi/Honda launching in the mid segment
Premium products launched at “low price”
Pernod could potentially eat into USL’s volumes
32
Shopping Shopping –– the rules of the game are changing!the rules of the game are changing!Amazon went public in 1997 at a value of US$450m – when there were just 50m internet users
worldwide!!!...and is now valued US$90bn!
“On an average, 100m Indians spend about 16 hours a week online” - Google
A signal to brick-and-mortar retail stores…. a change in DNA required!
(US$bn)
4 710
40
2009 2010 2011E 2015E
E-commerce industr y stats
2
Survey: 40% prefer to shop online consider ing convenience to shop anytime
& one can collect detailed product info
Over US$75m of funding to e-commerce sites in last six
months
33
Print Print –– is it still is it still ‘‘finefine’’??
Are Indian print companies prepared to change their DNA for this wave of transition?
Globally, print circulation on a decline…
However, with migration of
consumers to e-papers…
3
USA UK India
20092007200520030
40
80
120
Declining revenues for global players
Proportion of individuals reading/downloading online newspapers/news magazines over the
Internet for private purposes
…but, near term growth for Indian print intact!
0
12,500
25,000
37,500
50,000
FY90
FY92
FY94
FY96
FY98
FY10
0
FY02
FY04
FY06
FY08
FY10
(USD m)
…Value erosion Eventual!
(Rs bn)
0
90
180
270
360
2007 2010 2015E
160193
310
Indi an print industry size
Current mkt cap of top 5 print companies globally is
same as that in 1990!!!
34
Media Media –– in a new age!in a new age!
With the online wave fast catching…can ‘traditional’ TV watching habits undergo a change?
Growing popularity of
internet based TV viewing
Increasing the likelihood of
watching content on the internet
How much TV do you currently watch on the internet? Have you considered cancelling your cable service?
+
Source: Retrevo
Source: Ericson
4
35
“50% of tablet users are watching TV and film on the devices”– In-Stat Research
“TV advertising revenue is dropping, while online
growing due to popularity of online TV”
– Yankee Group (US), Research
Are broadcasters ‘adapting’ their DNA to this changing trend???
(Rs m)
600
720
840
960
1,080
1,200
Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12
International subscription revenues for ZEEL have capped out!...
…reflective of structural change underway?
36
Intermediaries Intermediaries –– the the ‘‘sweet spotsweet spot’’ is lost!is lost!
Buyer/End userSeller (Farmer)
Electronic spot exchange
Bid price Ask price
Changeover
Risk of becoming ‘irrelevant’!
Insurance product sales growth
Result of drop in insurance commissions (slashed from
18-20% to 8-10%)
(21)
(12)(18)
(5)(9)
(16)(3)
(16)
(39)
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Feb-
11
Mar
-11
Apr
-11
May
-11
Jun-
1140% of travel tickets sold in the country are
online!
Only cost addition…limited value addition
Farmer Village trader Wholesaler Retailer Agent End user
5
37
A similar change inevitable across other businesses?A similar change inevitable across other businesses?
Do these businesses have it in their DNA to ‘survive’???
Financial intermediaries
Brokerages
NBFCs
Extremely fragmented industryAdvent of technology such as DMA are eroding yieldsEfficiencies to reduce cost of trade
MFIs
Gold lending institutes
As these businesses become large, the business proposition will compel banks to get into the segment of finance, as value addition stands to be limited
38
Renewable energy Renewable energy –– to to ‘‘outshineoutshine’’ need for oil?need for oil?6
A ‘Crude’ decline of oil companies eventual if the DNA is not “renewable”
Renewable energy –
Powering tomorrow’s growth?
Oil - A significant energy contributor
Top 15 oil companies are #1 or #2 in market cap in 9 out of 11 countries
Top 15 oil companies are #1 or #2 in market cap in 9 out of 11 countries
Depleting reserves and environmental concerns puts $2 trillion at risk?
Depleting reserves and environmental concerns puts $2 trillion at risk?
BUT
Suncor Energy (Mkt cap)
0
20,000
40,000
60,000
80,000
3/31/1993 3/31/1999 3/31/2005 3/31/2011
(US$ m)
7x in the last decade
39
“You can't have a better tomorrow if you are thinking about yesterday all the time!”
- Charles F. Kettering
40
Thank You
Nikhil Vora/ Swati Nangalia / Varun Kejriwal(Dir) +91-22-6622 2567 / 2576 / 2685
41
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