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WinningStrategies

In this Issue: STRATEGIES FOR THE SPOKEN WEB: GURUDUTT BANAVAR, DIRECTOR OF IBM INDIA RESEARCH

LABORATORY ON THE MOBILE PHONE AS A POWERFUL NEW PLATFORM WAR AGAINST TERROR: GENERAL

ARJUN RAY ON HOW TO COMBAT THE BIGGEST EVIL OF OUR TIMES BRAIN MAPPING THE LEADER:MODERNRESEARCH ON THE BRAIN THROWS LIGHT ON LEADERSHIP BEHAVIOUR

INSIGHTISBspring 09 RS 250


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Dear Reader,

The ISBInsight now wears a new look. Over the next ew issues we will be refning the

design to make it more appealing to you. We are also developing an online version and are

making it easily navigable and attractive to those o you that preer reading the articles on

screen. Its has been a great experience to incorporate all the suggestions and eedback into

the new look o the ISBInsight. I hope you will fnd what you want, how you want, in this

and the ollowing issues.

This issue ocuses on Strategy. It became clear during the high profle Strategy Conerence

led by Proessor C K Prahalad, how critical and time sensitive organisational strategies

are or handling globalisation successully. During the conerence, about sixty Deans o

Business Schools rom across the world got together to discuss strategies or growth. It was

ascinating to discover that Business Schools groom business leaders to handle external

realities but have not had an inward look at themselves and their strategies or growth! We

present the views o a ew Deans in this issue.

We received Willie Walsh, CEO o British Airways, at the ISB and had a antastic discussion

on his growth in the industry as well as the airline industry and British Airways. One o ISB

Proessors, Milind Sohoni, is currently doing signifcant research in the industry, it was

great to get insights rom the industry leader.

We have introduced a new section in this issue eaturing articles rom researchers. We

hope to bring to you industry relevant articles, hot rom the researchers desk, with new

insights that you can use immediately. I am also pleased to share with you that many o the

ISBInsights articles are being eatured in Executive Briefng the Economist Intelligence

Units (EIU) online magazine or senior executives. Executive Briefng eatures articles

rom a variety o sources, and is likely to be interesting to you. As always, I look orward to

your eedback, mail me at [email protected]

Bhuvana Ramalingam. EDITOR

from the editors desk


4/56Cover Story Spring 09 2 ISBINSIGHT

contents

14

spring 09INSIGHTISB

Cover Story5 STRATEGIES FOR THE SPOKEN WEB

Guruduth Banavar, Director o IBM India

Research Laboratory, co-authors this article in

which he concludes that the mobile phone can

be a powerul new platorm or creating a web

o localised and customised IT-enabled services

in emerging communities

9 DEANS ON STRATEGY

During a Strategy Conclave at the ISB,

business school leaders rom around the world,

complemented by their Indian counterparts,

explored how emerging markets can enhance

the uture o management education and

research

14 LEADING PARADOXICALLY

Bala Chakravarthy and Nick Shreiber, both

rom IMD, outline our approaches to resolve

organisational paradoxes

20 BOLD MOVES IN TOUGH TIMES

Willie Walsh, CEO o British Airways, in

conversation with ISB Proessor Milind

Sohoni, points out strategies needed to enter

new markets and survive tough times

Features24 FAIR VALUE ACCOUNTING

Sanjay Kallapur, Proessor o Accounting at the

ISB, describes the alleged link between air

value accounting and the nancial crisis

26 WHEN GOOD LOOKS KILL

During the ACR Conerence at the ISB,

doctoral student rom Boston University,

Rishtee Kumar Batra, examined the impact

o visual attractiveness o products upon

consumers perceptions o perormance

29 WAR AGAINST TERROR

Counter Terrorist Operations veteran General

Arjun Ray, delivered a talk on how to combat

the biggest evil o our times terror.

33 FINANCIAL MELTDOWN AUGURS

WELL

Founding batch Alumnus Ramanan SV, predicts

that in these recessionary times, it is the small

and medium enterprises that are going to

adopt new technology ast and well

5


5/56Cover StoryISBINSIGHT 3 Spring 09

ISB INSIGHT TEAM : BHUVANA RAMALINGAM, DIPALI GUPTA, LAXMI DEVI PANT,MONIDIPA MUKHERJEE, SRUTHI KUNNEL, SUNDEEP JAMMALAMADAKA,TAV SRINIVAS, VARSHAA RATNAPARKE

PHOTOGRAPHY: KASARLA VISUAL COMMUNICATIONS

DESIGN & COVER ILLUSTRATION by TRAPEZE

RESOURCES: LEARNING RESOURCE CENTRE AT THE ISB

PRINTED at KALA JYOTHI PROCESS PVT LTD

INDIAN SCHOOL OF BUSINESSGACHIBOWLI, HYDERABAD 500032, INDIA

PHONE: 91 40 23007000, FAX: 23007012EMAIL: [email protected]

SUBSCRIPTIONS: FOR DETAILS CONTACT:[email protected]

Faculty Close up

36 RESEARCH LENS ON HUMAN

CAPITAL

According to Nishtha Langer, Assistant

Proessor o Inormation Systems at the ISB,

or today's businesses, people are the biggest

assets, especially in the IT domain

Face to Face

37 BRAIN MAPPING THE LEADER

A discussion on how modern research on the

brain throws new light on leadership behaviour,

the importance o psychological interventions

or developing leadership qualities, and more.

42 LET A THOUSAND FLOWERS

BLOOM

Darden Proessors, Edward Freeman and

Sankar Venkatraman, during a CEE programme

on Strategic Leadership, interpreted how the

nancial downturn has changed the story o

capitalism and entrepreneurship world-wide

Knowledge Sessions

44 STRATEGY IN A FLAT WORLD

The SMS International Strategy Conerence

was all about curiosity and collaboration. The

aim was to develop and disseminate insights

on strategic management processes, and create

a new-research eco-system in the domain o

strategy

46 HIGH POINT IN CONSUMER

RESEARCH

The ACR Asia-Pacic Conerence held at the

ISB, led to interactions on consumer research

issues in the Indian context, and helped

develop new rameworks and concepts in the

eld o consumer study

48 ISIS 2008- TRENDS IN THE DIGITAL

DOMAIN

A report on the symposium hosted by

CITNE, to deliberate on the role o IT

in enhancing global competitiveness and

economic development, and to discuss current

unpublished work and research topics

In Brie50 IN BRIEF

Perspectives rom the world o management

practices

Book Review

52 BOOK REVIEW

A review o HBS Proessor Tarun Khannas book

Billions o Entrepreneurs: How China and India are

Reshaping their Futures and Yours

20 46

50

COPYRIGHT, 2007. INDIAN SCHOOL OF BUSINESS (ISB). ALL RIGHTS RESERVED. ALL

ARTICLES HAVE BEEN COPYRIGHTED BY ISB AND NO PART OF THIS MAGAZINE MAY BE

REPRODUCED EITHER IN PART OR FULL, OR ELECTRONICALLY STORED INTO A RETRIEVAL

SYSTEM, OR DISSEMINATED IN ANY FORM (ELECTRONIC, MECHANICAL, PHOTOCOPYING,

RECORDING OR OTHERWISE) WITHOUT ISBS PRIOR WRITTEN PERMISSION.


7/56ISBINSIGHT 5 Spring 09

IT-enabled services, such as e-banking, e-government,and e-ticketing are taken or granted by the PC-

accessing population o the world, but they are onlythe 20 percent minority. The vast and increasingmajority o the worlds population has never used aPC or seen the benets o these services. However,today there is an increasingly pervasive electronicchannel, the mobile phone, by which such services canpotentially be delivered to this untouched population.The business and technology strategies or protablydelivering these services are complex. This articlerefects on some such strategies.

One cannot escape two acts, seemingly

contradictory in today's India - the age-old lowpenetration o literacy, and the recent high penetrationo mobile phones. People whose monthly salary is ath o the cost o a mobile phone are carrying onearound with them (the mobile is shared with theamily). One milkman we talked to does not even use

the electronic address book on his mobile, preerringto dial the number every time. Another young man

plays new-angled games on his, but does not eel theneed or reading and writing. Economic incentives,such as the low cost o a text message, relative to aphone call, have little impact on people o his ilk.

More interesting is the act that even manyeducated people in India preer to use their mobilephones or verbal communication rather than writtencommunication. Perhaps it has to do with ancientcultural conditioning, rom the handing down othe Vedas and Upanishads by word o mouth, or thepreerence o musicians to pass down complex art

orms via vocal schooling. What is clear is that thespoken tradition is more likely to appeal to the massesin India than almost the rest o the world.

Services OpportunitiesThe needs and priorities o communities in emerging

A NEW PLAFORM TO ADDRESS USERS CLOSER TO THE BASE OF THE PYRAMID

by Guruduth Banavar, Manish Gupta, Sougata Mukherjeaand Anupam Saronwala

Strategiesfor theSpoken Web

Cover Story

The unique needs of communities closer to the base of the pyramid suggest interesting new services opportunities.

For instance, the mobile phone can be a powerful new platform for creating a web of localised and customised it-

enabled services by users and for users in emerging communities



economies depend on various actors, includingincome level and proession. While the needs

and wants o the urban wealthy are amiliar to thedeveloped world, the unique needs o communitiescloser to the base o the pyramid suggest interestingnew services opportunities.

Information Dissemination andCollection Services A primary need o the ubiquitous small and microbusinesses, like plumbers and street ood vendors,in emerging urban environments, is to establish andmaintain strong connections with the clientele intheir neighbourhoods. However, given the lack opopularity o yellow pages in countries like India,new kinds o inormation dissemination services areneeded.

Within rural communities, there is a need toobtain locally relevant inormation, like health andtransportation announcements, government updates,

etc., since newspapers may not carry relevantinormation or every village. Inormation collectionand dissemination services are also needed or armers,

shermen, and others in the village to get advice romexperts with in a short time. The e-Choupal servicelaunched by ITC in India, or example, has enabledeconomic capacity to prolierate at the base o therural economy by providing armers with armingknow-how and services, timely and relevant weather

inormation, transparent price discovery and accessto wider markets.

Furthermore, because o inadequatetransportation inrastructure in developing countries,it becomes very dicult to reach remote communities.The problem becomes more critical during naturalcalamities. Better collection o public data romthese areas is very important since they may be usedto drive decision-making on the allocation o scarceresources. For example, better health data collectioncan allow district health managers to allocate a greatershare o their budgets to the major causes o mortalityin these communities. Thereore services thatenable easy collection o inormation about remotecommunities will be very useul or governments andother agencies.

Financial ServicesMany people in developing countries lack accessto basic nancial services such as savings, credit,

insurance, and money transers. Most o thetransactions in such economies are in cash and involvevery small amounts. Services supporting the unique

requirements o these types o nancial transactionswill be very useul.

A case in the point is M-PESA, one o themore popular services or developing countries,oered by Saaricom which is Kenyas leadingtelecommunications company. Currently, only 10



percent o Kenyans have ormal bank accounts, andM-PESA allows people without bank accounts to

complete simple nancial transactions, primarilyperson-to-person money transers. Since theintroduction o the service in March 2007, threemillion users have registered, and the service hasbeen growing in popularity (see http://technology.cgap.org/2008/06/17/why-has-m-pesa-become-so-popular-in-kenya/).

Entertainment andSocial Networking Services

Services that can provide aordable orms oentertainment or the emotional enhancement opoorer sections o emerging economies are alsoimportant. Moreover, just as in developing countries,social networking services that enable people to stayin touch with their riends, amilies and people whoshare similar interests may also become popular inthe emerging economies.

Technology Drivers

At IBMs India Research Laboratory, we have beendeveloping a mobile sotware platorm, called theSpoken Web, or delivering the above kinds oservices to communities in emerging countries. TheSpoken Web is a network o Voice sites, which existsand operates on the telephony network rather than theInternet. Accessing the Spoken Web does not requirean expensive computer, an internet connection,or the ability to read and write. People can browseVoicesites by talking with them, and traverse rom oneVoicesite to another via VoiLinks, and even conduct

transactions, simply by talking. Whats more, a phonenumber can act like a URL in the traditional web,and one does not need a high end mobile device toaccess the Spoken Web, a plain old rotary phone cando the job.

While the spoken word is clearly preerred in

societies like ours, human abilities in the visual andthe aural domain dier considerably. This provides

interesting challenges. A human being can process visual inormation in parallel, while the auralinormation processing is inherently sequential. Thestate-o-the-art o various interaction technologies(touch, visual, speech) will determine the user-interace capabilities. Obviously, creating the rightinterace, which combines the complementarystrengths o the various senses, will play a pivotal rolein the adoption and evolution o the Spoken Web.

Business StrategiesThe rich set o ser vices enabled by the Spoken Web willrequire several dierent business strategies, rangingrom ree public services to premium paid services.We can envisage a combination o business modelsbeing used in several scenarios, and ully expect newbusiness models to emerge as the Spoken Web gainsbroader adoption. A user o Spoken Web may pay orservices in the orm o regular phone calls, throughpremium phone calls, or using other mobile paymentmechanisms.

Free Public ServicesThere is a need or Governments to disseminateinormation about their policies and variousprogrammes to the public at large. The Spoken Webcan complement other media like print, television,radio, and the world-wide web (www) to reach thebroad population. Besides inormation dissemination via voice portals or various departments, theSpoken Web can be used as a powerul and low cost

mechanism to collect inormation rom the masses,e.g., census data, health care data, and complaintsabout corruption. Overall, considering the dicultieso reaching out to the masses in a vast country orregion, especially i it has low levels o literacy, variouspublic organisations can provide eective governance,at low cost, by oering ree public services on theSpoken Web.

Free Business ServicesAs enterprises look to penetrate broader sections o

society with their products or services, they may ndit attractive to oer or support ree services on theSpoken Web. This can take several orms:

Advertisements: Enterprises may advertise theiroerings on the Spoken Web, allowing other

Accessing the Spoken

Web does not require anexpensive computer, aninternet connection, or theability to read and write.



service providers to provide useul services,such as search, news, or inormation on aspecic topic, that are ree to the masses. Theadvertisements can include hyperlinks to voicesites o the advertisers, analogous to the commonpractice in www.

Interactions with customers: Enterprises may

set up voice portals to disseminate inormationabout their oerings and support interactions with customers, including commercial

transactions. For example, a restaurant or storemay provide inormation about their oeringsand promotions, and take orders or homedelivery over the Spoken Web.

Usage Fee Based ServicesFor services that are deemed valuableenough, one can expect the receiver topay or the services. For example, a personseeking employment via a jobs portal

(typically or a job where the critical skillsneeded, e.g., based on a specic training,can be concisely dened) or a personbuying/selling an item via voice-basedmarketplace can be expected to pay a eeor posting their entry on the voice portalor or a transaction.

The spoken word can provide apowerul expression o a persons identity.This can be the basis o premium oerings where an individual is willing to pay or

that expression and even attempt toimmortalise onesel. Ring tones have beena popular oering with mobile phone

users. The personalisation can be taken to the nextlevel by allowing users to set up personalised voicesites to showcase their talent (this can also be done ona public site analogous to YouTube) or to respond todierent callers in a customised manner.

Subscription Based ServicesIn several scenarios, Spoken Web can provide valueon a regular basis to users, or which the users wouldbe willing to pay subscription ees to the serviceprovider. Examples o such services include:

Publish-subscribe services: Traders and armersmay wish to sign up or a notication service wherethey are provided pricing inormation or alertsbased on changes in the prices o commoditiesthat they are interested in buying or selling.

Directory listing and other services: A proessionalworker, such as an electrician or plumber, may bewilling to pay or directory listing and additional

optional services (like matchmaking with servicerequestors and scheduling) on a regular basis i ithelps them get more business.

In conclusion, the mobile phone can be a powerulnew platorm or creating a web o localised andcustomised IT-enabled services by users and or usersin emerging communities. New kinds o businessstrategies need to be developed to prolierate andmonetise this new Spoken Web. While there stillare some technical and business challenges to be

overcome, the Spoken Web has the potential to createthe same kind o revolution that the original webcreated in the developed world.

Guruduth Banavar isDirector, IBM IndiaResearch Laboratory, oneof the eight world-wideresearch labs of IBMResearch.Co-authors Manish Gupta,

Sougata Mukherjea, andAnupam Saronwala arefrom IBM India ResearchLaboratory, New Delhi andBangalore

| VoiceSites | Voilinks | Surf Links | Browsing | Search | Transactions

2500 4217

Voice Site

2226 6333

4129 2265

6875 4319

1256 484 437

The Villager then dials in to the VoiceSite and gets the info he needs in one phone call

Voice Site Voice Site

Voice Site

Voice Kiosk

Voice SiteVoice Site



Public institutions like the Indian Institutes oManagement (IIMs) which are under the controlo the Government o India cannot introducechanges easily. The IIMs, particularly in Calcuttaand Ahmedabad, were established around 1964in collaboration with the State government, MIT

Sloan and Harvard Business School. Till recentlythe Post Graduate Programme or the MBA was theonly programme oered. The Government thwartedattempts to increase student ees or make anyadministrative changes. It also stopped giving grantsor recurring or capital expenditure. In 2003, acing

a major nancial crisis, the management at IIM-Cconducted a diagnostic survey and ound a high levelo dissatisaction with the status quo, along with ahigh aspiration or change amongst aculty.

We embarked on a bold, strategic plan or growthand introduced a one-year, ull time residential

programme, similar to the ISB, alongside thefagship two year programme, and dierentiated it bypositioning it as a programme or developing globalleaders. This being independent o the Government,gave us the reedom to charge appropriate ees togenerate the unds we so badly needed. In August 2007,

Deans on StrategyABOUT COLLABORATIONS, QUALITY ASSURANCE, INNOVATIONS AND ACTION LEARNING

During the Strategy Conference at the ISB, Deans of B schools in India, Europe, and USA came together to share

their vision for strategic growth in management education. The discussion generated interesting ideas about how

emerging markets can enhance the future of management education and research. We present the views of four

Deans from leading Business Schools.

Cover Story

We need to develop internationalcollaborations with other B-schools across

the world because globalisation compelsus to be more appealing internationally.Shekhar Chowdhury, Director, IIM, Calcutta



we launched another one year ull time, residentialprogramme, with a combination o technology and

management. We tied up with theIndian Institute o TechnologyIIT Kanpur and IIT Madras orproessors o technology and also with the Japanese governmentto get proessors rom Japaneseuniversities, particularly in the areao manuacturing excellence. Weintroduced long duration executiveprogrammes and included virtual

learning methods. We also incentivised aculty tomake teaching in executive programmes worth their

while.Going orward, we plan to continuously upgradeour programmes with research inputs rom our aculty.We need to develop international collaborations withother B-schools across the world because globalisationcompels us to be more appealing internationally.

Business schools have to develop virtual educationin a big way and have to collaborate with corporateuniversities to make management education moreaccessible to working executives.

The ISB has successully ushered in several newparadigms or business education in India. The oneyear management programme, a ocus on internationalquality research, an emphasis on emerging marketissues, competing globally, admitting students withprior work experience these are now trend-settersor Indian B-schools, and in the next ten years islikely to become the norm.

Research in India has so ar been internallyocused, limited to publishing in Indian journalsalone. With Indian industry, especially the sotware

industry, demonstrating the benetso global recognition and thecapability o competing globally,Indian B-schools will graduallyincrease their participation in highquality research and begin to publishin top quality international journals.Emerging market issues will be the

dominant interest as there are new,interesting, and replicable lessons

to be learnt. This calls or best o breed aculty, andattracting them would require reorms in acultycompensation including perormance based annualincreases in salaries.

Regulatory rameworks have been stifing highereducation in India. Some institutions have dealt withthis innovatively to side step some o the issues, withtwinning programmes, joint degrees, etc. None o

the premium management institutions in India have adegree granting status and they have learned to thrivedespite this hurdle. Indian B-schools are likely to seekglobal accreditation rom bodies such as the AACSB,EFMD, etc. When regulations get modernised andWTO agreements in higher education are in place,higher education in India will go through a sea change.Collaborations with international institutions as wellas independent, privately unded institutions will beestablished, enhancing the quality and reach o highereducation. The Indian government urgently needs to

take the lead in establishing a quality assurance systemand ensure high quality in higher education.

Shekhar Chaudhuri,

Director, IIM Calcutta

M Rammohan Rao,Former Dean, ISB

Emerging market issues will be the dominantinterest as there are new, interesting andreplicable lessons to be learntM Rammohan Rao, Former Dean, ISB



Today we ace not just the nancial crisis, the entirenotion o leadership o top management teams, othe role o the chie executive, are all in crisis. Thishas to do with the mission o B-schools, their rolein society and consequent responsibilities, theirmodel o governance, and how aculty membersresearch interest ts in with the interests o students,companies, and society at large. The assumptionthat the sole objective o the rm is to be a protmaximising unit is a reduction o the real world. CEOshave to maximise the value o the rm in the longterm, and it is not the same thing as maximising shortterm prots or short term market value. Leadership isabout transormation, about transorming reality, and

B-schools have to deliver to that challenge.B-schools have to ace the challenge o being

relevant and innovative in responding to a globalisedworld. They have to be able to shape the agenda o topmanagement teams and corporations to be relevantto society. They are good at transmitting knowledge,in training people to have a good command o basicbusiness disciplines and leadership qualities but theyneed to think deeper on developing transormationalleadership capabilities in students. Like medical

schools that impart knowledge, take care o thepractice and at the same time improve the health

standards o society, B-schools have to train studentsto improve the economic standards o society.

From an economic viewpoint, the world is nolonger the west. But B-schools are still using modelsand ideas that come rom the experience o westernmultinational companies. In order to tackle thesebig economic and social challenges, schools have tointegrate, build new models and theories and test thehypotheses - across all disciplines, across organisations,and across countries.

Despite two world wars, and many crises, thebusiness world has made a lot o headway. The USAhas venerable universities that have been aroundor more than a century but in

Europe or in Asia, new world classinstitutions were non existent ty years ago. New business schoolsemerging rom countries likeIndia, China, etc., do not havethe legacy costs associated withlarge, established universities orbusiness schools, hence there isan excellent opportunity availableto be integrative and develop

new knowledge that is relevant totodays globalised world.

Dean Jordi Canals, IESEBusiness School, Spain

Leadership is about transformation, about

transforming reality, and B-schools have todeliver to that challengeDean Jordi Canals, IESE, Spain



I you look at globalisation, and how industries haveresponded to that, and compare it with how B-schoolshave responded, it is quite shocking. Compared to,say, McKinsey or Baine, the response o Harvard orChicago Booth (CB) or London Business School isvery low. Consequently, the market share o the top20 business schools around the world is minuscule.Business schools in this fat world presumablyconnote opportunity and an evenness o capabilitybut this cannot be achieved when they have speciclocations. We do not see globalisation in businessschools, except in executive MBA programmes. CBintroduced the executive MBA programme in 1943.Recently, it introduced a second node in Europe anda third node in Asia, amounting to a global learning

system o 270 executive MBA

students interacting with eachother. These students, comingrom industry backgroundsin various countries, know a whole lot more than acultyabout what is happening inmutual interdependence andrivalry amongst China andIndia.

I have a lot o condence

in my acultys ability to

understand markets and how organisations work ata deep level. B-school graduates will hopeully workover the next ty years, and would encounter thingsthat the aculty could not have anticipated and adeep understanding o businesses and organisationsis extremely valuable. However, in a globalised world, it is equally important to understand whatis happening in the world o practice, and I am notsure how much our aculty understands that. Facultysometimes dont get out much, they tend to doresearch in a way that is consistent with them beingin one place.

B-schools are the ultimate two-sided markets.We all bring in MBA students and we develop them,that is the ront end o the process. At the back end, we bring in recruiters. Having diversied students

and recruiters can build an enormous amount opressure on the aculty and build in a lot o learninginto our systems.

B-schools are the most successul academicenterprises in the last ty years by ar. Every yeartop Schools around the world have increased tuitionat rates above infation and have sustained themselvesthrough various situations. There has been aphenomenal entry o new high quality B-schoolsin the world. Despite all the challenges they ace,

B-schools are terric.

Dean Edward A. Snyder,Chicago Booth

To me, nobody has yet cracked the code on lie longlearning. Right now we do big, discreet chunks upront, and then we send pod-casts to our alumni andhope they will contribute to the school. We havent

thought much about how to become their go-tosource, as intellectual questions come up or therest o their lives. We will see a transormation orgetting out o this discreet transaction mode into a

Although B-schools are in crisis, theyare terric. They are the most successful

academic enterprises in the last ftyyears by farDean Edward A Ted Snyder, University of Chicago Booth school business

The distinction between research andteaching or research and education is false.We lose a lot because of thatDean Robert Dolan, Ross School of Business, University of Michigan, Ann Arbor



relationship mode, which is likely to push aculty inthe direction o the world o practice because withoutthat we cannot be a orce in the lives o our alumni.

For a long time we have existed in generation1.0,where we have the standard long and narrow classroomwith proessor sitting up ront and lecturing to thestudents. Then we transitioned to generation 2.0 andgot into the distance learning business where we triedto reach executive students in their homes. In 3.0,where the Ross School is now ocussing, we put ourstudents out on the eld because student learningtakes place in the world o practice. We now have togure out what is the right way o reaching out tostudents at home or at work, in our classrooms or inthe world o practice.

The distinction between research and teaching orresearch and education is alse. We lose a lot becauseo that. We have to be customising experiences orour students and have to draw on a broad set oresources. Resources can come rom alumni or romacross dierent unctions. For example, we have jointdegree programmes with engineering Universities

and Natural Resources departments. We also reachout to other kinds o people. We had Robert McKee,the amous screen writer, teach our students about

story telling. Recently we had poet Maya Angelou.She instinctively said, business by itsel is like onehand washing itsel. But i you take business and thearts, thats when things really begin to happen. Whilewe have our alumni coming back as teachers, we alsohave to reach out to people who have very dierenttalent sets.

What really makes a transormational leader isthe ability to see opportunitiesor innovation. The processo innovation is dierent indierent parts o the world. We need to have opportunitiesor action learning, and havestudents experiencing innovationprocesses in dierent countries.We have to nd out a way to teachour students to be courageousand intelligent risk takers.

Dean Robert J Dolan,Ross School of Business



LeadingParadoxically

Modern leadership requiresthe ability to manage thingsthat appear at odds, but infact are not.

by Nick Shreiber and Bala Chakravarthy

Corporate leaders acea more complex world - andmust satisy more competing objectives-than they dideven a decade ago. In order to maintain competitiveadvantage, the rms product and services mustbe dierentiated, and yet cost competitivenessis also paramount. Corporations are expected to

play responsible roles in society, yet demands orthe protection and enhancement o returns toshareholders are stronger than ever. Top managementmust personally vouch or the numbers that theirrms put out, yet it is also increasingly necessary todelegate responsibility.

Leading a business in the modern world requiresthe ability to deal with multiple paradoxes. Paradoxis a noun o Greek origin that describes seeminglycontradictory statements which, when explained, are

not contradictory at all. In the business environment,three aspects o paradox are worth emphasising:

1 Leaders are aced with contradictory demands.For example, there may be the need to pursueglobal growth aggressively and at the same timecontain or reduce business risks. Or there mightbe a need to dierentiate a rms productsand services while at the same time improvingoperational eciency.

2 Common sense rebels against pursuing thesecontradictory demands simultaneously. Forexample, i top management tightens corporatecontrols and also announces its intention toincrease employee empowerment, it will have tosell its ideas very convincingly to avoid scepticism

on the part o employees.3 Many o these paradoxes can be resolved.

Our experience tells us that high-perormingorganisations can - successully - pursue severalseemingly contradictory goals at the same time.

This article is based on two streams o research. Therst originates in practice, and comes rom NickShreibers career rst as a strategy consultant withMcKinsey & Company and then as CEO o Tetra Pak,

one o the worlds leading packaging companies orliquid oods. He went on to test his insights throughcontacts with academic institutions including EmoryUniversity, IMD, and IESE. The second stream comesrom Bala Chakravarthys research on leadershipdilemmas, which has been conducted over the courseo ten years, rst in the inormation communicationindustry and through eld research in the chemical,energy, pharmaceutical, ood, and retail industries(see Chakravarthy 1997, Chakravarthy and Lorange2007, or more details o this research).

Resolving paradoxes requires not so muchcommon sense as uncommon sense - the knowledgethat apparently contradictory demands can still bemet. This certainty has to originate rom the top. As some experts put it: Followers want comort,stability and solutions rom their leaders. But that

Cover Story



is baby sitting. Real leaders ask hard questions andknock people out o their comort zones. Then theymanage the resulting distress (Heietz and Laurie,2001). The resulting tension oten provides the sparkthat leads to a creative solution.

However, creating stress is not enough. Corporateleaders must do our key things in order to resolveorganisational paradoxes: (1) rame the challengecreatively, (2) balance the organisational context, (3)oer thought leadership to produce solutions, and (4)provide moral guidance to the organisation.

Creative Framing A useul way o managing paradoxes is to nd acreative way to rame the challenge. Paradoxes can bedaunting. The trick is to embed one o the competinggoals as part o the context, and oer the other as theprimary goal to be served.

Consider the example o Best Buy, the North American consumer electronics retailer. Its CEO,Brad Anderson, introduced a new vision or thecompany a couple o years ago, seeking to make BestBuy one o the rst companies in retailing to be trulycustomercentric. The underlying idea was to targetthe most protable customers or the company andincrease the companys share o their spending. The

other goal o customer-centricity was to enhancevalue or the rms shareholders.

On the ace o it, customercentricity doesnot necessarily translate to better returns or theshareholder in the short term. For a discount retailerlike Best Buy, managing inventory turns is veryimportant. Customer-centricity, on the other hand,could lead to the holding o more stock-keeping unitsand slower inventory turns. Besides, both the cost ostore xtures and added employee training that were

needed to support customercentricity could hurtstore protability in the short run.While employees in the customer-centric stores

were given a simple goal - delight customers - theorganisational context that they were placed in,helped ocus attention on the other goal, creatingvalue or shareholders. Through careul analysis, thecompany had identied seven protable customer

segments. Each store was assigned one or two o thesecustomer segments to ocus upon, as appropriate tothe demographics o the markets that they served.Serving these customer segments would enhancestore revenues and protability. Best Buy also put inplace a control system that measured the return oncapital invested in each o its customercentric storeson a daily basis. Employees were trained on the basicso how shareholder wealth was created.

Customer-centricity initiatives that helpedimprove return on capital employed were thus readilyidentied. While employees were urged to delightcustomers, top management had ensured the targetedcustomers would also be protable customers. Thishelped employees recognise that shareholder valuecan be enhanced while delighting customers at thesame time. Asking employees at Best Buy to becreative in serving the needs o their customers wasvery energising and inspiring. Simply asking them toadd value or the companys shareholders would havebeen ar less appealing.

Thus the two goals, delighting customers andadding shareholder value, may appear contradictory,but in reality they are not. By creatively raming thisparadox, Best Buy has been able to improve employeeempowerment, customer loyalty and return to itsshareholders all at the same time.

Balancing the Organisational ContextThe tension between unctions and processes withinan organisation provides another source o paradoxical

discomort that can be addressed through goodleadership. It is oten debated whether a companyorganised along unctional lines can embrace cross-unctional business processes. The way to rame thisparadox is to understand that well-run unctionsare absolutely essential to a business; they are thesine qua non that provide the capabilities or thesmooth operations and intra-unctional learningwithout which a company cannot operate. Functionalexcellence is part o the operational context o acompany, and senior executives should ocus their

energy on cross-unctional business processes that will enable unctions to work in an integrated andecient ashion across the company - in a way thatunctions on their own could never achieve.

Processes improve eciency and service qualityby documenting and spreading best practices around

Modern business leadership requires the ability to deal

with paradoxes that is, things which appear to be

contradictory but in fact are not.

Creative thinking can help overcome the problem of

paradox and resolve apparent contradictions.

For example, creativity requires both innovation and

discipline it is not a question of either/or.

Balancing competing demands is a key aspect of

modern leadership, and all aspiring leaders must

develop the skills to do so.

IN BRIEF



a company. Thus they avoid the inamous re-inventingo the wheel. And process improvement can reach intoevery corner o a company, rom improved actoryfoor operations to better corporate governance.

Many companies initial ailures to bring process-

thinking into their organisations can be traced to thelack o visible commitment by the CEO and seniorleaders, or to their own conusion regarding whetherpriority is placed on unctions or on processes.

Process leaders must be enthusiasticallysupported throughout the change programme, and visibly rewarded when successul. The CEO andsenior leaders in a traditionally unctional organisationthat is moving towards a process orientation are notjust introducing new ways o working and modiedorganisational charts. Oten, they are undamentallyaltering their companies corporate culture, and theymust act accordingly.

The paradox o unction versus process can beresolved with ve key actions that ensure alignmentbetween unctions and processes: (1) Appoint processleaders who are recognised as high-level, respectedindividuals. Because they exercise authority overpeople not under their direct responsibility, processleaders should be vested with inormal authority-

authority based on their knowledge and ideas ratherthan on hierarchical seniority. (2) Give the processleader responsibility over the most critical unction within the process. For example, the leader o anequipment supply chain process might also be theunctional head o the equipment assembly plants. (3)

Choose appropriate metrics with which to measureprocess perormance. These must be visible to andunderstood by all parties involved in the process,in order to create true shared responsibilities. (4)Conduct process audits. These assessments willensure compliance, but they will also provide aorum or dialogue that will improve process designas well as execution. (5) Ensure unctional excellencethroughout the organisation. This will remind theorganisation that it is not about process alone, but

about unction as well.Another myth that pervades many organisationsis that discipline and structure are incompatible withcreativity and innovation. Discipline, it is argued,is useul to promote productivity, but it smotherscreative work. Skunk works, the garbage-can modelo organising, and similar popular vehicles are oeredas necessary to support creativity.

In act, a disciplined innovation process willimprove the chances o success or new products byweeding out poor ideas early on and concentrating a

companys scarce resources on those innovations withhighest potential. It will also ocus creativity where itis most needed: or example, on product design.

An innovation process will also reduce misspentenergy by bringing objectivity to decision makingthrough the establishment o specic milestones,

The leaders of great rmsmust embrace the geniusof the and rather than relyon the tyranny of the or.

1 ENSURING THE FUTURE

Continuous ow of new ideas

Losers weeded out early

Many high-impact winners

2 BOOMERANG

Over-structured process sties creativity

Tight cost control, but few real innovations

3 TIME BOMB

Plentiful new ideas, but resources

spread too thin

Missed opportunities due to lack of focus

4 MINEFIELD

Wheel reinvented every time resourcesspent on administration

Priority-setting defaulted to most vocal managers

5 NO MANS LAND

Paradox recognised but not resolved

Can drift into boxes 2, 3 and 4

Discipline

3 Time bomb

4 Mine eld 2 Boomerang

1 Ensuring the

future

Creativity

5 No mans land

THE PARADOX OF CREATIVITYVERSUS DISCIPLINE



where each project is evaluated against an objective seto criteria rather than seat-o-the pants eelings.

While top management should encourage thegeneration o new ideas, it should also curb escalatingcommitments to ailed ideas. A careully designed

innovation process can resolve this paradox by bringingtogether elements o creativity and discipline.

Thought LeadershipResolving paradoxes usually begins with the stateo mind o an organisations leaders. They mustreject the common sense rebellion mentioned inour introduction. To paraphrase rom Built to Last(Collins and Porras, 1994), leaders o great companiesmust embrace the genius o the and rather than relyon the tyranny o the or. However, a state o mindwill not on its own resolve conficts. Leaders must bewilling to benchmark their organisations against thebest in class and bring proven tools and approachesto bear, while empowering the rest o the organisationto do likewise.

For example, many traditionalmanuacturing managers will tell you that,in order to reduce delivery lead times, theymust maintain higher inventory levels toallow greater manuacturing fexibility on

the plant foor. Reducing lead times whileat the same time reducing working capitalappears to them an unsolvable paradox.The act is, however, that appropriatetools, such as World Class Manuacturing(WCM), can result in both goals beingachieved simultaneously.

WCM resolves the paradox o pursuingconficting production goals by mobilisingemployees and executives at all levels o

the company. It gathers individual andgroup ideas, solves problems by attackingroot causes, shares best practices acrosslanguage barriers by using graphic tools,systematises work fows and brings orderto the plant foor. WCM gives machineoperators the opportunity to demonstratethat conficting goals can be pursued - andachieved simultaneously.

A second area where perceptivesenior executives will exercise thought

leadership is on the rare occasions whenthey must resolve the paradox o howand when to allow or exceptions toan rigorously established core businessprocess such as the innovation processdescribed earlier: how to decide whether

certain development projects have the potential to beground-breaking ideas, even i opposed by internalskepticism or unsupportive market research.

Ideas such as Sonys Walkman or Tetra Paks TetraRecart package a carton-based package that competes

head-on with the metal can or solid oods areexamples o products that required championing bytop management. These situations call or executivesto rely on their judgement shaped by prior experience,

technical knowledge, the company culture, availabilityo nancial resources, and other actors. Exercisingthis judgement is more art than science. The trick isto support experimentation, while putting a stop toexperiments that are not yielding desired results.

Outstanding examples o this type o thoughtleadership have been seen over the years. The

Nespresso system would not have become a realityhad the CEO o Nestl, Dr Helmut Maucher, listenedto the pessimistic consumer surveys or the proposedinnovation. Similarly, Dan Vasella, CEO o Novartis,pushed or the development o Gleevec, a cure or anextremely rare orm o leukaemia, despite commercialconcerns over the small number o patients that wouldneed this drug. Gleevec had a projected market oonly 6,000 patients per year, but it has reinorcedNovartis reputation as a true innovator in the drugs

industry. Long ago, Henry Ford remarked that II had asked people what they wanted, they wouldhave said aster horses. The successes o Nespresso,Gleevec and Fords Model T are a matter o record.

Providing Moral GuidanceAnother classic paradox is how a rm can enhanceshareholder value while championing its core values.Are these contradictory goals? They do not have tobe. According to the New York Times (September14, 2005) companies are becoming more strategic

in their approach to philanthropy, tapping theirparticular realms o expertise to make a dierence.When a tsunami devastated parts o south-east Asia inDecember 2004, Tetra Pak and some o its customersprovided ree water and liquid oods to victims, usingthe companys capabilities in supplying sae and easily

Nick Shreiber isexecutive in residence atIMD, and was formerlyCEO of Tetra Pak and apartner with McKinsey& Company.

Bala Chakravarthy isProfessor of Strategy andInternational Management atIMD, and also holds the ShellChair in sustainable businessgrowth.

A myth that pervadesmany organisations is thatdiscipline and structure are

incompatible with creativityand innovation



Chakravarthy, B (1997) A New Strategy Framework for Coping

with Turbulence, Sloan Management Review 38 (2).

Chakravarthy, B and Lorange, P (2007) Prot or Growth? Why

You Dont Have to Choose, Englewood Cliffs: Wharton School

Publishing.

Collins, JC and Porras, JI (1994) Built to Last, New York:

HarperBusiness.

Heifetz, R and Laurie, D (2001) The Work of Leadership,

Harvard Business Review, December: 131-140.

REFERENCES

transported beverage packages. Tetra Pak spent severalmillion dollars to support relie eorts in aectedcountries, notably Indonesia, Thailand, and India.This was a philanthropic act that helped save scores olives. But at the same time, it also demonstrated the

use o its packages to a segment o consumers whomay not have experienced them beore and receivedpositive public relations benets in the process.

Following the tsunami, too, Abbot LaboratoriesFund pledged $4m in healthcare products andcash; Procter & Gamble provided $1m worth o itsPUR water purication sachets plus cash to partnerorganisations to deliver more than 150 million litreso puried water; Johnson & Johnson distributedmedical supplies throughout the region; UPS, anAtlanta-based package delivery company, shipped upto one million pounds o emergency relie suppliesree o charge; FedEx shipped medical supplies to theregion on behal o several aid groups; and Northwest Airlines teamed up with AmeriCares to transportrelie supplies. Similar in-kind eorts were reportedin the wake o the terrorist attacks o September 11,2001, and the Hurricane Katrina disaster o 2005.

In another case, Home Depot and Bell Southteamed up with Habitat or Humanity to helprevitalise neighbourhoods in South Atlanta. Both

companies were helping communities while at thesame time promoting programmes directly related totheir core businesses: do-it-yoursel activities and in-home telecoms, respectively.

It would be cynical to suggest that these well-meaning acts o philanthropy had the devious purposeo boosting product sales. Rather, they simply illustratethe positive power o solving a sensitive paradox.Corporate philanthropy and shareholder value can be

reconciled i a corporation carries out philanthropicactivities that support the long-term strategy andreputation o the company. This is enlightened sel-interest.

ConclusionIn this brie article, we have highlighted our approachesto dealing with paradoxes. The rst views the leaderas a strategist, helping to rame the new challengecreatively, as Brad Anderson did so successully atBest Buy when introducing customercentricity.The second views the leader as a balancer in theorganisation, blending unction and process, creativityand discipline. The third calls on CEOs and seniorexecutives to act as knowledge brokers, bringing inexpertise and tools to help resolve dicult paradoxesand to use judgement on when to have fexibility insystematic approaches. Finally, there is the moral sideto a leader, as he/she tries to respect the core values othe rm in a manner that also enhances shareholderinterests.

Recognising and resolving paradoxes requires aleadership style that may itsel be a paradoxical blendo directing and listening. Senior executives have thepower to orce their decisions on an organisation.Paradoxically, they should rarely use that power.

The most lasting changes will come through the useo inormal authority: listening to the organisation;clariying the leaders views; mounting a convincingargument or the need or change; and explainingclearly the benets o change programmes as well asthe consequences to the company o not pursuingthem. When the need or change is ully accepted bythe members o an organisation, resistance to the paino change will be much more easily overcome.


22/56Leader Speak

Leader Speak

Milind Sohoni: British Airways is positioning itself as

a premium-brand. Given the current severe nancial

crisis world-wide, what strategies are you adopting

to safeguard the airline in the short-term andsimultaneously grow in the long-term? Furthermore,

British Airways seems to be expanding its network into

emerging markets. How does this t into the larger

scheme of becoming a major premium-brand airline?

Willie Walsh: We plan to do this by expanding ourfeet. A large feet with a variety o aircrats gives us thefexibility to expand and enter new markets. We willcontinue to invest in new aircrats and have alreadyput nancing in place about eighteen months ago. In

the next three years, we will take delivery o about20-24 new aircrats. This year we will take our more777 200s, next year we will take six 777 300s, andthen A380s and 787s. We have 57 747s in our feettoday. They were to be used or growth primarily butwe will continue to use them as replacements. TheA 380 makes sense to us because it gives us scale inhigh volume markets where there is some constraint,although our analysis is that with oil prices at about$60 a barrel, a large twin is more ecient than theour engine aircrat.

Will the 777s be used more for the emerging

markets?

We eel the 787 is going to be a antastic aircrat orthe emerging markets. It has a great operating range,is uel ecient, and has a suitable size. We have

converted a range o 777s into a our or three-classconguration, but we dont have rst class on all oour 777s, which is a compromise. You cant get a

single aircrat type that will suit your network. Wewill look at the 787, or example, 787-8, 787-9 and787-10s. We look or a destination that can support amix o trac, both business and leisure. Typically welook at cities where there is strong nancial servicesor strong IT, pharmaceuticals, biotechnology orhigh concentration o various industries which willgenerate trac. Hyderabad is an example o this sorto industry presence.

At Hyderabad, British Airways has been a late entrant,Lufthansa and KLM were here earlier. Does that affect

you? Are you thinking of any other cities in India other

than the metros?

One o the advantages we have at Heathrow is thenetwork. London as a market has the biggest Originand Destination (O&D) market around Europe.So, we can sustain a large network based on O&D.What is important to us, particularly or developingmarkets, is to be able to complement the O&Dtrac with transers. That is why an ecient hub

operation becomes important. The business caseor the launch o Hyderabad assumed a transer mixo about 60 percent, and about 40 percent o ourpassengers rom Hyderabad by volume currently aretranser passengers. We can connect Hyderabad to22 destinations in the US; KLM or Luthansa do not

Bold Moves inTough TimesTHE AFTERMATH OF 9/11 HAD SET THE AIRLINE INDUSTRY INTO A TAILSPIN. AT SUCH A TIME,WILLIE WALSH TOOK CHARGE OF AER LINGUS, WHICH WAS AT THE BRINK OF COLLAPSE, ANDTRANSFORMED IT INTO ONE OF THE MOST PROFITABLE STATE-OWNED AIRLINES IN THE WESTERNWORLD. DURING A VISIT TO THE ISB, WALSH AND MILIND SOHONI DISCUSSED STRATEGIES OFENTERING NEW MARKETS, SCOPE FOR MORE SERVICES IN INDIA, THE MUCH-TALKED ABOUTTERMINAL 5, MANAGING DISRUPTIONS, AND OTHER ISSUES.

Spring 09 20 ISBINSIGHT


23/56

During tough times one mayneed to be radical in orderto survive, manage, andourish

have that range. We fy 11 planes a day rom Londonto New York. We can oer requency o service aswell. Looking at emerging markets we recognise thatthere needs to be strong O&D demand and also thatit can be complemented by transer trac.

We fy twice a day, to Mumbai and Delhi, daily toBangalore, ve days a week to Chennai and Hyderabad.We are currently doing three fights a week to Calcuttabut plan to suspend that route rom the end o

March as there isnt a strong premium market there,although we recognise that business people need thefexibility and there are competitors who oer a dailyservice. We would look or an opportunity to launchnew destinations with ve services a week with aview to building daily services initially and ultimatelybuilding a double-daily service. It is very inecient,in terms o crew utilisation i we do not operate adaily service.

India has a lot of regulations; we do not yet have openskies. Would you be looking at owning a stake or

alliances with local Indian carriers?

Since the time India liberalised or was partly regulated,we have moved rom 19 fights a week to 48 fightsa week today. The old bilateral agreement was veryrestricted and clearly there was a greater demandthan the capacity provided. We have recognised thatour network does not really require a eed airlineat the Indian destinations. Our business case orBritish Airways assumes that we will get local trac

by virtue o our service and that having an alliancearrangement is not a critical issue. For some o ouroneworld partners it is; and we have had discussionswith a number o carriers, mainly Jet Airways. I knowNaresh Goyal, ounder Chairman o Jet Airways,well. He has not committed himsel to one alliance or

another because he has built relationships with severalairlines across the alliance structures.

You are trying to differentiate yourself as a premium

brand airline and have moved away from directlycompeting with low cost airlines. British Airways is

also a member of oneworld. How do you view alliances

that oneworld has competing with other alliances such

as SkyTeam and Star Alliance? Do you think that is the

way to sustain a mid-size, international carrier with a

premium brand ?

I think it is changing. At Aer Lingus, we joined theone world alliance in 2000. Ater I took over asCEO and restructured Aer Lingus, I recognised thatalliance membership was not as important or Aer

Lingus, given the changing business model. Alliancesdo very little or your core structures. It is oten saidthat alliances give you better purchasing power, I haveseen very little evidence o that. In a lot o cases it willadd to your costs. Aer Lingus pulled out ooneworldbecause unlike most airlines which are moving to

Willie Walsh is the current CEO of British Airways. To his credit goesthe reinvention of Aer Lingus as a protable no-frills airline. Walshtook over the reins of British Airways as CEO in October 2005, andhas been the biggest advocate of London Heathrow's Terminal 5

ISBINSIGHT 21 Spring 09 Leader Speak


24/56Spring 09 22 ISBINSIGHTLeader Speak

a common IT platorm - Amadeus or Saber - AerLingus had its own IT platorm and or every newalliance member they had to invest in changes to theIT platorm. In many cases these new partners werentdelivering any benet. Alliances have been benecialor revenue. Large multinational corporations arelooking or deals on a global basis and unless you canoer genuine global deals you would have to rely onone o your alliance partners.

How does the command and control work when there are

multiple partners in an alliance with different sizes and

serving different markets? Do the big players dominate

the operations or is there centralised planning?

There are a lot o issues. The view withinone

worldis that small is actually better. More carriers add tocomplexity, they oten introduce conficting objectives.We are very selective within oneworld. We recognisethat or an alliance to be successul the individualmembers must be successul. I would sayoneworldworks in a very eective way because we are small,and have very strong bilateral relationships within thealliance; there is a clear common understanding as towhat needs to be done. But we need to address theregulatory issues. Getting anti-trust immunity (ATI)

between British Airways and American is importantbecause that has hindered the development o thealliance. We are now in an environment where theother two alliances - Star and SkyTeam - have ATIon the transatlantic and are competing within theUS. So or one world competing as an alliance on

the transatlantic with Star and SkyTeam is next toimpossible. Both Washington Transportation andthe EU Commission now recognise the imbalance.Two years ago there was signicantly less evidenceo competition between the alliances but that isdeveloping particularly through corporates in theUS.

You talked about operating costs and a lot of effort

taken to reduce it. By moving to e-retailing and getting

away from global distribution systems British Airways

has reduced 9 percent of its operating costs.. What

other measures have you taken? For example, has

BA considered hedging on uctuating fuel prices or

holding on to cash reserves?

There is not a lot that you can do.

Typically, for many large airlines, almost 10 to 20percent

of their daily ights are disrupted (either delayed or

cancelled). How does BA view this challenge, especially

when Heathrow, BAs main hub airport, runs close to

full capacity ? Will the 3rd runway, and the new BA

terminal (T5), help in this regard? Has BA ever thought

of developing an additional (or virtual) hub to ease the

congestion at Heathrow?

We tried to develop a second hub at Gatwick back

in the late 90s which was a massive ailure. What welearnt rom that was trying to develop two hubs soclose to one another is next to impossible. It was alot o investment in inrastructure to allow or huboperations but it just did not work. We recognisedthat Heathrow was probably our greatest strength andour greatest weakness as well. We live with disruptionon a daily basis and I would argue becoming an expertat managing disruption as a result. We have becomevery ecient at managing disruption.

Is that primarily because of you thinning your schedules

or other developments such as the new BA terminal

T5?

T5 has been a big step orward. Integrating aircrataround one single terminal is much easier thanintegrating them across terminals that are separated by

What we learnt from that wastrying to develop two hubs soclose to one another is nextto impossible. It was a lot ofinvestment in infrastructure toallow for hub operations but itjust did not work.


25/56Leader SpeakISBINSIGHT 23 Spring 09

a live active runway. You had to cross an active runwayto get rom T4 to T1. It can take you our hours totake an aircrat at T4 and bring it to T1, becauseyou will get no priority as a taxi towing aircrat. Wehad to have dedicated feets at T4 and T1, which isincredibly complex so we gave up doing that. There isa lot o automation, and we have developed a matrixsystem which tells us the fow control rate or landingsand take-os at Heathrow. Heathrow operates ortytake-os and orty landings per hour, i it is reducedto, say, twenty-ve, we know we are going to have tocancel fights.

At the start o every day at 6.30 am I get a textmessage which tells me i there are any fow controlrestrictions anticipated. We work very closely withair trac control (ATC). ATC anticipates fow rates

and advices the Brussels Central Flow accordingly.We have built some systems to project developmentsthrough the day and have pre-determined schedulesto operate at the altered fow rate. Heathrow wasdisrupted on 276 days o 356 as a result o weatherdisruption. Gatwick which is only twenty miles awaywas disrupted just 52 days in the same year. Heathrowis very nely balanced. We have had to adapt our wayso working to accommodate that.

Indian airlines are learning how to handle disruptions.It is a cost that the airline incurs and one has to fold

that into the planned schedules. The other big cost

is obviously employees. Most airlines invest in crew

training substantially. However, an airline also has

other employees like the ones in the administrative side

of the business or in the airports. The airiline industry

is not known to be one of the highest paying industry.

How does BA attract talent for itself?

Attracting people into the industry has been a goodexperience because it is seen as an exciting industry.

There is this perception that you have the opportunityto fy everywhere and anywhere at no cost. We maynot be the best paid but the total package is stillseen as attractive. I you want money then this is notthe industry to go to, at any level. But i you wantchallenge, i you want to deal with a dierent business

everyday, it is a very good industry to go into. Weattract talent because there is great variety, you candeal with people or technical issues, you have gotpretty much every type o job wrapped up in oneindustry. We dont struggle to attract or retain people.On the other hand, I could argue that you donthave the natural turnover that you would like to see.People come in and stay or lie rather than lookingor opportunities to move and that can be a problem.During the restructuring some people let and it hashad an amazing rejuvenating eect on people.

Finally, one question about the environment. The

airline industry is one of the biggest polluters of the

atmosphere. What is BA doing to address this issue,

not just in terms of buying fuel-efcient aircrafts and

using bio-fuels, but other things such as involvement/sponsorship of R&D effort?

Our industry is perceived as being the worst pollutantbut we are not. We take the issue very seriously. Weproduce an annual report on our environmentalperormance, and have done so or many years. Duringthe early 90s, we set ourselves public targets on ueleciency reduction by 30 percent. A signicantpart o that came rom operating perormanceand procedures. By 2007, we had achieved a 28

percent improvement, so weset ourselves a new target.We are now talking o a CO2target and have expressed ourperormance in the orm ograms o CO2 per passengerper kilometre. Today, weemit 110 grams o CO2 perpassenger per kilometre. Ourtarget is to reduce that by2025 to 83 grams o CO2,

a 25 percent improvement.Furthermore we also targetno waste to landll by 2010and want to increase theamount o recycling that wecurrently do.

Milind Sohoni is AssistantProfessor of Operationsand Management Scienceat the ISB. He researcheson Supply Chain andRevenue Management,MathematicalProgramming, NetworkDesign and Scheduling,and Industrial Practice ofOperations Research


26/56Spring 09 24 ISBINSIGHTFeatureS

Features

Fair Value Accounting

Fair values are used in the initial valuation o tangible and intangible assets in acquisitions, or measuringimpairment losses or assets, optionally or revaluation o xed assets, and most importantly, or mark-to-market accounting or nancial instruments. International Accounting Standards require air value accountingor nancial instruments such as investments in stocks, bonds, securitised assets, and derivatives. It is this last usethat is controversial. The standard setters seem to want to move even urther towards air value accountingUS GAAP (Generally Accepted Accounting Principles), and with some restrictions IFRS (International FinancialReporting Standards), allow the use o air value accounting or all nancial assets and liabilities including loans

and receivables.Under IAS 39, nancial assets are divided into three categories: trading, available-or-sale, and held-to-maturity. Trading securities are marked to market, with gains and losses fowing through the income statement.Available-or-sale securities are also marked to market, but gains and losses are shown directly under ownersequity without fowing through the income statement. Debt securities that are held to maturity are shown at

amortised cost. In India, RBI is already requiring banks touse air value accounting, but other Indian companies willmove to IFRS in 2011.

Always unpopular, mark-to-market accounting has comein or even greater criticism recently because o the nancialcrisis. A long-standing criticism is that there is no liquid market

or many nancial instruments; in such cases it is really mark-to-model rather than mark-to-market accounting. That is,the air values are based on management discretion regardingassumptions that go into valuation models, and the resultingnumbers are useless to investors.

The alleged link between air value accounting and the

by Sanjay Kallapur

ON THE ALLEGED LINK BETWEEN FAIR VALUE ACCOUNTING AND THE FINANCIAL CRISIS

A long-standing criticismis that there is no liquidmarket for many nancial

instruments; in such casesit is really mark-to-modelrather than mark-to-market accounting.

'Fair values - dened in IAS (International Accounting Standard) 39 as the amount for which an asset could be

exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction


27/56ISBINSIGHT 25 Spring 09 FeatureS

nancial crisis is as ollows. I some assets decrease in value, then mark-to-market accounting requires thatthe nancial institution holding it must mark it down to its market value and thereby recognise a loss. Theloss erodes its capital. In order to shore up its capital it may have to sell those assets. This orced sale urther

depresses prices in the market, giving rise to the cycle all over again. However, accounting rules do not requirecompanies to mark their assets to re-sale market prices. IAS 39, the accounting standard on mark-to-marketaccounting or nancial instruments, states that the air value o an instrument is that which would have prevailedin an arms-length exchange motivated by normal business considerations. The SEC (Securities and ExchangeCommission) and FASB (Financial Accounting Standards Board) in USA claried that the results o disorderlytransactions do not determine air value. Distressed or orced liquidation sales are not orderly transactions. TheIASB (International Accounting Standards Board) has claried that the SEC-FASB clarication is consistentwith IAS 39.

The SEC recently issued a study thatclears the misconceptions about the eects oair value accounting on nancial institutions.It nds that on average only 45 percent oUS nancial institutions assets are subjectto air value accounting. Twenty percent othese are available-or-sale securities, i.e.,their mark-to-market gain or loss does notgo through the income statement. Only ninepercent o the assets measured at air value(i.e., 9 percent o 45 percent o total assets)are marked-to-model; or the remaining 91percent there is either a direct or indirect

market-traded price available to determineair value. The study also nds no evidencethat mark-to-market losses were responsibleor the recent nancial institution ailures.

Even i accounting did result in nancialinstitution ailures, two crises in recentmemory remind us that the result is stilllikely to be ar better than the alternative.The Savings and Loans crisis in USA during the 1980s and the Japanese crisis o the 1990s prolonged or lack oair value accounting. In both cases, many banks had become insolvent because market values o their assets had

allen below their liabilities. They nevertheless continued to operate because the then-prevailing accounting rules permitted them to hide their losses by recognising assetsat their unrealistically high historical costs. They were thereore solvent accordingto their reported numbers, which did not refect their de-acto insolvency. Theaccounting solvency is one reason that prevented regulators rom stemming the loss.The banks continued to unction and made even riskier loans because an insolventbanks shareholders have nothing to losewith limited liability, the loss is borne bycreditors and the government in the orm o deposit insuranceand everything to gaini the risk paid o. The eventual loss and the required bailout were thereore muchhigher than it would have been. In the case o Japan, it led to the lost decade, wheneconomic growth ground to a halt. India can ill aord such risk.

Current market values are more relevant or decision making. Under historicalcost accounting, managers can control the reported results by a practice called cherry-picking,- selling appreciated investments selectively in just enough quantities toachieve the desired nancial results. Mark-to-market accounting correctly refects theunderlying market volatility, which is the reality. To avoid that reality may be temporarilycomorting, but it will lead to the wrong actions and more pain in the end.

Sanjay Kallapur is

Associate Dean and aProfessor of Accountingat the ISB. His researchinterest spans nancialand managerialaccounting, auditing, andcorporate governance.

ACCOUNTING CONFERENCE FOCUS ON IFRS

A common accounting language, International Financial ReportingStandards (IFRS), can help Indian companies benchmark their

performance with global counterparts. The Second Accounting

Research Conference at the ISB saw a special focus on IFRS.

An outstanding set of papers were presented at the

Conference by top researchers in Asia and North America, followed

by a panel discussion on India and IFRS.

Professor Sanjay Kallapur spearheaded the proceedings of the

Conference. Panellists comprised Jamil Khatri, Head, US GAAP and

IFRS Services, KPMG in India and Sai Venkateshwaran, Head, IFRS

Practice, Walker and Chandiok Grant Thornton. It was moderated

by Professor Praveen Sinha, Chapman University. The Conference

committee consisted of Sunil Dutta, UC Berkeley and ISB, Sanjay

Kallapur, ISB, Cathy Schrand, Wharton, L Shivakumar, London

Business School, K Sivaramakrishnan University of Houston, and

Sri Sridharan, Northwestern University.



In the past several years, the issue o design and its role as a strategic tool or marketplace success has receivedconsiderable attention by corporate America (Crozier 1994; Schmitt and Simonson 1997; Nussbaum 2000;Coates 2003; Scott and Batra 2003; de Monthoux 2004; Postrel 2004). In a time when companies are able tomatch each other on dimensions o quality and price, superior design is seen as a key to winning customers.Design elements such as size, colour, shape, and texture are widely recognised as a means or dierentiationin increasingly competitive and cluttered markets. A products visual design is oten among the rst pieces oinormation consumers encounter and thus plays a ront-line role in the success o a product (Kotler and Rath1984). The importance o innovative visual design is an issue that has received a great deal o attention across abroad spectrum o industries, as consumers increasingly demand elegant products that meet both appearance

and unctionality as a priority.Based on the research and managerial evidence thus ar, we might be tempted to conclude that pursuit o

high design is always a good thing but my goal is to understand whether or not this is in act true. Specically,the state o design literature today does not inorm us with an understanding o how consumers interpret andrespond to increased visual attractiveness in product design. While anecdotal evidence suggests that moreattractive design should render more positive consumer reactions, we currently lack a theoretical understanding

by Rishtee Kumar Batra

When Good Looks KillAN EXAMINATION OF CONSUMER RESPONSE TO VISUALLY ATTRACTIVE PRODUCT DESIGN

Welcome to the esthetic economy: Idealogues may call beauty a myth, intellectuals may insist that the thought is

all that counts, corporate managers may squirm at dealing with artists - but beauty appeals to us all. Ignore it at

your peril. (Postrel, 1999, p.88)

Features



o this phenomenon. What we do know is that a products visual appearance is vested with psychologicalmeaning and communicates inormation to consumers and that tangible attributes o a product, such assize, shape, and style, are pieces o inormation that consumers use to draw inerences about unobservableattributes such its unctional and ergonomic qualities (Friedmann and Lessig 1987; Crilly, Moultrie et al. 2004;Creusen and Schoormans 2005). However, as Bloch urges, research is needed to determine which productorm elements trigger particular cognitive responses among consumers. (Bloch, 1995, p.25) We ocus on aspecic type o product orm- visual attractiveness- and examine its impact upon consumers perceptions operormance.

Social psychological research in the domain o person perception has shown us that individuals readilymake inerences o intellectual capabilities and competence o others based on their physical attractiveness (ora review see Eagly, Ashmore et al. 1991). While physically attractive people are thought to be more competentand intelligent than their unattractive counterparts, there appears to be a limit to this halo eect. Highlyattractive individuals seem to conjure negative inerences such that they are thought to be less intelligent than

those who are moderately or slightly above attractive. Using these theories rom person perception literatureas a starting point, we examine the impact o visual attractiveness upon consumers perceptions o productperormance and argue that under certain circumstances, consumers generate negative inerences regardingthe perormance and quality o highly attractive products.

The results o two laboratory studies suggest that design as a strategic tool might not be the mostappropriate means o success or certain rms. In act, it seems as i not only can the rewards rom good designbe diminishing, but in act can be detrimental or some rms. In Study 1, we demonstrate that void o externalinormation, such as brand reputation, consumers tend to inherently doubt the ecacy o products withextremely high levels o visual attractiveness as compared to those o moderate levels o visual attractiveness.In the case o two dierent product categories - toasters and hand vacuums - when brand inormation was not

present, participants rated moderately attractive designs as being o the highest perormance. Furthermore, ananalysis o their open-ended responses indicated that the ormation o these perormance-related judgmentswas predicated on belie structures about the relationship between a products appearance and its perormance.Whereas or low and moderately attractive products consumers were shown to utilise a what is beautiul isgood belie structure the same was not true or highly attractive products. In the case o highly attractiveproducts, a signicant number o participants indicate scepticism regarding the probable perormance o theproducts and instead relied upon a belie structure which we call too beautiul to be good, in which highlevels o attractiveness were equated with lower ecacy. However, this base eect was shown to be moderatedby access to external inormation such that the second belie structure was deactivated in the presence ostrong brand inormation and the relationship between product attractiveness was positive and linear.

The results o Study 2 demonstrate that the eects observed in the previous study are also moderated by

access to processing capabilities, indicating that the process o drawing upon belie structures o attractivenessand perormance is largely a cognitive one. Under conditions o high cognitive load in Study 2, participantsengaged in an aect-based processing such that more attractive products are always thought to be o higherquality and perormance. In both the unbranded condition, as well as in the weak-brand conditions, participantsstill avoured highly attractive products over moderately attractive products. Further evidence or an aectbased process is oered by the act that brand inormation was discounted all together. The lack o interaction

While anecdotal evidence suggests that more

attractive design should render more positiveconsumer reactions, we currently lack atheoretical understanding of this phenomenon.



Coates, D. (2003). Watches tell more than time, McGraw-Hill New York.

Creusen, M. E. H. and J. P. L. Schoormans (2005). "The Different Roles of

Product Appearance in Consumer Choice." Journal of Product Innovation

Management 22(1), 63-81.

Crilly, N., J. Moultrie, et al. (2004). "Seeing things: consumer response to the

visual domain in product design." Design Studies 25(6), 547-577.

Crozier, R. (1994). Manufactured pleasures: psychological responses to

design, Manchester University Press.

de Monthoux, P. G. (2004). The Art Firm: Aesthetic Management andMetaphysical Marketing, Stanford University Press.

Friedmann, R. and V. P. Lessig (1987). "Psychological Meaning of Products

and Product Positioning." Journal of Product Innovation Management 4(4),

265-273.

Kotler, P. and G. A. Rath (1984). "Design: a powerful but neglected strategic

tool." Journal of Business Strategy 5(2), 16-21.

Nussbaum, B. (2000). Designs for the Future. Business Week. 28: 60.

Postrel, V. (2004). The Substance of Style: How the Rise of Aesthetic Value Is

Remaking Commerce, Culture, and Consciousness, Harper Perennial.

Schmitt, B. and A. Simonson (1997). Marketing aesthetics, Free Press

New York.

Scott, L. M. and R. Batra (2003). Persuasive imagery: a consumer response

perspective, Mahwah, NJ: Lawrence Erlbaum Associates.

REFERENCES

between brand and attractiveness demonstrates that unlike Study 1, participants arenot elaborating upon their implicit theories and are not adjusting their inerences toincorporate external inormation. Instead, they are using aective inormation drawnrom the products attractiveness to make inerences o its perormance.

The results o this study speak widely to the diverse community involved in productdesign decisions. By understanding the boundary conditions within which this eectoperates, we can work toward inorming both marketers and designers o the possibleperils o an excessive detail to design.

Rishtee Kumar Batra ispursuing a Marketingdoctoral programmeat Boston University-School of Management.Rishtee has a stronginterest in two separateareas of consumerbehaviour- productdesign research as wellas research focusing onself-conscious emotionsin marketing.

Whereas for low and moderatelyattractive products consumers wereshown to utilise a what is beautiful is

good belief structure the same wasnot true for highly attractive products.



War against Terror

We do not learn from HistoryIndia has been aficted by acts o terrorism or oversix decades, but it was the Mumbai terror killings o26/11, during which, or the rst time, that the psycheo the rich and middle class was brutally assaulted.26/11 has demonstrated a systemic ailure in dealingwith terrorism. Despite Indias track-record o sixty-one years in dealing with insurgency, more than anyother country in the world, the results so ar have beendismal. Over 40,000 civilians, terrorists, and security

personnel have been killed in Jammu and Kashmir; 32percent districts o India are under Naxal infuence,and insurgency in the North East continues unabated;ater Iraq, the largest numbers o terrorist deaths arein India; the guilty o the Mumbai blasts o 1993 arestill being prosecuted, teen years a ter the tragedy.

Can the judiciary, an institution o the state, andthe law enorcement and investigative agencies begiven a clean chit? Is it air to single out politicians orrecurring ailures? Shouldnt we be questioning ourconscience and institutions harder?

History teaches us that we do not learn romhistory.

War is UnthinkableIn India there are two strategic realities thatpoliticians, diplomats, soldiers and intelligentsia have

overlooked. These realities are conceptual and providethe scaolding or Indias response to terrorism in theuture. There are no quick solutions and we are in or along haul. First, war is not a solution or even an option.India and Pakistan have been to war over Kashmir andinsurgency has erupted our times and there has beenno resolution. Since 1989, a proxy war is raging in theKashmir Valley and there is no end in sight. Despitehomeland security, highly coordinated intelligenceservices, a national doctrine to combat terrorism,

well-equipped armed orces, the US is losing its waragainst terror in Iraq and Aghanistan. Also, war willdeepen the present global economic crisis. Accordingto the Nobel Laureate and Economist Joseph Stieglitz,the wars in Iraq and Aghanistan are costing about 3trillion dollars to the US exchequer-that is nearly threetimes the GDP o India. Pakistan is a nuclear nationand war between two nuclear powers is unthinkable.I do not think that the Americans would allow a war,simply because that would undermine Americas waragainst Taliban in Aghanistan. Terrorists want war

as that would orce Pakistani orces to switch to theIndian border, thus allowing the Taliban to occupythe northern part o Pakistan which is already underpressure. Strategically, this would de-stabilise Pakistan,and a de-stabilised Pakistan will be a greater threat toIndia than it already is.

WAR IS NOT A SOLUTION, NOT EVEN AN OPTION

Features

How to combat the biggest evil of our times terror - General Arjun Ray, while delivering an engaging talk at theISB, drew on strategies on how to beat terror . We present an excerpt from his talk.



As Normal as Anyone ElseThe second reality is that terrorists are not anaticsor sociopaths. They are as normal as everyone else.That makes our task o identiying potential terroristsimpossible and our responses uncertain. While servingas a brigadier in the Kashmir Valley rom 1993 to 1995,I was in charge o military and intelligence operations.

We had about 300 terrorists in custody terrorists oall hues young, old, mercenaries, jehadis, and thehome-grown variety. Civil and military psychiatristsexamined them to answer one question were theyanatics? The answer at the end o the tests was a clearNo. Here we may recall that Karl Adol Eichmann,

sometimes reerred to as the architect o holocaust,was examined by six o Israels best psychologists andpsychiatrists, beore he was brought to trial. Theydeclared he was more normal tha

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