changing dna - sept11
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Nikhil Vora / Swati Nangalia / Varun Kejriwal(M) +91 9821132471/9820774251 / 9004291117
(Dir) +91-22-6622 2567 / 2576 / 2685
[email protected] / [email protected] / [email protected]
ChangingChanging DNADNA
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Over the lastfive decades, only 60
companies have consistent ly appeared in the
Fortune 500 list !!!
Ever wondered why?Ever wondered why?
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What led to the so many flip overs...What led to the so many flip overs...
Yahoo, t he invent or of search engines and the largest player of late1990s W ith market cap on par w ith Google in 2004
is today 1/10th the value of
Google!
Nokia, w orlds largest elect ronic equipment provider and w ith profit s
14x that ofApple in 2004today generates 1/6th the profit ofApple & is at 1/16th its value!
HUL, t he largest consumer compan y in India, has seen it s market valueerode in the last decade
while peers have given 20xreturns!
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and the greatest creations beingand the greatest creations being lostlost today?today?
Xerox,
among the largestbrands created w hich actually got
t ranslated into a verb (phot ocopy = Xerox!)
has lost 50% of its value in the
last decade!
Polaroid, t he innovat ion that makes the name synonymous t o instantphot ography, and a US$3bn company in 1990s
filed for bankruptcy!
Intel, t he heart of machines, w ith 80% of w orld comput ersrunning on it
has seen 50% erosion in itsvalue since 2003!
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When markets shift, you will fail if you don't
realize that
longevityrequires you to change the
Success Formulaor your DNA!!!
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The organizationThe organizations DNA needs to bes DNA needs to be ALIVEALIVE !!
In its lifecycle, each organization needs to go through achange in its DNAin order to WIN or even survive!
Changing with timeand trends
Accept failures andrecoup success
Ability to fuel newgrowth
Ability to foresee thelong-term prospects
Translating visioninto success
Adapt Learn Innovate Vision Execute
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Innovate
?
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TheThe strugglestruggle of Unileverof Unilever
Statement from Unilever CEOStatement from Unilever CEOPaulPaul PolmanPolman
"W e have lost t he connection w ith the w orld top. If w e w ant t o
grow consist ently t he next five years and again w ant t o become
one of the bigger companies, w e have to change the culture."
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magnifiedmagnified in its Indian counterpart!in its Indian counterpart!
Focus on share of wallets rather
than larger share of a wallet
1990 - 2000 2000 - 2010Nosuccessfullaunches
0
550
1,100
1,650
2,200
HUL Pepsi Colgate
(US)
Coca-ColaL'Oreal P & G Nestle Sa-
Reg
Danone Unilever BAT Reckitt
Benckiser
Colgate (I) ITC Nestle (I) Dabur Marico GCPL
(%)
HUL the worst
performing consumerstock globally in the last
decade
Focusonmassandnotclass!
Distribution/Reach LackofINNOVATION
Overplay strength
Biggeststrength
Failures
Increaserural
reach by3x in
2yrs!
HUL
Innovationin vain!
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Execute
?
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PolaroidPolaroidno reason tono reason to smilesmile!!
Vision
BusinessmodelSomething akin to
selling razor
blades.
Buy t he shavingk it (cam era) &
replace raz ors (orfilm) as you go.
Innovation
In 1989, 40%+ of R&Dbudget spent on exploring
digital imaging technologies
Lacked execution
Polaroid was well preparedtechnologically for the shift to digital
imaging It even had a sensor of 1.9 megapixel
in 1989
But it was never prepared in terms ofmarketing and business models
Do no t undertak e t he program unless the goal is manifest lyimportant and it s achievement nearly impossible. Do not
do anyth ing that anyone else can do readily .
- Edwin Land, annual report 1980
2,157 2,168
839
265
FY1995 FY1997 FY1999 FY2000
Lost90%ofitsvalue!
Mkt cap (US$ m)
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XeroxXeroxfailed infailed in copyingcopying its brand!its brand!
Vision I knew I had a very big t iger by the ta il." Chester Carlson, Founder of Xerox Created theXerox brand
What would a company with a strong brand like Xerox and revenues of US$1bn (in 1961) do?
Move into brand extensions and innovate?
Innovation Moved into to computer technology and data processing
Fax Machine
Technology based office products
Xerox is today remembered only asa photocopier!
Brand extensions failed and Xeroxfailed to create scale
Mkt cap (US$ bn)
16.138.8 60% eros ion
Xerox did exactly that
1998 2010
Lacked execution
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Adapt
?
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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
ThTh Ki CKi C t hil h !hil h !
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TheThe King CanuteKing Canute philosophy!philosophy!
Adaptability has been THE MOST important DNA change requiredwithin an organization
Inability to identify the Changing trends !
Obsession withcore
My core business ismy identity and will
always remain myfocus!
Key issues with successful companies
Arrogance
I am the largestand no competitor
can get close!
Complacency
My products will
always sell!
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Getoutof yourcomfort z one if you do not change you
can become extinct!
- Dr. Spencer Johnson
The biggest t hreatt o McDonald's lies w ithin - and that is us as a
company becom ing complacent. There are a lot of companies t hat
get fat , dumb and happy and take their eye off the ball and
forgetaboutserv ing cust omers.!- Charlie Bell
N kiN ki th bi t i t f it tith bigg t i t f it tim
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NokiaNokiathe biggest innovators of its timethe biggest innovators of its time
Vision &Innovation
Nokia10111992 1994 1994 2002 2005
FirstsatellitecallFirst WAPhandset 3Gphone N seriesMultimedia
Execution Worlds largest mobile and camera company!
NokiaNokia
Nokia sells 452m mobile handsets a year and Apple just 40m
Then why theThen why thedisconnect?disconnect?
Revenues (US$ bn) Mkt Cap (US$ bn)
Nokia
Apple
76
538
268
FY02 FY10
65
28
6
56
FY02 FY10
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"You can't just ask customers w hat t hey w ant and t hen t ry
to give t hat to t hem. By t he t ime you get it built, they'll
w ant somet hing new !- Steve Jobs, founder of Apple
is losing theis losing the connectionconnection??
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is losing theis losing the connectionconnection ??
Changing consumer: Design consciousness, Fasteroperations
Launch of iPhone
1990 2001 Jan 2007 2010 2011
Adapting!
Failed to adapt to thechanging consumer
needs!
Nokias first touchscreen phoneNokia1011 N seriesMultimedia
Struggling to remain
a relevant computervendor
Largest music vendor,tablet maker,
smartphone provider &the most valuabletech co in the world
1992 to 2005 July 2008
Nokia 59%
Apple 400%
in last 5yrs
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is now beingis now being googledgoogled out!out!
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is now beingis now being googledgoogled out!out!
Responsive to changeLaunch of products likeGmail, Google maps,
Android, Orkut, Youtube, &Google +
Customer comes first and simplicity is key Yahoo succumbs to Google!
and the resul ts are apparent!and the resul ts are apparent!
52 53
22
191
FY04 FY11
Yahoo
Google
Market cap (US$ bn)
1x 10x
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Learn
?
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But does it suffice for theBut does it suffice for the organizationalorganizational DNADNA to beto be
A.L.I.V.E.A.L.I.V.E.??????
May be not!!!May be not!!!
MavericksMavericks create businessescreate businesses
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MavericksMavericks create businessescreate businesses
*peak market cap
Education
Retail
Media
Exchanges
Innovation in businesses& creating
VALUE!
Renewable
Energy
Biggest innovator in theMedia space
broadcasting/DTH,etc
ShantanuPrakash
Kishore Biyani
Subhash
Chandra
Revolutionized the private
education sector
Spearheaded organizedRetail in the country
Jignesh ShahCreated commodity
markets and new ageexchange businesses
US$2bn
US$2.8bn
US$4.5bn
US$3bn
Largest mediaconglomerate
Raghav Bahl US$2.7bn
Tulsi TantiPioneered wind energy in
the country to become
World No.3
US$12.3bn
and at timesand at times killkill it too!it too!
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and at timesand at times killkill it too!it too!
Learnt the rules of the game ofprivate educationand how to play!
Growth hungry promotersbut also capital starvedCash flows never a focus.
Undermined the need forcorporate governance in theregulated private edu space
Undermined the need tobuild a strong back -end
Took on the regulator SEBI!...for MCX-SX
Underinvested in corebusiness; unwil ling to look at
the changing face of
competition
Success led to contextual arrogance? Result
(Mkt Cap Rs
88,873
18,842
30-Sep-09
Today 79%
125,131
64,052
31-Dec-07
Today49%
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 toosoonReckless expansion,
in retrospect.
Largest retail industry b rand & hopeof FDI to result into eventual sale to aglobal strategic investor
Biggest innovator in media across
broadcasting, distribution, etc
Created marquee properties acrossgenres and assumed they will always
have takers (easy access to capital)
Established the largest Exchangenetwork, with MCX being the biggestsuccess (valued at US$1.1bn in 3 yrsof ops)
Became World No.3 in wind energy579,852
85,225
31-Dec-07
Today 85%
But, potential forBut, potential for changechange in DNA remains!in DNA remains!
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But, potential forBut, potential for changechange in DNA remains!in DNA remains!
Classical Case of everythingwrong Diversification, Over-leverage and non-performance(1992-2002)
Classical Case of everythingwrong Diversification, Over-leverage and non-performance(1992-2002)
The loss
Jain Irrigation
Bajaj Auto
Nestle
Result
Catered to the consumer ofyesterdaya mass player in adeclining market (scooters);Struggling (mgt) internals and anaggressive external environment
Catered to the consumer ofyesterdaya mass player in adeclining market (scooters);Struggling (mgt) internals and anaggressive external environment
The underlying core of theorganisation was to beat IndianGDP growth! (until 2003)The underlying core of theorganisation was to beat IndianGDP growth! (until 2003)
CCHH
AANN
GGEE
Jain Irrigation
0
25,000
50,000
75,000
100,000
Jun-93 Jun-96 Jun-99 Jun-02 Jun-05 Jun-08 Jun-1
(Rs m)
The biggest success story ofthe past 10 yearsStayed
committed to the core.
Bajaj Auto
0
125000
250000
375000
500000
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-1
(Rs m)
Became the game changerin the space.Innovatedand 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-1
(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
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MavericksMavericks can recreate SUCCESScan recreate SUCCESS
Need to emulateto Recreate
Succ
ess
Arro
ganc
e
Cha
nging
DN
A Painful
trans
ition
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Consumerization
Industry is moving towardspremium, but key players are not
Consumerization
Industry is moving towardspremium, but key players are not
DistributionOnline wave - a threat to brick-n-
mortar distributors!
Spaces that demand a DNA change
Media access to content
Newer avenues of viewership totake over traditional TV viewing
Media access to content
Newer avenues of viewership totake over traditional TV viewing
Print media
India to map the structural changeunderway globally
Print media
India to map the structural changeunderway globally
Intermediary businessesNo brownie points for
intermediariesyields to squeeze!
EnergyRenewable energy is the inevitable
savior!
The Indian consumer is changingThe Indian consumer is changing1
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g gg g
Premium growth
25% of the carssold are sedans
(above Rs0.6m)
Premium izat ion The t rend is ev ident!
Regular IMFL Premium IMFL
3xgro
wth
All global majors at record sale and setting shopin the country
Pernod Ricard, World No.2 liquor player, is mostprofitable Indian liquor companyIndia to rank among our top 3 markets (in value terms) along w ith the US and China as
rising incomes spur demand fo r our brands CEO, Pernod Ricard
50% of industry
profits
10% mk t
share
BUT
Automobiles
Liquor
Premium players
but are companiesbut are companies adaptingadapting to that?to that?
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pp p gp g
Marut i / USL - a structurally de-rat ing business model over the longer run?
Positioning
Distribution
channelBest sales &
services network
48%
Largest reach in agovt regulated
distribution
55%
78% sales athatchbacks
fuel-efficient&value-for-money
buy
70% of volumesin the economy
segment
Affordabledrinking!
Dominantmarket share
Focus on
mass
Perception
Strength
Lack the DNA to adapt
Unable to changemass perception
Competition can play
spoil sport
Attempts such asBalenoand Kizashi failed
Audi/Honda launchingin the mid segment
Premium productslaunched at low price
Pernod could potentially
eat into USLs volumes
ShoppingShoppingthe rules of the game are changing!the rules of the game are changing!2
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pp gpp g g g gg g g
Amazon went public in 1997 at a value of US$450m when there were just 50m internet usersworldwide!!!...and is now valued US$90bn!
On an av erage, 100m Indians spend about 16 hours a w eek online - Google
A signa l to brick-and-mortar reta il stores. a change inDNA required!
(US$bn)
4 710
40
2009 2010 2011E 2015E
E-commerce industry stats
Survey: 40% prefer to shop onlineconsidering convenience to shop anytime& one can collect detailed product info
Over US$75m of funding toe-commerce sites in last sixmonths
PrintPrintis it stillis it still finefine??3
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Are Indian print companies prepared t o change theirDNA for this w ave of t ransit ion?
Globally, print circulation on adecline
However, withmigration ofconsumers to e-papers
USA UK India
2009200720052003
0
40
80
120
Declining revenuesfor global players
Proportion of individuals reading/downloadingonline newspapers/news magazines over the
Internet for private purposes
but, near term growthfor Indian print intact!
0
12,500
25,000
37,500
50,000
FY90
FY92
FY94
FY96
FY98
FY100
FY02
FY04
FY06
FY08
F Y 1 0
(USD m)
Value erosionEventual!
(Rs bn)
0
90
180
270
360
2007 2010 2015E
160193
310
Indi an print industry size
Current mkt cap of top 5print companies globally is
same as that in 1990!!!
MediaMediain a new age!in a new age!4
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W ith the online w ave fast catchingcan t radit ional TV w atching
habits undergo a change?
Growingpopularity of
internet basedTV viewing
Increasing thelikelihood of
watching contenton the internet
How much TV do you currently watch on the internet? Have you considered cancelling your cable service?
+
Sourc e: Retrevo
Source: Ericson
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50% of tablet users are w at ching TV and film on t he dev ices
In-Stat Research
TV advertising revenue is
dropping, while online
growing due to popularity
of online TV
Yankee Group (US), Research
Are broadcasters adapt ing theirDNA 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 ZEELhave capped out!...
reflective of structural change underway?
IntermediariesIntermediariesthethe sweet spotsweet spot is lost!is lost!5
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Buyer/End usereller (Farmer)
Electronic spot exchangeBid
price Askprice
Changeover
Risk of becoming irrelevant!
Insurance product sales growth
Result of drop in insurancecommissions (slashed from
18-20% to 8-10%)
(21)
(12)(18)
(5)(9)
(16)
(3)
(16)
(39)
Oc
t-10
No
v-10
Dec-10
Jan-11
Fe
b-11
Mar-11
Ap
r-11
M
ay-11
Ju
n-110% of travel tickets
sold in the country areonline!
Only cost additionlimited value addition
Farmer Village trader Wholesaler Retailer Agent End user
A similar change inevitable across other businesses?A similar change inevitable across other businesses?
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Do t hese businesses have it in theirDNA to survive???
Financialintermediaries
Brokerages
NBFCs
Extremely fragmented industry
Advent of technology such as DMA are erodingyields
Efficiencies to reduce cost of trade
MFIs
Gold lending
institutes
As these businesses become large, the business
proposition will compel banks to get into thesegment of finance, as value addition stands to belimited
Renewable energyRenewable energytoto outshineoutshine need for oil?need for oil?6
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A Crude decline o f oil companies event ual if theDNA is not renew able
Renewable energy Powering tomorrows growth?
Oil -A significantenergy cont ribut or
Top 15 oil companies are # 1 or # 2 in marketcap in 9 out of 11 countries
Top 15 oil companies are # 1 or # 2 in marketcap 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 thelast decade
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You can' t have a bet t er t om orrow if you are thinking about
yesterday all the time!
- Charles F. Kettering
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Thank You
Nikhil Vora/ Swati Nangalia / Varun Kejriwal
(Dir) +91-22-6622 2567 / 2576 / 2685
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