Look, where the ‘brains’ are going, brother!

(column by Jack Welch and Suzy Welch, Authors of the international best-seller Winning)

Que: Do you think our country would be in better shape if it had better managers, or do the “best and brightest” actually lead American business? ( Bruce Frohman, Modesto, Calif.)

Ans: It depends what you mean by business. If your definition includes hedge funds, private equity, and investment banking, then the answer is a fl at “Yes.” If by business, you’re referring to the industrial and consumer companies at the core of our economy, the answer is: “Less and less so.” And therein lies a problem.

OK, maybe it’s not a big problem yet. But there is definitely a worrisome trend emerging, in that a burgeoning number of talented senior executives are leaving publicly traded businesses for privately held concerns. And not only in the upper echelons – it’s happening in middle management and at business schools too. An increasing number of MBAs, particularly those in the top tier of their classes, are also answering the siren song of private equity and hedge funds. In 2006, for instance, almost 25 percent of the graduating class of Harvard Business School took jobs in those two industries. One reason, of course, is that compensation for senior managers in public companies doesn’t compare to the heaps routinely handed out by private equity and financial firms.

But this is not totally about pay. There’s a more sociological phenomenon at work. Everyone knows that American companies are being maligned these days as never before. Socalled shareholder activists have put the vast majority of corporate boards on the defensive, draining their attention away from anything even vaguely risky that involves building the future. Meanwhile, CEOs face persistent scrutiny in a kind of guilty-until-proven-innocent media environment. And so, when private equity firms call, what business enthusiast, wouldn’t consider answering? Who wouldn’t want to do business with the kind of “cover” those industries offer?

Now make no mistake. We’re not endorsing this nascent trend. We’re only saying we get it – and we fear it. Because, “regular” American business needs the best and brightest to thrive in the global marketplace. We can’t have all the big brains flocking to the corners of the economy. We need them front and center. Hedge funds, private equity and I-banking are not like consulting, where talented managers and MBAs often spend three or five-year stints before returning to industry, wiser and richer. No, once people enter the Brave New World we’re talking about, few will leave. The money will be good, and ability to do business without widespread scorn, too gratifying.

The solution?It can only lie with boards, which must pull themselves out of bunker mode to address this problem before it’s too far gone. Even in the current environment, they have to work up the courage to create creative compensation packages that link outsize pay to outsize performance. And they must make sure those packages reach deep down into the organization, well below the top five executives who generate all the media and shareholder activist hew-and-cry.

Moreover, boards must remember that for the best and brightest, the biggest career turn-on is not just money – it’s impact. Companies need to be offering exciting, challenging jobs with real decision-making authority to both senior executives and MBAs alike. Of course, those two measures won’t halt the flow of great people away from industry, but they could slow it to a trickle. And since great people are the whole game, that’s a dam worth building.

(End of Jack Welch and Suzy Welch column)

Where’s your magic in India?
They entered India more than a decade ago, but a premium positioning made them miss out on capturing the market...

(column by Angshuman Paul )

These days, stories abound of Asian companies giving well entrenched American behemoths a run for their money; both in the US and many emerging markets. Toyota, Honda, Nissan, LG, Samsung, Lenovo and Haier are just a few names, amongst the flurry of Asian brands that are poised to dominate global Inc.

The sorry saga of the American appliance major Whirlpool’s tryst with the Indian market is simply a case under consideration. It entered the market with limitless ambition, underestimated the competition from nimble footed Korean chaebols and ended up with a whimper! A classic case of what happens when an American MNC attempts to spawn a cash cow on wrong notions. Small wonder that in an otherwise burgeoning Indian consumer durables market, despite having the celebrity couple Kajol and Ajay Devgan as brand ambassadors; Whirlpool has a virtually negligible market share in some of the fastest growing product categories (read: ACs & microwaves) in the segment, and is in the red by a whopping Rs.1.05 billion (accumulated losses).

However, the refrigerators segment has proved to be the saving grace for Whirlpool which has managed to compete effectively against LG & Samsung and even Indian majors, boasting a neat 25% market share. The company posted an operating profit of Rs.442.1 million during the nine month period of April-December 2006. Buoyed by the turnaround and hoping to wipe its losses out completely, Whirlpool Corporation has announced an investment of $20 million over the next 18 months in its Indian subsidiary to strengthen manufacturing capabilities in the country. “We will be number one, both in market share and in mind of the consumer,” avers Arvind Uppal, MD of Whirlpool of India, promising new products and aggressive marketing. But will he be able to deliver? In spite of having a solid run of more than a decade in the country (Whirlpool entered India in 1995, as opposed to Samsung in 1996 and LG in 1997), Whirlpool lags far behind its rivals. So, what went wrong? When Whirlpool had made its debut into the Indian market in 1995, unlike other players who ventured solely, Whirlpool acquired Kelvinator and also a major stake in TVS, which were later merged to form Whirlpool of India. Thanks largely to the rub-off effect of Kelvinator, the then reigning Indian brand of refrigerators – Whirlpool did manage to carve a niche for itself, way before Kelvinator was picked up by the Swedish giant Electrolux in 1997.

However, Whirlpool slipped up and went downhill due to its ‘slow & steady’ approach in the fast growing AC segment. Initially, the company limited its wares to only refrigerators (with Kelvinator in its kitty) and washing machines, when it could have easily acquired the advantage of being the first player (in ACs) way before LG & Samsung came upon the scene. The Koreans entered India at one go with their entire product portfolio and a trailblazing advertising campaign. That is not all. Despite competitive pricing strategies adopted by its rivals, Whirlpool consistently sported the premium pricing tag. “Leadership cannot be achieved through price cuts. If one is a true leader, the consumer will pay a premium,” boasts Arvind. The claim is not backed by analysts, who state that high prices are a major bottleneck to reach out to masses in price sensitive segments. “If somebody offers the bare essentials of a product with lowest prices, people will definitely pick that up,” says Pavas Bhatia, Principal Consultant of Technopak. Perhaps this is how Haier stole the show by selling 55,000 units of ACs during its debut year, while Whirlpool still manages a no-show in the area. Considering that the AC segment is poised to grow at 20% during 2007, the highest among all products in the Rs.300 billion Indian home appliances industry, this segment has proved to be a major loss for Whirlpool.

Though, there is still hope for the American major to make its grand killing. Boasting of three manufacturing plants in India (as opposed to the two of LG), Whirlpool is simultaneously leveraging its global manufacturing plants and has created a technological base. The company believes that the 20% growth in revenues (evincing a turnover of Rs.12.45 billion for the period of March-December 2006) that Whirlpool recorded last year was due in part to the excellent finish and better after sales services that the brand offers. An extensive presence in 7500 retail outlets in over 150 cities also did the trick. “We are a small player in ACs, but are aiming at a market share of 10% by the end of this year, by expanding our distribution network,” says Shantanu Das Gupta, VP-Marketing, Whirlpool of India.

Moreover, Whirlpool of India has now armed itself with an advertising expenditure of a whopping Rs.700 million and you can be rest assured to witness some ‘magic’ from this American white goods player in the coming months. After all, the sweltering summer months have just begun...

(End of Angshuman Paul column)