AUGUST 4, 2002
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Nasscom Does Some Brain Racking
Slowdown or not, NASSCOM is still eyeing Indian software revenues of $77 billion by 2008. Just what will make it happen? To get a strategy together, it got some top minds to meet in Hyderabad at the India it and ITEs Strategy Summit 2002. A report on what came of it.


Q&A With Ashraf Dimitri
The CEO of Oasis Technology, a key provider of e-payments software, tries to win over converts to a new system.

More Net Specials
Business Today,  July 21, 2002
 
 
Blame It On Efficiency
Capitalism's biggest strength is a mindset focussed on efficiencies. That is also its weakness.
Endcom: Worldcom CFO Scott Sullivan (centre)
Enron, Xerox, Global Crossing, and Merck aren't indications of the rot in capitalism. Nor are they simple accounting scams. They are signs that capitalism is probably working too well for its own good.

I don't know whether you remember an article featured in the mid 1990s in that magazine that strives to make business management look as complex as quantum mechanics, Harvard Business Review. The author was Gary Hamel-don't be concerned if the name isn't familiar; this column is targeted primarily at people who haven't heard of him-and he presented a passionate argument on why operating effectiveness could never be strategy. I'll make it simpler for our mutual benefit: OE, as management wonks refer to the term, is nothing but plain old-fashioned efficiency; strategy is the big idea that gives a company that bit of the something-unique-a great product, a fundamentally different marketing plan, even a radical way of looking at boring old distribution.

Over the years, argued Hamel, managers had stopped worrying about strategy and were concentrating on getting the most out of their operations. He couldn't have known it then, but this obsession with internals has come back to haunt corporate USA, that most rarefied of business clubs. The problems in Enron, Xerox, Global Crossing, and Merck aren't, as some would like to see them, indications of the rot in capitalism (born-again socialists would do well to remember that before rushing out of the woodwork). Nor are they simple accounting scams. They are signs that capitalism is probably working too well for its own good.

  Going By The Book
 
  Startupoem  
  Finding A Purpose  

Efficiency, as most of us learn in middle-school physics, is simply the ratio of output to input. Enhancing the first, or reducing the second increases efficiency. For some time, that's what managers did-there were huge gains to be had by simply tweaking a company's internal processes, and tweak them they did. This was far easier, they realised, than going for the big push with an innovative product or a new marketing plan. There's a problem with efficiency, though, and they soon discovered this: it is limited by definition. When they could no longer wring out improvements from processes, managers-not all, but going by the number of accounting scams that have come to light in the US, an increasing number-simply redefined input and output parameters. They weren't breaking any accounting laws, but they were violating them in spirit.

The stockmarkets encouraged-not overtly, but by their passiveness-this practice. Aggressive accounting policies found favour with analysts who preferred to rate stocks on revenues, earnings, and EBITDA (earnings before interest, taxes, depreciation, and amortisation). Suddenly, fundamentals meant a handful of financial ratios, not the intrinsic strengths (read: strategy) of a business. Eventually, though, even the most accommodating (and the most credulous) investors demand to see the colour of their money. When that happens, as Global Crossing's former Chief Financial Officer Scott Sullivan will vouch if he's in a talkative mood (I'm told he wasn't during a Congressional hearing), it's a sign that things are over.

Only good can come from the accounting pox. The men who effected numerical sleights-of-hand may have done so from selfish motives but they were, in effect, showing investors what they wanted to see. They were simply stretching capitalism's efficiency-mantra (heard through the 1990s) to an unsustainable extreme. The wave of conservatism that'll now undoubtedly sweep through the corporate world should put an end to that. And capitalism's agenda will move from the classification-heavy world of internal efficiency to the exciting and boundless universe of strategy. Surely, all that creative energy that was expended on window-dressing financial statements should result in at least an innovation, maybe two. I spy exciting times ahead.

 

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