Saturday, April 27, 2019

Financial Volatility in an Age of Geopolitical Risks

. conference on 'Financial Volatility in an Age of Risks', Bennett Golub of spoke on ' Risk Management: A Structured Approach'. The Blackrock Geopolitical Risk Dashboard uses subjective judgment to create hypothetical scenarios and then stress-tests portfolios against them. Blackrock South Asia Geopolitical Risk Index was at 1.33 on 18 April 2019 vs 1.37 on 18 Dec 2008 (~3 wks after 26/11). Highest (Impact, Likelihood) currently: Global TradeTensions v Cc:

Thursday, April 25, 2019

South Korea GDP Shrinks 0.3% 1Q2019 Q-to-Q

. GDP *shrinks* 0.3% 1Q2019 QtoQ; Exports, ~50% GDP, have been slowing (Fig ↓ ), esp those to ; Also, falling , perhaps related to US-CHN trade tensions; both fiscal & monetary (benchmark rate 1.75%) stimulus expected via

Wednesday, April 24, 2019

Global Warming Has Already Slowed Economic Growth in Poor Countries

. 'We find that global warming has very likely exacerbated global economic inequality, including ∼25% increase in population-weighted between-country inequality over the past half century.' e.g., vs ... via

Figure abv shows the simulated impact on per-capita GDP from the effect of on **that has already occurred** over 1961-2010, (using a model w quadratic dependence of GDP on Temperature and Precipitation). %ΔGDP/capita 1961-2010 : -31%, -1.4%

Monday, April 22, 2019

D Wallace Wells Speaks At Goldman Sachs on 'The Uninhabitable Earth'

speaks on his book : not a issue or just about Melt+ : 'Let us not be afraid to be afraid' ' was fought w & '

And a vexing - comparison - India will be hit hardest - whereas India will have 4X the relative to its , China will have only 0.25X the Impact relative to _its_ Footprint (And China's C- Footprint is ~ quarter of Global C-Footprint!) 

around will transform the world. is failing unraveling... hope is US-China will pool resources for joint R&D on climate change mitigation, adaptation, and particularly on , (since CC M&A won't be enough).

Friday, April 12, 2019

Characterizing Successful Digital Executives

Fabian Reck, a PhD candidate at the University of Bamberg, and Alexander Fliaster, a Professor there (and also a Visiting Profressor at IIM Bangalore) have a very interesting paper in the April 10, 2019 issue of the MIT Sloan Management Review. The paper reports on a Survey of 211 of manufacturing companies in Germany, Austria and Switzerland. Based on their observed characteristics, four profiles of Chief Digital Officers (which include a number of executives in the CXO category from CEO to people directly reporting to them) are arrived at.

Chief Digital Officers which fit the / profile were found to have been very effective across many situations (varying in the degree of competitive pressure faced by the company, and the amount of control and authority that the CDOs possessed). When both the Competitive Pressure and the degree of Authority of CDOs are high, then the situation best utilizes the strengths of CDOs possessing the  Networker/Catalyzer and the   profiles, who therefore do better in that set of circumstances than either the Insider Expert or the Innovation Evangelist.

Of the four profiles, all except the Lone Icebreaker possess Strong Interpersonal Skills, while only the Insider Expert and the Lone Icebreaker possess deep strategic and business knowledge & IT Expertise. The Innovation Evangelist, possesses limited IT knowledge, but has a deep knowledge of business and economics. Given their strong external and internal networks, they receive a variety of ideas, and evangelize cross-fertilized versions of these ideas in their companies. Thus, Networker/Catalyzer types flourish in a wide combination of external and internal circumstances, while the Lone Icebreaker needs strong executive authority to function well in a highly competitive environment.

What the paper is invaluable in uncovering about the Digital Transformation journey is that as between companies and CDOs, there will not be a one-size fits all formulation, but instead there will be a number of competitive situations and possible CDO profiles, and different situations will call for a play of different strengths for the CDOs to be most effective. All real CDOs will possess some combination of the strengths identified - they will not strictly fall in one or other of these 'profiles'. So the contribution of the paper is in helping identify the strengths that CDOs will need to call upon, based on the specific internal and external environment that they face - so that they can be successful in taking their companies on a successful Digital Transformation journey!

Thursday, April 11, 2019

Shradha Sharma of YourStory Interviews KK Natarajan of Mindtree

I thought this interview worth blogging for several reasons. First, the impending merger between Mindtree Ltd and Larsen & Toubro Global Infotech (LTI) raises a number of issues which Shradha Sharma (SS) and KK Natarajan (KK) discuss in great depth. However, this is not the exclusive focus of the interview, in fact, the interview is set up in the same format as the ones that SS normally does with founder-entrepreneurs for YourStory; and Mindtree, while no longer a startup as such, is still a fairly young company. So the interview provides KK's perspective on many of the issues that arise in the context of the 'startup ecosystem'. Then of course there is the utter unflappability of KK himself, leaving one absolutely astonished to see the CEO of a company that is about to be 'taken over' without its approval so calm and composed in the middle of all that might be happening. I thought this was definitely worth writing about.

KK begins by mentioning the original Mindtree motto 'Welcome to Possible' to set the tone for the entire interview. He mentions 'Optimism, Optimism, Optimism!' as the basic ingredient of his overall mental makeup several times (but especially when SS asks him what the secret of his unflappability is.)

In the first few minutes, KK briefly reviews the current situation, in which a large Mindtree shareholder agreed to divest his 21.5% stake, which LTI agreed to buy. LTI further placed an order to buy 15% of Mindtree shares from the open market, which gave them the ability to make an 'open offer' to buy another 31% stake; this would result in LTI owning a 67% (21+15+31) stake in Mindtree.

KK explains that Mindtree has always seen itself as fostering a 'High-Performance, High Caring' culture; with impeccable integrity & governance; that has generated high value for all its stakeholders. Thus, any intervention that could alter or 'take away' part of that culture is seen as ultimately lowering value to investors  - both the ones in LTI and the ones in Mindtree. One source of competitive advantage for Mindtree was that it was able to see the idea of Digital Transformation as a business need as far back as 2012, and has made proactive investments in it, which are beginning to pay off now. The implication seems to be that this is one reason why it is the object of a 'hostile takeover' (i.e. that the takeover is not solely about scale).

KK further expands on the theme of Mindtree strongly believing that 'startups are the lifeline of the business ecosystem' - responsible both for Innovation and for Job Creation. The entrepreneurial mindset is that which forsakes the 'Job Seeker' mentality for the 'Job Creator' mindset. Further, he believes that both central and state level governments are doing a lot to facilitate entrepreneurship today, so that the path for would-be entrepreneurs now is much easier than it was when Mindtree was a startup two decades or more ago. Today, however, the entrepreneur needs to choose his initial investors very much more carefully. Such initial investors cannot just have a financial interest but must also be willing to leverage their own networks to help grow the business they are investing in.

But more than just that, KK also believes that if  and when the initial investors want to 'exit', then the business founders must have the 'right of first refusal', i.e., the exiting investors must first offer to sell their stake to the business founders or their nominees. Mindtree had such clauses in its agreements with its initial investors for as many as three rounds of investment, but once it went public, such clauses became invalid. He laments the lack of 'poison pill' type of regulatory exceptions in India, which elsewhere allow founders greater control over the total shares of their companies. 

In response to a question from SS about how founders could 'build a moat' to prevent hostile takeovers, KK mentions the 'Dual Voting Rights' (DVR) idea, on which he said the Securities & Exchange Board of India (SEBI), the regulator, has put out a white paper for consultation very recently. Such DVRs would provide founders much greater voting rights than happens currently. Depending on the details of the DVR, for example, founders could get a 10X voting share. Thus with slightly more than 5% of the shares, founders could, have a controlling vote share. 

SS asks about 'unicorns' and 'soonicorns' (soon-to-be unicorns) - to which KK provides some statistics about how the venture capital funding pyramid gets built - only 4% of startups that get Angel funding get 'Series A', and at most 8-9% of those which get 'Series A' funding, also get 'Series B'. He adds that, for a startup, 'scaling up' is an essential part of the game, but it should only be undetaken when the founders have understood the path to unit profitability. Without that understanding, it makes no sense to try to scale rapidly. As for unicorns, he mentions a statistic he read in a book - that only 1 in 20,000 startups becomes a billion dollar company!

When SS asks him about a people management tip - his response is that 'one must be a patient and active listener', because all engaged employees want to be heard. But it must be clear also who makes the final decision. The result of active listening must be a fully-aligned team, which is essential for efficient execution. Aligned teams deliver 40-50% better results than teams which are even slightly mis-aligned. 

The interview ends with the listener/viewer (including me!) marveling at KK the man and the CEO, and with SS expressing the hope that all would turn out well.  KK reiterates that he would like the present management team to continue to remain in charge of Mindtree.

Wednesday, April 10, 2019

Solely-for-Scale 'Mergers of Equals': The Python That Died Eating The Deer?

Siddhartha Pai, of Siana Capital has a very interesting article in today's Mint newspaper, also carried in the online version livemint regarding the impending merger between Larsen & Toubro Infotech and -Mindtree Ltd where he uses the colourful metaphor of the python eating a deer its own size, failing to digest it, regurgitating the contents of incomplete digestion, and possibly dying a premature death itself - to focus attention on the supposed 'Merger of Equals', that the 'suitor' is pursuing 'solely for scale' in this case.

In such a case, he argues, clients of the pursued company are quite likely to adopt a 'Wait and See' attitude to understand how the merger will play out, especially whether the 'pursued company' in the merged entity will have the same strengths that it did previously. Talented employees more in demand elsewhere will not wait and see - they will leave, if only to extinguish the uncertainty in their own professional lives. This is always the case even when the merger is 'friendly' because mergers make sense only when the merged entity, by virtue of larger scale, 'de-duplicates' some functions in the new company and brings about at least some cost savings. Why, one may indeed wonder, do companies look for scale anyway? Because, especially in an intelligently organized company, larger scale can enable the realization of economies - both of scale and also of scope.

However, it is the 'human capital intensity' of the software industry and the very high mobility-quotient of critical human resources in it that makes the possibility of losing such talent during a prolonged merger-transition particularly deleterious. Traditional HR management techniques in 'traditional' industries or companies are built around the idea that no single person can be seen as  indispensable. In the software industry, for many critical domains, this is just not true.

But there are other issues too - if a merger is 'confrontational' then it takes much longer to close than a friendly one would. This then exacerbates the risk of the 'Wait and See' approach of clients and potential clients. Worst of all, rather than focus on new possibilities that the merger makes available, dealing with such internal issues ('friendly fire') tends to distract management in both companies impending merger, and then beyond, in the merged entity. Often this is serious enough to question the logic of the merger itself and often drastically reduces any 'value added by the merger' calculations.

Dr KK Natarajan, CEO of Mindtree Ltd, speaking with Shradha Sharma of

Digital Transformation is not about Technology, but about Mindset!

. According to this article in the Harvard Business Review, about 70% of the $1.3T (trillion) that was spent on by businesses worldwide in 2018 was wasted. Because, businesses did not bring the right Mindset to the act. This manifested itself in various ways - for example, businesses did not adopt an decisionmaking or a rapid prototyping culture, with a flat organizational structure (i.e. the 'Fail Early, Fast and Often (till you succeed)' mantra that is said to describe current-day Silicon Valley Culture.

Or, because businesses ignored (and/or failed to recognize subtly expressed) employee fears about technologies, such as 'Artificial Intelligence'. Whether the fear were 'legitimate' or 'ill-founded' they must be responded to, never ignored. In the same vein, management is known to ignore existing in-house talent, experience or  skill sets (preferring instead the quick 'external consulting fix'). For something like digital transformation to work, it needs to be fully owned by current employees, ideally co-created by them with external consultants or advisers (but only when necessary).

Or,  what really did them in - failure in implementing Digital Transformation occurred because businesses had a technology-centric strategy, instead of having a business-centric one. The peer-pressure businesses feel to 'adopt AI' is well-known. But unless a business has thought through how additional technological capabilities fit into their business strategy, and whether, how and where in the organization these can credibly fit in, any investment into 'digital transformation' will not achieve its potential - rather the opposite would happen.

The bottom line in this discussion then comes down to realizing that Digital Transformation is not about a specific technology, it is instead about the Mindset. Not having the right mindset, which needs the right culture and cues from management on down - is thus a recipe for failure!

Tuesday, April 9, 2019

Simon Johnson and Jonathan Gruber New Book: Jumpstarting America

Challenges and Opportunities in the IoT-IIoT Cluster

. Debjani Ghosh, President of NASSCOM has a very insightful article  in Business Line on what the - cluster needs for it to thrive. Most importantly, it needs & a very strong and deep pool of talent, especially in Artificial Intelligence . But in order to really thrive, there are also important challenges in developing widely-agreed standards so that Interoperability between different IoT devices and products is facilitated. Similarly,  because the Cybersecurity dimension is now central,  on the one hand, while connectivity is also critical for it to function, widely agreed standards are equally essential. On the hardware end, since bandwidth is not yet available to the same extent everywhere, it may be necessary also to specially enable computing at the Edge with and # hardware.