Day 20 – Monday Sept 27th 2010

Yet another bright and beautiful Monday - many of the staff here here have been telling us that AMP179 is  lucky because we have been having some fine weather during our stay here. I hope this continues till the end of the program.

In order to get a different flavour to the class discussions, one interesting practice followed here is this: all of us are split into 4 sections - A, B, C and D. And two sections are part of one classroom. So at any point of time, there are two classroom sessions going on. Except for the first few classes, when we are allocated classrooms by our Living Groups, we are allocated to classrooms by sections. Last week, it was A&B in one class and C&D in another. This week it is A&C and B&D. You get to hear different people in class, and combined with the fact that you seat is also different every week, you get to meet different neighbours in class. Neat, isn't it ?

Today we have three sessions - one on Australia, one on Marketing and one of Finance. 

Australia was a fascinating study on how much has changed in the last few decades. It is interesting when you analyze a country from a historical, political and financial perspective, which is what we do in class. Here are some interesting things I learnt:

• High dependence on mineral export for many years - and it continues even today
• High growth in labour cost combined with growth in output/hour led to high growth in wages of ~ 5.4%/year for over 10 years -- which means an increase of 30%
• The above fact alone made the non-mineral sector highly uncompetitive, which is visible in the manufacturing goods exports going down from 14.9% in 1990 t0 9.5% in 2008.
• Low savings rate country
• And the bad news is this - after the recent elections, we have a coalition government in power and they will not be able to take any hard stands on increasing savings, or increasing productivity or increasing services sector
• With US $1.2 trillion external debt projected for 2011, this is not good news

With many Australians in the class, there was a good debate on issues like tax rebates for second homes, unions at the work place, exports to China and Australians love for spending.

The second session was again an eye-opening capital structure related class.  The session was on a hypothetical example of how changes in a firms capital structure can influence, (a) the total market value of it stock, and (b) its competitive strength within an industry.

The argument is this: you can leverage debt to a higher extent and reduce your equity proportionately, so that given the same EBIT levels, your EPS would go up. This is especially true in countries which allow interest to be treated as a tax deductible expense. In our example, with a lot of assumptions of course, the market value per share at different debt levels looked like this:

What this means is, under certain circumstances, you can increase your debt to give a higher return to your shareholders, but after a point, the cost of debt weighs in quite heavily. Basically, you should look for efficiencies in capital costs, just like you look for efficiencies in any other element of cost. In summary:

• Debt can increase the value of the firm to the shareholders
• While the increase in significant, it is not so significant that managers are forced to use it; it is in the band of managerial discretion
• Too much debt can raise bankruptcy risk to the point where it overwhelms the benefit of tax savings

The third case was how to handle the brand clashes, when Lenovo acquired the IBM personal computer division. This required the Lenovo managers to assess the global potential and positioning of the Lenovo Think and IBM brands. Some good discussion ensured, the learning's are below:

• Branding approaches during M&A
• Master brand approach (Examples : Intel, Microsoft, etc)
• House of brands (Example: P&G)
• Synergy approach (Example: Apple iPod)
• Hybrid approach (Example :Lexus/Toyota having a separate brand for luxury and mass market products)
• The concept of having a Master brand will work only if the acquirer (in this case Lenovo) is at the top and the acquired brand is lower (in this case Thinkpad. However in this case, it was not so, and hence they decided to take a hybrid approach.
• Do not debate too much on the acquired brand - there will be a huge furore in the beginning, but in 3-4 weeks everyone will forget - so do it quickly and globally

There was some discussion on brand positioning. And brand positioning with clarity requires three questions to be answered:

1. Target market
2. Superiority claim - why your product or service is superior to your competition
3. Reason for superiority claim - which is the most difficult

For example Avis today advertises that employees own the company, implying that owners provide better services. If you don't position your brand, competitors will position it for you - which will confuse your customers ! Drawing up a chart like the following will help you decide what the real benefits of your products/services:

For example, claim of safety by airlines is a clear example of a defensive benefit. Everyone one will claim it, you also have to claim it, but it is not going to differentiate one airline from another.

There is an interesting HBR reports on how global brands compete. The  key theme there is that when a brand is marketed worldwide, that fact alone gives it an aura of excellence - and a set of obligations. There are three dimensions of a global brand - a signal of quality, a global myth and social responsibilities. While quality is understood, the global myth theory states that people want to associate with a global brand, because it makes them feel like global citizens ! And global brands have a higher obligation towards social responsibilities - they are bench marked to a higher standard.

Long day, heavy stuff but fascinating discussions. More later ....

Day 18/19 – Saturday/Sunday Sept 25/26th 2010

For many years now, I am not used to working on Saturdays ! It gets into your mindset and your body assumes that Saturdays are days when you can relax - but we are here in HBS and that is not true. Saturday classes start at 8:30 AM and goes on till noon.

And to quote Prof. Quelch, if it is Saturday it has to be Marketing ! Our first session was the first of three cases dealing with  “corporate brand management”.  We discussed the Volkswagen (VW)  story in the US. The focus was on the competitive positioning of the New Beetle in the US market along with the  management of the entire VW product line.  

Interestingly, in almost all the marketing cases, the Prof shows the ads which were used both in the print and digital media - so that you can relate to the discussion. And as mentioned earlier, all the class rooms are well equipped.

After seeing the ads, there was a discussion on when do you use people in the ads. When your product is not differentiated enough and when you know who your target audience is, then you use people in the ads. May be it is Marketing 101, but it was new to me. In product marketing, the ads play a very important role after purchase as well - as they reinforce the purchase decision in the mind of the customer; customers, post purchase also look for who else has bought the same product - you see this often in cars !

To recap, some of the thoughts on customers:

• 
  
  Acquire and retain the RIGHT customers
• 
  
  Segment customers according to their sophistication, willingness to pay and life-time profit potential; and adjust the marketing budget accordingly.
• 
  
  Customer metrics :


• 
  
  Acquisition (churn)
• 
  
  Satisfaction (delight)
• 
  
  Loyalty (Inertia)
• 
  
  Retention (age)


• 
  
  Be wary of the statement, "every one owns the customer", which can easily become, "no one owns the customer".

The second session was on Walmart - which is a remarkable company if you study in detail. Our Living Group is fortunate to have Gail with us, as she is the Sr.VP of Merchandising in Walmart. If you apply the 5 forces of Industry to Walmart, it will look like this:

• 
  
  Threat of Entry


• 
  
  Huge IT investment (Walmart is supposed to have invested over $1b in IT systems)
• 
  
  Large economies required to compete successfully


• 
  
  Supplier bargaining - which basically was eliminated by Walmart !
• 
  
  Technology - big first mover advantage


• 
  
  IT platform
• 
  
  Data warehouse
• 
  
  Scanner
• 
  
  RFID, etc


• 
  
  Rivalry


• 
  
  Fierce price competition
• 
  
  Availability of goods
• 
  
  Speed, friendliness, service
• 
  
  Location convenience
• 
  
  Different scale of shops


• 
  
  Threat of substitute


• 
  
  Online stores
• 
  
  Super markets
• 
  
  Direct buy from factories


• 
  
  Customer bargaining


• 
  
  Lowest price at other location
• 
  
  Distance to store
• 
  
  Availability

It is amazing that Walmart does not pay suppliers till the product is scanned at the checkout counter - which means even larger players like P&G have to carry the inventory cost.

Some other related points, which were interesting:

• 
  
  Key part of competitive strategy is to decide what you will not do, so that you will do a better job of what you decide to do
• 
  
  Make a virtue of saving a $ by every employee every single day; and remember Walmart employs over 200,000 people worldwide !
• 
  
  CEO of Walmart said that we need to grow because employees need opportunities, which comes from growth

Prof. Rivkin summarized the session by stating that firms with a competitive advantage:

• 
  
  Drives a wider wedge between the willingness to pay and the cost it incurs, than competitors, for the targeted products/services and customers;
• 
  
  Embodies its advantage in a set of activities that is across the value chain and reinforce each other (internal consistency)
• 
  
  Copes well with the five forces in its industry (external consistency)
• 
  
  offers a distinctive value proposition to its customers

Next week I am the leader of our Living Group - so I had a meeting along with other leaders and Prof. Tushman. It was a feedback session from all of us.  There was discussion on the amount of reading material every day and the difficulty especially for non-native English speaking participants, more time for reflection after the class, more time for interaction within the class, and the pace with which the class itself is conducted. While Prof. Tushman accepted all these feedback and said that he will talk to his teaching staff, it is only fair for us to understand making major changes mid-way may not be possible. But surely it can be done for the future programs. Prof. Tushman emphasized the need to spend adequate time on the personal case - which can be very useful for our respective organizations.

Today evening, we went on a Boston harbour cruise - almost 120 participants signed up for this, which meant we had to go in three buses.  It was a well organized one, as usual. Great weather, lots of drinks, heavy appetizers - good clean fun.

Before I sign off, I should acknowledge the dedication, attention to detail, punctuality and helping nature of the Exec Education staff here - they are just fantastic. They are led by Kathryn Venne. The team consists of Susan Collins, Denise Flynn and Anna Porter. On behalf of all AMPers, my sincere thanks to this fabulous team of four.

Sunday was a leisurely day - had a conference call at 7 am, after which went for my long run - managed to do 12 km today.  Weather was great. Dinner was at a Korean Restaurant. Many must be wondering what a vegetarian eats in a Korean place - firstly Tae Hyung was with us, so he helped in ordering the right things and secondly, they did have a lot of veggie food, including sticky rice - enjoyed it.

Before I end , here are some pictures from the Harbour Cruise. And two video clips as well. I hope it is interesting - would love to hear some comments on the blog. More later ........

Day 17 – Friday Sept 24th 2010

The first session today was a very heavy one - which was assessing Corporate performance during a financial crisis. In this we discussed the issue of fair value accounting and its impact on financial institutions, thru a case study on State street. This is heavy lifting financial stuff !

Basically there are three types of debt securities:

• 
  
  Trading - these are traded in the market; these are carried at fair value in the assets side of the balance sheet; value changes are recognized in the income statements; and the value changes are recognized in the retained earnings in the liabilities side of the balance sheet.
• 
  
  Available for sale - these are typically investments in securities which are not classified as 'trading' securities, but can be traded if needed and there is a market for it; these are carried at fair value in the assets side of the balance sheet; value changes are NOT recognized in the income statements; and the value changes are recognized in "accumulated other comprehensive income" segment of total shareholders equity  in the liabilities side of the balance sheet.
• 
  
  Hold to maturity - these are typically held till maturity and you cannot normally change the categories unless you have some very strong reason for the change;  these are carried at cost in the assets side of the balance sheet; value changes are NOT recognized in the income statements; and the value changes are NOT recognized in the liabilities side of the balance sheet.

The issue is how do you determine 'fair value' - there is a hierarchy of inputs which are used to determine fair value. And these are: 

• 
  
  Level 1 - quoted in the markets actively
• 
  
  Level 2 - similar products are quoted in the markets
• 
  
  Level 3 - very difficult to decide, not quoted, no similar products quoted and hence lot of judgment required

The case also deals with how organizations apply judgement in deciding the fair value - the details of which are hidden in the fine print somewhere - and once the markets discover this, they will hammer the stock - which is what happened in this case. Since the instruments have also become complex, the standards are trying to keep pace with this change in complexity.

In the second session, we continue our discussion on Industry analysis part of competitive strategy by studying the case of how Sony reacted to the introduction of Wii by Nintendo. This will be the last session on Industry analysis, before we move to competitive advantage. 

In the industry analysis module, the most interesting was the Five Forces Framework, and these are:

• 
  
  Rivalry among existing competitors
• 
  
  Threat of new entrants
• 
  
  Threat of substitutes
• 
  
  Bargaining power of suppliers
• 
  
  Bargaining power of the customers

The profitability of an industry is determined by the balance among the five competitive forces. Even one bad force is enough to drive the profit out of an industry. The leading uses of the Five Forces Framework are:

• 
  
  We can distinguish the inherent attractiveness of an industry with high long run profit potential - for example the PC industry vs soft drinks; the former has  low margins and the later has very high margins
• 
  
  We can steer towards good positions within an industry; for this we must find a way to deal with the five forces; for example Ryan and Dell have done this in the past and Nintendo with the Wii

Of course there are many influences on the FFF framework (it sounds funny to call it this way, but I will go ahead anyway). Among the influences the key ones are public policy, technology, demographics and complementors.  Complementors is an interesting concept, which is best explained by an example. Some of you would remember the war for superiority in the recording standard between Sony and JVC , where Sony was pushing for Betamax (which was a superior technology) and JVC was pushing for VHS. JVC won the battle by getting the music studios to endorse the VHS standard - the music studios are the complementors here, and managing them well is critical for success. Similarly in the gaming industry the game developers are key complementors for the gaming console manufacturers.

The other interesting concept is called the network effect - where the willingness to pay by a group increases as the group itself increases; for example the fax industry - just imagine the use if you are the only one to have a fax machine, what will you do with it ? Similarly, if there are More users for a gaming console, that drives more users to that console and in turn drives more developers to write games for that console.  Another example is this: everyone goes to Facebook because everyone else goes to Facebook !

The final session was on the US current account deficit. Prof. Vietor was at his best, when describing all the ills of the consumption driven US culture. Some statistics are stunning - 1971 was the last year when the US ran an export surplus. Almost $290b out of $378b deficit is due to oil imports - there is no clear energy policy.  Curiously, some one in the class made a statement that spending in the US is not linked to her income, but linked to wealth. How is everyone wealthy, because they treat their home as a bank !

Fundamentally, there are three problems at a macro level - there is a huge trade problem, there is a capital account problem and there is a savings problem (actually lack of savings). The trillion dollar question is this : is the large current account deficit sustainable ? Prof. Vietor ended the session by making two dramatic statements :

• Todays' generation gets quality goods cheap, but tomorrows' generation gets the debt
• The US is trading assets for consumption - today these assets are treasury bills, tomorrow it will be equity.

Whatever needs to be done should require lot of courage (such as increasing social security, incentivize savings, tax energy, etc) and needs to be done in collaboration with China.

Any discussion related to China is a hot topic and one of our Chinese colleagues was very upset that some one made a suggestion that Chinese should gamble more to increase local consumption. While the statement was made in jest, it could have been avoided keeping in mind the seriousness of the issues being discussed.

Good day, overall. As you would have noticed the classes are becoming more intense and issues being discussed are complex. More later .....

Day 14 – Tuesday Sept 21st, 2010 - Michael Porter session

Just reading Prof. Michael Porter's brief biography is mind blowing. Here is snapshot - identified as the world's most influential thinker on management and competitiveness, graduate from Princeton  University (can you guess in what - Aerospace and Mechanical engineering - gives a lot of confidence to all those engineers who aspire to do an MBA!), MBA and  doctorate from Harvard, 18 books, 125+ articles, numerous awards and recognitions, and the list goes on.  Professor Porter speaks widely on strategy, competitiveness, health care delivery, related subjects to business, government, non-profit, and philanthropic leaders.

Like many teachers here in HBS, he also is passionate and energetic - and this lights up the class. His session to us was on, "The Competitive Advantage of Nations, States, and Regions".

Why are some locations more competitive than the others ? Here location could mean an area (like Silicon Valley), or a state or a nation. According to Prof. Porter, competitiveness is a direct function of productivity of the location. And productivity not just of people, but people, capital and natural resources. And productivity growth determines sustainable economic growth.

Unlike what most people think, he believes that it is not just a political issue. Businesses have a role to play and have to get involved more. It is not just a question of what we do, but how we do. Productivity arises from both local and foreign companies. And only way to increase productivity continuously is by innovation and up gradation of technology.

Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources.

• Productivity sets the sustainable standard of living(wages, returns on capital, returns on natural resources) that a country can sustain
• It is not what industries a nation competes in that matters for prosperity, but how productively it competes in those industries
• Productivity in a national economy arises from a combination of domestic and foreign firms
• The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries

All nations compete to provide a most productive environment to business. And the private and public sector play different but inter-related roles in creating a productive economy.

There are three layers which determine a locations' competitiveness:

• Micro-economic competitiveness
• Quality of national business environment (? not sure what this means)
• State of cluster development
• Sophistication of company operations and strategy
• Macro-economic competitiveness
• Social infrastructure and political institutions
• Macroeconomic policies
• Inherited endowments

Cluster development is easy to understand but difficult to implement. For example, if any region wants to be a tourist destination - then many clusters related to tourism have to develop in that area. Like tourist attractions, good hotels, airlines, local transportation, good restaurants, foreign exchange, duty free shops, tour operators, travel agents, etc.

Developing cluster is a slow process and government alone cannot do it, private sector has to get involved.

Social infrastructure and political institutions include basic human development, rule of law and political institutions.

Inherited endowments includes natural resources, population, physical location in the world. Counter intuitively, high inheritance is disadvantageous - a good example is some countries in the Middle-east which has abundance of oil - irrespective of how competitive you are, people will come to you, governments there can be quite inefficient and still survive. It is no different from a born rich kid, who might not have the hunger in the belly to work hard and succeed.

The model is also shifting rapidly - the old model was - Government drives economic development through policy decisions and incentives. The new model is - Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions and private sector organizations.

To me it seems that it is a grounds up process where every one involved has a role to play and that is probably the way in which the competitiveness of a location improves. Overall it was great to listen to Prof. Porter.

Day 16 – Thursday Sept 23rd 2010

A Linkedin group has been created for AMP179 by Joseph Sawicki (Mentor Graphics) - it was nice of him to have started this early - email has been sent to all AMPers. It is probably the best way to keep in touch. Thanks, Joseph.

One other interesting view was that, for any large catastrophe to happen (like the sub-prime crisis or the BP oil well disaster), many things have to go wrong simultaneously - or multiple players have to make mistakes almost together.

Today we have a special optional session - a joint session with the MBA students. Only some of us have signed up for this - I did not. But feedback from this session was on expected lines - mixed feedback. The students, I understand were more eager to answer questions and express views, disagree vehemently with other views and were eager to mix with the AMPers in the post-session cocktail and dinner reception. These students are quite smart and no wonder they land up in good positions. Interestingly one student observed, that the tough part was to get into HBS - not what you do here. That was not expected !

The first session today was how to structure earn-outs in an M&A - so that the focus is on the right performance goals. And the related issues of whether you fully integrate the new entity into the bigger organization, how do you communicate the performance goals,etc. 

If you structure the earn-out linked only to revenues and profits without a threshold value on both the parameter, it will cause dysfunctional behaviour. For example, if the team knows that it is not going to meet the profit goals, they might go all out and spend money to achieve the top line goal. Though difficult to achieve, earn-outs should be more holistic - with emphasis on revenues, profits, customer satisfaction, quality and people satisfaction - sort of a balance scorecard. We are going to have a separate session on balanced scorecard - eagerly looking forward to this session.

Incentives have to be a combination of short term and long term focused goals. And when buying a entrepreneur driven company, you have to plan for a post entrepreneur "look and feel" of the organization - otherwise you will have to keep incentivising the founders every year. And the approach one takes should also depend on whether you are buying a business or buying a set of very talented people.

There was an article which was circulated but not discussed in class, on how to exercise adequate control in organizations, where there is a need and an expectation that requires flexibility, innovation and creativity. The following diagram captures the essence :

There are four levers - most managers tend to excessively focus on diagnostic control systems - but the other three are equally important in the current business environments. Belief systems and boundary systems are like the yin and the yang to get the right balance. Boundary systems are like the brakes. And like racing cars, the fastest companies need the best brakes ! The most complex and difficult is the interactive control systems - these are like the :what-if" analysis - if one critical input or market data changes, what will be the impact to your business.

All businesses should have something like a "product / services vitality index" - which states that in the next three years, we will have x% of revenues from new services / products which do not exist today. This will ensure innovation and drive complacency out.

The Starbucks customer service session by John Quelch was fantastic. The issue being discussed was this :  Starbucks store growth and stock performance have been impressive but management has lost sight of its original core customers who are increasingly dissatisfied with in-store congestion and less able to enjoy the traditional, relaxing Starbucks experience.  How can Starbucks retain the loyalty of its original constituents while appealing to new segments that may not need or desire the total Starbucks experience?  Should it try to do both?

If your customer is not switching away from you, it could be either because of behaviour inertia or loyalty (to your product or service) - if it is the former, obviously you are on  slippery ground.  There was intense discussion on whether rampant growth has an inherent characteristic of destroying value - this is  very subjective.

The interesting question in front of Starbucks is : can two different customer segments co-exist. One thing is clear, that as markets expand there will be automatic segmentation of the market. In the Internet world, it is easy to serve multiple segments, primarily because the segments do not see what the others get/don't get.

I liked the quote made by someone senior in Starbucks, " we are in the people business serving coffee; not in the coffee business serving people" ! Almost true of all service businesses, isn't it ? 

The last session was the competitive dynamics and we were discussing the case of Dell. In the process we also discussed Intel's pricing policies - which are so fascinating, because:

• they kept a level playing field
• Encouraged players to sell more of the current generation chips, by stating that the next generation chips allotted to you will be in proportion to the volume of old generation chips sold.

Dell's attack on the PC industry is a classic example of good dynamics - go where the customers will be in the future, not where they are today; and do something different from the competition, which the competitors will struggle to match. They also had a complex strategy, in which all the subsystems were dependent on everything else and replicating any one subsystem was useless.

Prof. Rivkin's energy in the class is amazing. And I always wonder how they do it twice in the same day, because the whole AMP group is split into two sections. Which means all the professors have to teach the same topic twice in the same day !

Since the day ended early and since I was not attending the MBA class, I went for my run. Did about 6 km, which is not too bad.  The pressure of the week normally shows up for me by about Thursday, so doing a vigorous exercise is a great way to recharge yourself, at least partly, to reach the weekend - when we can do a full re-charge ! More later .........

Day 15 – Wednesday Sept 22nd 2010

It is interesting how different people view the same content - what I thought was a fantastic lecture yesterday by Michael Porter was seen by some people as boring. I was quite taken aback by this - one possible reason is the overload of work - can you beleive that there were people desperately trying to keep their eyes open during the lecture.

Isn't it amazing that many people all over the world would give an arm  and a leg to listen to Michael Porter and here are a bunch of high performing, high achievement oriented and successful executives, who felt the session was boring.

Anyway, back to classes. Today we have three sessions, starting with Russia. Prof. Vietor was his usual gregarious self and it amazes me as to how he remembers all the exhibits, which contains historical national GDP and growth related date. I was getting confused between data from different countries. Russia, after Gorbachev is very different from what we have heard through the media - which in many occassions is very biased. Here are some points which I noted:

• The switch from communism to capitalism and back to communism is probably the greatest social experiment of history in the world.
• Russia's "big bang" approach of switching to capitalism followed the model adopted successfullly by Poland a few years back
• In 1990, Jeffrey Sachs advised the Polish government to use the big bang approach or  shock therapy to break from communism. It is rumoured that USA gave a $1 billion to Poland in the process - what happenned was after initial economic shortages and inflation, prices in Poland eventually stabilized.
• When President Yeltsin was attempting to change Russia, Jeffery Sachs and Harvard economist Andrei Shleifer advised Yeltsin to take a similar approach to what was done in POland. USA refused to help and without the money needed Russia fell into chaos. Sachs resigned immediately afterwards and it is rumoured that Dick Cheney was the hawk in the US government who did not want to help Russia

There was a good discussion what are the variable one should use while analyzing states. Most scholars now use three variables to assess states  - State Autonomy, State capacity, Legitimacy. These three concepts define the relation between public authority and society.

Looks confusing  ? Actually it isnt. Autonomy describes the independence of state institutions from society. Capacity is the ability and effectiveness of the state to perform its basic political and economic functions. Legitimacy is about society's belief in the state and its leaders.

As Russia, with its proud history and people was struggling, George Bush Sr could have helped, but did not, though there was no threat to the US. In our class, one participant who worked for 21 years as a  nuclear submarine officer, commented : " it was sad to see a proud state with world class navy falling apart.". That statement summarize it all.

I used to think that Gorbachev did a lot for Russia, as he was the guy who started off this process. But both in the class and in the case study, I did not get the feeling. And now from an external view, it looks as though  Putin and Medvedev seem to be putting things in place, but internally it is a group of people including these two, who are controlling the whole country.

The second session by Prof Tushman was about clash of values and high performance. WHat is commonly seen on high culture organizations. WHat do you do when you have a very ambitious individual breaks all records on achievement, but in the process violates the company culture and ticks off many people in the process. WHat seems as a open and shut case to me, is actually not. The boss of this individual is at fault as well, for not giving feedback early on. The motto should be : " build the business and live the culture". And in situations like this, all employees are watching to see how leaders respond to such cases.

How to handle clash of performance and alignment to values can be best described by the diagram below:

The last session was on the global financial crisis and the players involved in this. This session was fascinating in view of the complexity of the issue on hand and the involvement of so many players. In a way after a while, everyone know that this was a mess but did not know how to get off this runaway train ! The root cause in my view is the concept of tranches, which killed the CDO's. In which a single tranche of BBB rating, is split into four or five tranches, with almost 90% of it getting a rating above the original rating of BBB. And the rating agencies are the core to this - who are they ? Moody, S&P and Fitch among others.  One other issue for the rating agencies was this : it was too difficult to rate some of these complex products effectively. But the business coming by was too easy to be passed up. the McGraw Hill CEO said, "if the market wants these kinds of products and the institutional investors want those products, then we move with the market and we're going to rate whatever." This sums it all !

After a heavy dose of what greed and hunger for business can do to the global economy, it was time for some joy - a group photograph of all the AMPers - all 170 of us formally dressed. After which the living groups also had their own photos taken.

Went to play tennins after this, with Bart, Richard and Dave. Had good fun, with Bart and Richard playing against Dave and myself. In the words of Bart, they had the greatest comeback of all times ! Leading 5-2 and 40-0, I missed a sitter of a volley two feet from the net. And as the saying goes, the rest is history - they won 7-5. Weather was fantastic for a good game of tennis.

Some photos of the living group and our tennis team below. More later .....



From left : Kevin, Roger, Christian, Partha



From left: Christian, Kevin, Roger, Fernando, Gail, Partha, Bart and Tae Hyung

From Left: Bart, Richard, Dave and Partha

Day 14 – Tuesday Sept 21st 2010

Generally, Tuesdays and Thursdays are tough days, as the classes start at 8 AM and every one feels quite rushed. And on these days you can see lots of AMPers either skipping breakfast or packing breakfast and taking it to the room or having a quick bite in the McArthur Lounge itself  rather than going to the Kresge Boardroom for the the full breakfast. And this is true for me as well !

Today we had three classes and a much anticipated lecture session with Michael Porter in the afternoon. I have to remember that the lecture starts at 2 PM -  I was late for the last session, as I thought that the session starts at 215pm.

The first session was an interesting case of a company called lululemon - amazing company based out of Canada, which makes sport garments. Very strong culture almost bordering on being like a cult - there is a fine line between a cult and culture - but they are very different and in my view cult has a negative connotation to it. Cult is a group of people led by a charismatic person, either you are in or out, they have very strong views and can put off many people. Culture is way of doing things, it is a way of life, it is the explicit and implicit knowledge, values, attitudes, meanings, forms of communication - all cultivated and preserved to be able to do things in a more enjoyable manner leading to higher productivity ! My god, that sounds too complex.

Lululemon is a case of a company with a very strong culture and the growth pains of going to scale. The issue with strong culture based companies is that the culture can take over the organization. And these kind of organizations have to spend disproportionate amount of time in recruiting the right kind of people. And probably the down side is, these organizations can only have planned and managed growth - if they grow too fast, it will start breaking at the seams.

The session on marketing is the case of Harrah's, where they effectively build a CRM system and used decision science to predict behaviour of their customers - who incidentally are people who gamble , becuase Harrah's runs casinos ! - and using this behaviour rolled out programs to get customers to visit their casinos more often. Without getting into an ethical debate on whether it is right to get people more addicted to gambling, this case is all about mining customer data effectively.

Prof. John Quelch, who teaches Marketing here is very good - of course all these guys are very good, but Prof. Quelch's style in the class is enjoyable. He has a good sense of humor - here is one: " every time I ask a question, there is a mindless shuffling of papers, searching for an answer" !

Some interesting points, which I noted are:

• Need to track customer profitability to align awards/offers
• Metrics have to be customized to organizations; generic metrics will not work
• Marketing related:
• Marketing has low visibility at the board level; one of the reasons being, it does not have the equivalent of a P&L or an Income statement, which is commonly understood and accepted
• The CEO has to be the CMO (not literally)
• All organizations have to improve the left and right brain marketing
• And most importantly, marketing has to be integrated into Operations, HR  etc; it cannot function in a silo

One interesting converation which came up was this : it is strange to have a vision to be a billlion dollar organization - it does not seem aspirational to all stakeholders. Food for thought.

Prof. Paul Healy's session of Fiduciary responsibilities was an eye opener for me. WHile it may be obvious to the finance and legal guys, some of the court judgements on fiduciary responsibilities look very counter intuitive. Unlike common belief, Fiduciary responsibility is for all employees in the organization, not just the officers of the organization. If company resources are used for the personal benefit of an individual, it is a violation of fiduciary responsibilities. It is quite complex and varies by country. The case in Germany involving the Deutsche Bank chairman in the case related to Vodafone take over was quite interesting.

Michael Porter's session was packed and I also noticed some non-AMPers as well.  The topic was, "The Competitive Advantage of Nations, States, and Regions". Lots of research backed this idea that competetiveness of a location is not by accident, but it is a combination of macroeconomics, microeconomics and inherited endowements. It was a fantastic lecture and his abilitiy to articulate is wonderful.  I will write on this as a seperate topic later.  Here are some pictures of the session.

Prof. Michael Porter

Prof Porter - very passionate and articulate



Went to the gym for 30 minutes on the stepper and some time on the exercise machines.  Was not a long day, but quite tiring becuase of the heavy sessions - especially the one on Fiduciary responsibilities.  More later ......

Day 13 – Monday Sept 20th 2010

Beginning of the third week. Most people here seem to be quite happy that two weeks have passed and there is lot of bonhomie among the people. It is quite surprising how professionals who don't know each other till two weeks back, start working together as though you have known each other for many years. Of course the setting here is non-political, non-threatening and most people here are emotionally secure.But still what could be achieved in such a short time surprises me - how much of it because all of us are experienced professionals, how much is due the environment here, how much is because of the schedules and living rooms - is quite difficult to tell. But put all these ingredients together, there is magic in the air !

Monday of week three is quite a busy day. There is homework on negotiations that we have to do in groups of three - my group mates were from Lucian Isar from Romania and Jose Minana from Philippines - Jose works in the Retail industry and Lucian is from the Banking industry. We met for breakfast and decided very quickly to have a open book negotiations with the other party - where in we will maximize the outcome for both parties - keeping in mind what parameter is more relevant to each other.

The first class on Financial management was on whether Airbus should go ahead with the $13b investment in developing the new super jumbo the A3XX.  When we look at the investments needed and uncertainty involved in the airline industry, one wonders how people ever take decisions. Interesting discussion was on the value of money, when looked at "in perpetuity".  The question is : if one is going to get a return of $1 every year forever and the interest rate is 11%, what is the present value of this ? In other words what is the PV of $1 forever @ 11% - the answer is $9.09; and the value of $1 for 50 years @ 11% is $9.04 - did you notice the very small difference ? And the value of $1 for 14 years @ 11% is $6.98. This becomes crucial in agreements between two parties, when one party decides that they will take the profits for the first few years and the other party for the later years. The concept of the present value of money is crucial and needs to be understood completely.

The airline manufacturing industry is also fraught with trade disputes on government subsidies - there are many pending with the World Trade Organization (WTO) - looks like both Airbus and Boeing are being subsidized  and both are illegal according to the WTO. The question is who is subsidizing more ?

The second session on Marketing was about a company which was a price leader but had a reducing market share due to changing market dynamics. Some points which were interesting to me were :

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  You cannot fire a customer without reducing the cost structure; otherwise your remaining customers cost structure will go up (assuming we want to have the same margins)
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  There is a sequence of steps you need to follow before you fire a customer : converse, educate, offer choices (like unbundled offerings, increasing volume, etc), raise price, fire
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  All organizations should make a chart with bubble size indicating volumes - and plot them on a chart with x-axis being the "cost to serve" and y-axis being "Price paid". This will give a lot of clues on what to do to your customer base
• 
  
  You should invest in customer/product profitability metrics much before you need it - this will help you later
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  It is very difficult for market share leaders to reduce price - as you will need to increase revenues substantially to remain as good on the margin front.
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  Peter Drucker said, “In a commodity market, you can only be as good as your dumbest competitor”; points to the need for differentiation
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  There are a few choices you have as defenses in a commoditized market:
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  Innovation (had to be the first, I suppose; but most difficult to do)
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  Non-transparent pricing (confuse the market; does not work with sophisticated buyers; or buyers who attend HBS AMP program !)
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  Introduce another fighting brand at lower price (Ex: Celeron)
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  Customer Profitability management
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  Hybrid distribution
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  Clear strategic objective
• 
  
  We have to invest in customer selection - who we do not want to serve; serving all customers is a sure recipe for disaster

The final session was the last session on negotiation with Prof. Max Bazerman. Our team did well on the negotiation ! Some points which were interesting:

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  If the other side cares more about one issue, it is better to give in and get what you care about
• 
  
  Contingent contracts are good, if and only if:
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  You are very clear and confident about your data analysis
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  there is clarity in measurement metrics
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  Create value in negotiation ( yes it it possible !)
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  Build trust and share information
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  Ask questions
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  Give away some information
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  Make multiple offers simultaneously
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  Search for post-settlement settlements
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  Improve your negotiations
• 
  
  Unfreeze
• 
  
  Change
• 
  
  Freeze

Unlike the other modules, where we are using the case study approach, in negotiations, it was more of role play and actually trying to negotiate - and with multiple role plays, you get to play the buyer as well as the seller. Interesting approach - but be keen to know the pros and cons of the two approaches.

Overall the day was good, but a long one. Ended at 4:30 PM and we have lots of reading to do for tomorrow. So all work and no play ... at least for today. More later ...........

Day 12 – Sunday Sept 19th 2010

I don't think I ever waited so much for a Sunday - and I am sure it is true for most of the AMPers here. It shows how much of reading and preparing one needs to do.

Woke up quite early for some reason - sometime I find this so funny that I waited so much for Sunday thinking that I will sleep longer, but what actually happens is the other way around ! Decided to go running, but with a view to take some photos as well. Changed the direction of my run, and went in the opposite direction - on the running trail away from Boston.

It was a chilly day, but wonderful weather to run. Ran about 6 km and it was quite refreshing. Some photos of the running trail and nearby areas are posted below - mRunners (my running club mates in Bangalore) will enjoy seeing this.

Today there was a tour of Boston arranged by the AMP staff here. It started at 11 in a nice big bus and drove thru the important landmarks in Boston. We had a guide with live commentary - these guys do tours for diplomats and state guests, so I hope he knew the stuff he was talking. We drove thru MIT, Beacon Hill, Boston Commons, old areas, new town and some of the snazzy areas of the city. The only place we stopped was near the Prudential Towers, where we went to the observation deck on the 50th floor to get an aerial view of Boston and its suburbs. It looks beautiful from there and of course a bright sunny day helped. On the way back we drove past the Fenway park - the home of the Boston Red Sox. This city has so much of history unlike many other US cities - so it may be worthwhile to read up a little before we do a city tour.

One interesting piece of information I gathered on why there is so much of red bricks used in Boston - the ships from England used the red bricks to balance the ship on the way to the Boston area, unloaded the bricks and took lumbar on the way back to England. The locals started using the red bricks for construction and the tradition continued well after the bricks were made locally. The usage of red bricks gives Boston a pretty look and very European.

We spent about an hour on top of the Prudential tower and enjoyed the sights and views. Came back to HBS at about two pm and walked across to the Harvard Square for a good Indian lunch. Came back and slept for a good two hours.

The weekend is over - and so quickly. SO back to work and getting ready for the classes on Monday . Another busy week ahead .... More later.



View by the Running Trail





Running Trail









View of the Fenway Park - Home of the Boston Red Sox