Subba’s Serendipitous moments

September 1, 2009

At Telstra you get a bonus for delayed IT projects

Welcome to the Telstra’s compensation model.

Greg Winn, the Sol Trujillo-appointed chief operating officer of Telstra until February 2009, was paid a bonus of $2.2 million for outcomes related to the delivery of the carrier’s IT transformation, which has since been revealed to be running $200 million over budget. Read the details here.

What’s interesting is that despite it running over $200 million over budget ( the project was supposed to save $100 million a year in IT expenses), the CIO feels satisfied that many of the objectives of the five year transformation was achieved.

David Thodey — the Telstra’s CEO believes a $200 million overspend should be considered a good result, considering the awful experiences other industries have had attempting an IT transformation.

“I do not know of a better IT transformation,” he said. “I’ve never seen a transformation come in that well.”

I am wondering if this is Telstra’s compensation policy and if I can get a job there. I am also curious to study Telstra’s goal setting methods, budgeting process and their compensation model.

Last year, I was advising a IT services firm on the strategy approach to managing a business transformation program for one of their clients. Knowing the risk of such a program and the various dependencies, there was a discussion of how the compensation structure for the team should be built. While I didn’t have a hand at making the final recommendation, the consensus was that the bonus scheme should be weighted in favor of the benefits realization proposition. Benefits in this case was actual cost savings and hence the cost savings need to be computed, independently verified, communicated to the client who has to accept it. Only then could the bonuses be paid.

Ironically, the IT services firm has Telstra as one of their large accounts. I hope they don’t adopt the Telstra model.

July 6, 2009

Understanding competition — the Bill Gates way

I thought that I had analyzed the levels and degrees of competition fairly comprehensively. In fact, I have used that as an organizing framework to understand competitive advantage.

Recently a friend of mine sent me an excerpts of an interview with Bill Gates when he was still the CEO of Microsoft which makes interesting reading.

Flying on the Delta Shuttle with Bill Gates 12 years ago, Richard Karlgaard– the Editor of Forbes asked Bill, “What Microsoft competitor worries you most?”

“Goldman Sachs.” Richard gave Gates a startled look. Was Microsoft about to try the investment banking business? “Software,” he said, “is an IQ business. Microsoft must win the IQ war, or we won’t have a future. I don’t worry about Lotus or IBM, because the smartest guys would rather come to work for Microsoft. Our competitors for IQ are investment banks such as Goldman Sachs and Morgan Stanley.”

Getting the brightest bulbs to work at Microsoft has always been his obsession. It’s paid off. But what about now?

The best and the brightest want to work for companies like Google and Facebook. Microsoft seems to be losing the talent war. And does that explain why Microsoft has not made any ground shifting move in recent years yielding that terrain to Google and others?

Microsoft is caught in a classic dilemma of its own making. Its major revenue and profit streams continue to be Windows and Office which needs to be defended at all costs against young new attackers. Now will the smartest guys want to work for a organization where they would have to defend legacy or want to take a crack at changing the world?

The answer is obvious.

Unless you are a Singapore government scholar who has no choice but to work in the Singapore civil service because of the scholarship bond that you sign when you are 18 years old.

June 13, 2009

Can Singapore do the makeover?

Many people have realized that the Singapore model of attracting MNCs to locate their operations here and use that as the base for expansion has run its course. The markets in China and India are big, complex and growing and cannot be run out of Singapore. Every MNC that I have known has a China strategy, a India strategy and most of the operations (factories, R&D centers, support centers) are all located there.

If that is reality why does sections in the civil services in Singapore and even politicians sing the old tune of attracting MNCs to Singapore? And in desperate attempt to get MNCs to start operations here and create jobs, they offer lots of incentives. Once the incentives have run their course, the MNCs pack their bags and go elsewhere.

Rob McDonald the incumbent CEO of Proctor and Gamble who is also on the IAC of the EDB has some clear homilies to offer. One, he is absolutely right when he says that the single minded pursuit of foreign investment (sometimes at the cost of local industry development) has ceased to be a winning proposition for growth. Labour costs have gone up and so has the cos tof doing business. Moreover other countries have become equally attractive.

Singapore’s R&D sector despite Government pumping in billions of dollars have not borne fruit. Though it is early to make conclusive judgment, trends seems to indicate that we have a long way to go. It is as easy to set up a R&D centre in Shanghai or Bangalore and may be more effective, given the availability of talent and cost. Mr. Ngiam’s article here also reinforces the view.

Singapore needs an urgent makeover. One key aspect is to reduce its dependence on MNCs, support more local companies, reduce the role of the GLCs and reduce business costs. It is not that Singapore doesn’t pursue initiatives here, but it has a strong preference for MNC courting.

What is interesting is that for the first time, the Straits Times actually carried the candid views of the International Advisory Committee of the EDB. Normally you see PR speak, but this time some truths and homilies have also come about.

Guess, things are changing.

May 17, 2009

Management tips from Steve Ballmer of Microsoft

Steve Ballmer has changed considerably since he became the CEO of Microsoft. Not the impatient, belligerent Steve, but becoming a more balanced Steve.

The interview here gives an inkling of some of the changes that Steve wants to bring within himself. I have to say that while they seem trivial, both listening deeply and keeping the fine balance between positive thinking and realism is very important. Listening changes the level of trust, confidence and chemistry in a team work and the balance keeps one better focused.

February 25, 2009

Crisis creates a new consciousness

The picture from the Economist servesĀ  as the perfect metaphor for the current crisis.

Every crisis brings along with it a new consciousness and a completely new perspective.

Individuals who have faced a terminal illness suddenly seem to value life and relationships more. Some turn intensely religious. Life is never the same before.

I think the same could be true for organizations. After a turnaround, most organizations have a renewed sense of purpose. IBM became a world class services organizations after Lou Gerstener came on board in the mid nineties.

I am beginning to slowly think that this is could be true for economies and countries. Liberalization acquired new currency and followers after India faced the economic crisis in 1991. Many “old model” firms died, some refashioned themselves and many new organizations just became global firms thanks to the liberalization. Infosys is one of them.

Now what has changed during the current financial crisis:

  • Nationalization which was so ‘un-American’ has suddenly found eminent backers from Alan Greenspan to Paul Krugman. It increasingly looks like that Citibank may be nationalized any time.
  • Markets are not perfectly efficient and people are not always the best protectors of their own self interest.
  • Belated realization that the CEO compensation and the bonuses for Wall Street traders have contributed to the crisis. When President Obama said that the bonuses handed out by banks represented “the height of irresponsibility” he spoke for a huge silent majority. As Raghuram Rajam says : “At the very least, shareholders deserve better explanations. More generally, unless we fix incentives in the financial system we will get more risk than we bargain for. Unless bankers offer these better explanations, their enormous pay, which has been thought of as just reward for performance, will deservedly come under scrutiny.”
  • The greatest brand names can struggle to survive. Lehman Brothers, Merrill are now consigned to the bins of history and even Citibank are struggling. It pays to be humble.

Can you think of any new consciousness that has emerged as a result of the economic crisis?

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July 10, 2008

VMware Diane Green quits — intriguing!

Filed under: Business,Leadership — Subbaraman Iyer @ 10:56 pm
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Very few CEO exits in the tech world have been as intriguing as VMware’s CEO sudden ouster by the Board in an abrupt manner. She was instrumental in developing a completely new model for computing by defining virtualization. The VM stands for “virtual machine,” because the software tricks servers and other computers into running multiple operating systems, even though most are designed to run only one. Running virtual machines allows companies to buy fewer computers – a cost savings that accounts for VMware’s explosive growth creating the most successful IPO in recent times. In the weeks after its IPO, VMware’s shares moved as high as $125.25, though the stock is now at just 50% of its all time high.

I wonder whether it has just to do with the fact that VMware expected revenues for the full year of 2008 will be modestly below the previous guidance of 50% growth (from $1.3 to $1.9 billion) in 2007 after a 80% growth in the preceding year. I doubt few executives would get fired for a modest drop.

I wonder whether it is the impeding release of Microsoft’s release of Hyper-V and did the Board believe that Paul Maritz would be better equipped to take on Microsoft. It is unlikely that both are going to compete directly as VMware’s sweet spot is in the data centre and Microsoft is more likely to target the desktop and the server areas. For Microsoft the Hyper V is an extension of its server products and its pricing at $29 is intended for faster adoption in the SMB space. It will be another couple of years at least before they face each other directly.

Well a number of competitors (Sun, Red Hat) are now offering stripped down virtualization software for free. However that’s not much of a threat as 80% of the revenues for VMware comes from advanced features that the competition can’t match yet.

So, if it is not business issues that paved her ouster, what could else it be? My own assessment is perhaps that it could be just the relationship between Diana Green and the Board members, a majority of whom are from EMC (both current or former executives) by virtue of the fact that EMC still holds about 87% of VMware. Has the relationship been strained for some particular reason? That seems to be the most plausible way to explain the sudden departure.

With this transition, would the rules of engagement between EMC and VMware change? Would EMC now sell VMware and use that against its competition?

VMware will have lost that spark and singular passion that only CEO/founders are usually able to provide. All I can say is that this is one of the most intriguing high profile CEO exists in recent times!

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