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Issue 15

13:20 Uhr

ROLAND BERGER STRATEGY CONSULTANTS

Jrgen Hambrecht
on European
management
culture

DOSSIER: Managing India. Managing Indian?

18.06.2010

think:act The global magazine for decision-makers by Roland Berger Strategy Consultants

07_15gb_01_Umschlag_aussen

Martin Walser
on justice and
injustice, money
and independence

The global magazine for decision-makers

Mastering complexity
India and its companies
can do more than just cheap

Philip Kotler reinvents himself.


The world of finance in upheaval.
The art of productive conflicts.

Issue 15

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18.06.2010

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Is there a European path to successful management?

We think so!

and therefore we would like to congratulate the following winners from the German round of
our Best of European Business awards for successfully finding this path:
Dr. Jrgen Hambrecht, CEO of BASF SE, as best European Manager; Hartmut Ostrowski,
CEO of Bertelsmann AG, for winning the Strong Leadership prize; and also both HOCHTIEF
Aktiengesellschaft and Symrise AG as recipients of our Growth Despite Crisis award.
We believe that Europes companies have both the chance and the potential to make the coming
years a European decade.

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first views f

If we want to generate sustainable growth for the


future, we need to successfully connect the major challenges in the
worldsuch as climate change and demographywith growth. In this
effort, industrial expertise plays a decisive role. Why? Because both
the green technologies that can help us address climate change, and
the productivity gains that can enable us to generate growth with
fewer employees, are based on superior industrial know-how.
The crisis has been a good reminder that the real economynamely
industry and highly-specialized services, especially in combination
plays a crucial role in the economic structure. That puts our priorities
right back in order! And it places continental Europe, with its high
industrial density, in a leading position.
However, the crisis has also revealed clearly that the Asian national
economies saved us from crashing into a depressionand that they
will remain the growth drivers for the next few years, with China
as the model for successful Asian economic development. However,
a growing number of people are beginning to ask just how long can
China walk the tightrope between communism and capitalism? India,
for example, is pursuing alternate roads to growth and prosperity. In this dossier we present our
perspective on how real the opportunities for India as a boom region truly are.
One of Indias strengths is diversity, which can be advantageous for competition and progress. Yet one
region in the world has potential for an even more stimulating environment: Europe. Nowhere else
can you find more languages, cultures and countries in a smaller geographic area. This unique mix has
led European businesses to develop a special outlook on managementa topic we present in-depth
in many studies and books. For this issue, in an exclusive interview, we spoke with BASF CEO
Jrgen Hambrecht for his insights on the opportunities inherent in a European way of management.
Have an enjoyable, interesting read.

Dr. Burkhard Schwenker


CEO Roland Berger Strategy Consultants

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18.06.2010

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p contents

think:act is published in five languages (English, German, Chinese, Russian and Polish)

Mission deregulation. Sergey Tigipko is Ukraines new vice prime


minister. He is prescribing his country a significant reform program
even if it causes some discomfort. Page 8

The meaning of justice. Renowned German author Martin

A new way to new ideas. The easiest source of inspiration


for companies is their customers. However, many fail to successfully
realize these ideas. We reveal some who have. Page 34

Kotler on service marketing. The marketing guru tells think:act


that sustainability and smart communication are the key to successful
marketing for professional services. Page 44

Walser discusses this and other issues with Alexander Mettenheimer,


CEO of private bank Merck Finck & Co. Page 58

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contents f

food for thought


6 Football: a billion-euro market
The beautiful game is now a
booming global business.
8 Sometimes politics cant
be popular
Sergey Tigipkos fight for
reform in Ukraine
10 Locking horns
Why management conflicts
should not always be avoided

20 Waking the giant


Indias agricultural market is now
attracting international investors.
22 A lot of white shelves
Local stores still dominate
Indias retail trade.
25 Thirst for oil
Indias role in the global
search for crude

business culture
50 Bracing for litigation
Management is a risky business.
We investigate D&O insurances.
52 Benefiting from diversity
BASF CEO Jrgen Hambrecht
on European management
56 Work in progress

28 Trying to fuel the growth


Indias government looks to
domestic oil.

58 Only money grants independence


Exclusive: author Martin Walser
in discussion with leading banker
Alexander Mettenheimer

14 The thrill of complexity


as seen by Pietari Posti

31 Praise to the mother


Why are Indian CEOs so
successful in global corporations?

61 Dont settle
What drives Steve Jobs?

16 India innovates differently


Why Indias companies can
do more than just cheap

industry report

regulars

34 Customer consulting
Customers provide the ideashow
companies reap the benefits

3 First views
62 Service | Credits

dossier

!
MANAGING
INDIA.
MANAGING
INDIAN?

DOSSIER #15
The country is boomingthis much we know. But
for some time now, there has been a great deal
more behind Indias growth than just an outsourcing destination for the developed world. Companies such as Tata are developing their own identity, while top Indian managers have experienced
success in businesses around the world. And
Indias markets offer considerable growth opportunities for American or European firms. In this
dossier, we take a closer look at the dynamics of
a country that is currently changing the world.

India is not just about IT or business process


outsourcing. We see it as an incubator for giant
global corporations driven by IT strategy.

42 The big realignment


How increased banking regulation
could bring new opportunities
44 All muscle and no fat
Philip Kotler explains how to
market professional services.
47 Journalism: first draft of history
Exclusive: think:act turns five.
CNN says congratulations.

F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL

The real interest in India is to


find the next practice. To find the
unexplored innovative idea
one that can change the game.

48 Future markets
Artificial photosynthesis and
microscopes for molecules

BILL MCDERMOTT, SAP

Dossier
Managing India.
Managing Indian?
Starting on page 13

Articles that are marked with this


symbol can also be listened to on our
audio CD (page 63).

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p food for thought

WORLD OF NUMBERS

Football: a billion-euro market


The 2010 FIFA World Cup, to be held in South Africa, shows once again that football has become a
worldwide business. The World Cup is a playground for iconic brands such as Adidas and Nike.
Top clubs are now run like companies, with the aim of conquering growth markets. But here, just
as in the business world, the result is everything!

The football clubs with the highest revenues


worldwide in the 2007/2008 season
Source: Deloitte

Growth market Asia


With 85 million active players, Asia represents the biggest
contingent within FIFA, footballs global governing body.
However, with this figure equivalent to just 2.2 percent of
the total population, it has the lowest participation rate
within the FIFA confederations.

3.46

seasons was the average employment


period of a team manager in the top
European leagues in 2009. Englands
Premier League relies the most on longterm collaboration (9.7 years), which
has proved successful in recent years.
The German Bundesliga had the fastest
turnover in coaches.
Source: PFPO The Professional
Football Players Observatory

FC Barcelona
308.8 million
FC Bayern Mnchen
295.3 million
Chelsea FC
268.9 million

Mobile professionals: In the last several years, players in Europes five top leagues have
increasingly demonstrated a willingness to switch teams. On average, football stars leave their
clubs 3.47 times over a 10-season period; in 2006, that figure was 3.28. Italians are the most
mobile, averaging 4.24 transfers a decade. With an average of 4.21 moves over the same time
period, African players show a similar inclination to seek new challenges.
Source: PFPO The Professional Football Players Observatory

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Englands Premier League generates 200 million


from overseas marketing, making it a champion in that market. In comparison, Germanys Bundesliga takes in only about
20 million abroad. The English clubs do have to work to earn
their money, though: extensive global promotional tours are the
norm, while even the possibility of staging a round of regular
season fixtures in different countries has been discussed.

Football beats the overall economy


The football business represents a very promising growth environment. For
example, in 2009 the DFL (the company that governs Germanys professional
leagues) raised its revenues from the marketing of television rights, income
from advertising and player earnings to 2.4 billion. This represents an increase
of 5 percent compared with the previous season, and the fifth consecutive year of
record sales. In contrast, the European Union posted an economic growth of just
0.9 percent.

food for thought f

4 percent of the world


population actively plays football
Of the 265 million players, 90 percent
(239 million) are men. However,
the number of female football players is
increasing. From 2000 to 2008 alone,
it increased by 19 percent to 26 million.
Number of players as a percentage
of the population

Costa Rica

27 %

Source: DFL

20 %
Germany

Manchester United
324.8 million

Real Madrid
365.8 million

Faroe Islands

17 %

China rising rapidly


FIFA is projecting an increased demand in China for football as a consumer commodity. By 2020, the number of active players in this country
will climb from 26 million to more than 40 million. FIFA is expecting
that China will see an increase in the purchasing power geared toward
football-related markets, from $ 50 billion to $ 250 billion, as a
result of its per capita income tripling by 2020. European
clubs, associations and companies are tapping new sales markets through strategic alliances. Top clubs like Real Madrid
and Bayern Munich are using training camps, pre-season
games, exhibition tournaments and youth football academies to enter the Asian market.

Source: FIFA

16 %

Guatemala

Chile

16 %
Source: FIFA

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p food for thought

Sometimes politics cant be popular


Its the political resurrection of a reformer. Despite knowing he never really stood a chance, Sergey
Tigipko decided to run in the Ukrainian presidential elections. Now he is vice prime minister,
waging a battle against over-regulation and bureaucracyvery much the progressive politician.

When politicians allow themselves to be


profiled in mens magazines, they are conveying a message. That also applies to Sergey
Tigipko. When the banker decided to run in
Ukraines presidential elections, he wanted
to stand out from the established class of
politicians, so he did a photo shoot for the
cover of Mens Health.
After years of political abstinence, the multimillionaire re-entered the scene as a presidential candidate in the fall of 2009. Without
a party or a parliamentary seat, he still
received 13 percent of the vote and came in
third behind the favorites Viktor Yanukovich
and Yulia Tymoshenko. After his electoral
success, he was courted by all political
camps. In March 2010, the new Ukrainian
government appointed him to be the Vice
Prime Minister for Economy. In his present
position, Tigipko is particularly keen on
implementing reforms that the country has
been putting off for two decades.
UKRAINE IS PROMOTING SMALL AND
MEDIUM-SIZED BUSINESSAND TIGIPKO
BELIEVES ITS THE RIGHT THING TO DO

In a meeting with think:act, he makes it candidly clear why, after leaving the world of
politics in 2004, he now wants to use his
prominent position to reshape things. Our
economy must be completely deregulated,
opines the 50-year-old.
Tigipko believes that control must be quickly
regained over the rampant bureaucracy,
widespread corruption and the lack of willingness to pay taxes. In the meantime,
Ukraine has begun to support small and
8

medium-sized enterprises. In my country,


many people mistakenly believe that these
types of companies will cause the economy
more harm than good, says the vice prime
minister. The reason for this misconception
is that these companies supposedly make up
a large percentage of Ukraines underground
economy. Yet Tigipko feels that government
support and tax benefits will help to build
up, stabilize and firmly establish this economic sector, saying, Without small and
medium-sized businesses, we can forget
about integrating with Europe.
To date, innumerable Ukrainian governments have sought in vain to enforce
reforms. But that is something Tigipko now
wants to change. The man who sold his
insurance group, TAS, to Swedbank for
$1 billion in 2007 is considered a clever
strategist and tactician.
In the fall of 2009, accompanied by considerable media coverage, Tigipko went into the
month-long election campaign armed with a
political and economic manifesto that had
been carefully tailored by an international
team of consultants. Experts estimate that
his campaign may have cost him in the
region of $300 million.
With that event now behind him, the vice
prime minister prefers to discuss economic
growth. He wants to help Ukraine reach
higher growth rateseven if painful measures are required. And Tigipko is convinced
that the people will still stay with him: On
any given day, most Ukrainians experience a
lot of things that dont work. It is the job of
politicians to push through unpopular

reforms. Im ready to do that, and Im convinced that this will also be demanded by
Ukrainian politics, he says confidently.
Immediately after assuming office, he established a 60-day program that provided for
short-term changes such as doing away with
various bureaucratic provisions. He also had
the 2010 national budget prepared with the
assistance of the International Monetary
Fund (IMF). Many Ukrainians now have to
say goodbye to cherished comforts that the
government had once paid for. Next year,
for example, the price of gas for private
households will be scaled according to
income levels.
BANKS THAT DONT SPECULATE BUT ACTUALLY
SERVE THE REAL ECONOMY

In particular the Ukrainian banking sector


which suffered tremendously from the global economic crisis and only survived an
imminent collapse thanks to assistance from
the IMFis facing major changes. Most of
the Ukrainian banks cannot be compared in
any way to those in Europe or the US, says
Tigipko. The equity ratio of the financial
institutions is generally much too low and
that is why most of the banks struggled as
the crisis intensified.
In the future, the national bank should
impose stricter rules and monitor their compliance, he says. In addition, the banks
should become partners with the real economy and not tie themselves solely to speculative activities. In Ukraine, many banks have
devolved into casinos, complains Tigipko.
Furthermore, the vice prime minister wants

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food for thought f

You can also listen to this article


on our audio CD (page 63).

In Ukraine, many banks have devolved into casinos.


Sergey Tigipko

to promote greater involvement from foreign banks. Anyone who operates according
to honest commercial practices is welcome
to do business here, he says. I support a
combination of European, Russian and
Ukrainian banks. Its good for the competition and its the only way to revive the business sector, Tigipko emphasizes.
He would also like to see a similar mix in
other segments of the Ukrainian economy.
The political realm and other branches of

the economy missed opportunities in the


past to introduce Ukrainian products in
newly created markets like China and
India, he says, criticizing his predecessors.
In the last five years, neither the countrys
president nor any of the heads of state had
considered it necessary to visit these countries. While other nations sent trade delegations to Asia, the old Ukrainian leadership
ignored the emerging world powers to a
large extent. Tigipko sees good prospects in

these sales markets, especially for the metal,


chemical, and agricultural industries.
The vice prime minister relies on his image
of a successful manager. Wearing an immaculately tailored dark suit, he asserts, Old
politicians cannot serve new politics.
Tigipko represents changeand embodies
it, too. Mens Health readers learned that the
spry, athletic-looking man swims and jogs
on a daily basis.
Meanwhile, other media also regularly carry
stories about his domestic life with his family. His wife Viktoria describes her husband
as the protector of the family. Not only does
he chop wood and perform minor repairs on
the house and car, he also packs the picnic
basket for family outings. This kind of
behavior goes a long way in Ukraine.
During the election campaign and the period in which the government was being
formed, various political camps courted
Tigipko in an attempt to win him over to
their side. Former Prime Minister Yulia
Tymoshenko had offered him many lucrative positions, even the job of prime minister. All he would have had to do in return
was support her in the run-off elections.
However, Tigipko, ever the tactician, chose
to maintain a low profile, which proved to
be a smart move. After Viktor Yanukovich
was elected president, the new leadership
appointed Tigipko as the vice prime minister. In this strategy, Ukrainian experts see
Tigipko preparing for another run at the
presidential office the next time around.
Under President Yanukovich and Prime Minister Asarov, both of whom are over 60 years
old, his prospects seem better than they
would have been under the ambitious and
younger Yulia Tymoshenko.

This portrait is based on an interview that


Nina Jeglinski, dpa correspondent in
Kiev, conducted exclusively for think:act.

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food for thought f

You can also listen to this article


on our audio CD (page 63).

Locking horns
According to conventional wisdom, conflict in management should be avoided. But is this really
true? Can struggles between the top managers of a company also be constructive?
They canprovided they are properly managed, as shown in the case of Google, among others.

US President Barack Obama has learned


two things this year. Firstly, anyone who
wants change must also be able to accept
change; and secondly, the most painful
blows often come from ones own camp. As a
visionary Democratic, Obama had expected
the Republicans resistance to his health
care reform planbut that the stiffest opposition might come from his own party probably came as more of a surprise. Suddenly,
the calls of Yes, we can rising from the
party faithful were mixed with whistles and
even booing. Several key delegates in his
own party opposed his plan to provide
health insurance for all Americans.
Nevertheless, with one show of strength, the
president ultimately imposed his will on his
opponents, both internally and externally.
Obama can live with the fact that he is no
longer loved by every member of the Democrat Party. He has demonstrated the strength
of his leadership and, as a result, definitively
stabilized his position in the American
power hierarchy.
WHEN CONFLICTS GO UNSTATED,
THE RESULT IS OFTEN STALEMATE

Obamas experience is also played out regularly in companies all over the world. Ones
own ranks are seldom closed. On the managing boards of large corporations, it is practically unheard of for all the members to be of
one mind. And it is precisely when groundbreaking decisions need to be made that differing opinions and methods frequently
collide. This can often be exhausting, but it
also has positive effects for the company.

In fact, a difference of opinion at the highest


level can be most beneficial because it
forces everyone involved to strive to find the
best solution.
In the past, conflicts of these kinds were
avoided. Management teams often worked
side by side in the same company for
decades. The members of these teams knew
each other well enough to know what they
could, and couldnt, get each of the others to
agree to. Friends and enemies alike knew
everything they needed to know about the
attitudes, strengths and influence of their
associates at the top. Topics that might lead
to disagreement were simply glossed over,
often creating an atmosphere of resignation
and stalemate. Of course, these differences
in ideas, approaches, and interests always
existed, they were simply never articulated,
meaning that their positive effects were
never realized.
These days, managers often spend no longer
than four or five years in the employment of
a single company, which increases the
potential for conflict: executives must struggle to get their ideas adopted and establish
themselves in their teams power structure.
This is good for companies because it rouses
them from the unproductive slumber of
business as usual.
Accordingly, one of the most rapidly growing companies in the world deliberately
builds conflict into its management culture:
even when they are working together in a
garage, refining their ideas for a new kind of
search engine, Google founders Larry Page
and Sergey Brin would accept no lazy

compromises. Each idea, each step was challenged. No decision was taken until it had
survived a process of constructive conflict.
This culture has been deliberately carried
over to the behemoth corporation they
founded. The success of Google vindicates
the approach of Page and Brinespecially
since the company is also highly successful
on the employment market. It seems that
talented workers do not want a cosseted
existence at any price.
ANYONE CAN CONTRADICTEVEN
THE SEASONED WARHORSES

Micropolitical sensitivities, born of age differences, for example, are completely disregarded. In order to make disagreement productive, it is important to refrain from treating older employees with kid gloves as well.
Google CEO Eric Schmidt has personal
experience of this. He often recounts how he
argued with founders Brin and Page about
technical questions, even while interviewing for the job. The founders are in their
mid-30s now, while Schmidt is 20 years their
senior. But the veteran manager, who had
already contributed substantially to the success of Sun and Apple, remembers this interview as one of the most entertaining he had
had in a long time. And Brin and Page
respected the opposition of this experienced
businessman, who never avoids an argument and is even prepared to question his
own views.
As CEO, Schmidt continues to propagate this
culture, which is based on questioning
everything and hiring the most widely
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p food for thought

diverse people possible to pursue their


objectives with commitment and passion.
He actively promotes a culture of confrontation and discussion in the company. For
example, important decisions must always
be made by at least two people. The result:
no solution is reached without prior discussion. Managers and employees at Google are
expected to pursue the widest possible
range of goals, and then defend them
against opposing objectives. According to
Schmidt, this energy through friction is the
source of the dynamism in a growing company like Google.
In other corporations, while argument is not
explicitly sought, it is used to generate a constructive outcome. Take food giant Kraft, for
example. CEO Irene Rosenfeld is combative
by nature. When she took over the job, she
promised that she would create growth.
Rosenfeld promptly replaced half of the
management team, with no regard for losses, to ensure support for her strategy, before
radically restructuring the entire company.
Then came the economic crisis and her
promise of growth crumbled. She was forced
to sell the US frozen-pizza business to archrival Nestl.
HOW ROSENFELD WEATHERED
THE STORM AS KRAFT CEO

Suddenly, the warrior found herself alone.


Rosenfelds critics within the company and
among shareholders balked at her growth
strategy in particular: she wanted to buy the
British chocolate manufacturer Cadbury to
12

close the gap on Nestl. Suddenly, no one


believed she could pull the deal off and her
support within the company collapsed. Key
investor Warren Buffett humiliated her with
an open letter calling upon Kraft shareholders to overthrow the single-minded boss.
But Rosenfeld was not intimidated, and in
the end, with much diplomacy, she got her
way. After six months of takeover poker,
Cadbury was hers and Kraft was still in hot
pursuit of rival Nestl. Rosenfeld owed her
victory not only to her persistence, but in
equal measure to her ability to fight an
apparently overwhelming opponent for a
solution that would benefit the company.
And this is important, too: good managers
must not only be able to create visions, they
must also be able to realize them, even in
the face of opposition from the management
or supervisory board. They may cause
offense along the way because, at this level
of management, there are losers as well as
winners. Refusing to acknowledge this
means that all too often unpleasant decisions are avoided.
With that said, it is inevitable that some differences of opinion in business will not
always be beneficial for everyone. An internal conflict often ends with a short
announcement in the finance section of the
newspapers along the lines of The management is leaving the company by mutual consent. But this result does not necessarily
have to be detrimental to the company.
When managers disagree, not only is it usually the best solution that wins through, but

also the person who is best able to implement it. Of course, this person also tends to
be someone who does not give up easily
under pressure.
One manager who will be leaving his company in the near future is easyJet boss Andy
Harrison. He is one of the main protagonists
in a massive conflict of visions with majority
shareholder and founder of the airline, Stelios Haji-Ioannou. He has said publicly that
he wanted the group to grow more slowly.
Instead of continuing to invest, he wanted to
distribute a dividend. The company managers had other ideas.
EVERY SUCCESSFUL CLASH ENHANCES
THE PROFILE OF A TOP MANAGER

Harrison and his colleagues on the management board had previously shied away from
this change in strategy, and had evidently
estimated correctly. In 2009, easyJet was
among the very few airlines in the world
that posted a profit. But this did not mollify
Haji-Ioannou. He recently resigned his position as non-executive director under protest.
Despite this, Harrison will still leave the
company. His position in financial circles
has been clearly established through his difference of opinion with the founder of the
company. Harrison has enhanced his profile
as an independent, top-level manager
something he will undoubtedly benefit from
in future disputes, whether at easyJet or
elsewhere. One thing his management
board colleagues now know for surehe is
not one to avoid a good argument.

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Seite 13

MANAGING
INDIA.
MANAGING
INDIAN?

DOSSIER #15
The country is boomingthis much we know. But
for some time now, there has been a great deal
more behind Indias growth than just an outsourcing destination for the developed world. Companies such as Tata are developing their own identity, while top Indian managers have experienced
success in businesses around the world. And
Indias markets offer considerable growth opportunities for American or European firms. In this
dossier, we take a closer look at the dynamics of
a country that is currently changing the world.

India is not just about IT or business process


outsourcing. We see it as an incubator for giant
global corporations driven by IT strategy.
F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL

The real interest in India is to


find the next practice. To find the
unexplored innovative idea
one that can change the game.
BILL MCDERMOTT, SAP

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D O S S I E R #1 5

The thrill of complexity


as seen by Pietari Posti
Pietari Posti may be Finnish, but his illustration that opens our dossier section is based very much on an Indian aesthetic. Like the goddess Shiva,
Indias top managers sometimes seem to have more than one pair of arms
not only are they dealing with the complexities and problems in Indian society, but they are actually finding clever solutions to them. To do this, they are
operating on an increasingly international scale, while the global players of
this world have long discovered the attractive markets India has to offer. This
dossier looks at both their opportunities and restrictions as well as discussing whether there is such a thing as an Indian management model.

14

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Managing India. Managing Indian?

D O S S I E R #1 5

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Managing India. Managing Indian?

You can also listen to this article


on our audio CD (page 63).

TATA GROUP, TATA MOTORS


Tata Motors, a part of the Tata Group
empire, is Indias largest carmaker and a
market leader in the commercial vehicles
sector. The company has generated
enormous interest, not only with its
acquisition of Jaguar Land Rover, but
also by producing the cheapest microcar
in the world: the Nano.

India innovates differently


They can do more than just cheap. Indian companies are developing business models from
which their Western counterparts might learn a thing or two. In particular, they are thinking
innovativelynot so much in terms of technology, more about their customers budgets.

I expect the Tatas to be


much larger in 100 years
than they are now. But
more importantly, I hope
the group of companies will
be the most respected in
Indiaon the basis of our
processes, our products
and our value systems.
R ATA N TATA , C H A IR M A N, TATA S ONS

Commercial vehicle sales from March


to April 2010 in comparison with
the same period last year:

+38.31%
Midsize and heavy commercial vehicles
(M&HCVs) up 33.55 percent;
light vehicles up 42.67 percent

Stock market price for Tata Motors


The price per share for Tata Motors
has risen in the last few months.
Investors evidently appreciate the
companys strategy.

Nov.

16

Dec.

Jan.

Feb.

Mar.

Apr.

May

THEY ARE ASKING THEMSELVES the really big


questions: how do you invent a reliable mode of transport for millions who dont own a car? How do you
connect a billion people who earn less than $1,500 a
year on average? How do you show people who cant
read how to open a bank account and make wire
transfersin regions where the nearest bank is 200
kilometers away? It is not only the countrys leading
decision makers who are asking these questions
Indian businesses are, too. And they not only are they
finding the right answers, but they are also earning
money with them. There are no precedents for our
problemstheir sheer scale puts them beyond anything in human experience. So let us find our own
solutions! Indias leading industrialists have heeded
this call to arms from strategy guru C. K. Prahalad,
and they are finding solutions that are inconceivable
in the West. It is in the emerging nation of India that
the business models of the future are being configured today.
Indias industrial production is growing at an
average rate of 15 percent a month. Sales of cars by
Tata Motors or Maruti Suzuki India have risen by 25
percent in the last year. Most manufacturing concerns
in all sectors of industry are approaching the limits of
their capacity. Indias major corporations are growing
by as much as 40 percent. In almost every industry,
managers are struggling to keep up with demand.
At the same time, they are planning a takeover
offensive. Arcelor and Corus were just the beginning.
While the multinationals in the West are weakened,
the management teams of Indian companies, like
auto parts supplier Bharat Forge, electrical equipment
manufacturer Crompton Greaves, engineering firm
Larsen & Toubro, or pharmaceutical developer Dr.
Reddys are gearing up to change not only their country, but also its position in the world, for good. Leading the charge is Ratan Naval Tata, chairman of the

Tata Group, Indias economic colossus. No other concern has had such a pervasive effect on the Indian
economy and society as this empire, which was
founded in 1868 by Jamsetji Tata. Tata products and
services are ubiquitous in India. The businesses
owned by this family-held company generate
between 3 percent and 5 percent of the countrys
gross national product.
ALL INDIANS ARE PROUD of Tatas success. Like
no other business in India, the threads of tradition and
the future, trust and incorruptibility, profit and social
responsibility, are held firmly in the hands of the
unassuming Ratan Tata. He has already unleashed
one revolution, when, at the end of the last millennium, he transformed the elephant that was Tata into a
pouncing tiger. The tigers first leap took it into the territory of the worlds biggest steel producers. Now it is
gathering itself for an attack on one of the most ferociously contested reserves of the old industrialized
nationsthe production of luxury cars.
The acquisition of Jaguar Land Rover by Tata
Motors is the expression of a new self-confidence,
says Ralf Kalmbach, head of the Competence Center
Automotive at Roland Berger Strategy Consultants.
Their unassailable domination of the commercial
vehicle sector at home has given them a sense of
belief that they can compete at the top of the international automobile business. After 40 years of resistance to change, and having fallen into the wrong
hands, the British luxury brand Jaguar looked as if it
would follow its venerable, elderly customer base into
extinction. Then came Tata. With his clear vision,
Ratan Tata showed the former colonial power how its
once revered status symbol can be driven into the
future, continues Kalmbach.
The result was revealed at the last Geneva
Motor Show in the shape of new flagship model, the

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XJ. It is barely recognizable in comparison to its predecessor. Younger, more aggressive, it expresses a
repositioning of the brandand, at the same time, the
conquering spirit of India. Recently, Tata posted a profit for the luxury carmaker, which many had already
written off. According to Kalmbach, This initial success, unparalleled during the crisis, is an indication of
the determination and managerial skills that were
brought to bear in India to reinvent the brand.
NEVERTHELESS: the success with Jaguar is
being played out in the uppermost segment of the
automotive food chain. But Tata is also involved at the
other end of the spectrum, where it has unceremoniously reinvented the car itself, with the Nano. The idea
to create the first internationally competitive subcompact car came to Ratan Tata on a rainy day in Mumbai,
when he saw one of the countless tiny motorcycles
weaving through the streets carrying a family of five.
Surely it must be possible to provide this family with
a safer, more comfortable means of transportation?
he thought. And so the idea was born: create a new

form of transport for people at the bottom end of the


income scale.
In order to put the vehicle on the road, Tata
broke every convention in the car manufacturing rulebook. The approach is different in every way from
what is typically done in the automobile industry,
explains Kalmbach. Instead of starting with what was
technically possible, calculating what it would all cost
and then overrunning the cost targets by the usual 50
percent, Tata established a radical costing framework
and calculated downward from an immutable end
price, which influenced every aspect of the project.
Everything in the development was subordinate to
one magic number: 100,000 rupees, just over
$2,000. And cutting costs did not mean cutting quality, but rather redefining what is meant by top quality.
How do you build a simple, sturdy axle for a mere fraction of the cost of all standard commercial products
without sacrificing safety and comfort, for example?
To answer questions like this, Tata convinced
high-end suppliers like Bosch, Continental and
Freudenberg to completely rethink the way they

D O S S I E R #15

INDIAN STRATEGIC SENSE


What are leading Indian and US
managers devoting most time to?
(Red = US)
LESS TIME MORE TIME
Regulation questions
2%
24 %
41 %
Reports to the supervisory board
1%
17 %
41 %

98 %

78 %

Shareholder relations
4%
58 %
31 %
41 %
Defining strategy
9%
0%

47 %
93 %

Media relations
11 %
31%
17 %
31 %
Day-to-day management
27 %
28%
55 %
24%
Source: Harvard Business Review, March 2010

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The Indian telecommunications market is currently


going through a hypercompetitive phase, but we are
still making a profit. Simultaneously, we will continue
developing detailed plans to
expand into markets
beyond the borders of India
and southern Asia.
S U NIL BH A RTI MIT TA L , FOU N DE R, C H A IR M A N
A N D GROU P C EO, BH A RTI E N T E R PRIS E S

7%

Sales were up
on the
previous year, to 396 billion Indian
rupees, in fiscal year 2009/2010.
The EBITDA rose by 6 percent.

Sales growth

369.6 bill.

270.2 bill.

185.2 bill.

The four-year trend


shows Bharti Airtel is
continually expanding.
116.2 bill.

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BHARTI AIRTEL was founded in 1985 by


Sunil Bharti Mittal. Today, it is Indias
largest mobile wireless network operator
and one of the fasting-growing telecommunications companies in the world. It is
currently expanding massively throughout the African continent. Bharti Airtel was
recently named in Businessweek as one
of the six most successful technology
companies in the world.

2006 2007 2008 2009


Volume in rupees; Source: Businessweek

18

13:13 Uhr

produced high-value auto parts. For many parts suppliers, the Nano became a test laboratory for a business model, to discover how it is possible to make
money with parts for simple, inexpensive, environmentally friendly vehicles, Kalmbach explains. The
Nano was a wake-up call to the automotive industry, a
warning to finally change their strategy of expecting
customers to buy a bigger, and thus more expensive,
model every time they changed cars. Because that is
precisely what is not working any more. The car manufacturers in the US, Europe and Japan will never
again see absolute growth in their traditional battleground of big, expensive vehicles, says Kalmbach.
The growth of the future is taking place in the emerging nations, with small, affordable cars that allow millions to move around.
Yet even Tata had to learn that dispensing with
time-honored development structures in the automobile industry is a feat of strength that can only be
pulled off when pursued utterly without compromise.
Time and again, the development of the Nano
reached a point at which it seemed impossible to hold
to the upper price limit of 100,000 rupees, says
Kalmbach. But Ratan Tata had given his word to the
world. And against this background, he forbade his
organization to waver from its goal. His maxim:
a promise is a promise!
BHARTI, INDIAS LARGEST telecommunications
provider, has turned the practice of amassing huge
revenues from millions of small transactions into an
art form, by enabling an impoverished population to
join a communications network. India is the fastestgrowing mobile telephone market in the world. There
are currently 500 million cellular phones in use, and
by 2013 this figure is expected to top 900 million.
More than 120 million current users are supplied by
Bharti Airtel. No one in the world offers a cheaper price
per minutecurrently half a US cent. Revenue per call
is minuscule. But Bharti Airtel is making enormous
profits as more and more customers in rural areas are
brought into the fold. At the moment, the company is
registering an impressive 100,000 new customers
every working day.
While Indias current strength has grown out of
its role as a service outsourcing provider for the First

World, Bharti has outsourced almost 90 percent of its


corporate processes to Western providers. Since its
foundation, the company has been growing so rapidly
that Indian technological capacities have not been
able to keep pace. We realized that we can capitalize
on the strength of our partners by outsourcing,
explains Jagbir Singh, Group CTO Mobility Networks of
Bharti Airtel.
Network development and operation, network
design and system optimization, everything is done
by Ericsson. With a constant stream of multi-billiondollar orders, it has been Indias Bharti that kept the
crisis-wracked European mobile wireless company
afloat. Other contractors, including Nokia Siemens
Networks and IBM, are also dependent on the boom
of the Indian model for success.
The profits that this business model generates
are so enormous that Bharti Airtel is preparing to
expand into markets that the conventional telecommunications providers have studiously avoided until
now. Most recently, the company paid $9 billion for
access to the African market. Its acquisition of shares
in Kuwaiti telecom provider Zain is the second-largest
in Indias historyand it comes with another 45 million customers.
Bharti is also currently planning to enter the
banking services sector. An estimated 41 percent of
all Indians do not have their own bank account. Conventional big banks have no idea how to manage the
enormous number of tiny bank accounts without
making a loss. Bharti does. With its mobile technology, the company has the access and the capacity to
receive deposits, store the amounts and manage
withdrawals made by more than 100 million residents
in the rural reaches of the countrythe customers
pay by cell phone.
The technology for mobile payment is provided
by the company A Little World, which is one of the
most creative technology providers in the world.
Headquartered in Mumbai, A Little World has already
revolutionized the mobile payment sector several
times. The latest phenomenon is the Zero-Platform.
This technology converts a smartphone, a lockbox
and a fingerprint scanner into a portable bank branch,
which enables rural India to connect to the bank network and obtain microcredits. Eventually, they expect

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to connect 50 million customers in this fashion. To


date, they already have three million.
Smart mobility, cheap telecommunication,
mobile banking servicesthese products are not just
useful, but they also enable people in even the
remotest corners of the world to become entrepreneurs themselves.
According to C. K. Prahalad, this is the key to
Indias social development. The poor must be able to
join forces with others as entrepreneurs. And companies must earn money by providing the poor with
entrepreneurial opportunities. Indian businesses
intend to make a profit from precisely this kind of
empowerment. The results are a flourishing entrepreneurial culture, a rapidly growing middle class and an
optimistic outlook for the poor.
THE MOST INNOVATIVE EXAMPLE: Reliance Industries. You can buy practically anything in the branch
stores of Indias largest retailerfrom vegetables to
an education to gasoline. But what sets the $30 billion company apart from other retail giants is its
astounding degree of vertical integration: not only
does Reliance tailor and sell suits under its own brand
name, it also produces the fabrics from which suits
can be made, the cotton threads from which the fabrics can be made and the machines for producing the
threads. In this way, the company offers several
points of contact for the business ideas of people as
entrepreneurial prosumers. This year, Reliance was
the only retailer included in Fast Company magazines
list of the worlds most innovative businesses, and
this example shows why.
MORE AND MORE INDIAN banks are providing the
necessary startup capital for those who have no more
security to offer than a business idea and the courage
of their vision. Since Muhammad Yunus developed the
concept of microcredits, the bank service of granting
these tiny sums of money is attracting the fastestgrowing clientele in the world. Recently, it has also
been gaining ground beyond Indias borders: the US,
Spain and Germany are all copying this system of
state aid to the New Poor of the First World.
After 300 years of economic stagnation, a
vibrant nation has awoken and is reinventing itself at

D O S S I E R #15

staggering speed, with boundless creativity and


commercial energy. There are, of course, many problems in India, for which solutions are still to be found.
Take conventional electricity, for example, which is
still twice as expensive as in China, while rail travel
costs three times as much. But these problems are
no longer intractable burdensthey have become the
next selling point for the next innovative business
model. India is making its own solutions with both
vision and pragmatism, creating business solutions
that are being gratefully adopted by an increasing
number of other emerging countries.

DOING WELL BY DOING GOOD


How Indias elite social
entrepreneurs live
Adulation on the streets, loyalty from their
employees, respect from their competitors
not many captains of industry around the
world can lay claim to these accolades. But
Indian bosses can. The reason? Many of them
are serious about social responsibility. Their
commitment to social causes goes far
beyond the interests of their companies,
says Peter Cappelli, from the Wharton School
of Business. He recently conducted what is
probably the most comprehensive survey of
leading Indian managers ever undertaken:
Every executive we interviewed described
the most important purpose of his company
in terms of a social mission. And not in order
to make money from it. According to the survey, shareholder value is ranked fourth on
their list of priorities.

Indias large companies do


well because they do good.
Peter Cappelli, Wharton School of Business

For example, Bharti Airtel wants to put mobile


phones in the hands of people for whom any
chance of telecommunication was a pipe
dream, until now. Indian banks, such as ICICI
Bank, provide starting capital for people who
have not had access to credit. Pharmaceuti-

cal manufacturer Dr. Reddys plans to make


healthcare affordable all over the world
through inexpensive medicines. And Infosys
intends to show the world India deserves a
place alongside global technology leaders. In
short: profits are a by-product, not the primary purpose of a companys activity.
Many top companies have put their money
where their social ideals are. For example, 65
percent of the profits of every company in the
Tata Group goes to charitable foundations;
only 3 percent goes to the family. While the
company executives live in demonstrably
modest style, their foundations finance
Indias leading universities and research
institutions, campaign for education, health,
food and clean drinking water. Dr. Reddys
finances healthcare for more than 40,000
children. Infosys equips entire hospitals and
schools with IT services and has launched a
nationwide program to develop IT skills
among young peoplea visionary idea that
might benefit First World countries as well, as
they struggle to replace their declining technical workforce. Indian companies are not
just successful in addition to doing good for
society. There is plenty of evidence to suggest that they are so successful because
they do good, Cappelli states.
And the population expresses its appreciation
to those who run these companies. Ratan Tata
has not only been awarded the Padma
VibhushanIndias second-highest civilian
honorhe has also been voted the most
trustworthy man in India.

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Waking the giant


India is one of the worlds biggest agricultural markets. Until now, small-scale farmers
worked the fields, but now farming companies from around the world are increasingly
heading to India, hoping that its agricultural sector will evolve into a growth driver.

For our company,


India is a key market.
Sekhar Natarajan, CEO, Monsanto India

THE ONLY SOUND that travelers hear in the rural


areas of Rajasthan, a state located in northwestern
India, is the chugging of motorized pumps. The water
canals stemming from the days of the Green Revolution that took place shortly after 1965 are old and the
pumps dont look much younger either. Their main
competition are the oxen that pull long chains to lift
buckets full of water out of the wells. Most of what
grows on the small plots is destined to feed the owners and their families.
Around 730 million Indians lead an existence
as subsistence farmers out in the countryside. They
work on 120 million farms, with 60 percent of them
working on plots of land that are less than one hectare
in size. Indias agricultural sector is still far from
matching the economic growth already achieved by
its service and industrial sectors. While automobile
suppliers from around the world have manufacturing
operations in the industrial stronghold of Pune, and
more IT programmers work in Bangalore than in Silicon Valley, agriculture in some parts of India has not
changed much since pre-industrial times. Millions of
well-trained engineers, physicists and doctors have
allowed the service sector to now account for more
than half of Indias gross domestic product. In contrast, Indian agriculture accounts for only 17 percent
of the total economya trend that has been decreasing for years.
DESPITE, OR BECAUSE OF THAT, the Indian market
is highly appealing to agricultural companies the
world over. One reason is the sheer scope of it: after
China, India is the worlds second-biggest market. For
our company, India is a key market, says Sekhar
Natarajan, CEO of Monsanto India, a subsidiary of USbased Monsanto, which is involved in the seed business. Fertilizer and pesticide producers also have
India in their sights. There are more than 1.1 billion

20

Indians to be fed, prosperity is increasing, especially


in urban centers, and eating habits are adapting to
Western standards. Urbanization and the demand for
high-quality food is one of the growth drivers for
Indias agricultural market, points out Kapil Mehan,
CEO of Tata Chemicals. The subsidiary of Indias
biggest corporate conglomerate focuses solely on the
domestic market in the agricultural business.
WHEN IT COMES TO FERTILIZERS, for example,
India is the worlds second-biggest market. Besides
state-run and local, privately held suppliers, international companies have had a foothold here for quite
some time. The US-based seed producer Pioneer
entered the market more than 30 years ago and supplies 1.5 million customers in India. Part of the marketing strategy includes public-private partnerships
in which companies and the government work together with farmers. In February, Pioneer, along with the
agricultural authorities in the state of Uttar Pradesh,
initiated a collaborative project to train farmers. We
believe that new seed types and services associated
with their use are critical to making Indias agriculture
more productive, says Pioneer CEO Paul Schickler.
However, the collaboration between the government and business does not function as well elsewhere. Right now, its the government especially that
is stepping on the brakes, reports Michael Timm, an
agriculture expert with Roland Berger Strategy Consultants. And that despite the fact that the Indian government had made the country an agricultural trendsetter for a while. In the 1960s, the Green Revolution
brought progress to the fields. After periods of drought
and widespread famine, the socialist government
stepped up its efforts and pushed ahead with the
planting of high-yield crops that could be harvested
several times a year. The massive use of pesticides
and mineral-enriched fertilizers as well as the expan-

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sion of irrigated land have left behind obvious marks,


though. For example, tremendous environmental
problems related to over-fertilization are an everyday
issue in India.
To make matters worse, little has changed in
terms of technology since the days of the Green Revolution. Very little remains of what was once progressive technology. The archaic pipe systems are losing
huge amounts of water by todays standards, and the
most prevalent types of towing vehicle in many parts
of the country come in the form of water buffalo and
zebu cattle. The utilization of machinery is still very
low, emphasizes Timm.
WHEN COMPARED INTERNATIONALLY, agricultural
productivity in India does not measure up well.
According to the World Bank, India only grows onethird of Chinas volume in rice and only half of the
amount produced by much smaller countries like Vietnam and Indonesia. In addition, the weak infrastructure prevents exports from being successful. According to the World Bank, transporting grapes from India
to the Netherlands is twice as expensive as from
Chile, even though India is only half the distance.
That is why improved efficiency is so important. One rupee invested in agricultural development
would generate 9.5 rupees for the economy in terms
of economic performance. However, the US-based
International Food Policy Research Institute has
determined that the additional subsidization of fertilizer by the same amount would only generate 0.85
rupees. Intelligent watering systems that would add
fertilizer drop-by-drop directly into the water could
reduce costs while simultaneously protecting the
earth from over-fertilization. Instead, farmers just
throw the nitrogen-based fertilizer on to the fields by
the kilogram and wait for it to rain, Timm says.
Despite this, the governments reform-oriented
zeal has visibly faltered over the years. It considers
itself more as a protective institution that shields the
army of small-scale farmers from fluctuating market
prices. They represent millions of critical votes,
explains Timm. These Indian farmers are not part of

the group benefiting from the boom. In fact, they hope


that the subsidies will be enough just to survive. With
more than 300 million Indians living under the poverty line, thats not always the case.
Climate change is exacerbating the situation
and, in 2009, the country saw its strongest monsoons
in almost four decades. To top it off, the population is
growing; the government estimates that by 2017,
there will be almost 1.3 billion people living in India.
Monsanto came to learn that small-scale farmers are an absolute necessity. The company is currently working on obtaining the first approval for
genetically engineered vegetables in India. However
after nationwide protests, Indias Minister of the Environment, Jairam Ramesh, relented. The public is
against it, he realized in early February and
announced a moratorium. However, the head of
Monsanto in India is still hopeful that his company
can roll out new seed types on the market some day,
as he believes that high-yield seeds are prerequisites
for agriculture to be more productive in India.
IMPETUS FOR INNOVATION is already coming from
the private sector, such as in the form of contract
farming. Containing provisions pertaining to quality
and quantity, contracts are being negotiated by globally active food companies on-site with farmers in all
major sales markets, including in India, too. For example, McCain Foods, a US-based company, has been
working with 400 farmers in the state of Gujarat for
several years. They plant potatoes that McCain then
processes into frozen French fries in nearby factories
to be sold to McDonalds subsidiaries throughout
India. Urbanization and consumption patterns that
are strongly oriented to Western habits certainly support such models, says Michael Timm. But to date,
such contracts are rare in India.
Executing such contracts is no simple matter
either. McDonalds came to India in the mid-1990s and
needed several years to set up a functioning supply
chain. But the effort paid off, and not only for the fastfood chain; in Gujarat, agricultural growth is matching
the rest of Indias rapidly expanding economy.

We believe that new


seed types and services associated with
their use are critical to
making Indias agriculture more productive.
Paul Schickler, CEO, Pioneer

India as an agricultural
problem area
Arable land in hectares per person

2.52

Australia
1.39
0.88
0.61

Canada
Russia
USA

0.35

Brazil

0.28

Thailand

0.16

India

0.10

China

Sources: World Development Indicators


Database, Datamonitor, Roland Berger

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D O S S I E R #15

A lot of white shelves


The worlds multinationals want to move in on Indias retail trade. Their biggest
competitors arent Indian companies, but the local mom-and-pop stores that are
proving to be masters in logistics and customer focus.

INDIA IS TRULY A COLORFUL country. But those


who base their impressions on consumer experiences
in food stores wont see much of this colorthe countrys shelves have a distinct lack of it. Oil is sold in
transparent plastic bottles without any labels, while
sugar and rice are available in brown paper bags or
burlap sacks. Surprisingly, many products are displayed entirely without brand names.
For multinationals, this brandlessness represents an opportunity. Innovative sectors such as
processed foods and personal care, in particular, are
still highly underdeveloped, according to an analysis
conducted by Roland Berger Strategy Consultants and
its Indian partner company, the Tata Strategic Management Group. When it comes to soaps, detergents
and lotions, Indians spent $8.7 billion in 2008, which
is projected to increase by almost 20 percent annually. Also, the $115 billion processed foods market
(2007) is expected to almost triple by 2016.
Forecasts suggest that in 2025, India will be
the worlds fifth-largest consumer goods market
leaping up from 12th place in 2007. Despite that, India
is still not high enough on the priority list among
many international consumer goods manufacturers,
says Andreas Bauer, head of consumer goods and
retail at Roland Berger Strategy Consultants. A recent
Nielsen Global Consumer Confidence Study revealed
that India had already moved into second place in the
spring of 2010.
After Indias economy had grown by 9 percent
annually between 2007 and 2008, the country still
managed to grow by about 7 percent in the crisis
years. However, economists are back to projecting a
figure of 8 percent for 2010and an average growth
rate of 6.3 percent annually until 2030. One reason
for the surprisingly stable trend is that the Indian
economy is bolstered by rapidly increasing domestic
demand. Domestic consumption already accounts for

You can also listen to this article


on our audio CD (page 63).

more than two-thirds of the gross national product


(in China, it is less than one-third). In other words,
Indians are buying their way out of the crisis.
GOVIND SHRIKHANDE, CEO of Shoppers Stop, one
of Indias biggest retail chains, is also seeing a gradual
upswing in consumer behavior after the economic
crisis and the terror attacks in Mumbai. They (Indian
consumers) are certainly loosening their purse
strings. They were on a shopping diet for a long time.
Shoppers Stop operates 28 department stores in
addition to several subsidiaries of the stylish HyperCITY supermarkets. And these are not just located in
downtown Mumbai or in Gurgaon, one of Delhis most
modern suburbs, where almost all Indian and foreign
companies have their headquarters. In the future,
Shrikhande wants to penetrate into new regions
and cities, such as Aurangabad, Amritsar and
Coimbatoreplaces that the international business
elite havent heard much about to date.
In India, consumer business focused for a long
time on a small, affluent class that formed the customer base for Gucci boutiques, Armani flagship
stores and Bentley dealerships. Luxury goods manufacturers should continue making good money from
this class in the next few years, however the major
business lies in transforming the masses living in
rural areas to brand consumers. Ultimately, only 28
percent of Indias 1.14 billion people live in cities. The
market for luxury goods is largely developed, opines
Andreas Bauer. The future focus is on average people
and high-volume business.

They are certainly


loosening their purse
strings. They were
on a shopping diet for
a long time.
Govind Shrikhande, CEO, Shoppers Stop

IN THE LAST DECADE, Indias rural economy grew


up to 40 percent faster than in the cities. Now, rural
regions account for more than 50 percent of the GNP.
The purchasing and economic power stemming from
the countryside is increasing steadily, fueled by
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tremendous, government-driven economic stimulus


and infrastructure programs. It is anticipated that by
2025 more than 300 million of the rural poor will
become members of the lower middle class.
As a result, their consumer behavior may
change, too. To date, most Indians tend to shop in a
traditional way. Only 6 percent of the consumer goods
business is handled through modern warehouses and
supermarkets. Instead, the majority of this trade
takes place in kirana storessmall shops with narrow shelves and a limited selection, located on the
ground floor of almost every Indian apartment building. The kirana stores (also known as mom-and-pop
stores) are usually family operated. They benefit from
minimal personnel costs, geographic proximity to
customers and their excellent service (including
home deliveries). Especially important is the fact that
they offer competitive prices, in contrast to the same
type of stores in Europe.
THIS EXPLAINS WHY THE TRULY GREAT retail revolution has not happened yet. According to estimates
made by the Retailers Association of India, sales
through modern retail channels will increase by
around 20 percent in fiscal year 2009/2010. Faster
restructuring is also being prevented by the fact that
foreign companies are prohibited from making direct
investments. Walmart, Carrefour and other global
players can officially hold only a minority stake
in joint ventures with Indian partners. Shoppers
Stop CEO Govind Shrikhande also doesnt expect
the investment barriers to be raised in the next several years, even though the entry of international

Purchasing power of Indian consumers on the rise


Income distribution of the population by household
Income measured in 100,000 rupees

Premium

>12

Mass Affluent 2.412

17

28

47

Mass

1.12.4

53

75

103

Basic

>1.1

132

114

78

2005/2006

2009/10

2013/14

Source: World Development Indicators Database, Datamonitor, Roland Berger; figures starting with 2009/10 are based on estimates.

24

companies into the Indian economy could do some


good. Specifically, they would bring with them international best practices, he says.
As it is, for the next 20 years, kirana stores are
likely to remain fixtures in Indias consumer reality,
believes Bauer. Companies that want to be successful on the Indian consumer market can choose
between a presence as a niche brand and developing
a bona fide Indian business model. This would
encompass the entire value chain, from production all
the way to setting up a multi-level distribution system. For international companies without historical
roots in India, integrating themselves into the kirana
stores distribution network is no simple matter.
According to industry experts, doing retail business
in a city like Mumbai alone would require contracts
with several dozen wholesalers and distributors.
Nevertheless, penetrating the market is not
impossible. How a medium-sized European company
can get a foothold in this booming area of growth has
been demonstrated by Perfetti Van Melle, the confectionery manufacturer and producer of the mintflavored candy, Mentos. Perfetti Van Melle holds a
share of about 30 percent in Indias candy market.
There are two main reasons for the firms success:
first, its advertising commercials carry a distinctly
Bollywood aesthetic; second, Perfetti Van Melle supplies more than a million retailers and shops, and
instead of offering candies in large packages, it made
the canny decision to sell its Mentos in small monopacks that cost just a few cents.
Herein lies one of the main challenges for international companiesdesigning their products and
processes in such a manner that they are appealing
and affordable to Indians. The mobile phone giant
Nokia experienced a flop a few years ago when it
attempted to sell phones at something approaching
the level of Western prices. Then it developed the
1100 model that, thanks to its dustproof case and
integrated flashlight, was tailored to the needs of
Indias rural population. Whats more it only cost $10.
This strategy helped Nokia to acquire an impressive
market share in India of 60 percent (of a total 800
million mobile phone owners) and also gave its international strategy a boost; the Nokia 1100 has become
a global bestseller.

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OIL- AND PETROCHEMICAL-RELATED INDUSTRIES: DIFFERENT PROBLEMS

Thirst for oil


Indian oil companies go globetrotting in search for crude, which means that the global
exploration heat is growing. Meanwhile, the Indian home market is still rather restricted.

ON DECEMBER 4 LAST YEAR, when oil barons

around the world gathered in Indias IT capital Bangalore for the annual World Oil & Gas Assembly (WOGA),
the pressing concern in the minds of the attendees
was not just whether recoverable supplies will
decrease faster than they can be replaced with alternative sources. The big issue was the need for an
alternative business model. We need evolution in this
business rather than revolution, said Tony Hayward,
CEO of British Petroleum. He was endorsed by Khalid
A. Al-Falih, CEO of Saudi Aramco, the worlds largest oil
company. Three Tstechnology, talent and teamingcan do a lot to meet the resource shortfall, said
Al-Falih. Mukesh Ambani, Indias top oil man and one
of the hosts at the event, couldnt agree more. Despite
the lack of direct resources, his companyReliance
Industries Limited (RIL)has become a major force
in the South Asian oil market.
AMBANI, WHO HAS SET UP a giant 580,000-barrels-per-day refinery in the city of Jamnagar in western Indian state of Gujarat, is now aggressively
importing crude oil and is looking for overseas acquisitions to meet the growing demand. Low production
and logistic costs will drive further expansion of Indian refining capacity, says a senior consultant on oil
and energy from Roland Berger Strategy Consultants.
Proper investment planning and controlling as well
as cost-conscious global sourcing will be key to further success of downstream players, he adds. Indian
crude oil demand of 161 mt per year (2009) has been
growing at 4.8 percent over the last five years.
Buzz about RILs international expansion
became louder when it raised around $700 million by
selling its treasury shares. RIL is reviewing a number
of global opportunities for growth in its core business, says a company spokesperson. The difficult
operating environment of the past year has made
available several interesting opportunities, where an

investment by a strategic operator of industrial


assets can add substantial value. The companys
attempt to acquire assets of LyondellBasell was seen
as a brave step by an Indian private company to
expand. Reliance also signed a deal with Colombian
state oil firm Ecopetrol for two deepwater blocks in
Colombia.
AND IT IS NOT JUST RELIANCE. All major Indian oil

companiesgovernment and privatehave stepped


up the exploration heat around the world. Essar, Videocon and ONGC Videsh have been tapping into the global oil pool with some success.
In the absence of resources, the low-cost
refineries could become the main attraction for foreign companies to India. At the moment, Indian companies are focusing on upstream activities to secure
oilfield assets, says Narendra Taneja, oil expert and a
commentator with Upstream, the worlds largest oil
and gas newspaper. He calls it a battle for energy
security, especially as almost 75 percent of Indias
crude requirements are met through imports, conservatively billed at $124 billion a year. Twenty years
from nowwhen India is expected to consume more
than double of what it does nowits crude import bill
is likely to soar to more than $248 billion.
Oil analysts say the fight for world oil is global,
but that special attention should be paid to the activities of major Chinese oil companies. China consumes
more than one-third of global oil supplies.
Recent experience has shown that Indian companies are often losing out to the Chinese. In August
2009, Indias largest public-sector oil company, ONGC,
lost its bid to acquire Swiss oil exploration firm Addax
Petroleum. It lost to Sinopec, a subsidiary of China
Petrochemical Corporation. Chinas second-largest oil
company shelled out $7.2 billion to seal the deal.
Again in December 2009, ONGC lost its bid to develop
Iraqs giant Halfaya oilfield to a consortium backed by
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China National Petroleum, which easily undercut the


Indian companys offer of $1.76 per barrel.
Despite a war chest of $283.5 billion in the
shape of foreign reserves, for years it has been outbid for overseas energy acquisitions. And whats
worse, says ONGC chairman RS Sharma, India does
not even have a sovereign wealth fund, which is crucial for acquiring global energy assets. It has been reliably learned that the Indian Finance Ministry could
eventually agree to set up a $20 billion sovereign
fund to help Indian oil and gas explorers compete with
their international rivals.
EVEN AS THE INDIAN COMPANIES start a global oil
shopping tour, the entry of international players in
India has remained restricted. The retail oil market
continues to be subsidized and controlled by the government. However in recent times, it has shown signs
of loosening its grip. We do expect a new form of regulation which improves the balance between affordable fuels for the public competitiveness of Indian oilcos and necessary subsidization by the Indian state.
This should enable state owned companies as well as
their private competitors to succeed, says Walter
Pfeiffer, oil expert and partner at Roland Berger
Strategy Consultants. Lower subsidization will drive
significant efforts to increase efficiency across all
downstream operations.
Sustainable biofuel is seen as a direct alternative to oil and gas in the country. India has regions
which could perfectly profit from investments in
sustainable second generation biofuels, says the
expert. The government has already decided to
decrease the dependency on crude oil imports and is
encouraging investment in alternative areas that are
sustainable in the long run. The countrys bio-diesel
processing capacity is estimated at 600,000 tons per
year. Bio-diesel in India is virtually a non-starter. There
are many reasons for that, the main ones being
the non-availability of vegetable oil and government
policies. The edible oils are in short supply, and the
country has to import up to 40 percent of its
requirements.
The Indian bio-fuel policy was announced in
December 2009. The government has set a target of
20 percent by 2017 for the blending of bio-fuels

D O S S I E R #15

bio-ethanol and bio-diesel. Addressing concerns, it


has declared that bio-diesel production will be taken
up from non-edible oil seeds in waste, degraded and
marginal lands. Bio-ethanol already enjoys a concessional excise duty of 16 percent, and bio-diesel is
exempted from excise duty.
AS THE INDIAN ECONOMY continues to grow

quickly, its energy needs are mounting rapidly. It is


clear that Indian oil companies will not be able to meet
the requirement, and soon the market will be opened
for international players. The central question is when
and how.

INDIA AND ITS OIL


Oil India plans to disinvest by selling
11 percent of its equity.
Essar has projects in Vietnam, Myanmar,
Madagascar and Nigeria.
Videocon and BPCL have oil blocks in
Mozambique.
Reliance is present in Oman, East Timor,
Australia, Peru, Columbia, Kurdistan
and Yemen.
A $20 billion sovereign fund is expected to
help Indian oil and gas explorers compete with
their Chinese rivals.

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OIL- AND PETROCHEMICAL- RELATED INDUSTRIES: DIFFERENT PROBLEMS

Trying to fuel the growth


The government of India is trying hard to change the image of the petrochemical sector
in the country. It is offering sops and tax holidays to attract foreign players.

ON APRIL 03, 2010, Indias largest public-sector

commercial enterprise, Indian Oil Corporation (Indian


Oil), entered into a joint venture with Taiwans TSRC
Corporation and Japans Marubeni Corporation to set
up a state-of-the-art styrene-butadiene rubber (SBR)
unit at Panipat, an industrial town around 130 km
from New Delhi. The unit, with a capacity of 120,000
metric tons per annum, is expected to produce highquality synthetic rubber used in the manufacture of
automotive tires, conveyors and fan belts.
This is one of the many projects that have
recently been signed between leading international
companies and Indias public-sector petrochemical
corporations. The country has a major unexploited
market with immense growth potential. Indias current per capita consumption of polyester is 1.4 kg and
it accounts for 3.1 percent of the total world polymer
consumption of 200 million tons per year.

HOWEVER, IN RECENT TIMES, there have been


instances when these agreements havent lasted
long. Some foreign players have withdrawn from key
projects. In 2009, French petrochemical major Total
pulled out its investment from a venture to set up a
greenfield refinery-cum-petrochemical project worth
around $7.1 billion in Vizag in the southeastern state
of Andhra Pradesh. Apart from Indian public-sector
giants like GAIL, OIL and HPCL, the venture boasted
Mittal Energy as one of its partners.
Indian projects are continuously delayed. It
will be a challenge to make them happen on schedule,
within budget, says Arjen de Leeuw den Bouter of
Roland Berger Strategy Consultants. The Indian petrochemical sector, which is one of the countrys fastergrowing industry segments, at 13 percent per annum,
faces a number of challenges as it tries hard to attract
foreign partners. High costs of energy and raw materials, and access to basic infrastructure, are among
the major troubles of this sector. Indias chemical
28

industry currently operates out of 25 major clusters,


with the western states accounting for 65 percent of
them. The states of Gujarat and Maharashtra are host
to most of the refining, petrochemical and downstream chemical complexes.
THE PRODUCTS FROM THESE STATES are facing
steep competition from cheap Middle Eastern
products. The single most important
question is how the Indian petrochemical industry, especially on
the west coast, is able to compete with Middle Eastern products. This will be extremely difficult, and tariff barriers seem
to be Indias only defense,
says de Leeuw den Bouter.
In order to enable India
to leverage the critical success
factors for the development of
the chemical industry, the government has launched special
economic zones (SEZ) called
Petroleum, Chemicals and Petrochemicals Investment Regions
(PCPIR).
IT IS PROVIDING BENEFITS such as better road
and rail linkages and income tax holidays for 10 years
to attract investment in these clusters. According to
Tata Strategic Management Group (TSMG), the PCPIR
policy is expected to open up tremendous business
opportunities in the chemical and petrochemical sector. Both the central and state governments have
announced incentives such as fast-track clearance
from respective ministries to induce public-private
partnerships and continued fiscal benefits. The government plans to establish three PCPIRs with a likely
investment of $92 billion (as estimated by TSMG). In

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the state of Gujarat, a PCPIR is being set up in


Bharuch-Dahej with an investment of $10 billion.
Indias largest petroleum company, ONGC, and the
states Gujarat State Petroleum Corporation (GSPC) are
partnering to establish a petrochemical investment
region on a core area of 181 square km, on the shores
of the Arabian Sea. In the eastern state of West Bengal, the Haldia petrochemicals refinery is being further expanded to 7.5 million metric tons. The second
PCPIR has been approved here.
INDIAN OIL CORPORATION and Spice Energy plan
to invest $20 billion over a core area of 108 square
km, on the shores of the Bay of Bengal. Cals Refineries
Ltd. (Spice Energy) plans to set up a crude-oil refinery complex in Haldia with a capacity to process 5 million metric tons per annum of blend crude in the first
phase of the project. The third approved PCPIR is in
Vizag in the southern state of Andhra Pradesh, where
French petrochemical company Total withdrew its

D O S S I E R #15

investment from a greenfield project in 2009. Government-owned petrochemical company HPCL is the
anchor tenant of Vizag SEZ and plans to invest a
whopping $62 billion on a core area of 270 square km.
IN ORDER TO MAKE THE INVESTMENT regions more

accessible, the government has also invested heavily


in infrastructure. For example, in Vizag the government spent around $440 million to upgrade the
port. Similarly in Haldia and Bharuch-Dahej, huge
amounts have been spent to create infrastructure
requirements such as roads, rail networks, water
supply and water treatment plants. Apart from the
three approved PCPIRs, three more are being planned
in the southern states of Karnataka (Mangalore) and
Tamil Nadu (Cuddalore), and in the eastern state of
Orissa (Paradeep). All SEZs are well connected with
the sea. We expect such steps to help foreign players to look at the Indian petrochemical industry more
positively, says a senior official in the Department of
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Chemicals and Petrochemicals. With foreign companies allowed to own 100 percent of Indian subsidiaries, the government hopes to attract more
foreign players in this growing segment.
AND FOREIGN COMPANIES do not just bring in

money. They also provide new technology, application


knowledge and a global client base, says de Leeuw den
Bouter. In fact, for the private sector, investment
is not the main problem, says Tushar Pania of Reliance
Industries Limited. Reliance is one of the major private players in this field, with a number of refineries in the western states of Gujarat and Maharashtra. The most famous of them is Jamnagar in Gujarat, where Reliance has recently
added a giant 580,000-barrels-per-day
refinery. Though the company failed to
buy assets of bankrupt petrochemical
giant LyondellBasell, it continues to
review a number of global opportunities for growth in its core business,
says a Reliance spokesperson.
WILL THE IMAGE OF INDIAN petrochemical sector change after so many
sops, so much investment, and such big
ambitions? Only if it delivers, replies
de Leeuw den Bouter.

KUNAL MAJUMDER is a correspondent with the Indian news weekly


Tehelka. You can follow Kunal at twitter.com/kunalmajumder and Tehelka at
www.tehelka.com

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Praise to the mother


Pepsi, Adobe, Unilever: Indian managers are rising to the top of the worlds biggest
companies. What makes them so attractive to foreign employers? Part of their secret:
a strong family orientationand a capacity to deal with complexity.

A NEW BREED OF MULTINATIONAL CEO is emerging: charismatic, sleek and eloquentwith an Indian
background. PepsiCos CEO Indra Nooyi; Shantanu
Narayen, president and CEO of Adobe Systems; or
Sanjiv Kakkar, chairman of Unilever in Russia, Ukraine
and Belarus: These executives share the experience
of growing up in India.
Apparently, Indian managers bring multinational companies insight on leadership and management
that home-grown executives may lack. According to
Peter Cappelli, the joint author of the recent book The
Indian Way, Indian managers have a special knack for
empowering people by creating a sense of mission.
And theyre prone to address critical internal matters
rather than focus too exclusively on external affairs,
such as investor relations, M&A and share prices.

BUT PERHAPS IT IS THE CLEAR VISION with which


Indians lead multinational companies that is most
striking. Some 61 percent of Indian leaders said that
articulating a path to the future, strategic thinking and
guiding change were the factors most critical to their
exercise of leadership, according to a study performed
by Cappelli. Unilevers Sanjiv Kakkar says: Its not only
important that I have the clarity, its important that my
entire team and the entire company share that clarity
on what we are trying to achieve.
Cappellis research is part of his efforts to formulate what is unique about the Indian way of doing

business. With the US model of capitalism under


attack, Western businesses might look to Indian CEOs
for leadership inspiration. Whereas Chinas growth is
based on low-cost labor, the manufacturing sector and
a huge government role, India is thriving despite its
adversity, says Cappelli. Or, as Edward Luce wrote in
In Spite of the Gods: The Strange Rise of Modern India,
the slow-moving and fractured Indian government,
with its dozens of political parties and messy parliamentary democracy, is not getting in the way much.

You can also listen to this article


on our audio CD (page 63).

PERHAPS POLITICIANS HAVE LEARNED a lesson


from the blind spot that led to the rise of the software
industry in India. The government failed to regulate
the industry at the outset because it was new. This
gave companies a critical chance to flourish in the
hands of entrepreneurs.
Scholars have bickered for decades about
which country will rise fasterIndia or China. They
now seem to have tired of this debate and are examining the interlocking economies of both countries. Just
look at how many multinationals are using Indian IT
services for their Asian operationsin China.
Indeed, India looked over the border to see
Chinas rising tide at the beginning of the last decade.
Indians took notice that another poor country was
moving fast, says Soumitra Dutta, Roland Berger
Chaired Professor of Business and Technology
at INSEAD. Dutta says that he grew up sensing an
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unspoken feeling of failure among Indians who compared the situation of their country with others.

Indra Nooyi, CEO of PepsiCo. At a family visit,


her mother got compliments for raising such
a good kid.

THERE WAS A SENSE OF FRUSTRATION. People


said, Were not in great shape because of the colonial
history. It was unspoken and fatalistic. The selfdoubt was compounded in 1967 when the country
had to devalue its currency and once again in 1991
when the government was essentially bankrupt.
From a cultural and emotional point of view, that
was very painful. It was an important trigger for the
country to open up, says Dutta.
That unspoken fear of inferiority has now been
largely replaced with entrepreneurial zeal and a rampant sense of achievement among much of the population. Even the poor are becoming owners of small
businesses and seem to have internalized the message that education is a ticket out of poverty, as evidenced by the sacrifices that parents are willing to
make for their children. Some parents would rather
skip a meal than not send a kid to the right school,
says Dutta.
CONSEQUENTLY, THE MIND of an Indian CEO is
more likely to have been imprinted with such stories
of overcoming adversity than with lingering regrets
about the past. Since colonial rule ended in 1947,
those Indian leaders currently at the helms of multinationals didnt experience British rule personally.
But they have benefited from some of its positive
legacies: English is widely spoken, and Indians have
a built-in starting point for understanding Anglo-Saxon
traditions.
So how have the attitudes of Indian leaders
of multinationals been shaped? What makes such

32

leaders unique? First, one must consider that these


leaderssuch as Nandan Nilekani, former CEO of
Infosys, Vikram Pandit, CEO of Citigroup, and Arun
Sarin, former CEO of Vodafoneare a biased sample
of the elite, says Amlan Roy, the head of Global Demographics and Pensions Research at Credit Suisse in
London. Roy, an Indian who has spent much of his
working life abroad, says these managers are welleducated and well-traveled. They are good speakers
and teachers, and they have risen to the top of the
Indian meritocracy.
HOWEVER, DESPITE THEIR SHELTERED upbringing,

such Indian managers are likely to be comfortable with


the masses and in multilingual, multicultural environments, given the hodgepodge of Indias languages, cultures and religions. They may possess a sensitivity to
non-Western cultures that Westerners lack and be able
to use that understanding to their advantage to rise
within the hierarchy of a multinational.
Indian managers are typically comfortable amid
complicated or even chaotic environments, says Roy.
Most foreigners are struck by the air of pandemonium
that is a part of everyday business and interaction. The
whole country seems to be in motion at one time. However, people who know the country well claim the chaos
in India is deceiving. Its a meta-chaos that masks
orchestrated, large-scale endeavors and the creative
use of limited resources, he says. When Luce recounts
his own wedding, he reports he wasnt sure the ceremony would actually take place since his wifes parents
hadnt made any arrangements. But the ceremony went
off without a hitch. Luce says that what often looks like
madness is actually a complex system, similar to the
apparent chaos in a swarm of bees.

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For Roy, upbringing in this type of environment


is prime training for managers who want to lead large,
complex organizations. They can deal with complexity because they are capable of managing people.
Indian managers know how to build relationships to
get what they want, Roy says. Vineet Nayar, chief
executive of HCL Technologies, described in a newspaper interview how he took his organization in one
direction and then abruptly changed courses: I used
to write a blog every week because I thought people
wanted to know what was going through my head. But
one employee told me, Actually, we want to participate in solving a problem. So, the blog got converted
into me asking a question: This is a problem Im
having. How will you solve it?
Another explanation for the success of Indian
CEOs abroad could be built-in tolerance resulting from
the countrys multicultural population, which includes
believers in Hinduism, Islam, Buddhism and Christianity.
Dutta: Those executives who were raised in India and
came to the West may have fewer biases than others.
SPEAKING OF TRADITION, MANY INDIAN executives
may have a different understanding of what a family
means than their non-Indian counterparts. Family
plays an overarching role in Indian society, and it is
defined as far more than the core parent-child relationship. Extended Indian families are likely to be
involved in critical decisions about young peoples
education and jobs. Consequently, Indian managers
may be accustomed to making decisions in consensus or in collaboration, says Dutta, and their success
may be seen as a reflection of the whole clan rather
than just the individual. For instance, PepsiCos Nooyi
told an online magazine that at a family visit, relatives

D O S S I E R #15

ignored her and went straight to her mother to compliment her on raising such a good kid.
AND THEN THERES INDIAS educational system
based on British remnants and Jawaharlal Nehrus
legacy of investing in primary schools and universities. The system fosters a learning culture among
many strata of society. And today, its evident in Indias
companies as well, Cappelli and his co-researchers
found. For instance, a quarter of new hires in the United States receive no training of any kind in their first
two years of employment, while the Indian IT industry
provides new hires with about 60 days of formal training, according to a study by the Kauffman Foundation.
As Indias culture of educational achievement
has taken root, children have been placed under high
pressure to perform. The country trains 1 million engineers a year, compared with less than 100,000 in the
United States and Europe: It is home to an elite university system that has catapulted Indias scientific and
technical capacity to third in the world. Hence, when
young people arrive in a competitive work environmentat home or abroadtheyre accustomed to the
demands placed on them.

China was moving


fastand India
took notice of that.

VODAFONES FORMER CEO SARIN , now a senior


advisor at the private equity firm KKR, told a TV program: Being an immigrant clearly had an influence
on my drive because you want to succeed. Youre in
the new country and you say, I want to do good. And
you kind of learn discipline and hard work early in
your life and then you apply that with higher education and in wider circles as it were. So I think clearly
being an immigrant in America drove me a little bit
harder and faster which is a good thing.
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p industry report

BUSINESS IN FOCUS

Customer consulting
Companies are looking for ways to work more closely with customers during the innovation process.
One idea: directly including end-users in product development. This works in both industrialized
nations and developing markets. The prerequisite: companies need to open up.

It is a well known problem: the search for


successful product ideas is more difficult
today than ever before. A GfK study revealed
that the flop rate for new product developments in the fast-moving consumer goods
sector lies at 70 percent. In some fields, such
as the food industry, its over 90 percent. In
manufacturing branches, 87 percent of all
product developments never even make it to
the marketplace. The pharmaceuticals industry discusses the issue of innovation deficit,
where rising development costs on one side
are faced by a dwindling number of marketable products on the other. The International Innovation Report produced by expert
auditors at Grant Thornton also highlights
that fewer winning ideas are coming from
R&D departments.
Software design giant Terry Winograd, who
currently teaches upcoming inventive hotshots at Stanford University, captures the
essence of the problem: instead of thinking of
users, companies often just think about technical feasibility and planning. And yet, it is a
well-known fact that the only path to innovation leads right through a companys customers. The goal should be to incorporate
them into the innovation process as much as
possible. The willingness is certainly there on
the customer side. According to C. K. Prahalad, customers want to interact with companies, but many businesses have a difficult
time being truly open to their customers
ideasfor the moment.
The basis for this type of cooperationdrawing innovative drive and good ideas from the
customer baseis growing steadily.

34

Franz Liebl, a professor of strategic marketing at Berlin University of the Arts, observes
how people tinker with things and adapt
their usage to solve a personal problem or
work around a manufacturers lack of imagination. This can often introduce real innovations in the process. Liebl calls it bricolage
or hacking.
Some figures offer encouragement: according
to the International Innovation Report, 40 percent of all successful innovations today stem
from customers. It is possible to utilize their

This sudden tilt toward consumer


involvement is a complete Lazarus
move: we thought that died a long
time ago. Kevin Kelly
productive power, especially for companies
that observe how customers grow and develop online. There is an enormous innovative
power that no manager had considered even
just a few years ago, states Yochai Benker, a
law professor at Harvard University and
visionary in the open-source movement. This
has generated growing competition for companies that must be taken seriously, not just
in the area of software production, but in
every area of information and culture productionfrom encyclopedias (Wikipedia), to
the news (Huffington Post), to entertainment
(YouTube). Therefore, a company needs to be
as well informed as possible about production processes from the consumer side, in
order to offer options for collaboration that
consumers will accept. But these efforts dont
just address target buyers in the developed

world. The growing group of consumers with


purchasing power in developing nations are
increasingly willing to provide input themselves, instead of settling for pared down
products from industrialized countries. They
generate innovations for processes, products
and services. Yet there are very few companies with an R&D department that has been
able to fully exploit the innovation potential
in emerging markets.
In order to do this, they first need to know
more about what is happening in developing
countries. Anil K. Gupta is currently working
on establishing a broader knowledge base
with his Honey Bee Network. Honey Bee has
compiled data on over 150,000 innovations
created by farmers and grassroots inventors.
Guptas employees are constantly traveling
throughout the country on the hunt for local
innovations, inventions and traditional
knowledge practicespotential sources for
globally successful innovations.
It is precisely this local knowledge that can
provide relevant signals regarding the most
urgent problems facing a populationand
ideas about how they can be solved. These
days, the real trick for businesses lies in finding innovative ways to access this enormous
pool of human creative and productive
power, and incorporate it into their innovation strategies on a broader scale.

Companies need to open up their innovation


processes. A few pioneers are already doing this
successfully, as we reveal with some exciting
examples over the next few pages

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[Design visionsaving the world]


DESIGNERS RETHINKSOLUTIONS INSTEAD OF PRODUCTS
Design thinkingit is under this heading that a number of design
schools are undergoing a radical shift in their approach. A new generation of designers is coming on the scene, who not only want to
make pretty things prettier, they also want to improve the world. And
at the center of innovation methods stand the people who should
benefit from what is being designed. Dont concern yourself with
the little things, is the advice Terry Winograd gives his students at
the d.school in Stanford. Think about the big things that the world is

concerned about: development, energy, health, education. Clad in


outdoor gear instead of fancy suits, the designers set forth to solve
problems in developing nations together with the locals there. The
objective is to create solutions rather than products. A real-world
example from Stanford: how can you have light in regions without
electricity? The exciting idea is not only to create robust lamps with
solar power modules, but also to keep their manufacture and sale in
the most remote regions below a price of $20.

35

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[Juicy discovery]
OPUNTIAHOT NEW DRINK FROM A CACTUS?
Food and drink manufacturers serve taste-testing customers, have
every ingredient analyzed by experts and send trend scouts out into
the hottest restaurants. But sometimes it still doesnt taste good to
customers. Meanwhile, a collective of women in the Indian village of
Saurathra are brewing up what may be the next big drink on the
scene. The juice from the Opuntia cactus, a.k.a. the prickly pear cactus, became the public favorite at one of Indias booming regional
agricultural trade fairs, the Stavik Food Festival, in late 2009.

36

The Honey Bee Networks SRISTI laboratory (Society for Research


and Initiatives for Sustainable Technologies and Institutions) is testing the juice and developing it for mass production. They are currently negotiating with Indian Railways on serving the cactus drink on its
trains18 million potential customers a day. The lesson: perhaps it
would be worthwhile for global food producers to take an occasional
glance at provincial tradeshows. Or do you already know what peoUntersatz
ple eat for breakfast
in Mongolia?

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[Climbing equipment for suppliers]


MARICOBETTER PICKING
Coconuts drive people crazy. They are one of the hardest natural
products around to harvest. Many competitions have been sponsored to solve the problem of how to get them out of the trees efficientlywithout success. Marico, the Indian beauty products company, may have resolved the problem. The company, whose products are based on coconut oil, began having issues with supply
shortages and stumbled upon a solution where no one had ever
thought to look. In a remote area of the southern Indian state of

Kerala, they found a farmer who had invented a simple but clever
piece of climbing equipment for his own use. It enabled pickers to
climb the palm trees more safely and faster than any device developed by the engineering elite from around the world. Maricos CEO
Harsh Mariwala sat down to collaborate with the Coconut Development Board on fashioning a commercial version of the climbing
equipment
based on the farmers prototype. Some innovations
Untersatz
require the willingness to think outside your own box.

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[The Lagerfeld in us all]


THREADLESST-SHIRTS THAT DESIGN THEMSELVES
Jake Nickell and Jeffrey Kalmikoff launched their company, Threadless, with $1,000 of startup capital. Today, the business brings in
over $5 million in revenue with a 30 percent profit marginall with
t-shirts that customers design themselves. The company premieres
dozens of new products on the market every month without advertising, professional designers, salespeople or merchants.
How? They sponsor design competitions in an online social network.
Members provide the ideasmore than 800 per weekand also

38

vote on the designs they like the best. Hundreds of thousands use
the platform to chat, blog, date, pose as models, take catalogue photos and purchase massive quantities of t-shirts.
The key question for US-based Threadless: how do you motivate consumers to participate and be creative? One key element behind their
success seems to be their strategy to remain entirely in the background as a company. Instead, Threadless manages the creativity of
its customers.

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[Worlds largest patient research]


PATIENTSLIKEMEMORE KNOWLEDGE FOR BETTER PRODUCTS
Pharmaceutical companies seek information from the real lives of
patientsinformation beyond that found in the artificial conditions
of clinical studies. Now there is a website to help:
www.patientslikeme.com. When you click on an illness here, you
find the experiences of thousands of patientsclearly organized,
easy to understand and statistically prepared.
But why do patients simply give out information about themselves?
PatientsLikeMe functions like a global self-help group; the contact

with other patients benefits real-world usage. Whats more, the story
is true: brothers James and Benjamin Heywood founded the company when they were searching for information about their brother
Stephens illness. Another secret to success: transparency and
mutual clarity among interested parties. PatientsLikeMe sells the
aggregated, anonymized data to pharmaceutical companies such as
Novartis or UCBand states it openly. The patients do not mind
because they will certainly benefit from new medications.

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[Research can happen anywhere]


GETURNING INNOVATION ON ITS HEAD
One of the worlds largest companies has turned its innovation
processes upside down. For General Electric, the days of developing
innovations on their home turf, to be marketed there first and then
adapted for export, are over. Under the banner of reverse innovation, promising new products and services are being developed
directly in emerging marketsat prices that are locally appealing.
And what proves successful abroad can always be exported to the
market back home to further benefit from cost advantages arising

40

from overseas development. Recently, GE built its newest fullyfledged R&D location in Bangalore. As an example of the advantages
possible, this facility developed a portable ECG device for $1,000.
That makes it 90 percent cheaper than its predecessor. But the real
innovation is in GEs thinking: reverse innovation only works if a
companys R&D locations abroad are taken just as seriously as the
former innovation center in the USA. It would seem that this works
very well at GE.

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[The doctor as a product developer]


ETHICONINPUT DIRECTLY FROM THE OPERATING ROOM
No one knows what a surgeon needs in the operating room better
than a surgeon. So what could make more sense than sharing experience and ideas with them before developing new surgical materials? That is the thinking of medical supplies manufacturer Ethicon.
The company created a global network of 8,500 highly-specialized
userssurgeons, specialists, scientists and nursing care staffand
has maintained it for years. At its core is a closed online community,
where experts working in real-world situations and product develop-

ers constantly analyze opportunities for improvements, test product innovations and share ideas. If needs change in practical applications, the company can adjust its products quickly to suit those
needs. However, to keep its co-developers involved, Ethicon must
always be fully prepared to rework its product portfolio to meet the
changing requirements of medical professionals. Why? Because if
you ignore their feedback, doctors will quickly lose interest in the
cooperative arrangement.

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The big realignment


Following the global crisis, regulation in the financial sector has tightened.
The business environment for banks and insurance companies is going
through radical changes. As well as new risks there are also ample prospects.

The global financial crisis was precisely


that, causing massive upheaval everywhere. It brought the worldwide financial
system to the brink of ruin. It swept up
banks, companies and even entire
economies. The consequences for the financial sector were valuation adjustments on a
scale never seen before.
Political bodies throughout the world have
made it their stated objective to prevent this
from ever happening again. For that reason,
international task forces such as the Basel
Committee on Banking Supervision (BCBS)
are in the process of developing guidelines
to increase the elasticity of the banking sector, to thereby provide more sustainable
growth, both over the short and long term,
as Stefan Walter, general secretary of the
BCBS says.
PROFITABILITY IS UNDER PRESSURE

Consequences for the financial industry are


unavoidable. The requirements drafted
within the scope of Basel III for banks and
Solvency II for the insurance industry are
changing the playing fieldthey are changing the framework conditions for credit
institutions and insurance companies, says
Udo Brskamp, head of the Competence
Center Financial Services at Roland Berger.
These are changes that the industry must
42

adapt to. For example, in the future, banks


will have to comply with stricter constraints
regarding their assets on deposit and with
higher liquidity requirements. Their profitability will decrease as a result because if
additional equity must be kept on deposit,
then this will not be available for the actual
business of issuing loans. In the future, a
closer interlinking of capital and liquidity
prospects combined with a medium-term
time frame will be a major factor for success, says Markus Krall, the partner responsible for risk management at Roland Berger.
The industry can make adjustments in two
areas: the cost side and strategic orientation
over the medium term. Many banking

FINANCIAL SERVICES
This business area of Roland Berger has 30
partners and 250 consultants in more than
20 countries around the world. Its key competencies lie in risk managementrecently
stregthened by Roland Bergers takeover of
KDB Business Consultingstrategy consulting for banks, and in the insurance sector.
Specific areas of expertise within risk management include credit and liquidation risks
in the banking sector following the discussions surrounding Basel III, as well as the
new regulations for the insurance industry
under Solvency II.

institutions have already begun with the


expenditure element. They are working on
improving their efficiency and streamlining
their structures. However, the strategic orientation is proving to be more difficult. After
all, some banks had to be supplied with capital during the financial crisis. If they were to
pay it back now, they might lack the funds to
undertake a strategic realignment.
CORPORATE BANKING BECOMES
MORE APPEALING

Where could additional funds come from?


One idea is that banks could pull out of noncustomer-related investments such as real
estate financing. In the coming years, other
business areas could become more interesting, such as corporate banking, especially
for small and medium-sized companies.
According to one rule of thumb, if the gross
domestic product were to climb by 1 percent, earnings from corporate banking
would increase by about 3 percent. There
are two reasons why this business would be
especially lucrative now. First, the market
generally restructures itself during phases
of economic recovery. To make use of this
phenomenon, companies must invest consistently. To do so, they require fresh capital
once the potential of their own working capital is exhausted. Second, some banks need

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to withdraw from this


business due to the consequences of the crisis. With a
clear focus on this area and a
broad portfolio of high-quality products, credit institutions can benefit from
this situation.
RETAIL BUSINESS ON THE RISE

Another segment that could be attractive


within the scope of a medium-term strategic
alignment is the customer-related capital
market business, which involves a strategic
decision. In the future, banks that engage in
proprietary trading will have to retain considerably more equity capital on deposit for
the customer-oriented capital market business than before. Therefore, banks must
then decide whether they wish to pursue
proprietary trading or not. From a strategic
perspective, the retail business could also

hold some appeal. One should note that the


profit margins are under pressure there
since the end customers are increasingly
requesting simple, less high-margin products after their experiences coping with the
financial crisis. Also, the net interest margin
is low due to increasing refinancing costs.
Nevertheless, there are attractive opportunities in this business area. These could
include serving customers more efficiently
without losing customer proximity, for
example, says Brskamp. New information
technologies also offer new solutions. In
Spain, banks have fewer branch offices, with
half of the transactions in the retail business
handled online and another 5 percent carried out on mobile devices. The retail sector
might also benefit from taking a look at the
core markets. Given the dynamic growth in
many developing countries, these present
tremendous potential as exemplified by

mobile applications in the area of microfinancing, adds Brskamp. However, not


every country can claim the same degree of
potential. Those planning to enter such
markets must have in-depth knowledge
about them, he warns. Ultimately, the insurance business is affected, too. Not only does
it have to deal with stricter capital investment regulations but it may also have been
affected by the debt crisis suffered by countries in southern Europe. Government loans
that used to generate steady and predictable
returns have ultimately turned out to be
low-margin and very volatile. Insurers are
thus faced with the challenge of finding
alternatives for their investments. However,
there are prospects out there, and as
Brskamp points out, A portfolio consisting
of corporate credits can accomplish precisely what insurance companies or pension
funds need.

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Professional services in particular need strategic


marketing. The core problem, though, is deciding
what makes service companies truly unique.

You can also listen to this article


on our audio CD (page 63).

All muscle and no fat


Marketing is becoming more important in the professional services industry. But how does one market
non-visible products? According to expert Philip Kotler, you use credibility. Revealing a previously
unseen socially conscious side, he recommends combining sustainability and smart communications.

The Dow Jones Sustainability Indexes are


the conscience of the investment industry.
Companies identified as supersector leaders not only receive the blessing of critical
customers, they will also be among the
favored billion-euro funds that focus on ethical conduct. As a result, sustainability has
become a firm part of the marketing strategy of global companies.
This used to apply especially to manufacturers of consumer goodsuntil now, at least.

Now, high-end service providers might want


to rethink the situation. At least, thats what
marketing guru Philip Kotler is urging. In a
meeting with think:act, he recommends that
service companies change their way of
thinking because what they really do is
deliver trust. However, they first need to
earn that trust via responsible conduct.
Kotler is at the forefront of the reform movement, even though he previously represented more traditional marketing approaches.

In his book Corporate Social Responsibility,


he examines how companies perceive the
obligation of giving back to society. When
American Express promotes education and
tourism projects in developing countries, or
when IBM participates in social issues, these
actions contribute to the companies authenticity, he says. Its always better if a company draws attention to itself through its philanthropic projects, rather than by means of
traditional product advertising.

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KOTLER AND POLITICS In the last several years, Kotler has spent more and more time on
marketing for nonprofit organizations. His orientation to social marketing is conveyed in books
such as Up and Out of Poverty: The Social Marketing Solution (1999). He is continually striving and
hoping for more improvement, as he also conveyed in his interview with think:act. At the end of the
discussion, he offered a statement regarding the political situation in his home country. I am in a
cautiously upbeat mood, and I would be even more positive if the political parties in the US would
finally work together for the common good. Instead of thinking for themselves, politicians stick only
to their respective party line. They do that to be re-appointed by their party. I hope the time will
soon come when politicians can be free and independent in their reasoning. And when that happens, I hope that people will have more respect for politicians.

In principle, long-term service marketing


begins with a companys core processes. The
public will see right through any greenwash. Consumers and customers are no
longer passive participants in the marketing
process: people will find out if a European
logistics company is marketing itself as
green while at the same time running poorly
maintained, pollution-spewing trucks in its
transportation operations.
On the other hand, a substantial social commitment offers more than just external
gains. It makes companies smarter by creating dialogue platforms. They increase inhouse expertise and ensure that management understands not just financial markets
but also social trends.
However, the desire to hold a long-term
position is crucial, especially in this competition for dialogue platforms. And this is
where marketing, which often pursues
short-term effects, needs to rethink its game,
as exemplified by promoting social initiatives. Kotler warns about reducing socially
oriented commitments too quickly in turbulent times: Management does save money
in the short term, but will lose it again in the
long term once the situation improves.
Companies that abandoned community
organizations when these needed support
most desperately will see interest groups
and customers losing trust in them.
Kotler is convinced that services require at
least as much marketing substance as tangible products. In fact, the latter are fairly easy
to advertise. Things get a little more complicated when it comes to corporate consulting
or internationally active commercial law
firms, like the Lovells and Linklaters of the

world. For them, close personal relations


with clients are crucial. This skill can be
acquired and it goes by the name of behavioral marketing.
Freshfields Bruckhaus Deringer is one law
firm that demonstrates how the concept
works in practice. It draws clients by having
teams that specialize in various industry sectors. Team members must not only be right
up-to-date with the latest legal news developments, they must also be proactive in
keeping the client informed. Thus, in a
broader sense, every good attorney also
serves as the clients counsel.
EXTERNAL AND INTERNAL
COMMUNICATIONS BELONG TOGETHER

Behavioral marketing also fosters a worldwide exchange of information internally.


Knowledge of global events and issues is
only useful to customers if it is available
around the world.
When it comes to efficient marketing, Freshfields combines specialization with the
advantages inherent in a large-scale company. For example, one of its objectives is to
represent clients who were acquired in the
finance or corporate sectors in the labor law
area, too. Cross-selling is also used as a marketing support toolif cases span sectors,
Freshfields will offer a price discount.
Clear positioning is necessary and becomes
all the more difficult as more companies
seek it. And this dictum applies to Freshfields and its competitors as it does to every
service industry. Theres no sense in sprucing up a commercial if youre putting out the
same message as your competitors, says
Kotler. In other words, focus will be the

buzzword in future, particularly within the


service sector.
Looking at seemingly straightforward services, two-way communications (preferably
demand-oriented) with the customer are
becoming more significant, and that extends
all the way to complaint management. The
Pizza Hut franchise chain, for example,
prints its hotline number on every pizza box
to take calls from unsatisfied customers. The
franchise manager then has 48 hours to
resolve the problem.
The luxury-hotel chain Hyatt is also known
for its fast response times to customer complaintsyou can even send them to management using the in-room television and its
remote control.
DOES DEMARKETING CREATE
A NEW SENSE OF TRUST?

For Kotler, such trust-enhancing measures


are just a small part of the imminent marketing revolution. We want to develop methods that will actually reduce an otherwise
continually increasing demand, is Kotlers
position, which is surprising from a marketing perspective. The essence of this
approach is to perceive demarketing as a
source of trust. According to this notion,
keeping certain types of customers away
from your product may actually be a positive
marketing approach.
One might be inclined to think that this attitude is nave. But thats not necessarily so,
says Kotler, although it does have to be
grasped properly in-house. First, one has to
identify values. And then one has to hire
people who believe in these values and
embody them.
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Crises always represent crucial tests for


Kotlers value-based marketing. For example, in difficult times, how do companies
deal with clients that are late with payments? John Deere, the US-based agricultural equipment manufacturer, may serve as a
role model, he says. John Deere helped
farmers, while rival International Harvester
unceremoniously seized its machines.
John Deeres level of generosity is rarely
found among service providers, even though
times of crisis are a perfect opportunity to
create new customer loyalty. Kotler recommends to banks and insurance companies in
particular that they fully understand the
acute problems some of their customers may
be facing. He also thinks that their advertising requires a different tone. The financial
crisis compelled many service providers to
rethink their marketing and advertising
strategies. Solidarity is the new mantra, he
says. For example, Morgan Stanleys European advertisements promote their high
equity ratio compared with other banks.

Theyre probably doing the right thing,


Kotler explains Especially if other banks
have to address some rather uncomfortable
questions on this point.
ITS EASIER TO SEPARATE THE
GOOD GUYS FROM THE BAD GUYS

These questions are certainly being asked,


not just in the industry but publicly as well.
The growth of social media makes companies an ongoing subject of debate. Internet
portals where consumers can discuss their
experiences make it easy these days to differentiate the good guys from the bad guys.
From a marketing perspective, turbulent
times are actually good times, according to
the tenor of Kotlers new book Chaotics.
Ryanair is an example that says a few
things about seizing an opportunity that
arose from the crisis, he states. During the
crisis, Ryanair ran a massive advertising
campaign and thereby tapped customers
magnified price consciousness. The outcome
was a substantial gain in market share.

So how does marketing even remain responsive during times of never-ending turbulence? According to Kotler, having one
script for bull markets and one for bear
markets is no longer sufficient. Companies
often get into trouble if they dont have an
early-warning system in place. They see the
warning signs but dont counter them.
How does one set up an early-warning system? In Chaotics, Kotler mentions two suitable methods: scenario planning and flexible budgeting. In other words, smart marketing managers create the ability to expect
the unexpected. And they have flexible
response systems. Take Regal Entertainment, for example, which is the biggest
movie theater chain in the US. It continually
monitors attendance figures for individual
moviesshould the figures decline, it immediately stops showing the movie in question.
Their reasoning is that an outdated offer
will not draw anyone in and will show that a
company does not know its customersand
that could result in losing their trust.

KOTLERS KEY POINTERS FOR SERVICE MARKETING MANAGERS.


QUALITY IS KING

KNOWLEDGE IS POWER

Nowadays, customers have precise expectations of services they utilize.


Social media platforms such as Facebook increase transparency, which
means customers now define quality.

According to Kotler, the requirements of many customers have changed


as a result of the financial crisis. Former knowledge about customers is
no longer valid; customers and their needs have to be re-examined.

BUILDING THE MARKETING ORGANIZATION

YOU CANNOT NOT COMMUNICATE

Building up long-term customer relationships is more difficult today than


ever before. Customers are fickle. Marketing must quickly adjust to new
situations and therefore needs to have, first and foremost, a very flexible
organization.

In these times where social media prevail, everything a company says


must be true and clear. Many service providers ignore this aspectand
will get stung. For example, the US website airlinemeals.net, replete with
thousands of evaluations and photos of in-flight food, has already repudiated a fair number of advertising promises.

THE FIRM CAN'T BE ALL THINGS TO ALL PEOPLE


Opportunities for service companies to differentiate themselves from one
another are on the rise. They can be socially oriented or maintain higher
environmental standards than their competitors. Its all about accessibility. The physical presence remains irreplaceable. For example, online
banks in Europe are currently setting up finance lounges in major cities.

46

BUILDING MEANINGFUL RELATIONSHIPS


Based in France, Targobank demonstrates that the crisis can be a learning experience. Its bank consultants are subject to pay cuts if they give
customers investment recommendations outside of a risk category
previously set by the customer.

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ROLAND BERGER STRATEGY CONSULTANTS

The global magazine for decision-makers 15 issues (so far)

Finance communication for decision-makers?


One example is this magazine. Five years ago, Roland Berger
started to provide business journalism for key stakeholders.
CNN journalist Charles Hodson says congratulations.

Journalism: first draft of history


FIVE YEARS is always a long time in business, and think:act
deserves our congratulations as it celebrates its fifth birthday. It has
been our companion throughout what will surely qualify as the toughest
half-decade most of us will experience in our business lives. We are getting used to the breathtaking pace of change in the technical world, and
the powerful devices we now carry around in our pockets and briefcases
are a constant reminder of those achievements. But the speed and
depth of the continuing financial and economic crisisand its painful
persistencehave surprised and shocked many of us. Those who were
well informed in 2005 would have spotted the beginnings of three distinct trends that were already reshaping the world.
Events since then have turned the steady flow of these changes into
raging floodwatersand they have washed away many of the assumptions we made then. First, money, risk and regulation are moving within
new parameters. It will be a while yet before the financial system and
the global economy recover from the destruction of value and confidence that started with the US subprime mortgage crisis. Credit will not
be easy again for a long time, while the severity and extent of new banking regulation remain to be seen. Second, the dynamism of the top
emerging economies was recognized in 2005, but what has startled and
encouraged many of us has been the way that they are leading the way
out of recession. It is now clear that a fundamental shift in economic
power has taken place, with China, Brazil, Russia and India now sitting at
the top table. We cannot speak of globalization as we did five years ago;
it is no longer the G7 nations and their corporate titans who dominate

CHARLES HODSON anchors CNN


Internationals World Business Today
which rounds up the days business and
financial market news. The show also
includes keynote interviews with major
business players and updates on stock
market developments around the world.

that process, but the broader and increasingly important G20. Third, the
entire world of communication and marketing is adapting to the development of new media.
Sure, back in 2005 we knew the Web and digital communication were
transforming the way we do business. But few of us foresaw the rapid
development of social media, or the way conventional media like daily
newspapers and even terrestrial television would now be struggling to
survive. Journalism, famously, is the first rough draft of history. As we
chart our daily progress into the unknown through such CNN programs
as World Business Today, it is best to be humble about the future. It
may be an exciting place, but as we march unstoppably toward it, peer at
it and try to map it out in our minds, it can play us many a trick. We need
a dependable guide. And that is where think:act comes in. There is a
need for high-quality writing about the challenges we face today and
tomorrow. But if you want disciplined analysis and inspired thinking
from some of the best minds in the world, look no further than this exclusive publication.
I wish think:act well for the next five years, and for many years after that.

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FUTURE MARKETS
Printing will be faster in the future. Plants are teaching us about energy production, while IBM is
revolutionizing the world of electric batteries. And propeller-powered flight is experiencing a revival.

artificial photosynthesis
Plants grow thanks to the process of photosynthesis.
With the help of sunlight, water and CO2, they produce
sugar molecules that form into wood fibers. In other
words, plants store energy that they release at a later
point in time when they are burned in the form of wood,
coal or petroleum. Now, researchers are looking for ways
in which photosynthesis could be used to store energy
without going through the biomass formation phase.
Instead, the plan calls for solar energy, combined with
CO2, water and a catalyst, to be transformed directly into
synthetic fuels such as hydrogen in order to produce environmentally friendly electricity in a fuel cell when needed. Experts call the concept artificial photosynthesis. The
difficulty lies in finding the right catalyst.
It would seem that US-based Sun Catalytix has made
tremendous progress in this quest. The company was
founded by Dan Nocera, a professor at the Massachusetts
Institute of Technology (MIT) in Cambridge, near Boston.
He and his team claim that they have found a way to generate enough electricity to meet the daily energy requirement of a family home using around nine liters of water
and some sunlight. The US government also sees promise
in the research and pledged $4 million in early 2010 for the
company to make the process market-ready.

48

turbo-ink technology
Those with a high volume of printing or copying to do
must still rely on the xerographic process that was developed back in the 1930s. The toner is transferred to the
paper by means of a complex interaction of lighting elements and rotating rollers. And because the printing
device must run like clockwork, procurement and maintenance of these machines is expensive.
So far, anyone looking to print more than 40 pages a
minute was left disappointed as this simply wasnt possibleuntil now. Several companies have introduced prototypes that are based on ink technology that enable faster
printing speeds. For example, the Australian company
Silverbrooks Technologies is planning on manufacturing
60-page-a-minute printers for around 250 using its
Memjet technology. The Japanese company Kyocera,
though, claims to have set a new world record in fullcolor, high-speed printing with its KJ4 print head. With a
resolution of 600 x 360 dpi, the print head has a printing
speed of 330 meters a minute. In addition, turbo ink
technology offers a competitive advantage. Since it does
away with rotating components, maintenance costs
drop substantially. If Memjet keeps its promise, office
printers might even become disposable.

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An open rotor
engine from US
company GE

open rotor
Rising energy costs and stricter climate regulations are
forcing the aviation industry to develop more efficient
propulsion systems. The open rotor concept appears to hold
much promise, with fuel savings of up to 30 percent. In 2007,
the easyJet aviation company introduced its idea for an ecojet based on this concept, and it plans on being able to halve
CO2 emissions by 2015. In 2009, a group of suppliers including Boeing, Rolls-Royce, RUAG Aerospace and Deharde
Maschinenbau agreed to conduct joint research in this field.
It has long been known that propeller aircraft are more
fuel-efficient than jet-engine airplanes. Back in the 1970s,
during the first oil crisis, the aviation industry had tried to
find ways to use this technology for modern wide-body aircraft. Research was soon abandoned when oil prices dropped
and the problem of high noise levels appeared unsolvable.
However, now equipped with high-tech computers and new
high-performance materials, the industry is taking another
run at the issue.
To a large extent, a propulsion systems efficiency
depends on what the intake air is used for. Because propeller

microscopes for molecules


Electronic memory storage
devices are based on crystalline silicon technology.
Because they keep getting
smaller, they will presum7.4 m
ably soon reach their system-related limits. What all
future developments have
in common is a molecular and atomic architecture, in which
electronic circuits consist of individual molecules, carbon
nano-tubes, as well as cluster- and supra-molecules. A prerequisite to make this all happen is a measuring technology that
can deal with such small structures. In collaboration with scientists from the University of Regensburg and the University
Zircon-ceramic surface

engines use air less to drive the rotors and more for thrust
purposes, their efficiency is much higher than that of jets. In
addition, the open rotor concept benefits from the fact that
bigger rotors can be used because a heavier housing is no
longer needed. One design seems very promising: it has an
enclosed engine and two exposed rotors with sickle-shaped
blades that turn in opposing directions. This configuration is
meant to decrease the energy loss resulting from vortices. All
in all, one airplane with a capacity of 100 to 200 passengers
equipped with such propellers would reduce CO2 emissions
to 10,000 metric tons annually and see fuel savings of around
$3 million per year.

of Utrecht, IBM researchers from Zurich have achieved a


breakthrough in nano-scale measurement technology. For the
first time, they were able to measure the charge state of individual atoms using an atomic force microscope (AFM). Performing measurements with the precision of a single electron
charge and nanometer lateral resolution, researchers succeeded in differentiating neutral atoms from positively or
negatively charged ones. An AFM resembles a tuning fork
with a vibration amplitude of about 0.02 nanometers, or onetenth of an atoms diameter. If the tip of the AFM is placed in
close proximity to a sample, the resonance frequency will
vary depending on the forces occurring between the sample
and the tip. In this way, one can determine the tiniest differences, using this differential to make extremely precise measurements. IBM hopes to use this procedure to develop new
components for the field of information technology.

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Bracing for litigation


Despite prudent decisions and the best possible advice, corporate directors face an increase in legal
actions that can impact their personal assets. think:act examines what top managers should look for
in corporate D&O (directors and officers) programs.

The Enron scandal of the last decade


transformed corporate governance. It also
had a lasting effect on the D&O insurance
market, given CEO Jeffrey Skillings legal
bills estimated at $23 million: The case
piqued interest in the coverage that protects
company officers from personal financial liability if they are sued. And, as insurers
assessed the riskier business climate, premiums began to rise.
Like malpractice insurance for high-level
managers, the directors and officers insurance forms a worldwide market today, worth
$8.8 billion in 2008, and covers top managers
in the event of a breach of duty and a resulting lawsuit. Usually reserved for companies
with a fair share of assets and management
board structures, the pricey insurance policies, with premiums that can reach up to sev-

50

eral hundred thousand euros a year for millions in coverage, essentially let individuals
hedge the personal financial risks they face
by playing in the top league. At the same
time, the policies are a tool for making corporate entities responsible for the actions of
their employees and protecting corporate
assets.
D&O POLICY HOLDERS ARE MORE
LIKELY THAN EVER TO BE SUED

In the aftermath of the subprime financial


crisis, companies as well as their directors
are advised to be even more cautious about
potential financial liability for their management decisions, says attorney Kevin M.
LaCroix, the author of the D&O Diary and a
director of OakBridge Insurance Services.
Thats because D&O policyholders are now

more likely to be sued, and more likely to be


sued for larger amounts, than in the presubprime era. Whereas class-action lawsuits
were once common only in the US, such lawsuitswith their massive potential for financial damageare gaining popularity outside
North America as part of governance reform
aimed at securing recourse for shareholders.
According to Advisen, an insurance research
firm, cases settled since 2005 in Europe were
for average settlements of 117 million.
Although some anti-corporate activists argue
that the coverage creates an incentive for
misbehavior, scholars find no evidence that
the coverage motivates mismanagement, just
as carrying auto liability insurance hardly
gives drivers a reason to cause an accident.
Suits against managers can come with a host
of punitive effects, including reputational

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D&O COVERAGE: 11 QUESTIONS
YOU SHOULD ASK

loss, jail time and possible fines in the event


of a scandal. Enrons Skilling is serving a
24-year term in prison and was fined
$45 million. Fines are typically excluded
from a policys benefits.
D&O coverage tends to be best advised on by
lawyers and specialized insurance brokers.
The specialists recommend that policies go
far beyond the basic requirements of being
large enough to cover the cost of settlements.
They stress that policies must be tailored for
each individual buyer, depending on the
area of business and the risks present.
In the US, a large number of D&O claims are
made for a managers conduct related to
human resources, such as hiring and firing
decisions. But an increasing number of
claims are being filed against directors and
officers for securities-related misconduct.
Whats more, American law is known to have
a long arm from which managers around the
world might need to defend themselves. Witness the Enron-related case of the NatWest
Three. The British bankers involved were
extradited to and tried in the United States,
where they also served prison terms for wire
fraud committed in the UK.
Megan Colwell, an expert in management
liability insurance at Woodruff Sawyer & Co.,
a California insurance brokerage, offers her
clients a choice of roughly 10 to 15 insurers.
Her firm is paid by commission from insurance companies or consulting fees from the
client. Colwell recommends that companies
with international operations acquire specialized advice to align their corporate D&O
program to the risks in different countries.
THE BIG QUESTIONS FOR MANY MANAGERS:
SHOULD YOU GET OFF THE PLANE?

In some cases, these risks can impact the subsidiary organizations directors, officers and
managers. In others, executives from the
home territory may be at risk: Some have
even been known to question if they should
get off the plane in countries in which their

1. Do my employers by-laws and indemnification contracts protect me to the fullest


extent permitted by law against paying defense and other costs of actions against me?
For instance, will the company cover eligible
defense costs up to the amount of the policy
deductible or advance my legal fees?
2. Under which circumstances can my
company bring an action against me and
limit the amount of money I receive for
defense and other costs?
3. Does my company receive information
and solid advice on D&O coverage from an
insurance broker and from legal counsel?
4. Does my company regularly review
and approve the terms and coverage
amount of our D&O policy as part of our
risk-management program?
5. How is the wrongful act definition in
our D&O policy worded? Am I covered if I am
acting outside my capacity as a director
(i.e., if I am acting as a professional advisor
or shareholder)?
6. Does my companys D&O policy specify
that the exclusions for major personal
misconduct must be for deliberate or
equivalent misconduct? In other words,
am I covered for inadvertent misconduct?
7. Will my defense costs be paid even
for excluded claims, assuming I am proven
innocent?
8. Does our coverage contain a provision
that would limit my own exposure in the
event of fraud or misconduct by one of my
colleagues?
9. What is excluded from my employers
D&O insurance? Which exclusions are
typical and which should raise a red flag?
10. Does my coverage apply if I am sued
by my own employer or another company
officer?
11. How does corporate insolvency affect
the D&O policy? What happens to my
coverage if the ownership of my company
changes while Im serving as an officer?
Adapted from a Chartered Accountants of Canada brochure
written by Richard J. Berrow in 2008. Title: 20 Questions
Directors Should Ask about Directors and Officers Liability
Indemnification and Insurance

companys subsidiary may be involved in a


legal tangle, she says.
To avoid potential problems, Colwell tells
executives to consider D&O coverage for offshore subsidiaries placed by the corporate
headquarters, or as local laws require, placed
in the subsidiarys country. An important
consideration for buyers is to make sure the
companys D&O broker has access to partner
brokers abroad. We need insurance policies
and programs that can adapt to various
indemnification scenarios, so that individuals are protected in all jurisdictions.
Hartmut Mai, the Global Head of Financial
Lines at Allianz Global Corporate & Specialty, a major provider of D&O insurance, says
policies used to have global reach but are
now increasingly subject to local regulations.
He recommends one-stop shopping for D&O
coverage at larger insurance providers that
can meet needs in all territories and advise
on peculiarities. Mai also advises that managers who are trying to steer their companys
D&O program insist on close contact with
insurers to foster a mutual understanding of
risk exposure. Keeping in constant communication is not just good for underwriters, its
also good for the client because the client
begins to understand how the underwriter
thinks and what he is looking for in the riskassessment process, says Mai.
David Walters, who manages the commercial D&O business of Chartis Insurance in the
UK and Ireland, a part of the former AIG and
one of the worlds largest D&O insurers, also
recommends that companies communicate
frequently with their insurance brokers and
insurers about business developments that
could potentially change a companys risk
profile. According to Walters, companies
should treat their D&O providers just like
one of their stockholdersand for good reason: At the point of crisis, if the communication has been two-way and open, a solid relationship would be in place to back up the
claims process.

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JRGEN HAMBRECHT was born in Reutlingen in 1946.


He is married and has four children. He earned his doctorate in
Chemistry from the University of Tbingen in 1975. Hambrecht
has been CEO of BASF since 2003. Before that, he served the
company in various capacities around the world for almost
30 years. He is also chairman of the Asian-Pacific Committee of
German Business. In this years Best of European Business
competition run by Roland Berger, Hambrecht was honored with
the prize for best European manager. According to the award
citation, Hambrecht helped transform BASF into one of the
biggest companies in Europe without losing sight of its origins.

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business culture f

Benefiting from diversity


Europes mix of styles and cultures give it a competitive advantage, says BASF boss Jrgen
Hambrecht. But to remain competitive on a worldwide scale, the continents economy must
focus on sustainability, innovative energy and globalism.

THINK:ACT Dr. Hambrecht, the effects of the


economic crisis were felt around the world
and we are still living with its aftermath.
How do you think Europe performed during
the crisis?
JRGEN HAMBRECHT One of the most important effects of the crisis was to reveal where the
problems lie and intervention is needed. We in
Europe must now learn from this. We are still
facing the most significant challenge: it is costing us an enormous amount of time and energy
to protect the European Economic and Monetary Union from erosion. The crisis also showed
quite clearly that responsibility and sustainability cannot be disregarded. European corporations are undoubtedly among the leaders in
sustainable economic development, but we
must establish a global economy based on sustainability and responsibility. That is the best
protection against crises. The world of politics
can certainly learn from business, here.
The chemical industry serves as a bellwether for the economy as a whole. Many
chemical companies, including your own
as the industry leader, are posting improved
figures againis this an indicator of sustained recovery?
The crisis year of 2009 was stormy. We are
looking forward to better weather now, but
there are still a few dark clouds in the sky. And
we cannot be sure that 2010 does not hold some
surprises. This has been demonstrated by the
crisis in the Eurozone, which had been foreseeable for some time. Certain risks will still persist in 2010 despite the anticipated recovery.
Caution is still advisable.

Is there such a thing as a European management style?


With the Societas Europaea (SE) we do have a
European corporate form, but in my opinion
there is no uniform European management
style. The question is whether it is even desirable. One of Europes greatest strengths is its
enormous cultural diversity. A mix of management styles and cultures is a competitive
advantage, not only in the European market,
but in the world as a whole. It is no coincidence
that diversity in the workforce and at management level is being promoted most actively by
companies with a global presence.
Can you give any examples of this?
BASF has created a program dedicated to precisely this end. With Diversity & Inclusion we
intend to harness the potential of the diversity
in our own enterprise more effectively. We are
convinced that heterogeneous teams have an
advantage: they are more creative, better able
to solve complex problems, they comprehend a
wider range of customer needs and markets,
and, importantly, it is exciting and inspiring to
be a part of such a team. I experienced this
myself when I worked as a manager in China.
Seeing the world from a perspective that was
not Eurocentric had a profound effect on me.
One has the impression that the European
concept is largely disregarded in the composition of many boardrooms. Do we need
more pan-European executive boards?
The fact that executive boards are becoming
increasingly international is a good thing. But
this movement needs time to develop; I dont

think it would help to encourage it artificially.


Candidates must fit the company and their
respective sphere of responsibilities. In our company, all members of the executive board must
be able to demonstrate substantial international experience. This is also the goal for the management levels below that. Almost 80 percent of
our managers have already worked abroad.
What is your opinion of a Europe quota
on executive boards, along the lines of the
womens quota?
It goes without saying, we need more women
and more international representatives in our
executive boardroomsthat must be a permanent objective in the long-term development of
management staff. But I am completely
opposed to the idea of quotas of any kind. The
principle must be that the best person for the
job occupies the position, regardless of nationality or gender.
The BASF executive board is dominated by
Germans. Do you aim to change this?
The composition of our managers of the next
generation is becoming more and more internationalat the moment over a third of our candidates for senior management positions come
from outside of Germany. This will have a substantial impact on the makeup of the executive
board in the future.
It sometimes seems as if Europe is successful despite policies that are inimical to business. Do you subscribe to this opinion?
No. Policies in Europe are not generally
designed to obstruct businesses. Of course, there
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p business culture

are many difficult issues, particularly for our


industry: how to proceed with regard to plant
biotechnology, emissions trading and the
REACH regulation to name just a few. But one
must also see that the EU Commission has
adopted entirely proper approaches in terms of
its industrial policies in the past. On the other
hand, much greater effort will be required in
order to ready Europe for global competition.
In particular, we need a larger pool from which
to draw innovation. We need better education
and research and we need clear, transparent
rules for everyone.

If we confuse safety with 100 percent


risk elimination, then we are standing in the way of our own future.

BASF SE has its headquarters in


Ludwigshafen am Rhein, Germany. In
terms of both sales and market capitalization, it is the largest chemical corporation
in the world today. BASF currently employs
almost 105,000 staff in 170 countries
worldwide. In 2009, the group posted sales
of 50.5 billion and EBIT of 3.7 billion. The
corporation is listed on the Frankfurt Stock
Exchange, and its shares are also traded in
London and Zurich.

54

As a member of the European Round Table


of Industrialists (ERT) you recently helped
to prepare a Vision 25. What does this
vision consist of?
We want to make sure that in 2025 Europe is
an attractive place to live in, offering sufficient
jobs and a reasonable standard of living. The
European Union announced similar objectives
ten years ago in Lisbon, which were to be
achieved by 2010. We can judge for ourselves
the success of this approach today. This is why
we must learn the lessons of Lisbon 2010 for the
new EU strategy for 2020 and turn these lessons into tangible steps. The ERT wants to contribute to this process.
What are the most important steps?
Firstly, Europe must lead the world in terms of
sustainable economic growth. This means
achieving harmony between economy, ecology
and social responsibility. Secondly, Europe
must be well integrated in the global markets.
Ultimately, Europe will be weakened by protectionism of any kind. Thirdly, Europe must
remain a powerhouse of innovation. This factor
is particularly important to me. There must be
enough money available for research and education, even in hard financial times. It must be
our objective to dedicate at least 10 percent of
our gross domestic product to research and

education. Finally, Europe needs a transparent,


clear set of rules. Regulations must not arbitrarily put any individual industries or regions
at a competitive disadvantage .
Some time ago, you stated that you thought
Europe was obstructive to progress. Has
much changed in the last few years?
Ill give you an example: in March 2010, the EU
Commission approved commercial cultivation
of the genetically optimized starch potato,
Amflora, which we created at BASF. We had
run a marathon lasting 13 years to get this
farthe potatoes were tested again and again
by the authorities. All results clearly indicated
that the potato is safe. Such a drawn-out and
uncompromising procedure can certainly not
be called helpful to progress. In other regions,
comparable approval procedures take barely a
year, as shown by the recent approval of a highyield soya plant in Brazil. The fact is, we can
only maintain our European standard of living
by embracing innovation more actively. In the
face of cheap labor in other regions of the
world, we can only compete in the market by
producing a steady stream of great ideas. Of
course, all new technologies and products must
be evaluated thoroughly according to the highest standards in European industry. But if we
confuse safety with 100 percent risk elimination, then we are standing in the way of our
own future.
You consistently generate 60 percent of your
sales in Europe. Will this remain the case?
Europe is our domestic market and our largest
market. We employ almost 68,000 people in the
region. Europe will continue to represent the
highest priority for BASF in the long term.
About 80 percent of BASF investments are
made in the EU region. What skills do you
want to continue to concentrate in Europe?
A major part of our international research

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WHAT MAKES EUROPES LEADING MANAGERS TICK?


In a current study, Roland Berger investigates the values of European managers.
In comparison with their US counterparts, the results show: Europes bosses are
almost as profit-oriented as the Americans, but dont see themselves so much as
strategists or motivators

WHICH AIMS ARE MOST IMPORTANT FOR TOP MANAGERS


GOAL CATEGORIES (in %)

One final question: Do you consider


yourself to be first and foremost a German,
a European, a resident of Ludwigshafen,
or a citizen of the world?
I am a Swabian by birth, who feels at home
all over the world. At the same time,
I am a committed European and have chosen
to live in the Pfalz region of Germany.

42

39

Market positioning

21

23

Market performance

18

15

Power and prestige

Financial goals

Social goals relating to employees

Aims relating to society

ROLES OF THE IDEAL TOP MANAGER


ROLE

IMPORTANCE
very important
1
2

not important
3

Strategist is considered less important

Strategist
IN T E R N A L

Following the acquisition of Ciba, you now


have to consider the interests of a Swiss
company. Does it help that the national
cultures of Germany and Switzerland are
so similar, or is it only corporate cultures
that matter here?
We decided to buy Ciba because their products
complement our portfolio and they fit with
our strategy of becoming more economically
resilient and competitive through specialist
capabilities. When companies are integrated,
the objective is to merge different corporate
cultures. Nationalities are somewhat less
important, especially as Ciba was also an
international organization. Incidentally,
the integration went extremely well, more
quickly than expected, and is now complete
for the most part.

Profitability

Doer
Organization shaper
Motivator

Motivator and entrepreneur


are considered less important

Entrepreneur
Representative
EX TERNAL

network is located in Europe. The main sites


are Ludwigshafen and, since the integration
of Ciba, Basel. We continue to invest heavily
in research and development even during
2009, even increasing the level slightly.
We are also investing in our growth markets,
such as the European gas market. Here,
we are working mainly on expanding the
natural gas infrastructure, for example with
the Nord Stream pipeline in the Baltic Sea,
a joint venture with Gazprom, E.ON Ruhrgas,
and Gasunie. The consortium is investing
a total of 7.4 billion in the pipeline,
which is over 1,200 km long and will
contribute substantially to securing Europes
energy supply.

Spokesperson
Networker and philanthropist are clearly considered more important

Networker
Philanthropist
Europe

USA

COMPARISON: EUROPEAN VERSUS AMERICAN MANAGEMENT STYLES


EUROPEAN TOP MANAGERS
Profitability most important
Internal management roles like
Strategist
Motivator

AMERICAN TOP MANAGERS


GOALS
IDEAL ROLE

Profitability most important


External management roles like
Networker

Requirement for more doing

ROLE IN PRACTICE

Requirement for doing and


motivation of employees

Less doingmore time for


strategy and people

AIMS

Less doingmore time for


networking

Source: Roland Berger Strategy Consultants

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WORK IN PROGRESS
One current study explains paths to growth, while another describes the prospects of the aerospace
industry. In a new book, consultants show why green business is a huge topic for Roland Berger. And
a project with the University of Oxford seeks the fundamentals behind good reputation management.

RESTRUCTURING

Top issue: growth

BOOK

Green benchmarking
More and more companies are now seeing
that making money via environmentally
sound business is not just a realistic possibility, but actually an alluring way to tap new
sources of revenue. As a result, Roland Berger has chosen the theme of Green Business
as one of this years five main topics. In addition to a number of individual studies, the
consultants are currently working on a book
that summarizes both the various aspects
that make up green growth and the companys considerable experience in this field.
56

The book initially provides an overview of


the market, outlining the unbowed
dynamism of green business models in a
diverse range of industries. However, it also
raises the question as to how much different
approaches to regulation and technological
developments, in particular, will influence
potential yield in the future. Having highlighted these questions, the book then turns
its attention to a collection of examples from
individual sectors and markets in search of
the answers. Lastly, the authors address the
question of how individual countries compare internationally, thereby providing an
international green benchmarking index.

Upswing in Sight?: Business Development After


the 2009 Catastrophe is the title of the current
Roland Berger study on the topic of restructuring. The consultants interviewed more
than 500 companies in western Europe, the
EEC, Asia, the Middle East and the US. The
Competence Center Corporate Performances key questions were: Which industries and regions have overcome the crisis
and how did they do it?
Initial findings are already available for Germany. These state that four out of five companies pushed ahead with their restructuring measures during the crisis. The companies were able to reduce their personnel
costs by 10 to 15 percentwithout relying on
more reorganization-related layoffs. After
focusing on cost reductions, future growth
and sales initiatives are at the top of the
agenda, the report says.
Most decision-makers consider managements commitment and an integrated concept as critical factors to success. Rapid
implementation remains important, but is
somewhat less of a priority.

STUDY

Challenges in the sky


The European aerospace industry has developed swiftly in the last two decades. The
industrys consolidation created various
world market leaders, on both the OEM and
supply side. Growth, solid profit margins and
the success of key space missions demon-

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analysis is to provide approaches geared


toward improved visibility and recognition
of a brand, while generating local and international image effects. The project team is
also preparing a case study pertaining to
international brand management that it
intends to publish anonymously in an international science magazine. Research partners include Tim Morris, head of the Centre
for Corporate Reputation, and Will Harvey, a
research fellow at the center (see the interview below).

INTERVIEW

Five minutes to ruin


a company
strated the industrys strengths. However,
challenges are looming. The demand stemming from national governments could
wane as may their support for the industry.
Regulatory measures will also likely
decrease. This means that companies business models, product portfolios and operational performance will be headed for the
testing area. A current Roland Berger study
begins its examination at precisely this point,
with consultants taking a look at major
trends and the primary factors behind success in the aerospace industry.

RESEARCH PROJECT

How to manage a
brands reputation?
How does one manage a brands reputation?
The University of Oxford has chosen Roland
Berger as a case study for best practices associated with international brand management. Together with experts from the Centre
for Corporate Reputation at the Sad Business School, Roland Bergers marketing consultants will analyze the companys reputation among various target groups. Aim of the

THINK:ACT Professor Morris, what is the aim


of the Oxford/Berger project?
TIM MORRIS Our focus is on the reputation of
Roland Berger across different groups, in particular amongst partners, strategists, clients
and non-clients. We are also interested in analyzing its reputation across different country
offices as well as in a variety of company areas
such as restructuring, corporate finance, marketing and information management.
Why is reputation such an important issue
these days?
WILL HARVEY Warren Buffett is quoted
as once saying: It takes 20 years to build
a reputation and five minutes to ruin it.
If you think about that, youll do things
differently. Today, reputation is more important than ever before because firms in most
sectors are not only faced with increasing
global competition, but also a greater exposure
and accountability to the public. Consequently,
the most competitive organizations will be
those that have the best reputation across a
string of different groups.
What is specific about reputation management in the services industry?

MORRIS Unlike consumer product sectors,


where customers are willing to overlook the
quality of employees or focus on the product
rather than the people, in the service sector the
quality of consulting is the product. Quality is
difficult to determine from an outsiders perspective and therefore a companys reputation
is a critical signal of quality.
What is the main mistake companies make
in their reputation policy?
HARVEY Firms tend to take a scattergun
approach; that is they do a lot of things but
with little focus, and neglect to make a consistent investment in their reputation over time.
They also fail to understand how clients make
a difference in shaping their reputation, nor do
they properly understand how clients make
judgments based on reputation.
What outcomes are you expecting from
the project?
MORRIS We aim to provide a comprehensive
analysis of the reputation of Roland Berger and
produce a detailed executive summary and
presentation of our findings. Although it is
impossible at this stage to say what our exact
outcomes will be, one of our preliminary
observations has been that the decentralized
autonomy of different national offices appears
somewhat at odds with the centralized
endeavors of the headquarters. This presents
major challenges for achieving a unified and
global reputation.

TIM MORRIS is professor of management


studies and program director in the Centre for
Corporate Reputation at the Sad Business
School, University of Oxford. He is also a fellow of Green Templeton College.

WILL HARVEY is a research fellow in the


Centre for Corporate Reputation at the Sad
Business School, University of Oxford.

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Only money grants independence


In his novel Angstblte (Blossom of Fear), German author Martin Walser portrays a dealmaker.
As part of Roland Bergers Literature Meets Business discussions, he met with Alexander
Mettenheimer, CEO of the private bank Merck Finck & Co. On the agenda: justice and independence.

THINK: ACT Gentleman, what do you spontaneously associate with injustice?


ALEX ANDER METTENHEIMER That not everyone can live off of their wealth.
MARTIN WALSER I have a confession to make:
When I learned that this discussion would be
about justice, I felt deeply incompetent and
could convince myself to participate only if I
would not speak about justice at all but rather

about injustice. Because that is the only thing


that I have experience with.
You recently said in an interview that
you are still a socialist as far as justice is
concerned.
WALSER Even though I dont remember saying
that, it would probably be true. I was raised a
Catholic and a rather devout Catholic at that.

The author Martin Walser often explores


the nature of capitalism in his works.

58

And the main impact this religion had on me,


and not just on me, of course, was that we
wanted the world to be a just place. That wasnt a theory, it was a feeling. Everything I have
expressed in a political context could only be
an extension of this youthful experience, that
there should be greater justice out there. Ive
given up on that by now, however. I merely
talk about injustice these days.

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business culture f

Because there is no justice?


WALSER How can there be justice? Weve all
experienced that socialism is incapable of creating justice. Now I can even say: There is no
social order that can possibly create justice. If
someone claims that it can, then its always just
an ideological promise that can never be kept
in reality. You can only make people more sensitized about injustice.
Mr. Mettenheimer, you once said in an interview that the wider the gap between rich
and poor, the better.
METTENHEIMER It is easier when you think in
extremes. If were all equal, then were living in
the former East Germany. And if were someplace completely unequal, perhaps Nicaragua,
where the gap between rich and poor is among
the widest in the world, then we have a minimal number of people holding the greatest portion of wealth, and everyone else is poor. And
somewhere in between is where we in Germany
all feel comfortable. The question is: Where do
we place ourselves?
And where could that be?
METTENHEIMER The renowned German economist Wilhelm Rpke once said that any
attempt to found an economic order based on
morals that are higher than the social average
will end in coercion. And weve seen that in
socialism. Now we want to establish an order
that enables the greatest possible number of
people to take advantage of the benefits without taking too much away from them. That will
be different everywhere. Yet statistically speaking we can prove one thing: Economy growth
rates are the strongest where the gap is widest.
That may be unjust from the individuals perspective, but better for the collective whole,
because a growing economy is better than a
stagnant one.
Then are such contradictory statements
about justice self-deceiving?
METTENHEIMER We all know this: We are not
all equal. The state can only treat people equally,
but to claim that we are all equal is simply false.
If I demand that the state offers equal opportunities to everyone, then equality is the right principle. But do I expect that everyone will earn the
same afterwards? Then I have to say: No.

Mr. Walser, in your works you express that


injustice arises from injuries, violations
resulting from dependence.
WALSER Of course. We all know this.
So are we all injured, violated?
WALSER If we werent, we wouldnt be here. My
most recently published stage of this development is Karl von Kahn, an investment consultant from Munich, who said: Because people
are the way they are, we need to become independent of them. Theologians and philosophers
can argue about freedom. There arent two versions of the word independence. Independence
is the most desirable status. My Karl von Kahn
goes on to say: Merely money grants independence. Money is the only way.
In that regard he is quite different from another man, someone whom he has every reason to
respect: American investor George Soros, who
has said that he would like to earn enough
money that other people are dependent on him.
My Karl von Kahn contradicts him in this
regard and says: I dont want anyone to
depend on me. He is my mouthpiece and that
is the essential point: You cant be dependent
on anyone. Everybody you depend on will take
advantage of it. That is called power. Power
can only be abused. There are no philanthropic ways of using power. Power is always something illegitimate. I cant imagine that there is
a person anywhere who does not seek to be
independent from that.
So we are dependent on money, after all
WALSER Thats what you say. I say: Only
money makes you independent. That does not
mean: I am dependent on money.
METTENHEIMER Id like to contradict you when
it comes to independence. I have seen many
families with plenty of wealth and their members are terribly dependent.
WALSER On what ?
METTENHEIMER On a collapse, a total failure of
the situation they find themselves in. Where
money rather harms them. In some cases,
wealth is experienced as a burden. People cant
deal with it, dont know what to do with it.
They sometimes attempt to escape.
WALSER But individuals are indeed in control of
that! You are not actually dependent on others
in that situation.

METTENHEIMER I do agree with you here. But


the reality is that money and independence are
two entirely different things. You can also have
mental independence.
WALSER It is an ideology to believe that such a
thing as mental independence existed.
METTENHEIMER That is not an ideology. People
have an ability to form an opinion independently. This doesnt depend on money. I consider
it unjust that the state doesnt give more people
the opportunity to build enough wealth to
allow them to live off it, that the majority of citizens are financial transfer recipients. That is a
structural failure of our society. We need to create a state where each person is responsible for
their own life first of all. Where everyone also
has the goal of supporting themselves from
their own wealth. If that doesnt work, then we
truly have an unjust state.
Then how should we understand the title of
your article Wealth Is a Flaw?
METTENHEIMER Please dont overlook the question mark at the end. It appears in the context
of placing the focus on high earners, the
wealthy. Those are just a very few people. If you
look at tax statistics, youll see that only 12,500
people declare 1 million in income.
Who report it
METTENHEIMER There are 250,000 people who
report an income of more than 250,000. Considering the size of Germany, that is too few.
And they get called on for everything. Extra
duties, affluence taxes, high inheritance taxes.
The attitude: Take it from the rich.
It is probably understandable when a member of the precarity says Id like to have
their problems.
METTENHEIMER Yes, but its completely irrelevant to the economic reality. The reality should
be that the majority of the people should pay
the majority of the taxes. When we have more
recipients than contributors, then you realize
that justice has transformed into injustice. The
collapse in Greece is unjust to the population.
Why? Because more money was spent than
was available. If we do the same, then that is
what awaits us. I consider that unjust. Every
hotel owner treats his best-paying guest the
best. Only our government says: Hammer the
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ALEXANDER METTENHEIMER is the CEO and a personally
liable partner with Merck Finck & Co., a private bank. The 57-year-old
management spokesman has been with the bank since October 2001,
and is responsible for the Financial Markets department as well as the
Research, Legal, Communications, Auditing
and Central Administration departments. He
learned the subtleties of banking with
Citibank in London.

MARTIN WALSER is one of Germany's most renowned authors. He


has received many awards for his literary works, including the Georg
Bchner Prize in 1981 and the Peace Prize of the German Book Fair in
1998. In his body of work, he often writes about business as well,
most recently in his novel Angstblte (Blossom of Fear) about financial investor Karl von Kahn.

rich again. The media does it. Politicians do it.


But that just cant be right. Money comes from
the businesses. No one becomes wealthy from
doing nothing.
WALSER The way you reacted to my word
independence makes me shiver. I dont know
if you can imagine the condition of others having power over you, and not being able to do
anything other than accept it. And that is
dependence. Dependence deforms people. And
in civilized, meaning non-dictatorial, conditions, there is nothing so deforming as being
dependent on this, that and the other. People
would not be so dependent if they had money
and their only problem was where to put it.
METTENHEIMER I agree with you. I started out
with 800 German marks in my pocket
WALSER Ive never met anybody who didnt say,
I started out with 500 marks.
Yet society has learned to deal with inequality, after all.
METTENHEIMER What does just mean ? This
is a simplification, but: A police officer who
lives in the eastern part of Germany pays a
totally different rent than the officer who lives
in Munich. Both do the same job, but they will
have quite a difference in net income left over
after paying the rent.
60

Very well, but what about women?


WALSER What women have to say, they should
say for themselves.
METTENHEIMER I started out at a bank, which
is a real meritocracy. There they always said
that its not a question of age, gender or race. A
person who is efficient will receive more than
one who does less. And I think thats absolutely
right. But who decides that? Justice is not something abstract, but rather the total outcome of
our actions. Someone, somewhere said: I
would like to offer you this job. And the other
person accepted it. These are two parties in a
contract who have taken action.
WALSER Do you think that justice can be established in such negotiations, even in a dependent
relationship?
METTENHEIMER I have always taken guidance
from what I read by German philosopher Josef
Pieper about St. Thomas. He divides justice
into the principles of just exchange and distributive justice. I sell my house and receive a certain price for it. These are decisions that
everyone would like to make. Every person
needs to ask him- or herself: Have I hired
someone after offering that individual an
unfair contract, after I have coerced or exploited someone to make them relent? That would
be unjust behavior.

WALSER Let meplease accept my apologies


offer an example from one of my novels. Xaver,
a chauffeur, has a wonderful boss, Dr. Gleitze, a
Mozart lover, musical and cultivated. And nevertheless, the relationship between them is
unequal, a non-relationship, and Xaver says
the following about this non-relationship,
which also ultimately makes him ill. He says:
He thinks about his boss at night, and he
knows that his boss doesnt think of him at
night. Thats what makes him unhappy.
METTENHEIMER Yes, thats certainly true. But
no one forced him to stay there.
WALSER EVERYTHING forced him to stay
there! Its a wonderful job. Theres none better.
METTENHEIMER You see, that is the freedom
that you have as a writer. But in reality, he
needs to make a decision if he feels its making
him ill. I have moved during my life, because I
wanted a job that I found more appealing and
because it paid better and because I gained
experience there.

This interview was conducted in cooperation


with the magazine Wirtschaftswoche, where
it will also be published. In the Literature
Meets Business discussion series, Roland
Berger aims to offer new perspectives on
economic interdependencies.

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!
business culture f

Steve Jobss rulebreaking


affects think:act, too.
Starting with this issue, this
magazine is also available
in an iPad version.

Dont settle

Soon, think:act will be available on the iPad. The iPad is the latest
stroke of genius by Apple CEO Steve Jobs. Jobs is the ultimate
rulebreaker. But what drives him? Some personal insights

JOBS ON

DROPPING OUT
I naively chose a college that was
almost as expensive as Stanford,
and all of my working-class parents savings were being spent on
my college tuition. After six
months, I couldnt see the value in
it. I had no idea what I wanted to
do with my life and no idea how
college was going to help me figure it out. So I decided to drop out
and trust that it would all work
out OK. It was pretty scary at the
time, but looking back it was one
of the best decisions I ever made.
The minute I dropped out I could
stop taking the required classes
that didnt interest me, and begin
dropping in on the ones that
looked interesting.
JOBS ON

BEING FIRED
Woz and I started Apple in my
parents garage when I was 20.
We worked hard, and in 10 years
Apple had grown from just the
two of us in a garage into a $2 billion company with over 4,000
employees. We had just released
our finest creationthe Macintosha year earlier, and I had just

turned 30. And then I got fired.


How can you get fired from a
company you started? Well, as
Apple grew we hired someone
who I thought was very talented
to run the company with me, and
for the first year or so things went
well. But then our visions of the
future began to diverge, and eventually we had a falling out. When
we did, our board of directors
sided with him. So at 30 I was
outvery publicly out. What had
been the focus of my entire adult
life was gone; it was devastating.
JOBS ON

STARTING AGAIN
I really didnt know what to do
for a few months. I felt that I had
let the previous generation of
entrepreneurs downthat I had
dropped the baton as it was being
passed to me. I met with David
Packard and Bob Noyce and tried
to apologize for screwing up so
badly. I was a very public failure,
and I even thought about running
away from the valley.
But something slowly began to
dawn on meI still loved what I
did. The turn of events at Apple
had not changed that one bit. I

had been rejected, but I was still


in love. And so I decided to start
over.
I didnt see it then, but it turned
out that getting fired from Apple
was the best thing that could have
ever happened to me. The heaviness of being successful was
replaced by the lightness of being
a beginner again. It freed me
to enter one of the most creative
periods of my life.
JOBS ON

LOVE

Im convinced that the only thing


that kept me going was that I
loved what I did. Youve got to
find what you love. And that is as
true for your work as it is for your
lovers. Your work is going to fill a
large part of your life, and the
only way to be truly satisfied is to
do what you believe is great work.
And the only way to do great
work is to love what you do. If you
havent found it yet, keep looking.
Dont settle. As with all matters of
the heart, youll know when you
find it. And, like any great relationship, it just gets better and
better. So keep looking until you
find it. Dont settle.

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credits

FOLLOW-UP

READING TIPS

Reformer takes over at Harvard


Since its founding, think:act has closely followed
discussions pertaining to management training
programs. Issue 4 initiated this coverage with a
pro/con analysis of whether the MBA is still relevant today. One individual may give the debate
new impetus: Nitin Nohria, a professor of business
administration, will be taking the helm as dean of
the Harvard Business School. He is an unconventional thinker who is critical of the standard contents of traditional, elite MBA courses. Harvards
decision-makers did not have an easy time with his
appointment, evidenced by the string of regular
meetings held by 12 faculty members over recent
months. President Drew Faust also felt compelled
to solicit external input. It will be exciting to see
where Nohria will
tighten the screws
first. Observers have
high expectations
as Financial Times
writer Stefan Stern
put it, By appointing
Prof. Nohria, Harvard
University has signaled that it is not
Nitin Nohriato what extent will he frightened of debate,
reform Harvards MBA program?
or reform.

Pinault may make a move


As we report in think:act 14, PPR CEO Franois
Pinault wants to create a new concept of luxury.
Pinaults understanding of luxury has a lot to do
with the exclusivity of hand-crafted perfection.
One name that would fit nicely into this philosophy is luxury designer Herms, whose patriarch
Jean-Louis Dumas recently passed away. Now
theres speculation that with his passing, PPR
could take over Herms.

Is the percentage of women relevant?


In Issue 12, we covered the debate about the percentage of women in the ranks of top managers.
The University of Michigan has now shrewdly
asked: what has the Norwegian percentage
actually changed? Well, the average experience of
top managers dropped; more female CEOs have
MBAs; and more are likely to come from middle
management than from other senior positions.

MASTHEAD
PUBLISHER
Prof. Dr. Burkhard Schwenker, CEO
Roland Berger Strategy Consultants
Am Sandtorkai 41
20457 Hamburg, Germany
Tel.: +49 40 37631-40

AUTHORS
Nina Jeglinski (Kiev), Frank Gruenberg, Gerd
Huebner, Christoph Hus, Kunal Majumder (New
Delhi), Tobias Moorstedt, Marcus Schick, Andr
Schmidt-Carr, Guido Walter, Rhea Wessel,
Johannes Wiek

DIRECTOR
Torsten Oltmanns

CONTRIBUTING AUTHORS
Charles Hodson (New York)

EDITORIAL ADVISORY BOARD


Roland Berger Strategy Consultants
Dr. Christoph Kleppel , Felicitas
Schneider

ENGLISH EDITION
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EDITORIAL
Tobias Birzer

62

GRAPHIC DESIGN
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PRODUCTION
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Cover: Illustration Pietari Posti, ullstein bild/
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Apple, corbis/Kim Kulish; p. 62: Harvard University
News Office/Stephanie Mitchell

In his new book, Chaotics, marketing expert Philip Kotler offers


strategy-related ideas for turbulent times. Its comforting to
know that even though strategies are changing fundamentally, developing and implementing
them is still possible, according
to Kotler. Professor Peter Cappelli outlines the rise of the Indian
management model in The India
Wayworth reading for anyone
seeking a better understanding
of Indias economy and culture.
For those seeking more on India,
British finance journalist
Edward Luce gives an outsiders
views on the many contradictions of the countrys society in
In Spite of the Gods. How important the Internet has become in
terms of generating new ideas in
todays society is addressed in
Yale professor Yochai Benklers
weighty The Wealth of Networks.

PHILIP KOTLER:
Chaotics

PETER
CAPPELLI:
The India Way

PRINTER
Pinsker Druck und Medien GmbH, 84048 Mainburg
COPYRIGHT
The contents of this magazine are protected by
copyright law. All rights reserved.
NOTICE
Opinions expressed in the articles of this magazine
do not necessarily reflect the views of the publisher.

EDWARD LUCE:
In Spite
of the Gods

service@think-act.info
Do you have any questions for the
editor or the editorial team? Would
you be interested in learning more
about studies by Roland Berger
Strategy Consultants? Just send an
e-mail to service@think-act.info

YOCHAI
BENKLER:
The Wealth
of Networks

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Highlights from this issue on CD

Listen to the following articles:


INNOVATES DIFFERENTLY (P. 16)
k INDIA
Why Indias companies can do more than just cheap
LOT OF WHITE SHELVES (P. 22)
k ALocal
stores still dominate Indias retail tradefor how long?
TO THE MOTHER (P. 31)
k PRAISE
Why are Indian CEOs so successful in global corporations?
POLITICS CANT BE POPULAR
k SOMETIMES
Sergey Tigipkos fight for reform in Ukraine
HORNS (P. 10)
k LOCKING
Why management conflicts should not always be avoided
MUSCLE AND NO FAT (P. 44)
k ALL
Philip Kotler explains how to market professional services

(P. 8)

Seite 1

Issue 15

13:20 Uhr

ROLAND BERGER STRATEGY CONSULTANTS

Jrgen Hambrecht
on European
management
culture

DOSSIER: Managing India. Managing Indian?

18.06.2010

think:act The global magazine for decision-makers by Roland Berger Strategy Consultants

07_15gb_01_Umschlag_aussen

Martin Walser
on justice and
injustice, money
and independence

The global magazine for decision-makers

Mastering complexity
India and its companies
can do more than just cheap

Philip Kotler reinvents himself.


The world of finance in upheaval.
The art of productive conflicts.

Issue 15