Tuesday, December 31, 2013

Appoint a committee

Whenever new scams surface, there is usually a political rally by opposition for it. Newspapers flash story about it. They come up with huge monitory figures to depict how serious the crime was. They make it so juicy and nice to read for its viewers. The 24 x 7 news channel would be on top of it until they get the next story. It is fun time everywhere. Initially the ruling government denies anything ever went wrong. Usually they all end up in the same way - the government would set up a committee to investigate the issue. (like any other Indian movies that end with the hero marrying the heroine and all moviegoers leave the theatre happy) The people who are accused of, say the investigation is going to bring out the truth. We don't want to discuss this - because its under judiciary now. Basically it says - Lets leave this out for now and lets move on. To make the intention look sincere they sugarcoat by saying that only a retired supreme court judge would handle it. Anyone with a lesser cadre would not be able to track the truth. They make a committee, with the judge's name (at least he gets some publicity) and for now - Its Business as usual for everyone including the accused, government, opposition and the common man who is glued to his television set and the newspaper. How many committees has this country seen. Countless. Over time - the intensity of the matter comes down and the committee itself gets multiple extensions. We usually don't hear about it for a long time., sometimes even decades. We hear quiz questions and even in public service exams about which committee is tracking which scams. Most often people get it wrong because there are just too many of them and it gets really confusing for an ordinary candidate. Pockets of news appear on the newspaper here and there about its existence by saying it conducted an investigation of so and so witnesses. Usually the committee member comes in a ambassador car with a public servant with him - carrying his suitcase/files and trying to make him way to get into the building. After that the accused comes in a fleet of car, with lots of his supporters surrounding him and raising slogans against sometime unrelated opposition party. The person would wave his hands, hug people around, would talk to the waiting cameras. The supporters around him are very agitated and are pushing people around. Its a hectic place to stand within for anyone. It is really a good publicity for the politician. Next day you see pictures flashed in newspaper and very same rhetorical political punch statements. You don't hear about it for a long time after that. Over time - the investigation gets diluted. Nothing comes out of these committees ever. Sometimes when it does see a day of light, they don't make it to main page of any newspaper. Most witness turn hostile. The political climate is far different from the original days. Basically the wrong-doer gets away with it.

The Adarsh report is one such report to have met its deadline. It has blamed four chief ministers of wrong doing with multiple political heavy weights also mentioned in the report. The ruling party has taken a decision to discard it. In fact it is the same establishment that the report finds fault with. To accept that would mean - that the Congress party has to admit its Chief Ministers tried to exploit government funds for personal benefits. The current home minister of the country is also accused to have got the favor. He should resign too. It is just lot of things to admit. The Maharashtra state government has refused to accept the report. This is a new low point in the Indian Democracy. If there are no credible action or punishment - why even constitute a committee. Just think that the committee came out saying that everything was followed as per law and discharges everyone from any guilt. The establishment would praise the committee and would highlight it by saying : I always trusted the Indian Judiciary. Are they not supposed to find what went wrong and bring people to justice? Issues like Adarsh - the politicians consider them harmless vice. They just think - they just capitalized on a apartment building built for fallen soldier's families. They extended the project by building more house on top of that for themselves. If rules are not followed in strict sense, this is what happens to civil society. Every law of the country is diluted one-by-one. It makes us wonder - which laws really are followed tooth and nail. Either all laws are treated equally and followed., nor everything goes out of the window. In India - looks everything goes out of the window. People who commit murders come out on bail within a month. People who are accused of rape are out of prison right away. People who are convicted with jail term - come out by appealing to a higher court. Lallu Yadav did it recently. People who are punished by Supreme Court (after decades) - just come out on parole very often for months. Sanjay Dutt and Manu Sharma are recent examples. Things are so confusing to put a logic below them. It looks you could get away with ANYTHING in our country.

If you just think it over - it all ends up as a thamasha to public. The initial phase keeps media busy. The government counters them with their own statements, press releases. Opposition makes their own statements, dharna, bandh. Finally its all nothing. The status quo remains. No harm caused anywhere. The looting continues.

Monday, December 30, 2013

The Rise of AAP

First let me take some credit for myself  - for rightly predicting a rise of a political force after the Anna Hazare movement in 2011. (http://indiapoliticalblog.com/2011/04/19/anna-hazare-the-catalyst-of-new-india/#.UsGYc6yA2t8)

I am also glad, I used the word "Catalyst" - meaning Anna Hazare would facilitate a formation without being a part in it.

Now that you are impressed - let us get going.

The rise of the AAP is simply spectacular. Historically, a rapid rise of a political power in Independent India was always due to a larger than life image of its leader. NTR and MGR are notable examples. They were people from the screen. The face recognition was there., and they capitalized with a favorable personal image. The next line of new netas where mass leaders. They came out of  vote bank politics. They adhere to their base (religion, caste) for their political ascent. L.K Advani, Kanshi Ram, Mulayam Singh Yadav, Lallu Yadav are notable examples. In both cases, unlike the AAP - the leader was bigger than the party. The rise in AAP however is amazingly different. AAP was more or less a leader-less grouping to start with. It was a group of people who reflected a big section of Indians - who were upset with the status quo of the political apparatus in the country. The frustration and anger at established political parties and their unwillingness to change., and the peoples sorry state of helplessness - were fundamental reasons of the formation and rise of the AAP. When they decided to contest the Delhi state elections., we all knew it is going to play a role. But it was difficult to predict that they would win 28 seats. As the campaign got into momentum it was successful in convincing the people of Delhi that they were honest and more importantly - one of them. Because it was their first election - the people in other parts of India had serious doubts about their survival. The Delhi results were stunning. The BJP not able to get a majority on its own was a blessing in disguise for AAP. This new party suddenly in lime light now. The phenomenon has evolved., and it took just over a year. Unlike the film stardoms or vote bank political leaders, the AAP leader, Arvind Kejriwal is still very much unknown even today across the country. The principal he stands for are getting noticed. His involvement and evolvement as the face of AAP is tremendous progress. His name is not "pronounceable" to most south Indians like me. (Before the NDA PM's name hit households repeatedly in south India, there were times when you asked who Vajpayee is - the immediate question is - in which film has he acted?) His simplicity and thought process looks promising.

Now that the Delhi government is in place, it is time for AAP to give good governance. It does not have to be a perfect government - but should be vastly different from current establishments. The Congress would support the initial vote of confidence. With a heavy defeat, the wounded grand old party is looking to save its face. It is highly unlikely it will withdraw support to the AAP., even if it means its targeted for corruption in the 15 year old Sheila Dixit government. So I believe AAP party is here to stay in Delhi government at least till the Lok sabha polls. BJP would function as an opposition and blame the AAP, even if something minor goes wrong. It too has the may-election in mind. It will try not to spoil its name and would just concentrate on the Modi magic somehow take it home to 272 seats. So for now it looks - the BJP would be a silent opposition for the next 6 months.

Arvind Kejriwal oath taking was impressive. The symbolism of taking the metro to get to the swearing-in ceremony has been well received across the nation. Also having it in Ramleela maidan was symbolic too. Unlike the crackers going bizarre and people in white and white netas running in their scorpios, safaris, Benz and BMWs with a hooligan crowd dominating the proceedings  - this gathering was different. The speech by Arvind Kejriwal was also impressive. He made people take a oath that they would not give or take bribe. No political leader has done that in recent memory. At least we have someone who talks about it. The common man is looking forward to it.

There are low hanging fruits that can be done without much effort. They are not controversial., but will have deep impact on society. It is also positive step to ban all the red-beacons and personal security to people. They are completely useless and in more than one way "spoils' the society and the perception of a politician. We have got to realize that no one needs a police security. Why in the world you need a police personnel coming around you when you are walking or riding in a car - where everybody goes in the road? It is not that they are going in a dense forest with wild animals around. It is really ironic that elected law makers, even village chairman go in fleet of cars. Not sure - when it got introduced., and people started accepting it was OK.

AAP effort to tackle this menace and identity itself with the common man is unparalleled to ethics of other political parties. The introduction of Lokpal is next goal. This should reflect Zero tolerance for corruption in public offices. System in place to report bribe seekers. Strict punishments to start with immediate loss of Job. Heavy fine and jail term., if proved guilty. It should also Increase fines to abnormal levels. Even petty traffic violations., should cost lot of money to the people. This will fund the state's coffers and judiciary. Strict enforcement of law and order is vital and the whole system has to change.

On the government financial level, it should concentrate only on Bijli, Sadak, Paani, Education and Health. Reduce ALL unwanted expenses of government. Ban ALL subsidies that goes to people of age 15 and above., and age 60 and below. Only Children and old people should be entitled to government subsidies. Also streamline taxes. Make them low and simple in procedure. Tax consumption but not income. (We got rid of the British because of taxes.)

AAP with its media hype surrounding it should not play into their hands. The time has come to leave the camera out and do efficient governance. They don't have to be sitting there and clapping for every move. And more importantly the government doesn't have to impress the public every single day. All that matters is a systematic change for a better livelihood for the people. Three months from now, if the people of Delhi see visible improvements in how the society operates - that would be the only gauge to measure the new government's success.

There is a charge against AAP - that its pursuing the now outdated communist ideals. Personally I do not think so - but there is a feeling its going to shower freebies on the poor and going to tax everyone else for it. Since the movement identifies itself with the common man - and the majority of the common man are poor - policies needs to be done according to reality. Arvind Kejriwal I believe understands that. But at the same time - it is not possible the government can supplement their hard work. The nature of the society has to evolve such that everyone can get a job and pursue a living with hard work and make a decent wage with basic freedom. The government should try to create this kind of society. Flushing out free rice, wheat, bulbs, saree, dhoti, television laptops (by the way - have no idea how this benefitted) etc. is just repeating failed policies. It will only make poor people worse off.

The AAP government seems to be on-ground and getting its act together. Let us wait and watch and see how they are able to make it better. A long way to go.

What would be AAPs strategy for Lok Sabha has become the next point of interest. I will not be surprised if they pull north of 200 seats with the current momentum in place.  The party has left the nation guessing on this. Unlike Delhi, the rest of India is lot different. Delhi being a small state and fully urban - AAP mode of reaching to the people has clearly worked out in its favor. This approach cannot be replicated in the entire nation simply because of vastness of the country and its diversity. More importantly - with just six months away for the election. Just wonder - if India had a presidential system - Arvind Kejriwal would definitely become President. (Even Modi or Rahul Gandhi would agree!) With representative form of government still in place - the number of MPs is what matters. AAP needs to employ a different strategy. The following are some options that they might consider.

(*) Contest ALL seats and hope for the best.
(*) Contest realistic seats only - say 150 seats (Delhi, Mumbai, Kolkata, Chennai, Bangalore and other urban cities)
(*) Contest realistic states - say 150 seats (Delhi, Maharashtra, UP, Gujarat, Tamil Nadu)
(*) Align with parties like Lok Satta and create a genuine seat sharing agreement in some specific states.

I am not going to guess any more - let AAP surprise us more.

With the rise of AAP - both the national parties in the Congress and BJP have been left thinking. Congress is the worst hit. Poor assembly election results have exposed its vulnerability in the national election. Modi - who until now seemed to have capitalized on the anti-Congress feeling in the country is suddenly feeling just not strong. The assembly election results have proved that people are against the Congress. But if there is a non-Congress, and non-BJP alternative - then people would opt for it. This is where AAP filled the vacuum in Delhi. This is a good news for AIADMK supremo Jayalalitha in Tamil Nadu and the YSR Congress's Jegan Reddy in Andhra Pradesh. With current mind-set of anti-Congress and anti-DMK (with multiple scams to its name and the perceived vision of not doing enough in the Sri Lankan war against tamils) AIADMK should sweep the state. Modi is not a factor in the state, I believe. (goes back to which film he has acted!!)

 The rapid rise of the AAP is because of "lack of will" in the Congress government at the center particularly in the last five years. In UPA-1, the policy hurdles and lack of major progress in decision making was pin-pointed to the Communist parties in the coalition. But the UPA-2 was without them. Congress had a better margin of seats. But the complete lack of will in the part of the government to enact strict / ground breaking laws really cost the party. They could have changed the face of the society by vital reforms, such as Lokpal and would have taken 100 percent credit for it. Rahul Gandhi coming out now and pointing out the problems is probably too little too late. The government underestimated the anger of ordinary Indians., who were suffering because of lack of change. In India - the so called spring Arab revolution did not topple any ruling heads, but it created a new wave of leaders to lead this nation to a better destination. At last we see some light. Power was lying on the ground for someone to take it, and AAP took it. Good Luck AAP.


Monday, December 23, 2013

Software mergers and acquisition

The company that I have been working for the past seven years has been acquired by a bigger competitor in the same industry. In modern US insurance industry it is common. In fact we have been sold and resold three times in the last five years.

The modern capitalistic system particularly in the west grows on mergers and acquisitions. Gone are the days where industries became more productive, produced more and because of that, added more resources and serviced more clients, and as a consequence made more profit. When this happens, they invest the profit in more machines, man power and take it to the next level.  They diversify into related fields and expand businesses around them. They grow from scratch to huge conglomerates.

The modern capitalism - the way it is practiced in the west now., has brought in a new phenomenon in the past decade or so. You do not grow by being more productive but instead you acquire smaller (multiple) businesses with often borrowed capital and show up a bigger revenue estimate and a fatter balance sheet. This way the path to becoming a bigger company is sooner and easier rather than a painful way of growing up from start. This has resulted in successful companies. They acquire and brand it as though it was yours. You build on the legacy. It is always the end users (client) who benefits from it. Overtime the acquired company name and brand become oblivious and only the buyer is known. Not many people remember wa-mu, Wachovia these days. Do they? They were easily recognizable until the 2008 economic crisis. People had their money in them actually. It takes few moments to recognize their past now.

Why is this trend so prevalent. Western industries have moved from manufacturing to service sector in the past 20 to 30 years. A normal progression of a manufacturing company is long often cumber some. It involved huge capital, high-end machinery, factory, labor, time, and a lot of years to make it successful. Most often the people who started the business end up running them for a life time. We see this setup in growing economies like in Asia. I have seen it in India where the entrepreneurs run their business as part of life. Most often they start it in their late 20s and 30s and end up running it through their life time. It gets carried over to their siblings who end up running it in the same fashion. Lot family owned businesses follow this model.

Acquiring a manufacturing firm is lot riskier. it often involves lot of capital. Service sector industry is so abstract.

One of the primary reason for mergers and acquisitions to be so common is the easy monitory policy of the US Fed. Big business often with a good track record can borrow millions of dollars from the bank and buy out competition rather than competing with it. This consolidate business. Eliminates competition in a way and ultimately results in fewer options for end users.  The money that is supposed to create new jobs often end up cutting jobs. There are harmful effects of easy credit policy.

**** Companies get bought for more than market price.
**** Ridiculously low interest rate skews market demand / supply.
**** Badly informed decisions by upper management.
**** More optimism for success there by masking failures.
**** Stock market highly priced based on bad facts.
**** Unproductive labor employment. Eventually huge layoffs when reality catches in.
**** Poor cost benefit.

Unlike manufacturing, the service oriented companies tend to be acquired or merged with others relatively with ease. The aim of the merger is to consolidate business and be more a major player. The field is reduced to lesser players. It does not add any new value.

With respect to acquisition that happened in Aplifi:

> Cost of acquisitions is higher than market price.
> Merger hopes for a more weakened competitor rather than strength of "Merged Company".
> Promise on new products that is yet to be developed from scratch. No one knows what this should look like and there are more probability of failure.
> Process and resources are in conflict and needs a careful management strategy to put things in place.
> Right now in my opinion the morale is at an all time low with unclear directions or road map. Unless there are radical changes., it is just a lost cause.

One thing that is always overlooked is there is huge money changing hands at these times of mergers. Often it's done with secrecy and only the top tier knows about it all. They sit together, deliberate it and decide. There is too much hype on the compensation claims, partnerships, bonus packages, relieving terms - the fundamental value (software products with resources to develop and maintain) is often overlooked. End of the day it's the "nuts and bolts" that matters. Enhancing the nuts and bolts is the ONLY thing that decides performance of the firms.

The current deal hugely lacks clarity on these.

One of the problems in merging service sector businesses is - we don't know if it's a good buy for a long-long time. The cause of failure can be easily blamed on a trivial change that happened post buy out. It wouldn't be a ideal for the top management to admit it was a bad deal to start with.
During mergers they shut down software products in favor of a better product that the bigger partner has. So what happens to the productive work that went into developing it in first place. Of course it was priced and sold off. But there is no continued value proposition of labor. This trims employment rather than create new employment. This would be unfair. The hidden truth could be the product that is being shut down could have had a better future prospect. It is lost opportunity. It would have been better to exist than to be sold on a fire sale.

Acquiring a company only to shut down later is true loss of productivity and a major mismanagement for the leadership. Multiple smaller companies benefit the real economy more than the few bigger ones. Some companies are found and operated by an entrepreneur. They reach a point there is a buyer for their company and the entrepreneur sells it for a fee. The cause could be that he is getting old or is unable to run the business or he thinks it makes sense for someone else to run the firm which could make it more profitable. This is a clean sale. Founder has interest in the well being of the firm and it's future. Many people find it more profitable and they initiate businesses with the sole aim of selling it to someone else. There is nothing wrong about it. Soon the trend carries over to people who are loaded with cash. They buy a business from a single owner and take it to the next level. These people are called investors. They do it because they are lumped with cash. And once they feel it's good for resale, they just flip it over. It's value addition to a commodity. Is this good for business always? But unlike the founder, the investor does not care about the future of the company. He just happens to be the holder for a brief period of time. In  a service oriented company it is very hard to measure the value proportion during these mergers. lot of emphasis is given to the revenue growth. We hear talks on how to make the company from a $10 million company to say, $50 million company. Lot of massaging of the financials take place to sell it to the biggest guy. One of the primary consequence of this is a reduced work force and less benefits. Income is exaggerated for the purpose of accounting and the expenses are cut drastically to give an impression of less cost. Sometimes you wonder if these really work at the ground level. irrespective of the huge numbers as I said before the nuts and bolts that govern the basic success is what matters.

Only the future can say how good Aplifi sale would work out. I will definitely want to know about it say 2-3 years from now.

If you don't mind living life in "whatever way you want" then you can lead a life like that. Some things bother you, and you go along with that. But if you decide to live a life with some self imposed conditionality then you might have to take some personal decisions that you know is right but would involve losing something personally.
Unfortunately you have to do those, not because it's different but because it is right. In a distant future, one day in my life I would turn back to look at this very moment and have a sense of satisfaction of the behavior. And that is where you gained.