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Test your business skills!
Mita Dixit |
March 15, 2005
Get Ahead presents the TCS Smart Business Case Study Contest for young managers, along with The Smart Manager, the management magazine! We give you a profile and history of a company. All you have to do is study it and post your solution here, upto 500 words. The winning solution stands to win Rs 25,000! The Smart Manager will also publish your photograph and solution in its next issue! Hurry! The last date to post your solution is March 23.
n a sultry Friday afternoon, Sunil Shivaraman was deep in thought, mulling over a new tender that had just been floated.
He was keen to capture the business for his trading firm, Shivaraman Enterprises.
His thoughts were interrupted by his secretary Marie. The relationship manager of the local bank had come to meet him.
Half an hour later, the meeting over, Shivaraman was in a quandary.
The bank had provided a working capital loan for e-Maze Pvt Ltd, and the relationship manager was anxious about the repayment schedule. Never in his 30 years of business had Sunil found himself in a position where he was unable to meet commitments on time.
e-Maze Pvt Ltd was his son's company which had not taken off as planned, and the cash flow situation was poor.
Over the last six months, Shivaraman had tried several cost cutting measures and had also focused on getting more orders. He had even neglected his own trading business. As an affectionate father, he felt he had to hold the hands of his son and pull e-Maze out of the negative spiral it was plunging into.
It all started three years ago when Rakesh, Mr Shivaraman's only son, completed his computer engineering studies in the United States of America. Rakesh wanted to settle down in America, but his parents wanted him to return to India.
They offered Rakesh a choice: he could join the family firm or he could start his own business, maybe in an IT-enabled services area which would allow him to remain in touch with the US market. Agreeing to his parents' pleading, Rakesh came back to India reluctantly.
After considerable brainstorming and evaluating various options, the father and son decided to launch a new company engaged in digitising data and images through a high end scanning and documenting process.
Thus e-Maze Pvt Ltd -- Dependable Speedy Solutions -- was born, under the aegis of Shivaraman Enterprises.
As a prudent businessman, Shivaraman became the proprietor of the new venture so as to leverage his equity and arrange finance from the bank. But the business would be managed by Rakesh.
The son drew up a grandiose vision: e-Maze Pvt Ltd was defined as 'A total solutions provider in enterprise information management and workflow solutions'.
The company's services involved scanning, data feeding, cataloguing and storing various types of documents, images, drawings in a digital format.
It was a growth business. Large public sectors companies, multinationals, banks and even a few government departments had started using this technology to store their huge volume of paper data in a digitised format.
Several players had already carved out their own niche in this space. They were not only software savvy, they also had warehouses to store clients' paper documents with safety precautions.
e-Maze was not only a new entrant but also a small player, offering only digitisation services and not storage facilities.
Teething troubles started when Rakesh approached corporate houses and government departments to get an entry and introduce e-Maze's services.
To root out the appropriate authorities and decision makers in large corporates was a daunting task.
From about a hundred potential companies that Rakesh contacted, 35 showed interest.
A strike rate of 35% was excellent, by any standards.
However, the queries of these potential customers led Rakesh to believe that his business was totally technology oriented. And he would have to provide high end software to the clients.
His company would have to develop a strong technical base to succeed. He needed a sophisticated software package to digitise and store documents, which meant more investment.
Visualising a significant business opportunity, Shivaraman ordered new software costing about Rs 3 million. An investment of about Rs 20 million had already been made for the office, infrastructure and human resource. A staff of 15, including five sales executives, were deployed under Rakesh's direction. And business development activity commenced.
Shivaraman had estimated two years as the gestation period for this venture. At the end of two years, he realised, to his dismay, that the business had not attained the breakeven point.
The situation was serious. He voiced his concern to Rakesh.
Rakesh was worried, too, about the situation. But he felt their business model was new for Indian companies.
The process of generating business was quite lengthy. And only after a satisfactory result of the trial run did the client think about placing an order. So the initial phase of business development would be much longer than what he and Shivaraman had estimated.
Three years would be a reasonable gestation period for this venture, Rakesh told his father. Profitability in the business was extremely high so they could afford to wait for some more time.
Also, software trial runs were being conducted in three public sector companies, Rakesh reminded his father. And he was confident of positive results.
Once he had orders from these companies, his entry in other companies would be easy. And the business would grow by leaps and bounds.
As for the bank, he requested his father to talk to them about a revised payment schedule and instalment amount.
Ensuring patience and building a strong technology base would be the major ingredients of their success, Rakesh felt.
Shivaraman was not convinced. The business was a proprietorship. And he had had to furnish personal guarantees to the bank.
Borrowings from the bank had crossed Rs 20 million. He felt pressured to start repaying the loan, but could not communicate his worries to his son effectively.
Instead, Shivaraman ended by telling Rakesh that he had no understanding of the gravity of the situation, and that he was too young to run the business. Shivaraman recounted to Rakesh how the family trading business, which he had started 30 years ago, had given him a 30% return on investment in the first year itself.
If Rakesh's business model was correct, it should have been successful by now. There had to be something wrong with the business model itself.
After several heated discussions with Rakesh, Shivaraman decided to take matters into his own hands. He was sure his involvement would help Rakesh make the right decisions. He took charge of the sales and finance operations and advised Rakesh to concentrate on strengthening the technical operations.
Shivaraman's first act was to evaluate the performance of all the employees and retrench non performers. Three sales executives and one software developer left the company subsequent to this detailed probe.
His second act was to streamline the sales function. In the past, Shivaraman had experienced that sales officers perform best under pressure, and was convinced that this should be the approach at e-Maze also.
Each sales officer was now given clear targets on the number of sales calls they had to make and the quantum of business generation. They also had to report to him twice a day.
Within two months of taking charge, Shivaraman sensed there was a good demand for data entry operations from a large company which wanted to out-source this activity.
This was a labour-oriented, price-sensitive, low margin service, but Shivaraman felt that e-Maze should offer this service to the client.
Once e-Maze had clinched the data entry contract, it would be easy to sell high end scanning and digitising services to the same customers.
When he explained this new strategy to Rakesh, he got upset and angry. He was a qualified computer engineer and his vision was to manage a high tech, sophisticated business.
By offering labour-oriented services, e-Maze would lose its image of being a 'total solution provider'. It would become like any of the hundreds of ordinary low price contractors which had mushroomed across India, instead of being a differentiated, technically savvy service provider.
Further, once customers accepted e-Maze as a contractor, they would never respect and consider e-Maze as an IT-enabled services company.
Rakesh felt his father was getting impatient unreasonably and was evaluating e-Maze business from his trader's perspective. Rakesh tried to convince his father that this business was knowledge-based, totally different from his trading business. The finance and profit norms were quite different in the service business. If his father could not appreciate the e-Maze concept, he should stop interfering in the business.
Flashpoint came when Rakesh openly disagreed with Shivaraman's new strategy and requested him not to get involved in e-Maze operations. As far as the bank loan was concerned, Rakesh said he would talk to the bank and ask them for more time to repay the loan.
For Shivaraman, this incident was traumatic. His son had always accepted his guidance and advice. Until now.
His own son was asking him to remain aloof from a business he had funded.
Did his 30 years of experience have no weightage in front of Rakesh's qualifications? How could he listen to his immature son who was not even earning enough livelihood?
As a father, he had the best intentions for his son at heart.
Shivaraman's presence prevailed. The e-Maze team was informed about the new strategy. The sales team now started offering low-cost, labour-oriented data entry contracts.
This strategy seemed to be working as e-Maze got three orders in the first month.
However, soon, Shivaraman realised the orders were helping the cash flow but margins had shrunk.
In some cases, just to get an entry, e-Maze had had to offer data entry services on a cost basis.
Also, manpower planning was becoming a problem. The computer operators for data entry were affordable only if they were on daily wages and their work commitment was very low. This resulted in deadline delays. Shivaraman's calculation of getting an entry for high end services was not working out -- his employees were too involved in data entry work and had no time to follow up for scanning, digitising services.
Rakesh was upset by all this, but became even more upset when his best sales officer resigned.
While discussing the reasons for her departure, the sales officer spoke about how the office culture had changed in the last two months. She got different sets of instructions from Shivaraman and Rakesh. She was trained for techno-commercial selling, but the business focus had changed.
Instead of convincing clients about their software and services, she was haggling on the rate contracts. This was not the career she had in mind when she joined e-Maze. She expressed her discontent to both Rakesh and Shivaraman.
The situation was grave, Rakesh felt. His business development work for 'providing total solutions' had seemingly ground to a stop.
e-Maze's trial runs in the three public sector companies were successful, but they wanted him to match the lower quotes offered by his competitors before they placed their orders with him.
Rakesh needed to rework the costing, and began looking at a tie-up with a cheaper software provider to bring down costs. Internally, Rakesh was grappling with a different type of problem. He had obtained some trial orders, but had no trained sales staff to handle the work. Recruiting a new sales officer was not possible looking at the mounting expenses. Once again after two and a half years he would have to do business development work himself.
Shivaraman was fed up with the constant arguments with his son. He worried that Rakesh was losing interest and faith in the business.
And there were too many unanswered questions. Was his strategy of changing business direction wrong or was e-Maze simply stuffed with incompetent people? Was his son's strategy correct or his gut feel and 30 years of experience? How long could they survive? Should they survive at all?
Rakesh was fighting his own internal battles. His anger and frustrations were visible whenever he interacted with his father. His dream of becoming a successful IT entrepreneur was shattering in shards around his feet. His father had changed the entire course of e-Maze and it lost its attractiveness for Rakesh.
Rakesh's wife, a budding fashion designer, had started a small fashion boutique six months ago and was doing well.
What stopped him from succeeding?
The decision to return to India haunted Rakesh. It now seemed faulty. He loved his parents but had he not succumbed to their pressure, he would have been working in a good IT company in the US without a feeling of failure. At the very least, he should not have allowed his father to take decisions in e-Maze. It was his company and with patience and efforts would have certainly given results.
But what was the correct course of action now?
He could still try and take up a job in the US. Maybe he should give the company one more chance. He could redesign the business model and restructure the operations. Perhaps substitute his father by a professional CEO.
Like a squirrel in a hole, doubts and options thrashed about in Rakesh's mind.
Here is our question for you:
How can e-Maze and the Shivaramans climb out of this maze?
Submit your case analysis here!
Published with the kind permission of The Smart Manager, India's first world class management magazine, available bi-monthly.