Are There No Good Companies?

Nityanand Jayraman has a piece in which is a damning indictment of Hindustan Unilever’s role in contaminating a thermometer factory site in Kodaikanal with mercury.

The sordid story carries the usual villainy of an evil corporation that puts its commercial interests above the safety of its workers, the community around it and the environment. While this was a while ago, things haven’t changed much. Even today, we see this movie playing out, in company after company, around the world.

Unilever dumped broken thermometers at the site and let the mercury leach into the ground. It did not train its workers adequately in safety procedures. And when confronted with the clean up after the government shut down the factory, it argued for laxer standards and denied wrongdoing. Pretty standard fare for such cases.

What makes the story uglier though, is that this thermometer factory in Kodaikanal was moved from Watertown in New York state in 1980, after the US started cracking down on environmentally hazardous factories. The standards that the US was pushing for made it economically unviable to operate. However, environmental regulations in developing countries like India are either weak or weakly enforced. So Unilever moved the factory and its accompanying hazardous contamination to India.

This is called regulatory arbitrage. It takes a special kind of villainy for a company to do this.

The factory operated from 1980 to 2001, when the Tamil Nadu government shut it down and asked Hindustan Unilever (HUL) to clean up the site. HUL has done some work but is negotiating on the extent of the clean up required, which is what led to this video. The video, by the way, is brilliant – an example of how art can be put to work by activism. Without the video, the reach of this message would be a hundredth of what it is now.

Hindustan Unilever was my first job out of business school. Hindustan Lever or HLL as it was known in those days was the top Consumer Packaged Goods job for business grads in those days. I was proud to be working for them. They had the absolute best management training program in the industry. For 18 months we got the kind of cross-functional training that was the envy of every management graduate. As part of it, we had to spend 4 months in a village in rural Uttar Pradesh and work on a rural development project. HLL had a Rural Development Program that truly helped the villagers in a very backward area of the country. I thought I was working for a company that was not just a well managed company, but also a company that wanted to give back.

Soon the scales fell from my eyes. It wasn’t really managed very well. I was a junior manager and had very little visibility into top management decisions. But even from my vantage point I could see that the company treated its distributors very poorly. Dumping or channel stuffing was so common that the trade often had months of stock – ruining their economics and the stock of tea they carried (I was in Lipton). The top management knew this was happening but couldn’t bring themselves to stop the practice.

At the time, this was befuddling to me. Doesn’t someone at the top have the courage to tell headquarters that we have to reduce stock levels in the channel even if it means a bad quarter? But I was young, and naive. Now, of course, I have a better understanding of these matters. Managers are poor agents for shareholders. Shareholders themselves are poor long-term stewards of public companies. They can sell and get out at any time. But while they hold stock in the company, nobody wants a miss on a quarter.

You can look at management making self-serving short-term decisions that hurt the company in the long-term (while quoting Keynes “…in the long term we are all dead” with a smirk on their faces) and shake your head and say “Such is human nature.” But when they knowingly poison the ground and kill unborn children, it makes your bile rise to your throat.

I worked at HLL from 1989 to 1994. The thermometer factory was in full production at the time. The top executives that interviewed me and confirmed me from a management trainee to a manager – the Chairman of the company and several high-ranking executives – probably knew that mercury was going into the ground in Kodaikanal. It makes me sick, just thinking about it. If you want to be charitable to them, you might choose to think that they didn’t know. They just never went near it, never reviewed its operations, afraid of what they might find. Still, they are guilty of neglect and willful ignorance.

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Today’s Unilever is a very different place. Ironically, the company seems to have bet its future on its Sustainable Living Plan. Many of its brands are positioned primarily on what they do for the planet. The screenshot above is from Unilever’s company website. The blurb under CEO Paul Polman’s picture talks solely about Unilever’s Sustainable Living Plan.

All this is quite creditworthy and I hope they are successful. But they must pay for their past sins. I hope Hindustan Unilever cleans up the site and compensates the victims. It would be the right thing to do and it would be good business too. You can’t be betting the company’s future on Sustainable Living while fighting a PR battle about dumping toxic waste in a third world country.

But what I know will not happen is that no former executive will be held responsible. That just never happens. Pay a fine. Take a temporary hit to earnings. And move on. That’s not real deterrence. But that’s the best we can expect. Whether you are leaching mercury into the ground water or bringing down the world’s financial edifice, you can feel safe that the company you work for has your back.

IT Services: Which Margin is the Best Margin

How do you assess the profitability of an IT Services business? Some of the performance parameters are the same as any other business in a different industry – Gross Margin, Operating Margin, Net Margin, EBITDA margin or EBIT margin.

But these are generic profitability parameters, uninformed of the structure of the IT Services business.

While not the only one, in most situations, the best profitability parameter to use is Billed Margin or Project Margin. This is the % profit from billed hours – revenue minus the direct cost of these billed hours.

I should quickly add that if you are an investor evaluating a company you should absolutely look at all the generic profitability parameters. You may not have a choice anyway because no public company reports Billed Margin, to my knowledge.

But if you run the company, Billed Margin is a very important way to assess the profitability of your services and accounts.

Billed Margin differs from Gross Margin in a crucial way – Bench Costs. Companies differ in how they compute Gross Margin, but Bench Costs always come before Gross Margin.

Billed Margin boils down the two most important aspects of an IT Service business – Prices and Wages – and the difference between the two. You could say that it captures the net effect of the two markets that the business operates in – the market for its services and the market for talent.

Why is it important that Bench Costs come after Billed Margin? For a couple of reasons.

Bench Costs, in an IT Services company, is the oil that greases the skids. It can help the company staff client projects faster than competition, enter a new account with a skill set that they desperately need, or even enter a new country.

Unfortunately most of the industry has seen Bench Costs as an undifferentiated blob of inefficiency – to be shrunk as much as possible. The same CFOs who hate missing quarterly estimates, treat Bench Costs like the plague. Which is ironic, because a healthy bench can make a huge difference within a quarter.

There is another important way in which Bench Costs can be strategic – in starting new services. Expanding the footprint of new services is essential to maintaining the company’s Billed Margins. For many years Enterprise Solutions played this role.

New services are always going to need creating a pool of resources before you can ramp up revenue from the service. You don’t want to assess the performance of a new service based on Gross Margin, because it is going to be low, even negative for a while. At the same time, you want to make sure that the business that is being built has the right price/wage relationship. Which is why Billed Margin makes sense.

Billed Margins are structurally ‘hard’. Prices and wages are difficult to change. If Billed Margins are going down, that is a sign of long-term decline in the fortunes of the business and must be addressed immediately. Unfortunately, the response to declining Billed Margins, or ‘commoditization’ in the industry has often been to cut Bench Costs, which has made it even harder to arrest the decline.

The truth is that you cannot build a Digital practice without a serious injection into bench costs. Many of these consultants will be onsite. And they will be expensive. You are not going to sell a whole lot of business to a CMO with resources trained in Java in a common bench in India.

My sense is that the big companies in the industry, which are giant lumbering public companies will find the shift very difficult. They will find it very difficult to invest in creating new higher margin services when margins in the core business are declining. Long-term planning can’t rely upon the decline in the rupee. They will have to acquire their way into new services.

The exception to this is of course, Cognizant, which among other things, has used its Bench Costs, and subsequently lower Operating Margins, as a strategic weapon. They are on the right path and have been for a while. That’s the company to beat.


Of all the global standards that America studiously ignores, I find its date formats the most galling.

I have learnt to deal with pounds, miles and fahrenheit. I came to this country as an adult with an education that relied entirely on the metric system, which is completely useless in the US. Since then, with dogged determination, I have learnt enough to be able to inform someone about my weight, body temperature and the distance I can run before collapsing, in units that he understands. But alas, I will still not be able to tell him what the boiling point of water is, in fahrenheit, without using a calculator.

Volume measures, I just ignore. I don’t have enough space in my “attic”, which gets smaller with age, to store all this information. I think Americans have trouble with them as well, which is why the good folks at Starbucks simplify their sizes to Tall, Grande etc. Wine bottles are perhaps the only significant product that escaped the tyranny of fl.oz. I never forget that it is 750 ml. Which could also be because I see these bottles often.

Date format by country

Back to dates. The US is the only country that follows the middle-endian format for dates. As you can see in the accompanying chart, most of the world (blue) follows dd-mm-yy (little-endian) and a few countries (yellow) follow yyyy-mm-dd (big-endian). The US is the only country on the planet that stubbornly sticks to the mm-dd-yy format.

People have philosophical issues with the middle-endian approach (mm-dd-yy). It is inelegant, non-intuitive and is not in keeping with the best traditions of a Keep-It-Simple-Stupid culture.

But my problem is not a philosophical one. It is a real one. I deal with two date formats on a daily basis. My work involves dealing with people in India and in the US. Sometimes Indians in India. Sometimes with Indians in the US. Some of them are on short trips. Some of them are on long trips. Some of them are settled here. What is the length of stay after which an Indian in the US switches to mm-dd-yy? When someone writes to you in the last week of April, saying lets meet on 05/06, which date are they talking about?

Luckily emailed dates for scheduling meetings are rarely ambiguous because of the context. But there certainly are situations where middle-endianness causes issues.

At my non-profit, I use a SaaS product called TicketTailor – an excellent product at a very reasonable price, by the way. It’s British company, so the dates are all dd-mm-yy. When you download a CSV with all the sales data, it comes down to you in dd-mm-yy. But my spreadsheet software – Numbers (Mac) or Google Spreadsheets – are set to mm-dd-yy. So I end up with a time series with wrong dates. (The solution to this problem is not to change the date format – that doesn’t work. You first have to change the standard language to UK English. Then open the CSV file.)

Let’s talk about hand written dates. Opening a bank account in India requires a dozen or signatures. And every signature must be dated. Every time you write a check you write a date on it. If you live in the US and you are writing a check on your Indian bank (or rather “cheque”) what date format are you using? By the way, what happens to checks that are post dated? I suppose you can’t bank them.

I’ll tell you what I do. I follow my own format – mmm-dd-yyyy. So today’s date is Jun 29, 2015. No ambiguity.

BRAKING NEWS: The Anti-Tonsuring Law

Interviews that bring you to a screeching halt

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Last week in a forced tonsuring incident in Bangalore two school boys’ heads were forcibly shaved by the school staff. Bangalore police has made an arrest. The government has responded by promising a bill in Parliament that will make forcible tonsuring illegal.

Braking News met PK Dhut, Minister of State for Cultural and Religious Affairs.

Braking News: Good morning, PK.

PK Dhut: Please don’t call me PK. I don’t want to be associated with that Aamir Khan movie. You may call me Purna Kesha, which means One with a Full Head of Hair. I come from a long line of hairful ancestors.

BN: Ummm…that’s hard to pronounce. May I call you Dhut ji?

PK: Yes, that will be fine. Obviously, you didn’t study Sanskrit in school. You must have studied German or French or some useless foreign language instead.

BN: Dhut ji, the government has proposed an anti-tonsuring law which will make forcible tonsuring illegal. Why?

PK: We respect people of all hair conditions, bald and hairful. However, lately, some misguided people have been forcibly tonsuring people. These people are converted to baldness against their will. We cannot allow such forcible conversions.

BN: But aren’t there already laws on the books which prevent the use of force? Why do we need a special one for forcible tonsuring?

PK: You see people are very sensitive about their hair. It requires a special law.

BN: Really? Well, let’s take an example. Right now, you are picking your nose.

PK: No, I’m not.

BN: Well you were…till a moment ago. Let’s say I was strong and you were weak and that I found the sight of you picking your nose in front of me so disgusting that I forcibly stopped you from picking your nose. It would be torture for you, wouldn’t it?

PK: Maybe. But I don’t pick my nose.

BN: In this case, do we need a law against forcible prevention of nose picking?

PK: Forcible tonsuring is happening across the country. It is a matter of national importance. Don’t compare it to an itchy nose.

BN: OK…moving on. Dhut ji, don’t you think the anti-tonsuring law is unfair?

PK: Why?

BN: Well it makes it illegal to convert from hairful to bald, but not bald to hairful.

PK: No worries on that count. When the bill is brought to Parliament, it will ban both forcible tonsuring and forcible hair transplants.

BN: But nobody has ever heard of a forcible hair transplant. This law really just targets forcible tonsuring doesn’t it?

PK: Not at all. We respect all people, regardless of their hair condition.

BN: Dhut ji, how will the authorities determine whether the tonsuring was forcible or not?

PK: Oh that is simple. If the tonsuring victim says that so and so person forcibly tonsured him, that person will be arrested.

BN: But what if the tonsuring victim just shaved his head himself and is lying? What if he has been forced to lie?

PK: Well…there’s no law against forcible lying.

BN: Then do we need a law against forcible lying?

PK: No, no. Of course not.

Taming the Shrew

The march to quash freedom of expression in India continues. All India Bakchod, a comedy group in Mumbai, is now under attack from MNS, a Shiv Sena style, right wing Hindutva party. The reason is that in a roast of Arjun Kapoor and Ranveer Singh, both Bollywood actors, the language used was, in their view, inappropriate. [link]

Ameya Khopkar, president, Maharashtra Navnirman Chitrapat Sena, the film wing of the MNS said to The Hindu “We will not let any film featuring the actors present at the AIB comedy show to be released in Mumbai, until they apologise for their actions.

“What kind of message are we giving to the world outside? What if small children, who follow Ranveer and Arjun, watch this show? Will they not be spoiled after watching such shows?”

While AIB may seem to be under attack, the threat is not against AIB, which is small and can continue to flourish on YouTube. The threat is against Bollywood, the shrew of Mumbai, that is largely liberal and annoyingly espouses liberal views in its movies.
This is just the beginning. Not just Bollywood, every writer, actor, artist and musician in India is watching these events closely. They’ve seen what happened to theatres that screened PK. They’ve seen how Perumal Murugan was forced to abandon writing altogether. How AIB, a small comedy group in a tiny comedy industry in India, is being harrassed. And they are all afraid. “That could be me, if I’m not careful,” they are thinking. And “careful” does not create art.

The modus operandi of the Indian right wing is clear. The government need take no action at all. There are enough Hindutva goons in every state of the country who will gladly, for a few hundred rupees, go break up a theatre or rough up some people. All the government has to do is stand aside and let the goons have their fun. The media faithfully broadcasts it. No arrests are ever made. Everyone gets the message – “Be careful. Or you’ll be next.” The shrew is tamed.

There are people, good thoughtful people, who think that freedom of expression in India is over permissive, or that it is not uniformly applied to all religions. So reining in these Bollywood types, who dare to make fun of our godmen (PK), is a good thing.
But, you see, it is not. Today it is about godmen. Tomorrow it will be the length of your daughter’s skirt. Today it is PK. Tomorrow it could be Delhi Belly. Who is making the decision on what is appropriate and what is not? MNS? Do you trust their judgement?

There are other good, thoughtful people who make this into a development vs freedom debate. They argue that the BJP is all about economic development. And freedom of expression is a much less important thing. So let them curtail it if they want, as long as the country prospers economically.

Why is this an either/or choice? I don’t see how freedom of speech and expression get in the way of economic development. This is a false choice. Do not accept it.

People, wake up and smell the coffee. Your freedoms are slowly, but surely, being fenced in. Wake up, before they are taken away and we become an Iran.

A Secularist New Year Resolution


Ever since the BJP came to power, they’ve been crawling out of the woodwork – RSS ideologues, Hindutva radicals, and random school teachers. They want to remind you in speeches that India is Hindu; that Hinduism is great and any book or movie that says otherwise should be banned; and that their version of Hinduism (no short skirts! no public kissing!!) is the one that everyone must follow. It’s pervasive, relentless and, to the dismay of those of us who disagree, it is slowly moving from being intolerable to being irritating, but “chalta hai.”

There seem to be two aspects of what is happening. Let’s call one – What is Being Said. The other – Real Changes.

What is Being Said is getting crazier and crazier. Should we clamp down on inflammatory speech? Nitin Pai, a public policy commentator with Acorn, makes a good case that protecting freedom of expression is better and easier than restricting inflammatory speech. Why? Because you can’t ensure that nobody is ever offended.

It might be better, but I’m not sure it’s easier. Rioting in India is difficult to control because of the 24 X 7 news cameras and because the rioters tend to be unemployed youth for whom rioting is a source of income. The odds are stacked against the police.

In any case, there are laws on the books that supposedly curb hate speech. So perhaps there’s not much to be done here except murmur to yourself “Sticks and stones will break my bones but words can never hurt me.”

The problem is that things don’t end with What is Being Said. It drives Real Changes. Books are being pulped (Wendy Doniger’s The Hindus, Sekhar Bandopadhyay’s Plassey to Partition). Textbooks are being changed (Dinanath Batra has rewritten the Gujarat state school textbooks  where science and history are liberally mixed with mythology). And there are serious extra-judicial bans being placed on all kinds of ‘unacceptable’ behavior. Small, but Real Changes.

What is Being Said is not independent from Real Changes. When What is Being Said goes unchecked it supplies oxygen to Real Changes. It emboldens all the closet Hindutva sympathisers to come out in support of What is Being Said. Which gives the mistaken impression that there is broad-based public support for What is Being Said. And the next thing you know, a book or a movie is banned. Or it becomes OK to harass anybody who kisses in public. Suddenly, Real Change has happened.

Bit by bit, these ideologues and goons are chipping away at the edifice of our beautifully diverse, secular India. And it all begins with letting What is Being Said go unchallenged. While politicians and pundits rant about What is Being Said on TV (and that is important) the secularists among us are not doing our bit in the forums where opinion is formed – among friends and family.

We secularists tend to not engage with the Hindutva-flavored friends of ours on social media. It’s OK, we say. I can’t change the way they think so why engage in a meaningless debate. But that’s misguided. You can change the way people think. Most people don’t put too much thought into these issues. They tend to go with the flow – wherever they think the majority of their family, friends and people who they respect are going. We need to let them hear what we think about What is Being Said.

If the discourse on Hindutva in your homes and chai shops, on Facebook and Twitter, remains one-sided, then be prepared to lose what you love. Years from now you’ll look back and regret that when Real Changes were turning the clock back on secular India, you could have been more engaged and made a difference, but you didn’t.

Are you OK with that? I’m not. Ain’t gonna happen. No sir, not on my Newsfeed. I will engage. And that is my new year’s resolution.

Dark Data is a Big Opportunity for Services Companies

dark dataWhy is Big Data big? Obviously not because someone invented a new statistical method of data analysis that can explain everything. It’s because there is a lot more data spewing out of business processes where there were none before. The questions haven’t changed – as a business manager I still want to know how to forecast sales or understand which levers to apply to improve my business outcomes. But where there was once no way to answer these questions, today there actually is data that can be analyzed to provide some of these answers.

So far all the attention has been on business problems whose answers lie in the copiously flowing data from associated business processes. Marketing, for example, where all Marketing is getting subsumed into Digital Marketing which, as anyone will tell you is a data gusher.

But there are innumerable questions in business that need answering where the data just isn’t there to analyze. Or rather, the data is there but it is unusable, just beyond reach.

I am part of a non-profit theatre company in the Bay Area. Theatre companies live and die by their ticket sales. All costs are fixed. Once you decide to stage a play your costs are all locked in. Your revenue, however, is completely variable, by the number of tickets you sell.

In such a business, it would be crucial to understand where one stands on ticket sales. In other words, you should be able to answer the following question at all times “Based upon the ticket sales today, X days before opening night, we are on track to fill Y% of seats”.

Almost all ticket sales are online. Which is a good beginning. The online ticket selling service that we use sends us a daily email with our cumulative ticket sales till that day. But, and here’s the nub, they don’t store a time series of daily ticket sales. So if I wanted to draw a graph with number of days to opening night on the X axis and cumulative tickets sold (by show, of course) on the Y axis, I’m out of luck.

This is not a unique situation. I’m sure you can think of many such examples in your business where you know the data is created but it isn’t kept, or it isn’t in the right form.

Then there’s a form of data that is not captured but can be, with just a little work. At Infosys, when I was trying to wrap my head around how to implement CRM in a company which hadn’t used one for years, I thought that it might be too much to expect the field force to make notes after every client meeting. But perhaps, if they could just log every client meeting, that by itself would be very useful. It would be a measure of business activity which we may be able to correlate to deal value and perhaps, could serve as a rough, early warning forecasting system. There are so many opportunities for squeezing a business process for meaningful data. Analyzing this data, typically doesn’t need Hadoop clusters, but the business outcomes could be quite significant.

Think of data as fossils in sedimentary rock. The fossils in the upper layers are newer, better formed and easier to interpret. The ones in the lower layers are just the opposite. But they are just as important to understanding and improving your business.

IT Services companies will see a lot of opportunity in Big Data and Analytics. But software companies will take away most of the value in the top sedimentary layers. The lower layers will be messy. And straightening out messes, is where IT Services companies thrive.

Meanwhile, I’ll be trying to sort out my ‘messy’ ticket sales data using Google Script. If anybody knows of a script that will help extract a number from an email that follows an identical string of text, please send me a note. Thanks.