Why do companies exist ?


In business school -I was taught that the primary idea of having a company is to maximize returns to its shareholders . There were some essays on the “additional necessity” of stake holder management too .

As I joined the workforce – I was taught that companies exist to make sure customers are successful . My favorite manager of all time taught me “when in doubt, do what is right for the customer”. It made all the sense to me – and I rationalized that if the customer is satisfied and excited , company will succeed automatically .

Along the way, I became a manager and then an executive . And I started getting the employee dimension . The idea of pleasing share holders and customers will work well only if employees are happy and committed to what they do . Yet, most managers have limited abilities to do what is right for employees . I think that is the root cause of lack of growth in a lot of companies .

Yesterday , on twitter – I was reading something on companies buying back shares to boost their stock price . As an investor , this is a pretty good thing to see the big companies spending tens of billions of dollars on buy backs every year . My gut feeling is that at least 500 billion dollars should have been spent by companies in share buy backs in last 5 years . If anyone knows an approximate number – please leave a comment .

I have mixed feelings on the idea of share buy backs . This is money that could have been used for product development , acquisitions , better customer support ,employee compensation etcetera . Whenever I hear about stock buy backs – I think “is it because this company has run out ideas of getting more profitable business from its customers? “. On the other hand – if I have stock in that company, I feel less bad given there is a chance that the market will reward them.

However , after watching the buy backs at big companies like IBM and AAPL having little impact to share prices , I am starting to wonder how long is this strategy effective ? At some point the market will require companies to do actual business to get rewarded . I wonder if it is possible to isolate the impact of buy backs on share prices to see if this is more effective than regular business in driving up the market cap of a company . My guess is that it is not – but then I have not done any real analysis . It’s just an uneasy thought in the back of my mind .

The idea of having share holders , customers and employees happy doesn’t have to be mutually exclusive . Some over lap via getting more employees to be stock owners can help – and some companies do it very well . It is also a good pulse check on whether employees of a company are fans of the company’s vision . Same thing with employees and customers – if better customer satisfaction drives better stock price , employees who own stock will not need to be forced into doing what is right for the customer . They will do it naturally .

PepsiCo CEO Mrs. Indra Nooyi, recently told Forbes magazine that she writes letters to the parents of her direct reports congratulating them for the good work of their kids . I was blown away – my parents have been extremely proud of everything I have done , but I would have never thought of my boss sending them a note to say that I am doing well and they should be proud . What a great idea ! Ok I guess some employees might think that is way too personal for their comfort , but I personally think that would be the sweetest thing a boss can do for parents and the employees .

I wish more managers and executives would take the time to take care of the employees – I know I have ways to go as well . But every time I hear about creative ways other managers use to get their team to develop into better people and better leaders – I get inspired a lot . It’s on my bucket list now to find a way to meet Mrs Nooyi 🙂

Professional Handlers and Breeders – thank you , from a grateful dog owner


Many of my friends at work and in my social circle have asked me what is the point in dog shows if you get a professional handler to show a dog. It’s a good question – I thought that way too initially.

Dog shows in US have way more professional handlers than any other country that I am familiar with . And many of those handlers are now good friends . While I don’t always agree with their tactics , I am a huge fan of the profession .

When I first came to this country , I got the impression that these folks have a good thing going financially . Looked like easy money to me . But it didn’t take long to understand I was way off in my judgement . And not too long after , I started being a fan – a big fan.

I consider myself a decent handler – but I seriously doubt I stand a chance against the best professional handlers in the sport today . In theory – I should be able to beat them easily. I will only be showing one dog at a time , and I can probably afford to buy one of the best dogs available for sale and I probably can advertise all out to promote my dog . I can train my one dog with full focus and groom it with more precision . I can pick the shows where I think the judge would like my dog. So why bother with a handler ?

Because that is theory and it is not in the least bit practical 🙂

In my day job, I will never get around to training and exercising my dogs to the degree they need it to be competitive . I travel hundreds of thousands of air miles a year which means I don’t want to be at a dog show every weekend. I would rather be home with my family . I will never have enough dogs to become great at grooming them professionally and so on . And I will never have the face recognition needed to win repeatedly in shows . Also – just because I can afford to pay the asking price doesn’t mean that a good breeder will sell me her best puppy or dog . Finally , my interest is only in showing -not breeding .

So for me – the solution is to find the best handler I can , and trust that he or she will do everything ethically possible to get my dog to his potential . It is also way more economical for me in terms of time and money . And to some degree – I have a better shot at finding the dogs or puppies I like via a handler than by myself . It also helps that I have trained and competed at a high enough level in my younger days that I don’t need to do it myself to feel fulfilled . I am happy to sit back and watch a professional do the job. And when I think it is not fun for the dog or me – I can stop and go throw him oranges to fetch and never take him to another show again.

While they do it for a living – handlers love dogs just as much as I do . At least – the handlers I know do , if not everyone . That is important for me – if I have the slightest doubt on that factor , I won’t hire that person . Same about ethics and integrity . I am an extremely competitive person. But while I like to win as much as the next person – I won’t do anything against the spirit of good sportsmanship . Dog shows are not a game I play just to win . It’s just an irrational hobby 🙂

It takes a physical toll on these folks – I know many have bad knees, back and feet at a minimum. And sadly, many of them can’t get the right medical treatment to take care of it because they cannot afford it . Yet weekend after weekend , they show dogs with utmost professionalism . Some are blessed to have great clients who have them on a retainer year after year. But vast majority have to work supremely hard throughout the year to make a living . That takes the kind of tenacity and toughness I admire .

There isn’t a dog show I have been to where someone hasn’t said “oh it’s a handler breed” or “it’s all political” or “the judge always looks at the wrong end of the leash”. None of these comments are wrong . But I think the handlers get a disproportionate degree of blame . Actually I think so do judges for that matter .

Professional Handlers do it for a living – and they become good at it . The opportunity to beat them is available to everyone including owner handlers if they put in the same effort and cost . Since it is not feasible for an average owner handler to train and show as many dogs in as many shows as a professional , the professional has an edge in most cases . That is not some evil plan 🙂

To make a name – handlers have to start with great dogs . Over time their skills and face recognition increases and lesser dogs will start winning with them . That is true for owner handlers too – if you keep at it , it is a natural result . In my line of work as a technology executive – the same holds true . What my colleagues and I do can be done by many others – but it will take a lot more time and effort and money to do it as well as we can . It is not because we are more intelligent – it’s because we have done it many times over for many customers in varying circumstances. That is why our customers buy engage us to get some stuff done and not try to build everything themselves . I think the same way when hiring a handler .

That being said – there is one case where I look forward to handling myself . That would be if I ever show in India again . For old times sake – I totally would love to hold the leash and trot my dog. But even there , I would rather have a professional groom my dog . Hopefully I can do that soon – nothing beats the feeling of showing dogs with people I grew up with , under judges that taught me a lot about dogs and dog shows .

Before I sign off – a big shout out should also go to the responsible breeders in the fancy. Although I have a problem with the sheer number of breeders , I am a big fan of their insatiable appetite to breed a dog that meets the standard in letter and spirit . Almost no breeder I know got rich by breeding – many could have bought a second home with money spent on dogs . And it is exhausting to bring up a litter – which is why I don’t breed . Owners like me – who just enjoy the fruits of their labor – owe a lot to these kind folks . I am very grateful to have the opportunity to have the choice of several excellent breeders to buy a puppy from . THANK YOU

Once an IBMer …


I left IBM a year ago – but have always held the company in high esteem . A lot of what I know today about the industry is stuff I learned in my time there . And I definitely had more good days than bad days there . I still own a tiny little bit of stock in IBM , and some of my best friends and mentors work there . Where I work now , IBM is both a partner and a competitor . And for all those reasons – I keep a close eye on IBM . As always – I am posting this as my personal opinions , not that of my employer .

It was pretty disturbing for me to read that IBM is planning another round of layoffs in 2014 and they have kept aside a billion dollars for that, like they did in 2013 . Having several friends who work there – it is pretty sad for me when I see IBM in such trouble .

When I joined IBM, I think the share price was a little less than $70 . And every year it kept increasing and at some point went well over $200 and now it is about $182 or so . So over the long term, they did pretty well and many employees and investors did well as a result . While there were always some unhappy employees – for the most part , IBM did ok .

IBM is unapologetically capitalist in nature . By the time I joined – there was no pension plan or life time employment type things . And the company was expanding rapidly outside USA. If you look at IBM as an American company , it is kind of hard to see it in a good light . But if you think of them as a global company – it made sense to make use of cheaper labor, better access to other markets and so on .

IBM , in Sam Palmisano’s time made the promise to investors that it will hit $20/share as EPS by 2020. And EPS has been on an upward trend through every quarter I think , irrespective of top line growth.

And then Sam handed over the reins of IBM to Ginnie Rommety . She had already managed services and sales for him, and was supremely qualified for the job . She also grew up the ranks at IBM and knew the company inside out . I thought it was a great decision to make her the CEO and Chairman . It was a pretty smooth transition too .

Sam not only grew the share price and EPS , he also did some savvy stuff like selling off the low margin PC division , investing significantly in IBM Watson etc . So all things considered – it seems Sam set up Ginnie for a decade of success . And Ginnie told the world that she is executing on current strategy .

IBM is laser focused on that EPS goal , and uses all possible levers . There are mainly just four things –
1increase revenue
2.decrease cost
3.buy back shares
4. show investment commitment to future revenues .

The latter three levers were the ones IBM seems to have played best in recent past . In Sam’s time – this was amply rewarded by the capital markets . But in Ginnie’s time – Market is punishing IBM for playing exactly those same levers . Not growing revenue is what is hurting IBM big time .

Selling the low margin part of hardware business to Lenovo seems like a good idea – but probably something the market has already factored in . I have mixed feelings of this sale – I have friends among the people in that business , and I can only wish them the best . But stemming that bleeding profit is good financially for the company .

All that being said – one question remains in my mind . Did Ginnie do the right thing by telling investors that she will follow Sam’s strategy and not chart her own course ?

Street likes predictability more than anything . So if a CEO resets expectations, market will usually give the company more time as long as the plan and time line is communicated well . In much worse situation, HP CEO asked for more time and the Market didn’t punish HP stock for that . If anything I felt HP CEO should have asked for even more time to steady her ship .

So if Ginnie had said “I am playing a long game – so I am going to extend the time frame of EPS roadmap” , would IBM stock have been punished more than the value it lost so far ?

Market is used to not seeing profits – companies like Salesforce and Amazon have gotten the market to believe that revenue/bookings growth should be rewarded even in absence of real profits . Yet, IBM will get punished for showing real profits and growing EPS but not revenue growth . I guess that is why capital markets have that mystic aura 🙂

Or maybe market is not that irrational – and IBM can’t cut costs forever and reach their promised glory . Like every large matrix organization, I am sure IBM has opportunities to cut costs and get leaner – but every time they do that, it does a lot of harm to its employee morale and that is not easy to repair . It is a hard choice to make .

Competitive landscape doesn’t make it easy either . IBM is an amazing technology company and has a habit of making long term bets – like Watson. But a mothership cannot always easily turn on a dime .

Amazon is the Walmart of infrastructure providers with its everyday low price model . That is not IBM’s game . IBM needs to play up its “value added services make us better than Amazon” card really well to see if it works . While I don’t under estimate Mr Bezos, I actually think IBM can out do Amazon since it has staying power in abundance . Soft layer acquisition is a good indication of IBM doubling down . Also , while intel based HW is out – IBM still has Z and P business which can provide manufacturing expertise for their cloud . IBM microelectronics has cutting edge expertise on semiconductors too. But data centers are a capital intensive business and IBM will need to get to the efficiency of the consumer company data centers at some point . Not at all easy , but eminently doable in my opinion .

I am pretty positive that IBM will do well again . I have three main reasons for that

1. Before my time at IBM, they had a near death experience . They know how bad it can get if things don’t go their way . But they survived that and thrived . That is invaluable experience that they can use again

2. IBM has invested a lot in leadership development . People like Ginnie and Steve Mills are some of the best in the industry and they have plenty of leadership bench . I always bet of good leaders and I would be shocked if these people can’t pull it off . It’s not just the top leaders – they have some very bright engineers and an amazingly well trained sales force with great customer relations . This is a people business first and foremost .

3. IBM has continued to invest in research through all kinds of economies . They have more patents most years than other companies . That kind of IP is invaluable in the long term – and not easy for someone else to overtake them

Good luck IBM – I wish you nothing but the best . But in the few times that I have to compete with them – I will try everything possible to kick their butt . That is how IBM trained me 🙂