Good to Great - A book review !!

Why some companies make the leap …..while others do not

A fantastic book which is an outcome of the research by Jim Collins,co-author of the book “ Built To Last”. Good to Great brings the answer for “why some companies make the leap to become great while other companies fail”.The essence of the book is to find what lies behind the black box transforming a good company into a great company.

Key findings discussed in GOOD TO GREAT

• Ten of eleven good to great CEO’s came from inside the company
• Based on his study, the idea that executive compensation is a key driver in corporate performance is simply not supported
• Both Set of companies had well defined strategies . Good to Great Companies did not spent more time on long range strategic planning
• Good to Great principally did not focus on “ WHAT TO DO” but they equally focused on “ WHAT NOT TO DO “
• Technology can accelerate the transformation but technology cannot cause a transformation
• M&A’s play virtually no role in igniting the transformation. Two big mediocre companies joined together never make a great company

He discusses the following traits found in a great company

Level 5 Leadership

• Professional will + Personal Humility = Level 5
• Level 5 Leader look out the window to apportion the credit to factors outside themselves
• At the same time , they look in the mirror to apportion responsibility , never blaming bad luck when things go poorly

First Who... Then What

• In a good to great transformation people are not your most important asset, but it’s the right people who are the asset
• When in Doubt Do not Hire – Keep Looking for the right people
• When you know,you need to make people change, act
• Put your best people on your biggest opportunities, not your biggest problems

Confront the Brutal Facts

• Rely only on fact

The Hedgehog Concept

• Reduce all challenges and dilemmas to simple indeed simplistic hedgehog ideas
• Hold both disciplines of faith and facts at the same time, all the time

A Culture of Discipline

• Good to great companies hired self disciplined people who did not need to be managed, and then managed the system and not the people

Technology Accelerators

• Great companies used technology as an enabler to accelerate the momentum

Booming Bond Markets !!!!

Compiled By: Anuj Jain Modified By: K HariPrasad

Investment Culture in India

India as we know is well immersed in equity culture, with the debt market playing the less glamorous role of second fiddle. The fact is that corporate bonds market nowhere near equities in breadth, depth or innovation. The United States of America, for example, has one of the most active secondary markets in both government and corporate bonds. The trading volume in the US debt market is said to be on an average ten times the size of the equity trading. In India the average daily trading in debt during the last year was about one tenth of the average daily trading in equities. These comparisons bring out the underdeveloped nature of the Indian debt markets.

Why Bonds were not as attractive as equities?

• The interest rate scenario in India was regulated by RBI in such a way that the interest rates charged by the commercial banks for the project loans were relatively lower compared to other funds
• The Finance Ministry did not permit bond issues of companies that would exceed the debt-equity ratio of 2:1; the institutions used to extend loans that would result in a debt-equity of up to 3:1 in respect of highly capital- intensive projects
• Highly discouraging factor was the high level of stamp duty that the state governments levied on secondary market transactions in bonds
• Thus the corporate borrowers preferred to raise funds by approaching term lending institutions.

The Opportunity for Bonds

After the liberalization the protective status of DFI has been removed and no longer relevant in the deregulated financial system, which has cut off their access to low cost funds. This gaping hole in the finance industry has to be plugged and most natural step would be to encourage growth of an active bond market.

Who is into India’s Bond Market?

• In terms of the primary issues of debt instruments, Indian market is quite large. The government continues to be a large borrower unlike South Korea where the private sector is the main borrower. Currently almost 98% of the secondary market transactions in debt instruments relate to government securities, treasury bills and bonds of public sector companies
• Indian household has great appetite for debt instruments provided they are packaged properly. The main financial instruments popular with the households are bank deposits, provident funds, insurance, income-oriented mutual funds, and postal savings schemes. However, the share of fixed income instruments that could be traded in the secondary markets is negligible. The main reason for this is the absence of an active secondary market in debt instruments. Investors are not willing to invest in tradable instruments as they lack required liquidity.

The government on its part has been taking up several key steps to ensure that debt market comes to life.

• Statutory prescription of bank’s investment in government and other approved securities has been scaled down from peak level to 25%. Focus has shifted towards widening the customer base.
• Allowing the FIIs to invest in government securities, subject to certain limits. This should bring the desired liquidity and breadth to the market.
• Introduction of automated screen based trading system has been introduced in Government securities through a Negotiated dealing System (NDS).
• A risk free payments and settlement system in government securities through the Clearing Corporation of India Ltd. (CCIL) has been setup. This will remove the counter party risk involved in financial transactions.

Steps like these have to follow up with further reforms and policy changes which will ensure the wholeness and strength of Indian debt market.

The Present and Future

Indian debt market grew at an 18.02% per annum rate from 1999 to 2006 as per BIS data. At this pace and considering a 8.21% bottom up forecast for the world debt market, India would break 1% of world bond market by January 2010, and reach approximately 4% by 2025. In dollar terms, the Indian bond market would swell from about US$ 331 billion to an eye popping figure of US$ 4.0 trillion by 2025, equivalent to the current size of Japanese government bond market.

Growth of debt market is a key ingredient to the continued success of Indian growth story. And barring any serious policy reversal by government in this direction, a vibrant Indian debt market is all set to become a reality.