The world of business and industry has seen many dramatic changes in the last few years. The most noticeable feature has been the increased emphasis on globalization and liberalization. This trend, coupled with the continuing revolution in the technology has propelled many corporations to the verge of a great industry upsurge. It has changed the ways in which a corporation works and how it caters to itself and to it shareholders.

The conflict of interest?

If we look at the current economic slowdown in the world economy and ask one some basic questions why the shareholders did lost so much of money. Is the slowdown in the economy because of some specific factors? Are these factors controllable and predictable? In addition, whose interest the corporations are serving?

On one hand we have shareholders who want to make quick money, this may be in direct conflict between the company as they wants to invest money, grow, and satisfy the shareholders later on. Too much of dividend to the shareholders will reduce the equity capital of the company and will put the company on a losing playing filed with the respect to the competitors.

Furthermore, since the globalization has made world's economy more interdependent. Therefore, a slowdown in sector of the economy will have serious repercussion on the rest of the corporate sector. What are the implications of this?

It becomes very difficult for the stakeholder to hold the stock of a company, especially with regard to the technology company. It is better to quick sell rather than be a big loser in the end.

Most of the shareholders the look at the P/E ratio and market capitalization, but to rate a company on the basis of market capitalization can be highly risky. What about the market capitalization of an IT or a dot .com company.

Information Technology Sector

For us to understand the conflict of interest we also need to look at the background of the information technology that was making shareholders "rich" in couple of months and what was the implication of it-

1-Information Technology though brings efficiency brings unemployment

Fewer people are needed to do the same function previously done by workers.

With the loss of jobs the purchasing power of the workers / employees decreases, which effects in lower production, which in turn, leads to the slowdown in the economy.

2- IT is a support industry and its growth is dependent on other industries

Firms are not purchasing new technology and so IT firms are not making profit targets and as a result lying off employees. The reason why the main industries are not growing for example, why Power, Steel and other major industry is not growing is another question to be answered. The problem is definitely not decline in demand but may be of saturation of certain markets. Why these corporations are not expanding globally to different continents is a point to be pondered. The reason could be the third world market is not mature or maybe there is lack of economic stability. Another reason can be these corporations want to make quick return on the investment.

3- Since the growth is slow in other industries it also leads to slowdown in support industry

Economy slowdown in the world economy is because of this as there was tremendous growth in last 10 years which was basically because of IT industry. IT is a support industry. It cannot drive the economy on its own when the rest of the economy is not growing.

4- The reason for the current slowdown is the bursting of the speculative bubble

People did not invest, they speculated, and eventually this sort of thing unwinds. Many of the firms that were funding startups later on started having problems in profits. Therefore, they stopped supporting the startups. In addition, startups that seemed like a good investment also suffered in the same way the large firms - lack of spending on IT from the other sectors of the economy.

5- Information Technology firms are like options

No matter how good your business model is it is bound to fail in some time in future and the new entrants will enter with better services and products. The biggest asset of the firms are their people and the intellectual property/capital and once these people fails to catch the market mood or develop a product which is not in line with customer expectations the market value decreases suddenly.

Fundamental questions?

Question 1. Is it possible that under so much of economic research there can be speculation and a speculation of such an extent with leads to a bubble? 

The answer could be the stock market is attractive for people who want to gamble and hope for big windfalls. When the economy is strong, there is a high likelihood of speculation since there is a belief that things are going well and windfall profits are possible. People borrow money to invest and/or they buy on margin. Gamblers are not really rational people, so regardless of the amount of research about speculation or the warnings that are given, these people continue to pursue their goals.

Question 2. Is it possible to escape the eye of experts or everybody is following simple route to make easy money?

The answer is probably not. However, if a person is wise, he or she knows to buy low and sell high without risking too much money. These people make profits in good times and wait for bad times to reinvest. However, even big companies jumped in the wagon. Why did they do it is another question?

Question 3. Is this phenomenon not surprising that a company as Yahoo was having such a great brand and market value few months back?

Reason 1-Companies like Yahoo and Amazon have high potential products, but their stock value was much over-priced compared to their profitability. There was no way that the companies could retain their speculative value and once people started to sell off their portfolios and reap some profits, the market price fell drastically.

Reason 2 - For an organization like Yahoo innovation has always meant solving problems for customers in ways that are perceived to be unique. This positioning strategy relies greatly on appealing to customer wants, rather than merely satisfying needs. However, overtime competition develops, as new entrants will try to copy your model. At this time, you need to add value and to the customers demand but no matter how bulletproof your firm's current business model; new business models will challenge it.

Question 4. Which kind of factors enters?

There are quite a few things, which may be different for a new company entering into a new market. Some of the factors playing a part are:

1. Advertising/revenue- Different companies invested and advertised in companies like yahoo when the markets were booming. This generated revenue for firms like yahoo but with the slowdown of the economy lots of startup or small players who were advertising on big portals dried up which resulted in squeeze in the money. Advertising was withdrawn to a significant level, which finally created pressure on companies to withdraw some of the free services as they found it hard to provide the same service free.

2. Low barriers to entry-The barriers to entry in e-business or IT field are not very great. Therefore, people rush in as soon as they see or find a new idea or a product, which they think they can sell to meet the needs of the end customer but the biggest problem is-

Problem A. A product whose imminent value may seem very much but the actual implementation to bring that product may require many resources.

Problem B. Entrepreneurs in their zeal to implement their idea forget one basic idea of decision-making. Decision-making should involve all factors, which takes into account all cost and benefits of each investment opportunities. Specially when financing the project form debt because every dollar of investment should yield some return as the investment in project is subject to the following factors

Interest loss-For an investor's point of view deprivation of the use of money for a period also leads to the loss of interest by placing the same amount of money in some other business.

Risk

• the idea or concept may not go off well as expected leading to loss of investment and to the loss of sales.
• Sales of the product may be not as buoyant as expected.
• The life of the product may be shorter than expected.
• Investment cost turn out to be higher than it was presumed
• The market is not ready to accept the idea. 

Effect of inflation- logical investor while making investment will like to be compensated for the loss of interest and the purchasing power of the money invested.

Lack of knowledge-The market was immature to assess the implication of an investment of that nature. Yahoo and Amazon were in part overpriced because many investors sized the price of stocks in terms of the reward side of the risk/reward ratio. Reward was no well measured. There were not appropriated tools to measure the performance of Internet companies.

Fear of missing the bus–Investing in hyperactive growth market is not about preserving capital (that's what bonds are for); it is about making sure that you are that you are on board the bus when it leaves. If you are long and any equity and if you are hundred % wrong and the stock goes to zero you lose 100%.

Question 5. How would normal or observed fluctuations in these factors affect value?

Normally, in an ideal economy, the valuations of the companies are dependent upon the basic factors of revenues and cost of operations. Each of the reasons mentioned above does not come into play.

In actuality, what has happened is that the valuations of the companies were done based upon the projected growth rate, which in some cases was highly optimistic? Companies and analysts did not weigh in other factors. All these contributed to exorbitant and unrealistic valuations for the companies.

Question 6. Is the government not responsible for the suffering of the common people or the financial institutions not far sighted and they most of the time go where everybody is going playing with hard-earned public money?

In theory, the government is the people. In practice, it is not so, of course. The federal government kept trying to keep people from inflating prices by raising interest rates to discourage borrowing. This eventually worked, and at the same time reduced investment. Governments are conservative investors so do not have public funds tied up in stock speculation. Their risk is in losing tax money because people and companies earn smaller incomes.

What are the reasons for the unstained economic growth & demise of different corporations?

Reason 1. Poor service- Most big industries live under certain myths and woolgathering to the market realities. They are just drumming beating their product and services without having any grasp of the market demand and the reality. Just by saying and promoting that, your products and services will bring about a transformation and a result in the bottom line will not work for the corporations. Calling poor service good not in tuned with demand will only further harm the company.

Reason 2. Narrow definition- Another problem is that most corporations defines itself too narrowly that they are in a particular business and that is their core competency. First and foremost thing according to me is that there is no core competency there is only one competency that is your competitive competency.

Industries that deduce that they are riding some computerized growth escalator forever descend into stagnation and downfall. The history of every growth industry illustrates a self-deceiving cycle of swift expansion and undetected demise. For example, if we look at the recent merger between Hp and Compaq it seems to be more of a whimsical act. Companies like Hp are not realizing that where the money is in Future (hardware or services). Mergers and acquisitions do not make you better. They make you better only if they are able to generate synergies between the operations. No business is forever. Sticking to old theories and creating an elephant is going to lead to the dooms day for corporations like Hp.

Reason 3. The belief that the growth is assured by an expanding and more affluent population- this is true if the market is growing, as there is no problem to generate demand as the market will generate it on itself. The problem is that when market is booming it will generate a lot of competition. In order to counter the competition companies embark on to sell their product and service as quickly as possible without keeping in view the customer. Companies' sell whatever they are making or manufacturing rather then making what the customer wants. The result is that the first instance the customer finds a better product company find themselves in lurch. By that time, it is already too late! Dell computer sweeping of the market is a perfect example.

Reason 4. The belief that there is no competitive substitute for the industry's major product- in my opinion the best example for this is the case of Apple Computers. They were market leaders and ahead of the industry in every respect. They though that what they were making was the best and the customer really liked there product and services. They allocated huge sum of money for research and development without keeping an eye on the customer or the competitors. It might be true that what Apple made might be better than other but they never realize the big market realties and finally one day they find themselves in competition with Microsoft. Microsoft was nowhere in early 80's and Apple could have really destroyed or purchased Microsoft. However, they never kept a tap of the market realities and one day they find that Microsoft operating system has virtually driven them out of the game. It was too late as to make a new operating system both because of the Financial and time constraint.

Same story is seems to be repeating now with Microsoft and Linux operating system. Microsoft is feeling the heat from open system and if it does not take strategic decision, it may well be losing out it main source of income.

This shows that if you live under the dilemma that you are the best and there can be no competition for your product and services then very soon, you will be sitting out. Another reason the fact and it is very true in the case of big companies that they do not really understand their customers. It is easy to ride along on institutive guesswork over the years, assuming you know what your customers will and will not buy. It is also easy to get surprised-either by your competitors or by your customers.

Catching the needs and want of the public is paramount. Apple which seems to have lost the bus on computers is well aware of this problem. It has refocused its strategy not only based on demand pull but also based on organic pull by forming strategies around customer need and demands. It is doing exceptionally well in by introducing the ipod and online song download.

Reason 5. To much faith in mass production and in the advantage of rapidly declining unit – Companies live under the dilemma that if they produce the goods in bulk there unit cost will decrease due to economies of scale and it can formulate or sustain their market position. It is true that with mass production, the unit cost will go down but it is also true that as production increase the firm focus shifts from satisfying customer needs to selling the product as much as possible in the shortest period. What really is emphasized is selling, nor marketing. Marketing is a science, which takes into account customer views and perception and provides them what they really want. Thus, there is a difference in selling a product or satisfying customer needs. Companies should introspect themselves from time to time so that they do not make strategic mistakes. For example Dell computers have shown the IT industry that they believe in satisfying the customers by offering them customized product rather then pushing the product to the customer. This is one of the prime reasons why Dell sales are rocketing and the competitors are packing their bags!

Reason 6. Poor communication- Poor communication is also one of the main reasons for the demise of the different companies. Communications should be transmitted through many mediums. One of the key adages of communication is that rumor fills a vacuum. If communication is not kept up throughout the life of the engagement, gossip and hearsay will take the pace of the fact. Communication should be clear and well communicated down the line.

Reason 7.  Preoccupation with a product that leads itself to carefully controlled scientific experimentation, improvement and cost reduction- Companies spend too much of money on scientific research and development and finally they turn out to be a research lab without any understanding of the product and of the customer.

Reason 8. Strategy innovation had failed- Companies failed to innovate and solve problem in the way the customer wanted them to be solved. Firms failed to implement Strategy innovation strategy, which involves minor changes to the firm's business model or a radical departure, as when a firm decides to market its existing products and services to new customer groups.

Reason 9. CRM panacea- Another interesting fact is about Customer relationship management, which is very often incarcerated to improving customer service, which in fact is a small part. The big picture is finding out who are the most profitable customers and focusing on them. Investing in solutions like ERP, CRM requires proper training and orientation is like cooking a meal by connecting the fridge and the supermarket. This is one of the reasons why so many ERP packages fail to deliver. The rule that applies never look for efficiency over effectiveness.

Customer satisfaction: Define expectation + over deliver on them +credit

Reason 10. Narrow focus- Industry defines itself too narrowly and focuses on their core business regardless of the fact that there is a constant change in technology, demand, customer perception and demand of particular kind of goods and services. If a firm defines it too narrowly, they think that they are in business, which is bound to grow, and there will be no competition in future and the customer is bound to utilize or purchase the goods and services, which they produce. This is a bad attitude and this shows that companies do not care for the customers. Companies must realize that it is customer who is driving there industry and if they don't care for his desires and wishes he will move to a better product and services form the competitor or the new market entrant as soon as they are launched.

Reason 11. Change Management problem- Companies undertake change management philosophy to improve productivity, efficiency, and quality. Change management is an intervention process that focuses on continuous improvement. The evolution has to be planned, managed, implemented and monitored to bring about success. It is a cross-functional; management led philosophy, which results in improved customer satisfaction.

Reason 12. SCM and R&D dilemma- there also seems to be a serious gap between the SCM and R&D. Close consistency was missing which resulted in

• Delayed introduction of new or modified product features in response to demand and competitor action. 
• Delayed formation of temporary strategic partnerships, alliances
• Non-interactive customer relationships. 
• Non- Dynamic configuration of production processes. 
• Poor information integration, real time accessibility to reduces the bullwhip effect. 
• Non-flexibility in supply chain management. 
• Poor integration in the back end back-end operations — product design and development, procurement, production, inventory, distribution, after-sales service support, and even marketing 
• Poor, collaborative planning, MRP, JIT, TQM, vendor management inventory, collaborative product and forecast replenishment (CPRF) 

Reason 13. Poor Management - Management fails to see that the strategies, which they need for success, keep changing and so goes for the measurement of those strategies. Management should use different tools like balanced score sheet concept developed by Norton and Robert Kaplan, which focuses on the cause and effect relationships among performance drivers and identify links to strategic outcomes.

What are the ways to bringing in sustainable economic growth-?

Way 1. Stock options- Stock options can be the best way to bring into alignment the interest of the shareholder and the employees. The stock options can be a very good way for the alignment of interest but in a bear market, stock options do not pay off for employees so employers reduce them.

Way 2. Analysis of the firm on the following grounds

• How is the firm value determined?
• How does the other financing affect firm's value?
• How is the interest rate determined in the market, how to determine whether risks are compatible with the return from the opportunity exploited

Way 3. Benchmarking- is necessary for the companies both internally and externally. Business model such as balanced scoreboard prepared by Dr. Robert Kaplan and David Norton, which measures a company around four perspective- learning and growth, the business process, customer and financial perspective can be of added advantage. It is also important for the companies that they business value index i.e. a process in which ‘the intangibles benefits of a process are qualified in manner which are measurable.

Way 4. Key performance indicators- a key performance indicator, which focuses on financial measurements as well as non-financial measurements, can be of crucial importance. KPI should be viewed as a forward-looking system of measurements that helps managers predict the company's economic performance and spot the need for changes in operations.

Way 5. Moving towards Knowledge Management - Knowledge management caters to systematically leverage information and expertise to improve organizational responsiveness, innovation, competency, efficiency and corporate knowledge. Corporate knowledge is an aggregated body of experience and understanding of an organization's processes for managing both planned and unplanned situations to achieve the process whereby knowledge seekers are linked with knowledge sources, and knowledge is transferred to attain knowledge management.

Way 6. Visualizing success- The visualization of a successful result is another important success factor. Many consultants believe that imagining themselves performing their events flawlessly, walking through the entire process in their mind, is a key factor in their success. Broadening product line: The ability to continually improve their product portfolio to meet changing customer requirements.

Way 7. Moving towards learning organization- A knowledge-based organization will lead to focused vision, faith, and initiatives. These initiatives will make employees contribute to the overall mission. Initiative without knowledge, vision and faith is misguided energy.

Way 8. Training and Development -The system and its users may need to be updated over time. Staff may slip into bad habits unless reminded of the system's value. Training and development is essential for the understanding of the employees and to make them share the knowledge and vision of the company. 

Way 9. Moving towards learning based organization- learning organization will change the organization into an organization where.

• A belief that systems thinking are fundamental.
• A climate that encourages, rewards, and enhances individual and collective learning.
• A view that holds surprises mistakes, and failures as learning opportunities.
• A desire for continuous improvement and renewal.
• Learning integrated with work.

Way 10. Packing the Rulebook - -the organizational rules above customer's satisfaction, with no discretion on the part on the part of the service person to make exceptions or use of common sense does not make sense

Way 11. Grooming Talents & living in future? Top management should leave the day-to-day operations to the general management and focus of building the future. Living in present is easy but the leader is one who has a vision for the future. Change does not take place on its own what is needed is a desire to lead the change. As Jack Welsh, the x-CEO of GE says ‘the job of the leader is to…articulate the vision to the employees' Top management should also groom new talents so that the company is always having a right mix of people both young and experienced.

Way 12. Leadership and Management- Top management should be proactive, courageous and creative. "You need people who will rattle the cages, who will say, here's an interesting problem. Does anybody have any insight?" (Fara Warner; Fast Company; Boston; Sep 2001 Pg. 186-191). Leaders have to set personal and professional goals, develop an effective communication strategy and commit himself and his people to the cause.

Leaders never sit still. Leaders never allow themselves to be surrounded on the battlefield. Keep striving to beat the odds.

Conclusion

Thus, it can be derived from the above pages that the performance of the company is very much influenced by the management and its organization structure. By having an understanding of the problems and the ways to solve them I believe that shareholder value and sustainable economic growth can be attained.

Robin C. Trehan is an industry consultant in the field of mergers and acquisitions. He is also a motivational speaker and knowledge management expert. He can be reached at robin@tafunds.com