think: act magazine - issue 15 - Roland Berger

ROLAND BERGER STRATEGY CONSULTANTS
Jürgen Hambrecht
on European
management
culture
Martin Walser
on justice and
injustice, money
and independence
Mastering complexity
India and its companies
can do more than just cheap
Philip Kotler reinvents himself.
The world of finance in upheaval.
The art of productive conflicts.
The global magazine for decision-makers Issue 15

Is there a European path to successful management?
We think so!
… and therefore we would like to congratulate the following winners from the German round of
our “Best of European Business” awards for successfully finding this path:
Dr. Jürgen Hambrecht, CEO of BASF SE, as best “European Manager”; Hartmut Ostrowski,
CEO of Bertelsmann AG, for winning the “Strong Leadership” prize; and also both HOCHTIEF
Aktiengesellschaft and Symrise AG as recipients of our “Growth Despite Crisis” award.
We believe that Europe’s companies have both the chance and the potential to make the coming
years a European decade.

If we want to generate sustainable growth for the
future, we need to successfully connect the major challenges in the
world—such as climate change and demography—with growth. In this
effort, industrial expertise plays a decisive role. Why? Because both
the green technologies that can help us address climate change, and
the productivity gains that can enable us to generate growth with
fewer employees, are based on superior industrial know-how.
The crisis has been a good reminder that the real economy—namely
industry and highly-specialized services, especially in combination—
plays a crucial role in the economic structure. That puts our priorities
right back in order! And it places continental Europe, with its high
industrial density, in a leading position.
However, the crisis has also revealed clearly that the Asian national
economies saved us from crashing into a depression—and that they
will remain the growth drivers for the next few years, with China
as the model for successful Asian economic development. However,
a growing number of people are beginning to ask just how long can
China walk the tightrope between communism and capitalism? India,
for example, is pursuing alternate roads to growth and prosperity. In this dossier we present our
perspective on how real the opportunities for India as a boom region truly are.
One of India’s strengths is diversity, which can be advantageous for competition and progress. Yet one
region in the world has potential for an even more stimulating environment: Europe. Nowhere else
can you find more languages, cultures and countries in a smaller geographic area. This unique mix has
led European businesses to develop a special outlook on management—a topic we present in-depth
in many studies and books. For this issue, in an exclusive interview, we spoke with BASF CEO
Jürgen Hambrecht for his insights on the opportunities inherent in a “European way of management.”
Have an enjoyable, interesting read.
Dr. Burkhard Schwenker
CEO Roland Berger Strategy Consultants
first views f
3

p contents
4
think:act is published in five languages (English, German, Chinese, Russian and Polish)
Mission deregulation. Sergey Tigipko is Ukraine’s new vice prime
minister. He is prescribing his country a significant reform program—
even if it causes some discomfort. Page 8
A new way to new ideas. The easiest source of inspiration
for companies is their customers. However, many fail to successfully
realize these ideas. We reveal some who have. Page 34
The meaning of justice. Renowned German author Martin
Walser discusses this and other issues with Alexander Mettenheimer,
CEO of private bank Merck Finck & Co. Page 58
Kotler on service marketing. The marketing guru tells think:act
that sustainability and smart communication are the key to successful
marketing for professional services. Page 44

food for thought
6 Football: a billion-euro market
The beautiful game is now a
booming global business.
8 Sometimes politics can’t
be popular
Sergey Tigipko’s fight for
reform in Ukraine
10 Locking horns
Why management conflicts
should not always be avoided
dossier
14 The thrill of complexity
as seen by Pietari Posti
16 India innovates differently
Why India’s companies can
do more than just cheap
�
DOSSIER #15
MANAGING
INDIA.
MANAGING
INDIAN?
The country is booming—this much we know. But
for some time now, there has been a great deal
more behind India’s growth than just an outsourcing
destination for the developed world. Companies
such as Tata are developing their own identity,
while top Indian managers have experienced
success in businesses around the world. And
India’s markets offer considerable growth opportunities
for American or European firms. In this
dossier, we take a closer look at the dynamics of
a country that is currently changing the world.
“India is not just about IT or business process
outsourcing. We see it as an incubator for giant
global corporations driven by IT strategy.”
F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL
“The real interest in India is to
find the next practice. To find the
unexplored innovative idea—
one that can change the game.”
BILL MCDERMOTT, SAP
Dossier
Managing India.
Managing Indian?
Starting on page 13
20 Waking the giant
India’s agricultural market is now
attracting international investors.
22 A lot of white shelves
Local stores still dominate
India’s retail trade.
25 Thirst for oil
India’s role in the global
search for crude
28 Trying to fuel the growth
India’s government looks to
domestic oil.
31 Praise to the mother
Why are Indian CEOs so
successful in global corporations?
industry report
34 Customer consulting
Customers provide the ideas—how
companies reap the benefits
42 The big realignment
How increased banking regulation
could bring new opportunities
44 “All muscle and no fat”
Philip Kotler explains how to
market professional services.
47 Journalism: first draft of history
Exclusive: think:act turns five.
CNN says congratulations.
48 Future markets
Artificial photosynthesis and
microscopes for molecules
business culture
contents f
50 Bracing for litigation
Management is a risky business.
We investigate D&O insurances.
52 Benefiting from diversity
BASF CEO Jürgen Hambrecht
on European management
56 Work in progress
58 “Only money grants independence”
Exclusive: author Martin Walser
in discussion with leading banker
Alexander Mettenheimer
61 “Don’t settle”
What drives Steve Jobs?
regulars
3 First views
62 Service | Credits
Articles that are marked with this
symbol can also be listened to on our
audio CD (page 63).
5

p food for thought
6
WORLD OF NUMBERS
Football: a billion-euro market
The 2010 FIFA World Cup, to be held in South Africa, shows once again that football has become a
worldwide business. The World Cup is a playground for iconic brands such as Adidas and Nike.
Top clubs are now run like companies, with the aim of conquering growth markets. But here, just
as in the business world, “the result is everything!”
Growth market Asia
With 85 million active players, Asia represents the biggest
contingent within FIFA, football’s global governing body.
However, with this figure equivalent to just 2.2 percent of
the total population, it has the lowest participation rate
within the FIFA confederations.
3.46
seasons was the average employment
period of a team manager in the top
European leagues in 2009. England’s
Premier League relies the most on longterm
collaboration (9.7 years), which
has proved successful in recent years.
The German Bundesliga had the fastest
turnover in coaches.
Source: PFPO – The Professional
Football Players’ Observatory
Source: Deloitte
Chelsea FC
€ 268.9 million
Mobile professionals: In the last several years, players in Europe’s five top leagues have
increasingly demonstrated a willingness to switch teams. On average, football stars leave their
clubs 3.47 times over a 10-season period; in 2006, that figure was 3.28. Italians are the most
mobile, averaging 4.24 transfers a decade. With an average of 4.21 moves over the same time
period, African players show a similar inclination to seek new challenges.
Source: PFPO – The Professional Football Players’ Observatory
The football clubs with the highest revenues
worldwide in the 2007/2008 season
FC Bayern München
€ 295.3 million
FC Barcelona
€ 308.8 million

Football beats the overall economy
The football business represents a very promising growth environment. For
example, in 2009 the DFL (the company that governs Germany’s professional
leagues) raised its revenues from the marketing of television rights, income
from advertising and player earnings to € 2.4 billion. This represents an increase
of 5 percent compared with the previous season, and the fifth consecutive year of
record sales. In contrast, the European Union posted an economic growth of just
0.9 percent.
Source: DFL
Manchester United
€ 324.8 million
England’s Premier League generates €200 million
from overseas marketing, making it a champion in that market.
In comparison, Germany’s Bundesliga takes in only about
€20 million abroad. The English clubs do have to work to earn
their money, though: extensive global promotional tours are the
norm, while even the possibility of staging a round of regular
season fixtures in different countries has been discussed.
Real Madrid
€ 365.8 million
China rising rapidly
FIFA is projecting an increased demand in China for football as a consumer
commodity. By 2020, the number of active players in this country
will climb from 26 million to more than 40 million. FIFA is expecting
that China will see an increase in the purchasing power geared toward
football-related markets, from $50 billion to $250 billion, as a
result of its per capita income tripling by 2020. European
clubs, associations and companies are tapping new sales markets
through strategic alliances. Top clubs like Real Madrid
and Bayern Munich are using training camps, pre-season
games, exhibition tournaments and youth football academies
to enter the Asian market.
Source: FIFA
food for thought f
4 percent of the world
population actively plays football
Of the 265 million players, 90 percent
(239 million) are men. However,
the number of female football players is
increasing. From 2000 to 2008 alone,
it increased by 19 percent to 26 million.
Number of players as a percentage
of the population
Costa Rica
27%
20%
Germany
Guatemala
Source: FIFA
Faroe Islands
16 %
17%
Chile
16 %
7

p food for thought
8
Sometimes politics can’t be popular
It’s the political resurrection of a reformer. Despite knowing he never really stood a chance, Sergey
Tigipko decided to run in the Ukrainian presidential elections. Now he is vice prime minister,
waging a battle against over-regulation and bureaucracy—very much the progressive politician.
:
When politicians allow themselves to be
profiled in men’s magazines, they are conveying
a message. That also applies to Sergey
Tigipko. When the banker decided to run in
Ukraine’s presidential elections, he wanted
to stand out from the established class of
politicians, so he did a photo shoot for the
cover of Men’s Health.
After years of political abstinence, the multimillionaire
re-entered the scene as a presidential
candidate in the fall of 2009. Without
a party or a parliamentary seat, he still
received 13 percent of the vote and came in
third behind the favorites Viktor Yanukovich
and Yulia Tymoshenko. After his electoral
success, he was courted by all political
camps. In March 2010, the new Ukrainian
government appointed him to be the Vice
Prime Minister for Economy. In his present
position, Tigipko is particularly keen on
implementing reforms that the country has
been putting off for two decades.
UKRAINE IS PROMOTING SMALL AND
MEDIUM-SIZED BUSINESS—AND TIGIPKO
BELIEVES IT’S THE RIGHT THING TO DO
In a meeting with think:act, he makes it candidly
clear why, after leaving the world of
politics in 2004, he now wants to use his
prominent position to reshape things. “Our
economy must be completely deregulated,”
opines the 50-year-old.
Tigipko believes that control must be quickly
regained over the rampant bureaucracy,
widespread corruption and the lack of willingness
to pay taxes. In the meantime,
Ukraine has begun to support small and
medium-sized enterprises. “In my country,
many people mistakenly believe that these
types of companies will cause the economy
more harm than good,” says the vice prime
minister. The reason for this misconception
is that these companies supposedly make up
a large percentage of Ukraine’s underground
economy. Yet Tigipko feels that government
support and tax benefits will help to build
up, stabilize and firmly establish this economic
sector, saying, “Without small and
medium-sized businesses, we can forget
about integrating with Europe.”
To date, innumerable Ukrainian governments
have sought in vain to enforce
reforms. But that is something Tigipko now
wants to change. The man who sold his
insurance group, TAS, to Swedbank for
$1 billion in 2007 is considered a clever
strategist and tactician.
In the fall of 2009, accompanied by considerable
media coverage, Tigipko went into the
month-long election campaign armed with a
political and economic manifesto that had
been carefully tailored by an international
team of consultants. Experts estimate that
his campaign may have cost him in the
region of $300 million.
With that event now behind him, the vice
prime minister prefers to discuss economic
growth. He wants to help Ukraine reach
higher growth rates—even if painful measures
are required. And Tigipko is convinced
that the people will still stay with him: “On
any given day, most Ukrainians experience a
lot of things that don’t work. It is the job of
politicians to push through unpopular
reforms. I’m ready to do that, and I’m convinced
that this will also be demanded by
Ukrainian politics,” he says confidently.
Immediately after assuming office, he established
a 60-day program that provided for
short-term changes such as doing away with
various bureaucratic provisions. He also had
the 2010 national budget prepared with the
assistance of the International Monetary
Fund (IMF). Many Ukrainians now have to
say goodbye to cherished comforts that the
government had once paid for. Next year,
for example, the price of gas for private
households will be scaled according to
income levels.
BANKS THAT DON’T SPECULATE BUT ACTUALLY
SERVE THE REAL ECONOMY
In particular the Ukrainian banking sector—
which suffered tremendously from the global
economic crisis and only survived an
imminent collapse thanks to assistance from
the IMF—is facing major changes. “Most of
the Ukrainian banks cannot be compared in
any way to those in Europe or the US,” says
Tigipko. The equity ratio of the financial
institutions is generally much too low and
that is why most of the banks struggled as
the crisis intensified.
In the future, the national bank should
impose stricter rules and monitor their compliance,
he says. In addition, the banks
should become partners with the real economy
and not tie themselves solely to speculative
activities. “In Ukraine, many banks have
devolved into casinos,” complains Tigipko.
Furthermore, the vice prime minister wants

“In Ukraine, many banks have devolved into casinos.”
Sergey Tigipko
to promote greater involvement from foreign
banks. “Anyone who operates according
to honest commercial practices is welcome
to do business here,” he says. “I support a
combination of European, Russian and
Ukrainian banks. It’s good for the competition
and it’s the only way to revive the business
sector,” Tigipko emphasizes.
He would also like to see a similar mix in
other segments of the Ukrainian economy.
“The political realm and other branches of
the economy missed opportunities in the
past to introduce Ukrainian products in
newly created markets like China and
India,” he says, criticizing his predecessors.
In the last five years, neither the country’s
president nor any of the heads of state had
considered it necessary to visit these countries.
While other nations sent trade delegations
to Asia, the old Ukrainian leadership
ignored the emerging world powers to a
large extent. Tigipko sees good prospects in
food for thought f
You can also listen to this article
on our audio CD (page 63).
these sales markets, especially for the metal,
chemical, and agricultural industries.
The vice prime minister relies on his image
of a successful manager. Wearing an immaculately
tailored dark suit, he asserts, “Old
politicians cannot serve new politics.”
Tigipko represents change—and embodies
it, too. Men’s Health readers learned that the
spry, athletic-looking man swims and jogs
on a daily basis.
Meanwhile, other media also regularly carry
stories about his domestic life with his family.
His wife Viktoria describes her husband
as the “protector of the family.” Not only does
he chop wood and perform minor repairs on
the house and car, he also packs the picnic
basket for family outings. This kind of
behavior goes a long way in Ukraine.
During the election campaign and the period
in which the government was being
formed, various political camps courted
Tigipko in an attempt to win him over to
their side. Former Prime Minister Yulia
Tymoshenko had offered him many lucrative
positions, even the job of prime minister.
All he would have had to do in return
was support her in the run-off elections.
However, Tigipko, ever the tactician, chose
to maintain a low profile, which proved to
be a smart move. After Viktor Yanukovich
was elected president, the new leadership
appointed Tigipko as the vice prime minister.
In this strategy, Ukrainian experts see
Tigipko preparing for another run at the
presidential office the next time around.
Under President Yanukovich and Prime Minister
Asarov, both of whom are over 60 years
old, his prospects seem better than they
would have been under the ambitious and
younger Yulia Tymoshenko..
This portrait is based on an interview that
Nina Jeglinski, dpa correspondent in
Kiev, conducted exclusively for think:act.
9

Locking horns
: US President Barack Obama has learned
two things this year. Firstly, anyone who
wants change must also be able to accept
change; and secondly, the most painful
blows often come from one’s own camp. As a
visionary Democratic, Obama had expected
the Republicans’ resistance to his health
care reform plan—but that the stiffest opposition
might come from his own party probably
came as more of a surprise. Suddenly,
the calls of “Yes, we can” rising from the
party faithful were mixed with whistles and
even booing. Several key delegates in his
own party opposed his plan to provide
health insurance for all Americans.
Nevertheless, with one show of strength, the
president ultimately imposed his will on his
opponents, both internally and externally.
Obama can live with the fact that he is no
longer loved by every member of the Democrat
Party. He has demonstrated the strength
of his leadership and, as a result, definitively
stabilized his position in the American
power hierarchy.
WHEN CONFLICTS GO UNSTATED,
THE RESULT IS OFTEN STALEMATE
Obama’s experience is also played out regularly
in companies all over the world. One’s
own ranks are seldom closed. On the managing
boards of large corporations, it is practically
unheard of for all the members to be of
one mind. And it is precisely when groundbreaking
decisions need to be made that differing
opinions and methods frequently
collide. This can often be exhausting, but it
also has positive effects for the company.
In fact, a difference of opinion at the highest
level can be most beneficial because it
forces everyone involved to strive to find the
best solution.
In the past, conflicts of these kinds were
avoided. Management teams often worked
side by side in the same company for
decades. The members of these teams knew
each other well enough to know what they
could, and couldn’t, get each of the others to
agree to. Friends and enemies alike knew
everything they needed to know about the
attitudes, strengths and influence of their
associates at the top. Topics that might lead
to disagreement were simply glossed over,
often creating an atmosphere of resignation
and stalemate. Of course, these differences
in ideas, approaches, and interests always
existed, they were simply never articulated,
meaning that their positive effects were
never realized.
These days, managers often spend no longer
than four or five years in the employment of
a single company, which increases the
potential for conflict: executives must struggle
to get their ideas adopted and establish
themselves in their team’s power structure.
This is good for companies because it rouses
them from the unproductive slumber of
“business as usual.”
Accordingly, one of the most rapidly growing
companies in the world deliberately
builds conflict into its management culture:
even when they are working together in a
garage, refining their ideas for a new kind of
search engine, Google founders Larry Page
and Sergey Brin would accept no lazy
food for thought f
compromises. Each idea, each step was challenged.
No decision was taken until it had
survived a process of constructive conflict.
This culture has been deliberately carried
over to the behemoth corporation they
founded. The success of Google vindicates
the approach of Page and Brin—especially
since the company is also highly successful
on the employment market. It seems that
talented workers do not want a cosseted
existence at any price.
ANYONE CAN CONTRADICT—EVEN
THE SEASONED WARHORSES
You can also listen to this article
on our audio CD (page 63).
According to conventional wisdom, conflict in management should be avoided. But is this really
true? Can struggles between the top managers of a company also be constructive?
They can—provided they are properly managed, as shown in the case of Google, among others.
Micropolitical sensitivities, born of age differences,
for example, are completely disregarded.
In order to make disagreement productive,
it is important to refrain from treating
older employees with kid gloves as well.
Google CEO Eric Schmidt has personal
experience of this. He often recounts how he
argued with founders Brin and Page about
technical questions, even while interviewing
for the job. The founders are in their
mid-30s now, while Schmidt is 20 years their
senior. But the veteran manager, who had
already contributed substantially to the success
of Sun and Apple, remembers this interview
as one of the most entertaining he had
had in a long time. And Brin and Page
respected the opposition of this experienced
businessman, who never avoids an argument
and is even prepared to question his
own views.
As CEO, Schmidt continues to propagate this
culture, which is based on questioning
everything and hiring the most widely
11

p food for thought
12
diverse people possible to pursue their
objectives with commitment and passion.
He actively promotes a culture of confrontation
and discussion in the company. For
example, important decisions must always
be made by at least two people. The result:
no solution is reached without prior discussion.
Managers and employees at Google are
expected to pursue the widest possible
range of goals, and then defend them
against opposing objectives. According to
Schmidt, this energy through friction is the
source of the dynamism in a growing company
like Google.
In other corporations, while argument is not
explicitly sought, it is used to generate a constructive
outcome. Take food giant Kraft, for
example. CEO Irene Rosenfeld is combative
by nature. When she took over the job, she
promised that she would create growth.
Rosenfeld promptly replaced half of the
management team, with no regard for losses,
to ensure support for her strategy, before
radically restructuring the entire company.
Then came the economic crisis and her
promise of growth crumbled. She was forced
to sell the US frozen-pizza business to archrival
Nestlé.
HOW ROSENFELD WEATHERED
THE STORM AS KRAFT CEO
Suddenly, the warrior found herself alone.
Rosenfeld’s critics within the company and
among shareholders balked at her growth
strategy in particular: she wanted to buy the
British chocolate manufacturer Cadbury to
close the gap on Nestlé. Suddenly, no one
believed she could pull the deal off and her
support within the company collapsed. Key
investor Warren Buffett humiliated her with
an open letter calling upon Kraft shareholders
to overthrow the single-minded boss.
But Rosenfeld was not intimidated, and in
the end, with much diplomacy, she got her
way. After six months of takeover poker,
Cadbury was hers and Kraft was still in hot
pursuit of rival Nestlé. Rosenfeld owed her
victory not only to her persistence, but in
equal measure to her ability to fight an
apparently overwhelming opponent for a
solution that would benefit the company.
And this is important, too: good managers
must not only be able to create visions, they
must also be able to realize them, even in
the face of opposition from the management
or supervisory board. They may cause
offense along the way because, at this level
of management, there are losers as well as
winners. Refusing to acknowledge this
means that all too often unpleasant decisions
are avoided.
With that said, it is inevitable that some differences
of opinion in business will not
always be beneficial for everyone. An internal
conflict often ends with a short
announcement in the finance section of the
newspapers along the lines of “The management
is leaving the company by mutual consent.”
But this result does not necessarily
have to be detrimental to the company.
When managers disagree, not only is it usually
the best solution that wins through, but
also the person who is best able to implement
it. Of course, this person also tends to
be someone who does not give up easily
under pressure.
One manager who will be leaving his company
in the near future is easyJet boss Andy
Harrison. He is one of the main protagonists
in a massive conflict of visions with majority
shareholder and founder of the airline, Stelios
Haji-Ioannou. He has said publicly that
he wanted the group to grow more slowly.
Instead of continuing to invest, he wanted to
distribute a dividend. The company managers
had other ideas.
EVERY SUCCESSFUL CLASH ENHANCES
THE PROFILE OF A TOP MANAGER
Harrison and his colleagues on the management
board had previously shied away from
this change in strategy, and had evidently
estimated correctly. In 2009, easyJet was
among the very few airlines in the world
that posted a profit. But this did not mollify
Haji-Ioannou. He recently resigned his position
as non-executive director under protest.
Despite this, Harrison will still leave the
company. His position in financial circles
has been clearly established through his difference
of opinion with the founder of the
company. Harrison has enhanced his profile
as an independent, top-level manager—
something he will undoubtedly benefit from
in future disputes, whether at easyJet or
elsewhere. One thing his management
board colleagues now know for sure—he is
not one to avoid a good argument..

MANAGING
INDIA.
MANAGING
INDIAN?
DOSSIER #15
The country is booming—this much we know. But
for some time now, there has been a great deal
more behind India’s growth than just an outsourcing
destination for the developed world. Companies
such as Tata are developing their own identity,
while top Indian managers have experienced
success in businesses around the world. And
India’s markets offer considerable growth opportunities
for American or European firms. In this
dossier, we take a closer look at the dynamics of
a country that is currently changing the world.
“India is not just about IT or business process
outsourcing. We see it as an incubator for giant
global corporations driven by IT strategy.”
F. WARREN MCFARLAN, HARVARD BUSINESS SCHOOL
“The real interest in India is to
find the next practice. To find the
unexplored innovative idea—
one that can change the game.”
BILL MCDERMOTT, SAP

DOSSIER #15
14
The thrill of complexity
as seen by Pietari Posti
Pietari Posti may be Finnish, but his illustration that opens our dossier section
is based very much on an Indian aesthetic. Like the goddess Shiva,
India’s top managers sometimes seem to have more than one pair of arms—
not only are they dealing with the complexities and problems in Indian society,
but they are actually finding clever solutions to them. To do this, they are
operating on an increasingly international scale, while the global players of
this world have long discovered the attractive markets India has to offer. This
dossier looks at both their opportunities and restrictions as well as discussing
whether there is such a thing as an Indian management model.

Managing India. Managing Indian? DOSSIER #15

DOSSIER #15 Managing India. Managing Indian?
16
You can also listen to this article
on our audio CD (page 63).
TATA GROUP, TATA MOTORS
Tata Motors, a part of the Tata Group
empire, is India’s largest carmaker and a
market leader in the commercial vehicles
sector. The company has generated
enormous interest, not only with its
acquisition of Jaguar Land Rover, but
also by producing the cheapest microcar
in the world: the Nano.
“I expect the Tatas to be
much larger in 100 years
than they are now. But
more importantly, I hope
the group of companies will
be the most respected in
India—on the basis of our
processes, our products
and our value systems.”
RATAN TATA, CHAIRMAN, TATA SONS
Commercial vehicle sales from March
to April 2010 in comparison with
the same period last year:
+38.31%
Midsize and heavy commercial vehicles
(M&HCVs) up 33.55 percent;
light vehicles up 42.67 percent
Stock market price for Tata Motors
The price per share for Tata Motors
has risen in the last few months.
Investors evidently appreciate the
company’s strategy.
Nov. Dec. Jan. Feb. Mar. Apr. May
India innovates differently
They can do more than just cheap. Indian companies are developing business models from
which their Western counterparts might learn a thing or two. In particular, they are thinking
innovatively—not so much in terms of technology, more about their customers’ budgets.
s
THEY ARE ASKING THEMSELVES the really big
questions: how do you invent a reliable mode of transport
for millions who don’t own a car? How do you
connect a billion people who earn less than $1,500 a
year on average? How do you show people who can’t
read how to open a bank account and make wire
transfers—in regions where the nearest bank is 200
kilometers away? It is not only the country’s leading
decision makers who are asking these questions—
Indian businesses are, too. And they not only are they
finding the right answers, but they are also earning
money with them. “There are no precedents for our
problems—their sheer scale puts them beyond anything
in human experience. So let us find our own
solutions!” India’s leading industrialists have heeded
this call to arms from strategy guru C. K. Prahalad,
and they are finding solutions that are inconceivable
in the West. It is in the emerging nation of India that
the business models of the future are being configured
today.
India’s industrial production is growing at an
average rate of 15 percent a month. Sales of cars by
Tata Motors or Maruti Suzuki India have risen by 25
percent in the last year. Most manufacturing concerns
in all sectors of industry are approaching the limits of
their capacity. India’s major corporations are growing
by as much as 40 percent. In almost every industry,
managers are struggling to keep up with demand.
At the same time, they are planning a takeover
offensive. Arcelor and Corus were just the beginning.
While the multinationals in the West are weakened,
the management teams of Indian companies, like
auto parts supplier Bharat Forge, electrical equipment
manufacturer Crompton Greaves, engineering firm
Larsen & Toubro, or pharmaceutical developer Dr.
Reddy’s are gearing up to change not only their country,
but also its position in the world, for good. Leading
the charge is Ratan Naval Tata, chairman of the
Tata Group, India’s economic colossus. No other concern
has had such a pervasive effect on the Indian
economy and society as this empire, which was
founded in 1868 by Jamsetji Tata. Tata products and
services are ubiquitous in India. The businesses
owned by this family-held company generate
between 3 percent and 5 percent of the country’s
gross national product.
ALL INDIANS ARE PROUD of Tata’s success. Like
no other business in India, the threads of tradition and
the future, trust and incorruptibility, profit and social
responsibility, are held firmly in the hands of the
unassuming Ratan Tata. He has already unleashed
one revolution, when, at the end of the last millennium,
he transformed the elephant that was Tata into a
pouncing tiger. The tiger’s first leap took it into the territory
of the world’s biggest steel producers. Now it is
gathering itself for an attack on one of the most ferociously
contested reserves of the old industrialized
nations—the production of luxury cars.
“The acquisition of Jaguar Land Rover by Tata
Motors is the expression of a new self-confidence,”
says Ralf Kalmbach, head of the Competence Center
Automotive at Roland Berger Strategy Consultants.
“Their unassailable domination of the commercial
vehicle sector at home has given them a sense of
belief that they can compete at the top of the international
automobile business.” After 40 years of resistance
to change, and having fallen into the wrong
hands, the British luxury brand Jaguar looked as if it
would follow its venerable, elderly customer base into
extinction. Then came Tata. “With his clear vision,
Ratan Tata showed the former colonial power how its
once revered status symbol can be driven into the
future,” continues Kalmbach.
The result was revealed at the last Geneva
Motor Show in the shape of new flagship model, the

XJ. It is barely recognizable in comparison to its predecessor.
Younger, more aggressive, it expresses a
repositioning of the brand—and, at the same time, the
conquering spirit of India. Recently, Tata posted a profit
for the luxury carmaker, which many had already
written off. According to Kalmbach, “This initial success,
unparalleled during the crisis, is an indication of
the determination and managerial skills that were
brought to bear in India to reinvent the brand.”
NEVERTHELESS: the success with Jaguar is
being played out in the uppermost segment of the
automotive food chain. But Tata is also involved at the
other end of the spectrum, where it has unceremoniously
reinvented the car itself, with the Nano. The idea
to create the first internationally competitive subcompact
car came to Ratan Tata on a rainy day in Mumbai,
when he saw one of the countless tiny motorcycles
weaving through the streets carrying a family of five.
“Surely it must be possible to provide this family with
a safer, more comfortable means of transportation?”
he thought. And so the idea was born: create a new
Managing India. Managing Indian? DOSSIER #15
form of transport for people at the bottom end of the
income scale.
In order to put the vehicle on the road, Tata
broke every convention in the car manufacturing rulebook.
“The approach is different in every way from
what is typically done in the automobile industry,”
explains Kalmbach. “Instead of starting with what was
technically possible, calculating what it would all cost
and then overrunning the cost targets by the usual 50
percent, Tata established a radical costing framework
and calculated downward from an immutable end
price, which influenced every aspect of the project.”
Everything in the development was subordinate to
one magic number: 100,000 rupees, just over
$2,000. And cutting costs did not mean cutting quality,
but rather redefining what is meant by top quality.
How do you build a simple, sturdy axle for a mere fraction
of the cost of all standard commercial products
without sacrificing safety and comfort, for example?
To answer questions like this, Tata convinced
high-end suppliers like Bosch, Continental and
Freudenberg to completely rethink the way they
INDIAN STRATEGIC SENSE
What are leading Indian and US
managers devoting most time to?
(Red = US)
LESS TIME
MORE TIME
Regulation questions
2%
24 %
41 %
Reports to the supervisory board
1 %
17 %
41 %
Shareholder relations
4%
31 %
41 %
Defining strategy
9%
0 %
Media relations
11 %
17 %
31 %
31 %
47 %
58 %
Day-to-day management
27 %
28%
55 %
24%
Source: Harvard Business Review, March 2010
78 %
17
98 %
93 %

DOSSIER #15 Managing India. Managing Indian?
18
BHARTI AIRTEL was founded in 1985 by
Sunil Bharti Mittal. Today, it is India’s
largest mobile wireless network operator
and one of the fasting-growing telecommunications
companies in the world. It is
currently expanding massively throughout
the African continent. Bharti Airtel was
recently named in Businessweek as one
of the six most successful technology
companies in the world.
“The Indian telecommunications
market is currently
going through a hypercompetitive
phase, but we are
still making a profit. Simultaneously,
we will continue
developing detailed plans to
expand into markets
beyond the borders of India
and southern Asia.”
SUNIL BHARTI MITTAL, FOUNDER, CHAIRMAN
AND GROUP CEO, BHARTI ENTERPRISES
Sales were up 7%on the
previous year, to 396 billion Indian
rupees, in fiscal year 2009/2010.
The EBITDA rose by 6 percent.
Sales growth
The four-year trend
shows Bharti Airtel is
continually expanding.
116.2 bill.
185.2 bill.
270.2 bill.
369.6 bill.
2006 2007 2008 2009
Volume in rupees; Source: Businessweek
produced high-value auto parts. “For many parts suppliers,
the Nano became a test laboratory for a business
model, to discover how it is possible to make
money with parts for simple, inexpensive, environmentally
friendly vehicles,” Kalmbach explains. “The
Nano was a wake-up call to the automotive industry, a
warning to finally change their strategy of expecting
customers to buy a bigger, and thus more expensive,
model every time they changed cars.” Because that is
precisely what is not working any more. “The car manufacturers
in the US, Europe and Japan will never
again see absolute growth in their traditional battleground
of big, expensive vehicles,” says Kalmbach.
“The growth of the future is taking place in the emerging
nations, with small, affordable cars that allow millions
to move around.”
Yet even Tata had to learn that dispensing with
time-honored development structures in the automobile
industry is a feat of strength that can only be
pulled off when pursued utterly without compromise.
“Time and again, the development of the Nano
reached a point at which it seemed impossible to hold
to the upper price limit of 100,000 rupees,” says
Kalmbach. “But Ratan Tata had given his word to the
world. And against this background, he forbade his
organization to waver from its goal. His maxim:
a promise is a promise!”
BHARTI, INDIA’S LARGEST telecommunications
provider, has turned the practice of amassing huge
revenues from millions of small transactions into an
art form, by enabling an impoverished population to
join a communications network. India is the fastestgrowing
mobile telephone market in the world. There
are currently 500 million cellular phones in use, and
by 2013 this figure is expected to top 900 million.
More than 120 million current users are supplied by
Bharti Airtel. No one in the world offers a cheaper price
per minute—currently half a US cent. Revenue per call
is minuscule. But Bharti Airtel is making enormous
profits as more and more customers in rural areas are
brought into the fold. At the moment, the company is
registering an impressive 100,000 new customers
every working day.
While India’s current strength has grown out of
its role as a service outsourcing provider for the First
World, Bharti has outsourced almost 90 percent of its
corporate processes to Western providers. Since its
foundation, the company has been growing so rapidly
that Indian technological capacities have not been
able to keep pace. “We realized that we can capitalize
on the strength of our partners by outsourcing,”
explains Jagbir Singh, Group CTO Mobility Networks of
Bharti Airtel.
Network development and operation, network
design and system optimization, everything is done
by Ericsson. With a constant stream of multi-billiondollar
orders, it has been India’s Bharti that kept the
crisis-wracked European mobile wireless company
afloat. Other contractors, including Nokia Siemens
Networks and IBM, are also dependent on the boom
of the Indian model for success.
The profits that this business model generates
are so enormous that Bharti Airtel is preparing to
expand into markets that the conventional telecommunications
providers have studiously avoided until
now. Most recently, the company paid $9 billion for
access to the African market. Its acquisition of shares
in Kuwaiti telecom provider Zain is the second-largest
in India’s history—and it comes with another 45 million
customers.
Bharti is also currently planning to enter the
banking services sector. An estimated 41 percent of
all Indians do not have their own bank account. Conventional
big banks have no idea how to manage the
enormous number of tiny bank accounts without
making a loss. Bharti does. With its mobile technology,
the company has the access and the capacity to
receive deposits, store the amounts and manage
withdrawals made by more than 100 million residents
in the rural reaches of the country—the customers
pay by cell phone.
The technology for mobile payment is provided
by the company A Little World, which is one of the
most creative technology providers in the world.
Headquartered in Mumbai, A Little World has already
revolutionized the mobile payment sector several
times. The latest phenomenon is the Zero-Platform.
This technology converts a smartphone, a lockbox
and a fingerprint scanner into a portable bank branch,
which enables rural India to connect to the bank network
and obtain microcredits. Eventually, they expect

to connect 50 million customers in this fashion. To
date, they already have three million.
Smart mobility, cheap telecommunication,
mobile banking services—these products are not just
useful, but they also enable people in even the
remotest corners of the world to become entrepreneurs
themselves.
According to C. K. Prahalad, this is the key to
India’s social development. “The poor must be able to
join forces with others as entrepreneurs. And companies
must earn money by providing the poor with
entrepreneurial opportunities.” Indian businesses
intend to make a profit from precisely this kind of
empowerment. The results are a flourishing entrepreneurial
culture, a rapidly growing middle class and an
optimistic outlook for the poor.
THE MOST INNOVATIVE EXAMPLE: Reliance Industries.
You can buy practically anything in the branch
stores of India’s largest retailer—from vegetables to
an education to gasoline. But what sets the $30 billion
company apart from other retail giants is its
astounding degree of vertical integration: not only
does Reliance tailor and sell suits under its own brand
name, it also produces the fabrics from which suits
can be made, the cotton threads from which the fabrics
can be made and the machines for producing the
threads. In this way, the company offers several
points of contact for the business ideas of people as
entrepreneurial “prosumers.” This year, Reliance was
the only retailer included in Fast Company magazine’s
list of the world’s most innovative businesses, and
this example shows why.
MORE AND MORE INDIAN banks are providing the
necessary startup capital for those who have no more
security to offer than a business idea and the courage
of their vision. Since Muhammad Yunus developed the
concept of microcredits, the bank service of granting
these tiny sums of money is attracting the fastestgrowing
clientele in the world. Recently, it has also
been gaining ground beyond India’s borders: the US,
Spain and Germany are all copying this system of
state aid to the “New Poor” of the First World.
After 300 years of economic stagnation, a
vibrant nation has awoken and is reinventing itself at
Managing India. Managing Indian? DOSSIER #15
staggering speed, with boundless creativity and
commercial energy. There are, of course, many problems
in India, for which solutions are still to be found.
Take conventional electricity, for example, which is
still twice as expensive as in China, while rail travel
costs three times as much. But these problems are
no longer intractable burdens—they have become the
next selling point for the next innovative business
model. India is making its own solutions with both
vision and pragmatism, creating business solutions
that are being gratefully adopted by an increasing
number of other emerging countries.
DOING WELL BY DOING GOOD
How India’s elite social
entrepreneurs live
Adulation on the streets, loyalty from their
employees, respect from their competitors—
not many captains of industry around the
world can lay claim to these accolades. But
Indian bosses can. The reason? Many of them
are serious about social responsibility. Their
commitment to social causes “goes far
beyond the interests of their companies,”
says Peter Cappelli, from the Wharton School
of Business. He recently conducted what is
probably the most comprehensive survey of
leading Indian managers ever undertaken:
“Every executive we interviewed described
the most important purpose of his company
in terms of a social mission. And not in order
to make money from it.” According to the survey,
shareholder value is ranked fourth on
their list of priorities.
“India’s large companies do
well because they do good.”
Peter Cappelli, Wharton School of Business
For example, Bharti Airtel wants to put mobile
phones in the hands of people for whom any
chance of telecommunication was a pipe
dream, until now. Indian banks, such as ICICI
Bank, provide starting capital for people who
have not had access to credit. Pharmaceuti-
cal manufacturer Dr. Reddy’s plans to make
healthcare affordable all over the world
through inexpensive medicines. And Infosys
intends to show the world India deserves a
place alongside global technology leaders. In
short: profits are a by-product, not the primary
purpose of a company’s activity.
Many top companies have put their money
where their social ideals are. For example, 65
percent of the profits of every company in the
Tata Group goes to charitable foundations;
only 3 percent goes to the family. While the
company executives live in demonstrably
modest style, their foundations finance
India’s leading universities and research
institutions, campaign for education, health,
food and clean drinking water. Dr. Reddy’s
finances healthcare for more than 40,000
children. Infosys equips entire hospitals and
schools with IT services and has launched a
nationwide program to develop IT skills
among young people—a visionary idea that
might benefit First World countries as well, as
they struggle to replace their declining technical
workforce. “Indian companies are not
just successful in addition to doing good for
society. There is plenty of evidence to suggest
that they are so successful because
they do good,” Cappelli states.
And the population expresses its appreciation
to those who run these companies. Ratan Tata
has not only been awarded the “Padma
Vibhushan”—India’s second-highest civilian
honor—he has also been voted the most
trustworthy man in India.
19

DOSSIER #15 Managing India. Managing Indian?
“For our company,
India is a key market.”
Sekhar Natarajan, CEO, Monsanto India
20
Waking the giant
India is one of the world’s biggest agricultural markets. Until now, small-scale farmers
worked the fields, but now farming companies from around the world are increasingly
heading to India, hoping that its agricultural sector will evolve into a growth driver.
s
THE ONLY SOUND that travelers hear in the rural
areas of Rajasthan, a state located in northwestern
India, is the chugging of motorized pumps. The water
canals stemming from the days of the “Green Revolution”
that took place shortly after 1965 are old and the
pumps don’t look much younger either. Their main
competition are the oxen that pull long chains to lift
buckets full of water out of the wells. Most of what
grows on the small plots is destined to feed the owners
and their families.
Around 730 million Indians lead an existence
as subsistence farmers out in the countryside. They
work on 120 million farms, with 60 percent of them
working on plots of land that are less than one hectare
in size. India’s agricultural sector is still far from
matching the economic growth already achieved by
its service and industrial sectors. While automobile
suppliers from around the world have manufacturing
operations in the industrial stronghold of Pune, and
more IT programmers work in Bangalore than in Silicon
Valley, agriculture in some parts of India has not
changed much since pre-industrial times. Millions of
well-trained engineers, physicists and doctors have
allowed the service sector to now account for more
than half of India’s gross domestic product. In contrast,
Indian agriculture accounts for only 17 percent
of the total economy–a trend that has been decreasing
for years.
DESPITE, OR BECAUSE OF THAT, the Indian market
is highly appealing to agricultural companies the
world over. One reason is the sheer scope of it: after
China, India is the world’s second-biggest market. “For
our company, India is a key market,” says Sekhar
Natarajan, CEO of Monsanto India, a subsidiary of USbased
Monsanto, which is involved in the seed business.
Fertilizer and pesticide producers also have
India in their sights. There are more than 1.1 billion
Indians to be fed, prosperity is increasing, especially
in urban centers, and eating habits are adapting to
Western standards. “Urbanization and the demand for
high-quality food is one of the growth drivers for
India’s agricultural market,” points out Kapil Mehan,
CEO of Tata Chemicals. The subsidiary of India’s
biggest corporate conglomerate focuses solely on the
domestic market in the agricultural business.
WHEN IT COMES TO FERTILIZERS, for example,
India is the world’s second-biggest market. Besides
state-run and local, privately held suppliers, international
companies have had a foothold here for quite
some time. The US-based seed producer Pioneer
entered the market more than 30 years ago and supplies
1.5 million customers in India. Part of the marketing
strategy includes public-private partnerships
in which companies and the government work together
with farmers. In February, Pioneer, along with the
agricultural authorities in the state of Uttar Pradesh,
initiated a collaborative project to train farmers. “We
believe that new seed types and services associated
with their use are critical to making India’s agriculture
more productive,” says Pioneer CEO Paul Schickler.
However, the collaboration between the government
and business does not function as well elsewhere.
“Right now, it’s the government especially that
is stepping on the brakes,” reports Michael Timm, an
agriculture expert with Roland Berger Strategy Consultants.
And that despite the fact that the Indian government
had made the country an agricultural trendsetter
for a while. In the 1960s, the Green Revolution
brought progress to the fields. After periods of drought
and widespread famine, the socialist government
stepped up its efforts and pushed ahead with the
planting of high-yield crops that could be harvested
several times a year. The massive use of pesticides
and mineral-enriched fertilizers as well as the expan-

sion of irrigated land have left behind obvious marks,
though. For example, tremendous environmental
problems related to over-fertilization are an everyday
issue in India.
To make matters worse, little has changed in
terms of technology since the days of the Green Revolution.
Very little remains of what was once progressive
technology. The archaic pipe systems are losing
huge amounts of water by today’s standards, and the
most prevalent types of towing vehicle in many parts
of the country come in the form of water buffalo and
zebu cattle. “The utilization of machinery is still very
low,” emphasizes Timm.
WHEN COMPARED INTERNATIONALLY, agricultural
productivity in India does not measure up well.
According to the World Bank, India only grows onethird
of China’s volume in rice and only half of the
amount produced by much smaller countries like Vietnam
and Indonesia. In addition, the weak infrastructure
prevents exports from being successful. According
to the World Bank, transporting grapes from India
to the Netherlands is twice as expensive as from
Chile, even though India is only half the distance.
That is why improved efficiency is so important.
One rupee invested in agricultural development
would generate 9.5 rupees for the economy in terms
of economic performance. However, the US-based
International Food Policy Research Institute has
determined that the additional subsidization of fertilizer
by the same amount would only generate 0.85
rupees. Intelligent watering systems that would add
fertilizer drop-by-drop directly into the water could
reduce costs while simultaneously protecting the
earth from over-fertilization. “Instead, farmers just
throw the nitrogen-based fertilizer on to the fields by
the kilogram and wait for it to rain,” Timm says.
Despite this, the government’s reform-oriented
zeal has visibly faltered over the years. It considers
itself more as a protective institution that shields the
army of small-scale farmers from fluctuating market
prices. “They represent millions of critical votes,”
explains Timm. These Indian farmers are not part of
Managing India. Managing Indian? DOSSIER #15
the group benefiting from the boom. In fact, they hope
that the subsidies will be enough just to survive. With
more than 300 million Indians living under the poverty
line, that’s not always the case.
Climate change is exacerbating the situation
and, in 2009, the country saw its strongest monsoons
in almost four decades. To top it off, the population is
growing; the government estimates that by 2017,
there will be almost 1.3 billion people living in India.
Monsanto came to learn that small-scale farmers
are an absolute necessity. The company is currently
working on obtaining the first approval for
genetically engineered vegetables in India. However
after nationwide protests, India’s Minister of the Environment,
Jairam Ramesh, relented. “The public is
against it,” he realized in early February and
announced a moratorium. However, the head of
Monsanto in India is still hopeful that his company
can roll out new seed types on the market some day,
as he believes that high-yield seeds are prerequisites
for agriculture to be more productive in India.
IMPETUS FOR INNOVATION is already coming from
the private sector, such as in the form of contract
farming. Containing provisions pertaining to quality
and quantity, contracts are being negotiated by globally
active food companies on-site with farmers in all
major sales markets, including in India, too. For example,
McCain Foods, a US-based company, has been
working with 400 farmers in the state of Gujarat for
several years. They plant potatoes that McCain then
processes into frozen French fries in nearby factories
to be sold to McDonald’s subsidiaries throughout
India. “Urbanization and consumption patterns that
are strongly oriented to Western habits certainly support
such models,” says Michael Timm. “But to date,
such contracts are rare in India.”
Executing such contracts is no simple matter
either. McDonald’s came to India in the mid-1990s and
needed several years to set up a functioning supply
chain. But the effort paid off, and not only for the fastfood
chain; in Gujarat, agricultural growth is matching
the rest of India’s rapidly expanding economy.
“We believe that new
seed types and services
associated with
their use are critical to
making India’s agriculture
more productive.”
Paul Schickler, CEO, Pioneer
India as an agricultural
problem area
Arable land in hectares per person
2.52
1.39
0.61
0.35
0.88
0.28
0.16
0.10
Australia
Canada
Russia
USA
Brazil
Thailand
India
China
Sources: World Development Indicators
Database, Datamonitor, Roland Berger
21

DOSSIER #15 Managing India. Managing Indian?

A lot of white shelves
The world’s multinationals want to move in on India’s retail trade. Their biggest
competitors aren’t Indian companies, but the local mom-and-pop stores that are
proving to be masters in logistics and customer focus.
s
INDIA IS TRULY A COLORFUL country. But those
who base their impressions on consumer experiences
in food stores won’t see much of this color—the country’s
shelves have a distinct lack of it. Oil is sold in
transparent plastic bottles without any labels, while
sugar and rice are available in brown paper bags or
burlap sacks. Surprisingly, many products are displayed
entirely without brand names.
For multinationals, this brandlessness represents
an opportunity. Innovative sectors such as
processed foods and personal care, in particular, are
still highly underdeveloped, according to an analysis
conducted by Roland Berger Strategy Consultants and
its Indian partner company, the Tata Strategic Management
Group. When it comes to soaps, detergents
and lotions, Indians spent $8.7 billion in 2008, which
is projected to increase by almost 20 percent annually.
Also, the $115 billion processed foods market
(2007) is expected to almost triple by 2016.
Forecasts suggest that in 2025, India will be
the world’s fifth-largest consumer goods market—
leaping up from 12th place in 2007. “Despite that, India
is still not high enough on the priority list among
many international consumer goods manufacturers,”
says Andreas Bauer, head of consumer goods and
retail at Roland Berger Strategy Consultants. A recent
Nielsen Global Consumer Confidence Study revealed
that India had already moved into second place in the
spring of 2010.
After India’s economy had grown by 9 percent
annually between 2007 and 2008, the country still
managed to grow by about 7 percent in the crisis
years. However, economists are back to projecting a
figure of 8 percent for 2010—and an average growth
rate of 6.3 percent annually until 2030. One reason
for the surprisingly stable trend is that the Indian
economy is bolstered by rapidly increasing domestic
demand. Domestic consumption already accounts for
Managing India. Managing Indian? DOSSIER #15
more than two-thirds of the gross national product
(in China, it is less than one-third). In other words,
Indians are buying their way out of the crisis.
GOVIND SHRIKHANDE, CEO of Shopper’s Stop, one
of India’s biggest retail chains, is also seeing a gradual
upswing in consumer behavior after the economic
crisis and the terror attacks in Mumbai. “They (Indian
consumers) are certainly loosening their purse
strings. They were on a shopping diet for a long time.”
Shopper’s Stop operates 28 department stores in
addition to several subsidiaries of the stylish Hyper-
CITY supermarkets. And these are not just located in
downtown Mumbai or in Gurgaon, one of Delhi’s most
modern suburbs, where almost all Indian and foreign
companies have their headquarters. In the future,
Shrikhande wants to penetrate into new regions
and cities, such as Aurangabad, Amritsar and
Coimbatore—places that the international business
elite haven’t heard much about to date.
In India, consumer business focused for a long
time on a small, affluent class that formed the customer
base for Gucci boutiques, Armani flagship
stores and Bentley dealerships. Luxury goods manufacturers
should continue making good money from
this class in the next few years, however the major
business lies in transforming the masses living in
rural areas to brand consumers. Ultimately, only 28
percent of India’s 1.14 billion people live in cities. “The
market for luxury goods is largely developed,” opines
Andreas Bauer. “The future focus is on average people
and high-volume business.”
IN THE LAST DECADE, India’s rural economy grew
up to 40 percent faster than in the cities. Now, rural
regions account for more than 50 percent of the GNP.
The purchasing and economic power stemming from
the countryside is increasing steadily, fueled by
You can also listen to this article
on our audio CD (page 63).
“They are certainly
loosening their purse
strings. They were
on a shopping diet for
a long time.”
Govind Shrikhande, CEO, Shopper’s Stop
23

DOSSIER #15 Managing India. Managing Indian?
24
Purchasing power of Indian consumers on the rise
Income distribution of the population by household
Income measured in 100,000 rupees
Premium >12
Mass Affluent 2.4–12
Mass 1.1–2.4
Basic >1.1
2
17
53
132
tremendous, government-driven economic stimulus
and infrastructure programs. It is anticipated that by
2025 more than 300 million of the rural poor will
become members of the lower middle class.
As a result, their consumer behavior may
change, too. To date, most Indians tend to shop in a
traditional way. Only 6 percent of the consumer goods
business is handled through modern warehouses and
supermarkets. Instead, the majority of this trade
takes place in “kirana stores”—small shops with narrow
shelves and a limited selection, located on the
ground floor of almost every Indian apartment building.
The kirana stores (also known as mom-and-pop
stores) are usually family operated. They benefit from
minimal personnel costs, geographic proximity to
customers and their excellent service (including
home deliveries). Especially important is the fact that
they offer competitive prices, in contrast to the same
type of stores in Europe.
THIS EXPLAINS WHY THE TRULY GREAT retail revolution
has not happened yet. According to estimates
made by the Retailers Association of India, sales
through modern retail channels will increase by
around 20 percent in fiscal year 2009/2010. Faster
restructuring is also being prevented by the fact that
foreign companies are prohibited from making direct
investments. Walmart, Carrefour and other global
players can officially hold only a minority stake
in joint ventures with Indian partners. Shopper’s
Stop CEO Govind Shrikhande also doesn’t expect
the investment barriers to be raised in the next several
years, even though the entry of international
2005/2006 2009/10
Source: World Development Indicators Database, Datamonitor, Roland Berger; figures starting with 2009/10 are based on estimates.
4
28
75
114
8
47
103
78
2013/14
companies into the Indian economy could do some
good. Specifically, they would bring with them “international
best practices,” he says.
As it is, for the next 20 years, kirana stores are
likely to remain fixtures in India’s consumer reality,
believes Bauer. Companies that want to be successful
on the Indian consumer market can choose
between a presence as a niche brand and developing
“a bona fide Indian business model.” This would
encompass the entire value chain, from production all
the way to setting up a multi-level distribution system.
For international companies without historical
roots in India, integrating themselves into the kirana
stores’ distribution network is no simple matter.
According to industry experts, doing retail business
in a city like Mumbai alone would require contracts
with several dozen wholesalers and distributors.
Nevertheless, penetrating the market is not
impossible. How a medium-sized European company
can get a foothold in this booming area of growth has
been demonstrated by Perfetti Van Melle, the confectionery
manufacturer and producer of the mintflavored
candy, Mentos. Perfetti Van Melle holds a
share of about 30 percent in India’s candy market.
There are two main reasons for the firm’s success:
first, its advertising commercials carry a distinctly
Bollywood aesthetic; second, Perfetti Van Melle supplies
more than a million retailers and shops, and
instead of offering candies in large packages, it made
the canny decision to sell its Mentos in small monopacks
that cost just a few cents.
Herein lies one of the main challenges for international
companies—designing their products and
processes in such a manner that they are appealing
and affordable to Indians. The mobile phone giant
Nokia experienced a flop a few years ago when it
attempted to sell phones at something approaching
the level of “Western” prices. Then it developed the
1100 model that, thanks to its dustproof case and
integrated flashlight, was tailored to the needs of
India’s rural population. What’s more it only cost $10.
This strategy helped Nokia to acquire an impressive
market share in India of 60 percent (of a total 800
million mobile phone owners) and also gave its international
strategy a boost; the Nokia 1100 has become
a global bestseller.

Thirst for oil
ON DECEMBER 4 LAST YEAR, when oil barons
around the world gathered in India’s IT capital Bangalore
for the annual World Oil & Gas Assembly (WOGA),
the pressing concern in the minds of the attendees
was not just whether recoverable supplies will
decrease faster than they can be replaced with alternative
sources. The big issue was the need for an
alternative business model. “We need evolution in this
business rather than revolution,” said Tony Hayward,
CEO of British Petroleum. He was endorsed by Khalid
A. Al-Falih, CEO of Saudi Aramco, the world’s largest oil
company. “Three Ts—technology, talent and teaming—can
do a lot to meet the resource shortfall,” said
Al-Falih. Mukesh Ambani, India’s top oil man and one
of the hosts at the event, couldn’t agree more. Despite
the lack of direct resources, his company—Reliance
Industries Limited (RIL)—has become a major force
in the South Asian oil market.
AMBANI, WHO HAS SET UP a giant 580,000-barrels-per-day
refinery in the city of Jamnagar in western
Indian state of Gujarat, is now aggressively
importing crude oil and is looking for overseas acquisitions
to meet the growing demand. Low production
and logistic costs will drive further expansion of Indian
refining capacity, says a senior consultant on oil
and energy from Roland Berger Strategy Consultants.
“Proper investment planning and controlling as well
as cost-conscious global sourcing will be key to further
success of downstream players,” he adds. Indian
crude oil demand of 161 mt per year (2009) has been
growing at 4.8 percent over the last five years.
Buzz about RIL’s international expansion
became louder when it raised around $700 million by
selling its treasury shares. “RIL is reviewing a number
of global opportunities for growth in its core business,”
says a company spokesperson. “The difficult
operating environment of the past year has made
available several interesting opportunities, where an
Managing India. Managing Indian? DOSSIER #15
OIL- AND PETROCHEMICAL-RELATED INDUSTRIES: DIFFERENT PROBLEMS
Indian oil companies go globetrotting in search for crude, which means that the global
exploration heat is growing. Meanwhile, the Indian home market is still rather restricted.
s
investment by a strategic operator of industrial
assets can add substantial value.” The company’s
attempt to acquire assets of LyondellBasell was seen
as a brave step by an Indian private company to
expand. Reliance also signed a deal with Colombian
state oil firm Ecopetrol for two deepwater blocks in
Colombia.
AND IT IS NOT JUST RELIANCE. All major Indian oil
companies—government and private—have stepped
up the exploration heat around the world. Essar, Videocon
and ONGC Videsh have been tapping into the global
oil pool with some success.
In the absence of resources, the low-cost
refineries could become the main attraction for foreign
companies to India. At the moment, Indian companies
are focusing on upstream activities to secure
oilfield assets, says Narendra Taneja, oil expert and a
commentator with Upstream, the world’s largest oil
and gas newspaper. He calls it a battle for energy
security, especially as almost 75 percent of India’s
crude requirements are met through imports, conservatively
billed at $124 billion a year. Twenty years
from now—when India is expected to consume more
than double of what it does now—its crude import bill
is likely to soar to more than $248 billion.
Oil analysts say the fight for world oil is global,
but that special attention should be paid to the activities
of major Chinese oil companies. China consumes
more than one-third of global oil supplies.
Recent experience has shown that Indian companies
are often losing out to the Chinese. In August
2009, India’s largest public-sector oil company, ONGC,
lost its bid to acquire Swiss oil exploration firm Addax
Petroleum. It lost to Sinopec, a subsidiary of China
Petrochemical Corporation. China’s second-largest oil
company shelled out $7.2 billion to seal the deal.
Again in December 2009, ONGC lost its bid to develop
Iraq’s giant Halfaya oilfield to a consortium backed by
25

DOSSIER #15 Managing India. Managing Indian?
26

China National Petroleum, which easily undercut the
Indian company’s offer of $1.76 per barrel.
Despite a war chest of $283.5 billion in the
shape of foreign reserves, for years it has been outbid
for overseas energy acquisitions. And what’s
worse, says ONGC chairman RS Sharma, India does
not even have a sovereign wealth fund, which is crucial
for acquiring global energy assets. It has been reliably
learned that the Indian Finance Ministry could
eventually agree to set up a $20 billion sovereign
fund to help Indian oil and gas explorers compete with
their international rivals.
EVEN AS THE INDIAN COMPANIES start a global oil
shopping tour, the entry of international players in
India has remained restricted. The retail oil market
continues to be subsidized and controlled by the government.
However in recent times, it has shown signs
of loosening its grip. “We do expect a new form of regulation
which improves the balance between affordable
fuels for the public competitiveness of Indian oilcos
and necessary subsidization by the Indian state.
This should enable state owned companies as well as
their private competitors to succeed,” says Walter
Pfeiffer, oil expert and partner at Roland Berger
Strategy Consultants. “Lower subsidization will drive
significant efforts to increase efficiency across all
downstream operations.”
Sustainable biofuel is seen as a direct alternative
to oil and gas in the country. “India has regions
which could perfectly profit from investments in
sustainable second generation biofuels,” says the
expert. The government has already decided to
decrease the dependency on crude oil imports and is
encouraging investment in alternative areas that are
sustainable in the long run. The country’s bio-diesel
processing capacity is estimated at 600,000 tons per
year. Bio-diesel in India is virtually a non-starter. There
are many reasons for that, the main ones being
the non-availability of vegetable oil and government
policies. The edible oils are in short supply, and the
country has to import up to 40 percent of its
requirements.
The Indian bio-fuel policy was announced in
December 2009. The government has set a target of
20 percent by 2017 for the blending of bio-fuels—
Managing India. Managing Indian? DOSSIER #15
bio-ethanol and bio-diesel. Addressing concerns, it
has declared that bio-diesel production will be taken
up from non-edible oil seeds in waste, degraded and
marginal lands. Bio-ethanol already enjoys a concessional
excise duty of 16 percent, and bio-diesel is
exempted from excise duty.
AS THE INDIAN ECONOMY continues to grow
quickly, its energy needs are mounting rapidly. It is
clear that Indian oil companies will not be able to meet
the requirement, and soon the market will be opened
for international players. The central question is when
and how.
INDIA AND ITS OIL
• Oil India plans to disinvest by selling
11 percent of its equity.
• Essar has projects in Vietnam, Myanmar,
Madagascar and Nigeria.
• Videocon and BPCL have oil blocks in
Mozambique.
• Reliance is present in Oman, East Timor,
Australia, Peru, Columbia, Kurdistan
and Yemen.
• A $20 billion sovereign fund is expected to
help Indian oil and gas explorers compete with
their Chinese rivals.
27

DOSSIER #15 Managing India. Managing Indian?
OIL- AND PETROCHEMICAL-RELATED INDUSTRIES: DIFFERENT PROBLEMS
28
Trying to fuel the growth
The government of India is trying hard to change the image of the petrochemical sector
in the country. It is offering sops and tax holidays to attract foreign players.
s
ON APRIL 03, 2010, India’s largest public-sector
commercial enterprise, Indian Oil Corporation (Indian
Oil), entered into a joint venture with Taiwan’s TSRC
Corporation and Japan’s Marubeni Corporation to set
up a state-of-the-art styrene-butadiene rubber (SBR)
unit at Panipat, an industrial town around 130 km
from New Delhi. The unit, with a capacity of 120,000
metric tons per annum, is expected to produce highquality
synthetic rubber used in the manufacture of
automotive tires, conveyors and fan belts.
This is one of the many projects that have
recently been signed between leading international
companies and India’s public-sector petrochemical
corporations. The country has a major unexploited
market with immense growth potential. India’s current
per capita consumption of polyester is 1.4 kg and
it accounts for 3.1 percent of the total world polymer
consumption of 200 million tons per year.
HOWEVER, IN RECENT TIMES, there have been
instances when these agreements haven’t lasted
long. Some foreign players have withdrawn from key
projects. In 2009, French petrochemical major Total
pulled out its investment from a venture to set up a
greenfield refinery-cum-petrochemical project worth
around $7.1 billion in Vizag in the southeastern state
of Andhra Pradesh. Apart from Indian public-sector
giants like GAIL, OIL and HPCL, the venture boasted
Mittal Energy as one of its partners.
“Indian projects are continuously delayed. It
will be a challenge to make them happen on schedule,
within budget,” says Arjen de Leeuw den Bouter of
Roland Berger Strategy Consultants. The Indian petrochemical
sector, which is one of the country’s fastergrowing
industry segments, at 13 percent per annum,
faces a number of challenges as it tries hard to attract
foreign partners. High costs of energy and raw materials,
and access to basic infrastructure, are among
the major troubles of this sector. India’s chemical
industry currently operates out of 25 major clusters,
with the western states accounting for 65 percent of
them. The states of Gujarat and Maharashtra are host
to most of the refining, petrochemical and downstream
chemical complexes.
THE PRODUCTS FROM THESE STATES are facing
steep competition from cheap Middle Eastern
products. “The single most important
question is how the Indian petrochemical
industry, especially on
the west coast, is able to compete
with Middle Eastern products.
This will be extremely difficult,
and tariff barriers seem
to be India’s only defense,”
says de Leeuw den Bouter.
In order to enable India
to leverage the critical success
factors for the development of
the chemical industry, the government
has launched special
economic zones (SEZ) called
Petroleum, Chemicals and Petrochemicals
Investment Regions
(PCPIR).
IT IS PROVIDING BENEFITS such as better road
and rail linkages and income tax holidays for 10 years
to attract investment in these clusters. According to
Tata Strategic Management Group (TSMG), the PCPIR
policy is expected to open up tremendous business
opportunities in the chemical and petrochemical sector.
Both the central and state governments have
announced incentives such as fast-track clearance
from respective ministries to induce public-private
partnerships and continued fiscal benefits. The government
plans to establish three PCPIRs with a likely
investment of $92 billion (as estimated by TSMG). In

the state of Gujarat, a PCPIR is being set up in
Bharuch-Dahej with an investment of $10 billion.
India’s largest petroleum company, ONGC, and the
state’s Gujarat State Petroleum Corporation (GSPC) are
partnering to establish a petrochemical investment
region on a core area of 181 square km, on the shores
of the Arabian Sea. In the eastern state of West Bengal,
the Haldia petrochemicals refinery is being further
expanded to 7.5 million metric tons. The second
PCPIR has been approved here.
INDIAN OIL CORPORATION and Spice Energy plan
to invest $20 billion over a core area of 108 square
km, on the shores of the Bay of Bengal. Cals Refineries
Ltd. (Spice Energy) plans to set up a crude-oil refinery
complex in Haldia with a capacity to process 5 million
metric tons per annum of blend crude in the first
phase of the project. The third approved PCPIR is in
Vizag in the southern state of Andhra Pradesh, where
French petrochemical company Total withdrew its
Managing India. Managing Indian? DOSSIER #15
investment from a greenfield project in 2009. Government-owned
petrochemical company HPCL is the
anchor tenant of Vizag SEZ and plans to invest a
whopping $62 billion on a core area of 270 square km.
IN ORDER TO MAKE THE INVESTMENT regions more
accessible, the government has also invested heavily
in infrastructure. For example, in Vizag the government
spent around $440 million to upgrade the
port. Similarly in Haldia and Bharuch-Dahej, huge
amounts have been spent to create infrastructure
requirements such as roads, rail networks, water
supply and water treatment plants. Apart from the
three approved PCPIRs, three more are being planned
in the southern states of Karnataka (Mangalore) and
Tamil Nadu (Cuddalore), and in the eastern state of
Orissa (Paradeep). All SEZs are well connected with
the sea. “We expect such steps to help foreign players
to look at the Indian petrochemical industry more
positively,” says a senior official in the Department of
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DOSSIER #15 Managing India. Managing Indian?
30
Chemicals and Petrochemicals. With foreign companies
allowed to own 100 percent of Indian subsidiaries,
the government hopes to attract more
foreign players in this growing segment.
AND FOREIGN COMPANIES do not just bring in
money. They also provide new technology, application
knowledge and a global client base, says de Leeuw den
Bouter. In fact, for the private sector, investment
is not the main problem, says Tushar Pania of Reliance
Industries Limited. Reliance is one of the major private
players in this field, with a number of refineries
in the western states of Gujarat and Maharashtra.
The most famous of them is Jamnagar
in Gujarat, where Reliance has recently
added a giant 580,000-barrels-per-day
refinery. Though the company failed to
buy assets of bankrupt petrochemical
giant LyondellBasell, it continues to
“review a number of global opportunities
for growth in its core business,”
says a Reliance spokesperson.
WILL THE IMAGE OF INDIAN petrochemical
sector change after so many
sops, so much investment, and such big
ambitions? “Only if it delivers,” replies
de Leeuw den Bouter.
KUNAL MAJUMDER is a correspondent with the Indian news weekly
Tehelka. You can follow Kunal at twitter.com/kunalmajumder and Tehelka at
www.tehelka.com

Praise to the mother
Pepsi, Adobe, Unilever: Indian managers are rising to the top of the world’s biggest
companies. What makes them so attractive to foreign employers? Part of their secret:
a strong family orientation—and a capacity to deal with complexity.
s
A NEW BREED OF MULTINATIONAL CEO is emerging:
charismatic, sleek and eloquent—with an Indian
background. PepsiCo’s CEO Indra Nooyi; Shantanu
Narayen, president and CEO of Adobe Systems; or
Sanjiv Kakkar, chairman of Unilever in Russia, Ukraine
and Belarus: These executives share the experience
of growing up in India.
Apparently, Indian managers bring multinational
companies insight on leadership and management
that home-grown executives may lack. According to
Peter Cappelli, the joint author of the recent book The
Indian Way, Indian managers have a special knack for
empowering people by creating a sense of mission.
And they’re prone to address critical internal matters
rather than focus too exclusively on external affairs,
such as investor relations, M&A and share prices.
BUT PERHAPS IT IS THE CLEAR VISION with which
Indians lead multinational companies that is most
striking. Some 61 percent of Indian leaders said that
articulating a path to the future, strategic thinking and
guiding change were the factors most critical to their
exercise of leadership, according to a study performed
by Cappelli. Unilever’s Sanjiv Kakkar says: “It’s not only
important that I have the clarity, it’s important that my
entire team and the entire company share that clarity
on what we are trying to achieve.”
Cappelli’s research is part of his efforts to formulate
what is unique about the Indian way of doing
Managing India. Managing Indian? DOSSIER #15
business. With the US model of capitalism under
attack, Western businesses might look to Indian CEOs
for leadership inspiration. “Whereas China’s growth is
based on low-cost labor, the manufacturing sector and
a huge government role, India is thriving despite its
adversity,” says Cappelli. Or, as Edward Luce wrote in
In Spite of the Gods: The Strange Rise of Modern India,
the slow-moving and fractured Indian government,
with its dozens of political parties and messy parliamentary
democracy, is not getting in the way much.
PERHAPS POLITICIANS HAVE LEARNED a lesson
from the blind spot that led to the rise of the software
industry in India. The government failed to regulate
the industry at the outset because it was new. This
gave companies a critical chance to flourish in the
hands of entrepreneurs.
Scholars have bickered for decades about
which country will rise faster—India or China. They
now seem to have tired of this debate and are examining
the interlocking economies of both countries. Just
look at how many multinationals are using Indian IT
services for their Asian operations—in China.
Indeed, India looked over the border to see
China’s rising tide at the beginning of the last decade.
“Indians took notice that another poor country was
moving fast,” says Soumitra Dutta, Roland Berger
Chaired Professor of Business and Technology
at INSEAD. Dutta says that he grew up sensing an
You can also listen to this article
on our audio CD (page 63).
31

DOSSIER #15 Managing India. Managing Indian?
Indra Nooyi, CEO of PepsiCo. At a family visit,
her mother got compliments for raising such
a good kid.
32
unspoken feeling of failure among Indians who compared
the situation of their country with others.
“THERE WAS A SENSE OF FRUSTRATION. People
said, ‘We’re not in great shape because of the colonial
history.’ It was unspoken and fatalistic.” The selfdoubt
was compounded in 1967 when the country
had to devalue its currency and once again in 1991
when the government was essentially bankrupt.
“From a cultural and emotional point of view, that
was very painful. It was an important trigger for the
country to open up,” says Dutta.
That unspoken fear of inferiority has now been
largely replaced with entrepreneurial zeal and a rampant
sense of achievement among much of the population.
Even the poor are becoming owners of small
businesses and seem to have internalized the message
that education is a ticket out of poverty, as evidenced
by the sacrifices that parents are willing to
make for their children. “Some parents would rather
skip a meal than not send a kid to the right school,”
says Dutta.
CONSEQUENTLY, THE MIND of an Indian CEO is
more likely to have been imprinted with such stories
of overcoming adversity than with lingering regrets
about the past. Since colonial rule ended in 1947,
those Indian leaders currently at the helms of multinationals
didn’t experience British rule personally.
But they have benefited from some of its positive
legacies: English is widely spoken, and Indians have
a built-in starting point for understanding Anglo-Saxon
traditions.
So how have the attitudes of Indian leaders
of multinationals been shaped? What makes such
leaders unique? First, one must consider that these
leaders—such as Nandan Nilekani, former CEO of
Infosys, Vikram Pandit, CEO of Citigroup, and Arun
Sarin, former CEO of Vodafone—are a biased sample
of the elite, says Amlan Roy, the head of Global Demographics
and Pensions Research at Credit Suisse in
London. Roy, an Indian who has spent much of his
working life abroad, says these managers are welleducated
and well-traveled. They are good speakers
and teachers, and they have risen to the top of the
Indian meritocracy.
HOWEVER, DESPITE THEIR SHELTERED upbringing,
such Indian managers are likely to be comfortable with
the masses and in multilingual, multicultural environments,
given the hodgepodge of India’s languages, cultures
and religions. They may possess a sensitivity to
non-Western cultures that Westerners lack and be able
to use that understanding to their advantage to rise
within the hierarchy of a multinational.
Indian managers are typically comfortable amid
complicated or even chaotic environments, says Roy.
Most foreigners are struck by the air of pandemonium
that is a part of everyday business and interaction. The
whole country seems to be in motion at one time. However,
people who know the country well claim the chaos
in India is deceiving. It’s a meta-chaos that masks
orchestrated, large-scale endeavors and the creative
use of limited resources, he says. When Luce recounts
his own wedding, he reports he wasn’t sure the ceremony
would actually take place since his wife’s parents
hadn’t made any arrangements. But the ceremony went
off without a hitch. Luce says that what often looks like
madness is actually a complex system, similar to the
apparent chaos in a swarm of bees.

For Roy, upbringing in this type of environment
is prime training for managers who want to lead large,
complex organizations. They can deal with complexity
because they are capable of managing people.
“Indian managers know how to build relationships to
get what they want,” Roy says. Vineet Nayar, chief
executive of HCL Technologies, described in a newspaper
interview how he took his organization in one
direction and then abruptly changed courses: “I used
to write a blog every week because I thought people
wanted to know what was going through my head. But
one employee told me, ‘Actually, we want to participate
in solving a problem.’ So, the blog got converted
into me asking a question: ‘This is a problem I’m
having. How will you solve it?’”
Another explanation for the success of Indian
CEOs abroad could be built-in tolerance resulting from
the country’s multicultural population, which includes
believers in Hinduism, Islam, Buddhism and Christianity.
Dutta: “Those executives who were raised in India and
came to the West may have fewer biases than others.”
SPEAKING OF TRADITION, MANY INDIAN executives
may have a different understanding of what a family
means than their non-Indian counterparts. Family
plays an overarching role in Indian society, and it is
defined as far more than the core parent-child relationship.
Extended Indian families are likely to be
involved in critical decisions about young people’s
education and jobs. Consequently, Indian managers
may be accustomed to making decisions in consensus
or in collaboration, says Dutta, and their success
may be seen as a reflection of the whole clan rather
than just the individual. For instance, PepsiCo’s Nooyi
told an online magazine that at a family visit, relatives
Managing India. Managing Indian? DOSSIER #15
ignored her and went straight to her mother to compliment
her on raising such a good kid.
AND THEN THERE’S INDIA’S educational system
based on British remnants and Jawaharlal Nehru’s
legacy of investing in primary schools and universities.
The system fosters a learning culture among
many strata of society. And today, it’s evident in India’s
companies as well, Cappelli and his co-researchers
found. For instance, a quarter of new hires in the United
States receive no training of any kind in their first
two years of employment, while the Indian IT industry
provides new hires with about 60 days of formal training,
according to a study by the Kauffman Foundation.
As India’s culture of educational achievement
has taken root, children have been placed under high
pressure to perform. The country trains 1 million engineers
a year, compared with less than 100,000 in the
United States and Europe: It is home to an elite university
system that has catapulted India’s scientific and
technical capacity to third in the world. Hence, when
young people arrive in a competitive work environment—at
home or abroad—they’re accustomed to the
demands placed on them.
VODAFONE’S FORMER CEO SARIN, now a senior
advisor at the private equity firm KKR, told a TV program:
“Being an immigrant clearly had an influence
on my drive because you want to succeed. You’re in
the new country and you say, I want to do good. And
you kind of learn discipline and hard work early in
your life and then you apply that with higher education
and in wider circles as it were. So I think clearly
being an immigrant in America drove me a little bit
harder and faster which is a good thing.”
China was moving
fast—and India
took notice of that.
33

p industry report
34
BUSINESS IN FOCUS
Customer consulting
Companies are looking for ways to work more closely with customers during the innovation process.
One idea: directly including end-users in product development. This works in both industrialized
nations and developing markets. The prerequisite: companies need to open up.
: It is a well known problem: the search for
successful product ideas is more difficult
today than ever before. A GfK study revealed
that the flop rate for new product developments
in the fast-moving consumer goods
sector lies at 70 percent. In some fields, such
as the food industry, it’s over 90 percent. In
manufacturing branches, 87 percent of all
product developments never even make it to
the marketplace. The pharmaceuticals industry
discusses the issue of “innovation deficit,”
where rising development costs on one side
are faced by a dwindling number of marketable
products on the other. The International
Innovation Report produced by expert
auditors at Grant Thornton also highlights
that fewer winning ideas are coming from
R&D departments.
Software design giant Terry Winograd, who
currently teaches upcoming inventive hotshots
at Stanford University, captures the
essence of the problem: instead of thinking of
users, companies often just think about technical
feasibility and planning. And yet, it is a
well-known fact that the only path to innovation
leads right through a company’s customers.
The goal should be to incorporate
them into the innovation process as much as
possible. The willingness is certainly there on
the customer side. According to C. K. Prahalad,
customers want to interact with companies,
but many businesses have a difficult
time being truly open to their customers’
ideas—for the moment.
The basis for this type of cooperation—drawing
innovative drive and good ideas from the
customer base—is growing steadily.
Franz Liebl, a professor of strategic marketing
at Berlin University of the Arts, observes
how people tinker with things and adapt
their usage to solve a personal problem or
work around a manufacturer’s lack of imagination.
This can often introduce real innovations
in the process. Liebl calls it “bricolage”
or “hacking.”
Some figures offer encouragement: according
to the International Innovation Report, 40 percent
of all successful innovations today stem
from customers. It is possible to utilize their
“This sudden tilt toward consumer
involvement is a complete Lazarus
move: we thought that died a long
time ago.” Kevin Kelly
productive power, especially for companies
that observe how customers grow and develop
online. “There is an enormous innovative
power that no manager had considered even
just a few years ago,” states Yochai Benker, a
law professor at Harvard University and
visionary in the open-source movement. This
has generated growing competition for companies
that must be taken seriously, not just
in the area of software production, but in
every area of information and culture production—from
encyclopedias (Wikipedia), to
the news (Huffington Post), to entertainment
(YouTube). Therefore, a company needs to be
as well informed as possible about production
processes from the consumer side, in
order to offer options for collaboration that
consumers will accept. But these efforts don’t
just address target buyers in the developed
world. The growing group of consumers with
purchasing power in developing nations are
increasingly willing to provide input themselves,
instead of settling for pared down
products from industrialized countries. They
generate innovations for processes, products
and services. Yet there are very few companies
with an R&D department that has been
able to fully exploit the innovation potential
in emerging markets.
In order to do this, they first need to know
more about what is happening in developing
countries. Anil K. Gupta is currently working
on establishing a broader knowledge base
with his Honey Bee Network. Honey Bee has
compiled data on over 150,000 innovations
created by farmers and grassroots inventors.
Gupta’s employees are constantly traveling
throughout the country on the hunt for local
innovations, inventions and traditional
knowledge practices—potential sources for
globally successful innovations.
It is precisely this local knowledge that can
provide relevant signals regarding the most
urgent problems facing a population—and
ideas about how they can be solved. These
days, the real trick for businesses lies in finding
innovative ways to access this enormous
pool of human creative and productive
power, and incorporate it into their innovation
strategies on a broader scale.
Companies need to open up their innovation
processes. A few pioneers are already doing this
successfully, as we reveal with some exciting
examples over the next few pages

[Design vision—saving the world]
DESIGNERS RETHINK—SOLUTIONS INSTEAD OF PRODUCTS
“Design thinking”—it is under this heading that a number of design
schools are undergoing a radical shift in their approach. A new generation
of designers is coming on the scene, who not only want to
make pretty things prettier, they also want to improve the world. And
at the center of innovation methods stand the people who should
benefit from what is being designed. “Don’t concern yourself with
the little things,” is the advice Terry Winograd gives his students at
the d.school in Stanford. “Think about the big things that the world is
concerned about: development, energy, health, education.” Clad in
outdoor gear instead of fancy suits, the designers set forth to solve
problems in developing nations together with the locals there. The
objective is to create solutions rather than products. A real-world
example from Stanford: how can you have light in regions without
electricity? The exciting idea is not only to create robust lamps with
solar power modules, but also to keep their manufacture and sale in
the most remote regions below a price of $20.
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[Juicy discovery]
OPUNTIA—HOT NEW DRINK FROM A CACTUS?
Food and drink manufacturers serve taste-testing customers, have
every ingredient analyzed by experts and send trend scouts out into
the hottest restaurants. But sometimes it still doesn’t taste good to
customers. Meanwhile, a collective of women in the Indian village of
Saurathra are brewing up what may be the next big drink on the
scene. The juice from the Opuntia cactus, a.k.a. the prickly pear cactus,
became the public favorite at one of India’s booming regional
agricultural trade fairs, the Stavik Food Festival, in late 2009.
The Honey Bee Network’s SRISTI laboratory (Society for Research
and Initiatives for Sustainable Technologies and Institutions) is testing
the juice and developing it for mass production. They are currently
negotiating with Indian Railways on serving the cactus drink on its
trains—18 million potential customers a day. The lesson: perhaps it
would be worthwhile for global food producers to take an occasional
glance at provincial tradeshows. Or do you already know what people
eat for breakfast Untersatz in Mongolia?

[Climbing equipment for suppliers]
MARICO—BETTER PICKING
Coconuts drive people crazy. They are one of the hardest natural
products around to harvest. Many competitions have been sponsored
to solve the problem of how to get them out of the trees efficiently—without
success. Marico, the Indian beauty products company,
may have resolved the problem. The company, whose products
are based on coconut oil, began having issues with supply
shortages and stumbled upon a solution where no one had ever
thought to look. In a remote area of the southern Indian state of
Kerala, they found a farmer who had invented a simple but clever
piece of climbing equipment for his own use. It enabled pickers to
climb the palm trees more safely and faster than any device developed
by the engineering elite from around the world. Marico’s CEO
Harsh Mariwala sat down to collaborate with the Coconut Development
Board on fashioning a commercial version of the climbing
equipment Untersatz
based on the farmer’s prototype. Some innovations
require the willingness to think outside your own box.
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[The Lagerfeld in us all]
THREADLESS—T-SHIRTS THAT DESIGN THEMSELVES
Jake Nickell and Jeffrey Kalmikoff launched their company, Threadless,
with $1,000 of startup capital. Today, the business brings in
over $5 million in revenue with a 30 percent profit margin—all with
t-shirts that customers design themselves. The company premieres
dozens of new products on the market every month without advertising,
professional designers, salespeople or merchants.
How? They sponsor design competitions in an online social network.
Members provide the ideas—more than 800 per week—and also
vote on the designs they like the best. Hundreds of thousands use
the platform to chat, blog, date, pose as models, take catalogue photos
and purchase massive quantities of t-shirts.
The key question for US-based Threadless: how do you motivate consumers
to participate and be creative? One key element behind their
success seems to be their strategy to remain entirely in the background
as a company. Instead, Threadless manages the creativity of
its customers.

[World’s largest patient research]
PATIENTSLIKEME—MORE KNOWLEDGE FOR BETTER PRODUCTS
Pharmaceutical companies seek information from the real lives of
patients—information beyond that found in the artificial conditions
of clinical studies. Now there is a website to help:
www.patientslikeme.com. When you click on an illness here, you
find the experiences of thousands of patients—clearly organized,
easy to understand and statistically prepared.
But why do patients simply give out information about themselves?
PatientsLikeMe functions like a global self-help group; the contact
with other patients benefits real-world usage. What’s more, the story
is true: brothers James and Benjamin Heywood founded the company
when they were searching for information about their brother
Stephen’s illness. Another secret to success: transparency and
mutual clarity among interested parties. PatientsLikeMe sells the
aggregated, anonymized data to pharmaceutical companies such as
Novartis or UCB—and states it openly. The patients do not mind
because they will certainly benefit from new medications.
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[Research can happen anywhere]
GE—TURNING INNOVATION ON ITS HEAD
One of the world’s largest companies has turned its innovation
processes upside down. For General Electric, the days of developing
innovations on their home turf, to be marketed there first and then
adapted for export, are over. Under the banner of “reverse innovation,”
promising new products and services are being developed
directly in emerging markets—at prices that are locally appealing.
And what proves successful abroad can always be exported to the
market back home to further benefit from cost advantages arising
from overseas development. Recently, GE built its newest fullyfledged
R&D location in Bangalore. As an example of the advantages
possible, this facility developed a portable ECG device for $1,000.
That makes it 90 percent cheaper than its predecessor. But the real
innovation is in GE’s thinking: reverse innovation only works if a
company’s R&D locations abroad are taken just as seriously as the
former innovation center in the USA. It would seem that this works
very well at GE.

[The doctor as a product developer]
ETHICON—INPUT DIRECTLY FROM THE OPERATING ROOM
No one knows what a surgeon needs in the operating room better
than a surgeon. So what could make more sense than sharing experience
and ideas with them before developing new surgical materials?
That is the thinking of medical supplies manufacturer Ethicon.
The company created a global network of 8,500 highly-specialized
users—surgeons, specialists, scientists and nursing care staff—and
has maintained it for years. At its core is a closed online community,
where experts working in real-world situations and product develop-
ers constantly analyze opportunities for improvements, test product
innovations and share ideas. If needs change in practical applications,
the company can adjust its products quickly to suit those
needs. However, to keep its co-developers involved, Ethicon must
always be fully prepared to rework its product portfolio to meet the
changing requirements of medical professionals. Why? Because if
you ignore their feedback, doctors will quickly lose interest in the
cooperative arrangement.
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The big realignment
Following the global crisis, regulation in the financial sector has tightened.
The business environment for banks and insurance companies is going
through radical changes. As well as new risks there are also ample prospects.
: The global financial crisis was precisely
that, causing massive upheaval everywhere.
It brought the worldwide financial
system to the brink of ruin. It swept up
banks, companies and even entire
economies. The consequences for the financial
sector were valuation adjustments on a
scale never seen before.
Political bodies throughout the world have
made it their stated objective to prevent this
from ever happening again. For that reason,
international task forces such as the Basel
Committee on Banking Supervision (BCBS)
are in the process of developing guidelines
to “increase the elasticity of the banking sector,
to thereby provide more sustainable
growth, both over the short and long term,”
as Stefan Walter, general secretary of the
BCBS says.
PROFITABILITY IS UNDER PRESSURE
Consequences for the financial industry are
unavoidable. “The requirements drafted
within the scope of Basel III for banks and
Solvency II for the insurance industry are
changing the playing field—they are changing
the framework conditions for credit
institutions and insurance companies,” says
Udo Bröskamp, head of the Competence
Center Financial Services at Roland Berger.
These are changes that the industry must
adapt to. For example, in the future, banks
will have to comply with stricter constraints
regarding their assets on deposit and with
higher liquidity requirements. Their profitability
will decrease as a result because if
additional equity must be kept on deposit,
then this will not be available for the actual
business of issuing loans. “In the future, a
closer interlinking of capital and liquidity
prospects combined with a medium-term
time frame will be a major factor for success,”
says Markus Krall, the partner responsible
for risk management at Roland Berger.
The industry can make adjustments in two
areas: the cost side and strategic orientation
over the medium term. Many banking
FINANCIAL SERVICES
This business area of Roland Berger has 30
partners and 250 consultants in more than
20 countries around the world. Its key competencies
lie in risk management–recently
stregthened by Roland Berger’s takeover of
KDB Business Consulting–strategy consulting
for banks, and in the insurance sector.
Specific areas of expertise within risk management
include credit and liquidation risks
in the banking sector following the discussions
surrounding Basel III, as well as the
new regulations for the insurance industry
under Solvency II.
institutions have already begun with the
expenditure element. They are working on
improving their efficiency and streamlining
their structures. However, the strategic orientation
is proving to be more difficult. After
all, some banks had to be supplied with capital
during the financial crisis. If they were to
pay it back now, they might lack the funds to
undertake a strategic realignment.
CORPORATE BANKING BECOMES
MORE APPEALING
Where could additional funds come from?
One idea is that banks could pull out of noncustomer-related
investments such as real
estate financing. In the coming years, other
business areas could become more interesting,
such as corporate banking, especially
for small and medium-sized companies.
According to one rule of thumb, if the gross
domestic product were to climb by 1 percent,
earnings from corporate banking
would increase by about 3 percent. There
are two reasons why this business would be
especially lucrative now. First, the market
generally restructures itself during phases
of economic recovery. To make use of this
phenomenon, companies must invest consistently.
To do so, they require fresh capital
once the potential of their own working capital
is exhausted. Second, some banks need

to withdraw from this
business due to the consequences
of the crisis. With a
clear focus on this area and a
broad portfolio of high-quality products,
credit institutions can benefit from
this situation.
RETAIL BUSINESS ON THE RISE
Another segment that could be attractive
within the scope of a medium-term strategic
alignment is the customer-related capital
market business, which involves a strategic
decision. In the future, banks that engage in
proprietary trading will have to retain considerably
more equity capital on deposit for
the customer-oriented capital market business
than before. Therefore, banks must
then decide whether they wish to pursue
proprietary trading or not. From a strategic
perspective, the retail business could also
hold some appeal. One should note that the
profit margins are under pressure there
since the end customers are increasingly
requesting simple, less high-margin products
after their experiences coping with the
financial crisis. Also, the net interest margin
is low due to increasing refinancing costs.
Nevertheless, there are attractive opportunities
in this business area. “These could
include serving customers more efficiently
without losing customer proximity, for
example,” says Bröskamp. New information
technologies also offer new solutions. In
Spain, banks have fewer branch offices, with
half of the transactions in the retail business
handled online and another 5 percent carried
out on mobile devices. The retail sector
might also benefit from taking a look at the
core markets. “Given the dynamic growth in
many developing countries, these present
tremendous potential as exemplified by
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mobile applications in the area of microfinancing,”
adds Bröskamp. However, not
every country can claim the same degree of
potential. “Those planning to enter such
markets must have in-depth knowledge
about them,” he warns. Ultimately, the insurance
business is affected, too. Not only does
it have to deal with stricter capital investment
regulations but it may also have been
affected by the debt crisis suffered by countries
in southern Europe. Government loans
that used to generate steady and predictable
returns have ultimately turned out to be
low-margin and very volatile. Insurers are
thus faced with the challenge of finding
alternatives for their investments. However,
there are prospects out there, and as
Bröskamp points out, “A portfolio consisting
of corporate credits can accomplish precisely
what insurance companies or pension
funds need.”.
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: The Dow Jones Sustainability Indexes are
the conscience of the investment industry.
Companies identified as “supersector leaders”
not only receive the blessing of critical
customers, they will also be among the
favored billion-euro funds that focus on ethical
conduct. As a result, sustainability has
become a firm part of the marketing strategy
of global companies.
This used to apply especially to manufacturers
of consumer goods—until now, at least.
Professional services in particular need strategic
marketing. The core problem, though, is deciding
what makes service companies truly unique.
“All muscle and no fat”
Marketing is becoming more important in the professional services industry. But how does one market
non-visible products? According to expert Philip Kotler, you use credibility. Revealing a previously
unseen socially conscious side, he recommends combining sustainability and smart communications.
Now, high-end service providers might want
to rethink the situation. At least, that’s what
marketing guru Philip Kotler is urging. In a
meeting with think:act, he recommends that
service companies change their way of
thinking because what they really do is
deliver trust. However, they first need to
earn that trust via responsible conduct.
Kotler is at the forefront of the reform movement,
even though he previously represented
more traditional marketing approaches.
You can also listen to this article
on our audio CD (page 63).
In his book Corporate Social Responsibility,
he examines how companies perceive the
obligation of giving back to society. When
American Express promotes education and
tourism projects in developing countries, or
when IBM participates in social issues, these
actions contribute to the companies’ authenticity,
he says. “It’s always better if a company
draws attention to itself through its philanthropic
projects,” rather than by means of
traditional product advertising.

KOTLER AND POLITICS In the last several years, Kotler has spent more and more time on
marketing for nonprofit organizations. His orientation to social marketing is conveyed in books
such as Up and Out of Poverty: The Social Marketing Solution (1999). He is continually striving and
hoping for more improvement, as he also conveyed in his interview with think:act. At the end of the
discussion, he offered a statement regarding the political situation in his home country. “I am in a
cautiously upbeat mood, and I would be even more positive if the political parties in the US would
finally work together for the common good. Instead of thinking for themselves, politicians stick only
to their respective party line. They do that to be re-appointed by their party. I hope the time will
soon come when politicians can be free and independent in their reasoning. And when that happens,
I hope that people will have more respect for politicians.”
In principle, long-term service marketing
begins with a company’s core processes. The
public will see right through any “greenwash.”
Consumers and customers are no
longer passive participants in the marketing
process: people will find out if a European
logistics company is marketing itself as
green while at the same time running poorly
maintained, pollution-spewing trucks in its
transportation operations.
On the other hand, a substantial social commitment
offers more than just external
gains. It makes companies smarter by creating
dialogue platforms. They increase inhouse
expertise and ensure that management
understands not just financial markets
but also social trends.
However, the desire to hold a long-term
position is crucial, especially in this competition
for dialogue platforms. And this is
where marketing, which often pursues
short-term effects, needs to rethink its game,
as exemplified by promoting social initiatives.
Kotler warns about reducing socially
oriented commitments too quickly in turbulent
times: “Management does save money
in the short term, but will lose it again in the
long term once the situation improves.”
Companies that abandoned community
organizations when these needed support
most desperately will see interest groups
and customers losing trust in them.
Kotler is convinced that services require at
least as much marketing substance as tangible
products. In fact, the latter are fairly easy
to advertise. Things get a little more complicated
when it comes to corporate consulting
or internationally active commercial law
firms, like the Lovells and Linklaters of the
world. For them, close personal relations
with clients are crucial. This skill can be
acquired and it goes by the name of “behavioral
marketing.”
Freshfields Bruckhaus Deringer is one law
firm that demonstrates how the concept
works in practice. It draws clients by having
teams that specialize in various industry sectors.
Team members must not only be right
up-to-date with the latest legal news developments,
they must also be proactive in
keeping the client informed. Thus, in a
broader sense, every good attorney also
serves as the client’s counsel.
EXTERNAL AND INTERNAL
COMMUNICATIONS BELONG TOGETHER
Behavioral marketing also fosters a worldwide
exchange of information internally.
Knowledge of global events and issues is
only useful to customers if it is available
around the world.
When it comes to efficient marketing, Freshfields
combines specialization with the
advantages inherent in a large-scale company.
For example, one of its objectives is to
represent clients who were acquired in the
finance or corporate sectors in the labor law
area, too. Cross-selling is also used as a marketing
support tool—if cases span sectors,
Freshfields will offer a price discount.
Clear positioning is necessary and becomes
all the more difficult as more companies
seek it. And this dictum applies to Freshfields
and its competitors as it does to every
service industry. “There’s no sense in sprucing
up a commercial if you’re putting out the
same message as your competitors,” says
Kotler. In other words, “focus” will be the
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buzzword in future, particularly within the
service sector.
Looking at seemingly straightforward services,
two-way communications (preferably
demand-oriented) with the customer are
becoming more significant, and that extends
all the way to complaint management. The
Pizza Hut franchise chain, for example,
prints its hotline number on every pizza box
to take calls from unsatisfied customers. The
franchise manager then has 48 hours to
resolve the problem.
The luxury-hotel chain Hyatt is also known
for its fast response times to customer complaints—you
can even send them to management
using the in-room television and its
remote control.
DOES DEMARKETING CREATE
A NEW SENSE OF TRUST?
For Kotler, such trust-enhancing measures
are just a small part of the imminent marketing
revolution. “We want to develop methods
that will actually reduce an otherwise
continually increasing demand,” is Kotler’s
position, which is surprising from a marketing
perspective. The essence of this
approach is to perceive “demarketing” as a
source of trust. According to this notion,
keeping certain types of customers away
from your product may actually be a positive
marketing approach.
One might be inclined to think that this attitude
is naïve. But that’s not necessarily so,
says Kotler, although it does have to be
grasped properly in-house. “First, one has to
identify values. And then one has to hire
people who believe in these values and
embody them.”
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Crises always represent crucial tests for
Kotler’s value-based marketing. For example,
in difficult times, how do companies
deal with clients that are late with payments?
John Deere, the US-based agricultural
equipment manufacturer, may serve as a
role model, he says. “John Deere helped
farmers, while rival International Harvester
unceremoniously seized its machines.”
John Deere’s level of generosity is rarely
found among service providers, even though
times of crisis are a perfect opportunity to
create new customer loyalty. Kotler recommends
to banks and insurance companies in
particular that they fully understand the
acute problems some of their customers may
be facing. He also thinks that their advertising
requires a different tone. “The financial
crisis compelled many service providers to
rethink their marketing and advertising
strategies.” Solidarity is the new mantra, he
says. For example, Morgan Stanley’s European
advertisements promote their high
equity ratio compared with other banks.
“They’re probably doing the right thing,”
Kotler explains “Especially if other banks
have to address some rather uncomfortable
questions on this point.”
IT’S EASIER TO SEPARATE THE
GOOD GUYS FROM THE BAD GUYS
These questions are certainly being asked,
not just in the industry but publicly as well.
The growth of social media makes companies
an ongoing subject of debate. Internet
portals where consumers can discuss their
experiences make it “easy these days to differentiate
the good guys from the bad guys.”
From a marketing perspective, turbulent
times are actually good times, according to
the tenor of Kotler’s new book Chaotics.
“Ryanair is an example that says a few
things about seizing an opportunity that
arose from the crisis,” he states. During the
crisis, Ryanair ran a massive advertising
campaign and thereby tapped customers’
magnified price consciousness. The outcome
was a substantial gain in market share.
KOTLER’S “KEY” POINTERS FOR SERVICE MARKETING MANAGERS.
“QUALITY IS KING”
Nowadays, customers have precise expectations of services they utilize.
Social media platforms such as Facebook increase transparency, which
means customers now define quality.
“BUILDING THE MARKETING ORGANIZATION”
Building up long-term customer relationships is more difficult today than
ever before. Customers are fickle. Marketing must quickly adjust to new
situations and therefore needs to have, first and foremost, a very flexible
organization.
“THE FIRM CAN'T BE ALL THINGS TO ALL PEOPLE”
Opportunities for service companies to differentiate themselves from one
another are on the rise. They can be socially oriented or maintain higher
environmental standards than their competitors. It’s all about accessibility.
The physical presence remains irreplaceable. For example, online
banks in Europe are currently setting up “finance lounges” in major cities.
So how does marketing even remain responsive
during times of never-ending turbulence?
According to Kotler, having one
“script” for bull markets and one for bear
markets is no longer sufficient. “Companies
often get into trouble if they don’t have an
early-warning system in place. They see the
warning signs but don’t counter them.”
How does one set up an early-warning system?
In Chaotics, Kotler mentions two suitable
methods: scenario planning and flexible
budgeting. In other words, smart marketing
managers create the ability to expect
the unexpected. And they have flexible
response systems. Take Regal Entertainment,
for example, which is the biggest
movie theater chain in the US. It continually
monitors attendance figures for individual
movies—should the figures decline, it immediately
stops showing the movie in question.
Their reasoning is that an outdated offer
will not draw anyone in and will show that a
company does not know its customers—and
that could result in losing their trust. .
“KNOWLEDGE IS POWER”
According to Kotler, the requirements of many customers have changed
as a result of the financial crisis. Former knowledge about customers is
no longer valid; customers and their needs have to be re-examined.
“YOU CANNOT NOT COMMUNICATE”
In these times where social media prevail, everything a company says
must be true and clear. Many service providers ignore this aspect—and
will get stung. For example, the US website airlinemeals.net, replete with
thousands of evaluations and photos of in-flight food, has already repudiated
a fair number of advertising promises.
“BUILDING MEANINGFUL RELATIONSHIPS”
Based in France, Targobank demonstrates that the crisis can be a learning
experience. Its bank consultants are subject to pay cuts if they give
customers investment recommendations outside of a risk category
previously set by the customer.

ROLAND BERGER STRATEGY CONSULTANTS
Journalism: first draft of history
FIVE YEARS is always a long time in business, and think:act
deserves our congratulations as it celebrates its fifth birthday. It has
been our companion throughout what will surely qualify as the toughest
half-decade most of us will experience in our business lives. We are getting
used to the breathtaking pace of change in the technical world, and
the powerful devices we now carry around in our pockets and briefcases
are a constant reminder of those achievements. But the speed and
depth of the continuing financial and economic crisis—and its painful
persistence—have surprised and shocked many of us. Those who were
well informed in 2005 would have spotted the beginnings of three distinct
trends that were already reshaping the world.
Events since then have turned the steady flow of these changes into
raging floodwaters—and they have washed away many of the assumptions
we made then. First, money, risk and regulation are moving within
new parameters. It will be a while yet before the financial system and
the global economy recover from the destruction of value and confidence
that started with the US subprime mortgage crisis. Credit will not
be easy again for a long time, while the severity and extent of new banking
regulation remain to be seen. Second, the dynamism of the top
emerging economies was recognized in 2005, but what has startled and
encouraged many of us has been the way that they are leading the way
out of recession. It is now clear that a fundamental shift in economic
power has taken place, with China, Brazil, Russia and India now sitting at
the top table. We cannot speak of globalization as we did five years ago;
it is no longer the G7 nations and their corporate titans who dominate
The global magazine for decision-makers 15 issues (so far)
Finance communication for decision-makers?
One example is this magazine. Five years ago, Roland Berger
started to provide business journalism for key stakeholders.
CNN journalist Charles Hodson says congratulations.
CHARLES HODSON anchors CNN
International’s “World Business Today”
which rounds up the day’s business and
financial market news. The show also
includes keynote interviews with major
business players and updates on stock
market developments around the world.
that process, but the broader and increasingly important G20. Third, the
entire world of communication and marketing is adapting to the development
of new media.
Sure, back in 2005 we knew the Web and digital communication were
transforming the way we do business. But few of us foresaw the rapid
development of social media, or the way conventional media like daily
newspapers and even terrestrial television would now be struggling to
survive. Journalism, famously, is the first rough draft of history. As we
chart our daily progress into the unknown through such CNN programs
as “World Business Today,” it is best to be humble about the future. It
may be an exciting place, but as we march unstoppably toward it, peer at
it and try to map it out in our minds, it can play us many a trick. We need
a dependable guide. And that is where think:act comes in. There is a
need for high-quality writing about the challenges we face today and
tomorrow. But if you want disciplined analysis and inspired thinking
from some of the best minds in the world, look no further than this exclusive
publication.
I wish think:act well for the next five years, and for many years after that.

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FUTURE MARKETS
Printing will be faster in the future. Plants are teaching us about energy production, while IBM is
revolutionizing the world of electric batteries. And propeller-powered flight is experiencing a revival.
artificial photosynthesis
Plants grow thanks to the process of photosynthesis.
With the help of sunlight, water and CO 2, they produce
sugar molecules that form into wood fibers. In other
words, plants store energy that they release at a later
point in time when they are burned in the form of wood,
coal or petroleum. Now, researchers are looking for ways
in which photosynthesis could be used to store energy
without going through the biomass formation phase.
Instead, the plan calls for solar energy, combined with
CO 2, water and a catalyst, to be transformed directly into
synthetic fuels such as hydrogen in order to produce environmentally
friendly electricity in a fuel cell when needed.
Experts call the concept “artificial photosynthesis.” The
difficulty lies in finding the right catalyst.
It would seem that US-based Sun Catalytix has made
tremendous progress in this quest. The company was
founded by Dan Nocera, a professor at the Massachusetts
Institute of Technology (MIT) in Cambridge, near Boston.
He and his team claim that they have found a way to generate
enough electricity to meet the daily energy requirement
of a family home using around nine liters of water
and some sunlight. The US government also sees promise
in the research and pledged $4 million in early 2010 for the
company to make the process market-ready.
turbo-ink technology
Those with a high volume of printing or copying to do
must still rely on the xerographic process that was developed
back in the 1930s. The toner is transferred to the
paper by means of a complex interaction of lighting elements
and rotating rollers. And because the printing
device must run like clockwork, procurement and maintenance
of these machines is expensive.
So far, anyone looking to print more than 40 pages a
minute was left disappointed as this simply wasn’t possible—until
now. Several companies have introduced prototypes
that are based on ink technology that enable faster
printing speeds. For example, the Australian company
Silverbrooks Technologies is planning on manufacturing
60-page-a-minute printers for around €250 using its
“Memjet” technology. The Japanese company Kyocera,
though, claims to have set a new world record in fullcolor,
high-speed printing with its KJ4 print head. With a
resolution of 600 x 360 dpi, the print head has a printing
speed of 330 meters a minute. In addition, turbo ink
technology offers a competitive advantage. Since it does
away with rotating components, maintenance costs
drop substantially. If Memjet keeps its promise, office
printers might even become disposable.

open rotor
An open rotor
engine from US
company GE
Rising energy costs and stricter climate regulations are
forcing the aviation industry to develop more efficient
propulsion systems. The “open rotor” concept appears to hold
much promise, with fuel savings of up to 30 percent. In 2007,
the easyJet aviation company introduced its idea for an “ecojet”
based on this concept, and it plans on being able to halve
CO 2 emissions by 2015. In 2009, a group of suppliers including
Boeing, Rolls-Royce, RUAG Aerospace and Deharde
Maschinenbau agreed to conduct joint research in this field.
It has long been known that propeller aircraft are more
fuel-efficient than jet-engine airplanes. Back in the 1970s,
during the first oil crisis, the aviation industry had tried to
find ways to use this technology for modern wide-body aircraft.
Research was soon abandoned when oil prices dropped
and the problem of high noise levels appeared unsolvable.
However, now equipped with high-tech computers and new
high-performance materials, the industry is taking another
run at the issue.
To a large extent, a propulsion system’s efficiency
depends on what the intake air is used for. Because propeller
microscopes for molecules
Zircon-ceramic surface
Electronic memory storage
devices are based on crystalline
silicon technology.
Because they keep getting
smaller, they will presum-
7.4 µm ably soon reach their system-related
limits. What all
future developments have
in common is a molecular and atomic architecture, in which
electronic circuits consist of individual molecules, carbon
nano-tubes, as well as cluster- and supra-molecules. A prerequisite
to make this all happen is a measuring technology that
can deal with such small structures. In collaboration with scientists
from the University of Regensburg and the University
engines use air less to drive the rotors and more for thrust
purposes, their efficiency is much higher than that of jets. In
addition, the open rotor concept benefits from the fact that
bigger rotors can be used because a heavier housing is no
longer needed. One design seems very promising: it has an
enclosed engine and two exposed rotors with sickle-shaped
blades that turn in opposing directions. This configuration is
meant to decrease the energy loss resulting from vortices. All
in all, one airplane with a capacity of 100 to 200 passengers
equipped with such propellers would reduce CO 2 emissions
to 10,000 metric tons annually and see fuel savings of around
$3 million per year.
of Utrecht, IBM researchers from Zurich have achieved a
breakthrough in nano-scale measurement technology. For the
first time, they were able to measure the charge state of individual
atoms using an atomic force microscope (AFM). Performing
measurements with the precision of a single electron
charge and nanometer lateral resolution, researchers succeeded
in differentiating neutral atoms from positively or
negatively charged ones. An AFM resembles a tuning fork
with a vibration amplitude of about 0.02 nanometers, or onetenth
of an atom’s diameter. If the tip of the AFM is placed in
close proximity to a sample, the resonance frequency will
vary depending on the forces occurring between the sample
and the tip. In this way, one can determine the tiniest differences,
using this differential to make extremely precise measurements.
IBM hopes to use this procedure to develop new
components for the field of information technology.
49

50
Bracing for litigation
Despite prudent decisions and the best possible advice, corporate directors face an increase in legal
actions that can impact their personal assets. think:act examines what top managers should look for
in corporate D&O (directors and officers) programs.
:
The Enron scandal of the last decade
transformed corporate governance. It also
had a lasting effect on the D&O insurance
market, given CEO Jeffrey Skilling’s legal
bills estimated at $23 million: The case
piqued interest in the coverage that protects
company officers from personal financial liability
if they are sued. And, as insurers
assessed the riskier business climate, premiums
began to rise.
Like malpractice insurance for high-level
managers, the “directors and officers” insurance
forms a worldwide market today, worth
$8.8 billion in 2008, and covers top managers
in the event of a breach of duty and a resulting
lawsuit. Usually reserved for companies
with a fair share of assets and management
board structures, the pricey insurance policies,
with premiums that can reach up to sev-
eral hundred thousand euros a year for millions
in coverage, essentially let individuals
hedge the personal financial risks they face
by playing in the top league. At the same
time, the policies are a tool for making corporate
entities responsible for the actions of
their employees and protecting corporate
assets.
D&O POLICY HOLDERS ARE MORE
LIKELY THAN EVER TO BE SUED
In the aftermath of the subprime financial
crisis, companies as well as their directors
are advised to be even more cautious about
potential financial liability for their management
decisions, says attorney Kevin M.
LaCroix, the author of the D&O Diary and a
director of OakBridge Insurance Services.
That’s because D&O policyholders are now
more likely to be sued, and more likely to be
sued for larger amounts, than in the presubprime
era. Whereas class-action lawsuits
were once common only in the US, such lawsuits—with
their massive potential for financial
damage—are gaining popularity outside
North America as part of governance reform
aimed at securing recourse for shareholders.
According to Advisen, an insurance research
firm, cases settled since 2005 in Europe were
for average settlements of €117 million.
Although some anti-corporate activists argue
that the coverage creates an incentive for
misbehavior, scholars find no evidence that
the coverage motivates mismanagement, just
as carrying auto liability insurance hardly
gives drivers a reason to cause an accident.
Suits against managers can come with a host
of punitive effects, including reputational

loss, jail time and possible fines in the event
of a scandal. Enron’s Skilling is serving a
24-year term in prison and was fined
$45 million. Fines are typically excluded
from a policy’s benefits.
D&O coverage tends to be best advised on by
lawyers and specialized insurance brokers.
The specialists recommend that policies go
far beyond the basic requirements of being
large enough to cover the cost of settlements.
They stress that policies must be tailored for
each individual buyer, depending on the
area of business and the risks present.
In the US, a large number of D&O claims are
made for a manager’s conduct related to
human resources, such as hiring and firing
decisions. But an increasing number of
claims are being filed against directors and
officers for securities-related misconduct.
What’s more, American law is known to have
a long arm from which managers around the
world might need to defend themselves. Witness
the Enron-related case of the NatWest
Three. The British bankers involved were
extradited to and tried in the United States,
where they also served prison terms for wire
fraud committed in the UK.
Megan Colwell, an expert in management
liability insurance at Woodruff Sawyer & Co.,
a California insurance brokerage, offers her
clients a choice of roughly 10 to 15 insurers.
Her firm is paid by commission from insurance
companies or consulting fees from the
client. Colwell recommends that companies
with international operations acquire specialized
advice to align their corporate D&O
program to the risks in different countries.
THE BIG QUESTIONS FOR MANY MANAGERS:
SHOULD YOU GET OFF THE PLANE?
In some cases, these risks can impact the subsidiary
organization’s directors, officers and
managers. In others, executives from the
home territory may be at risk: Some have
even been known to question if they should
get off the plane in countries in which their
D&O COVERAGE: 11 QUESTIONS
YOU SHOULD ASK
1. Do my employer’s by-laws and indemnification
contracts protect me to the fullest
extent permitted by law against paying defense
and other costs of actions against me?
For instance, will the company cover eligible
defense costs up to the amount of the policy
deductible or advance my legal fees?
2. Under which circumstances can my
company bring an action against me and
limit the amount of money I receive for
defense and other costs?
3. Does my company receive information
and solid advice on D&O coverage from an
insurance broker and from legal counsel?
4. Does my company regularly review
and approve the terms and coverage
amount of our D&O policy as part of our
risk-management program?
5. How is the “wrongful act” definition in
our D&O policy worded? Am I covered if I am
acting outside my capacity as a director
(i.e., if I am acting as a professional advisor
or shareholder)?
6. Does my company’s D&O policy specify
that the exclusions for major personal
misconduct must be for “deliberate” or
equivalent misconduct? In other words,
am I covered for inadvertent misconduct?
7. Will my defense costs be paid even
for excluded claims, assuming I am proven
innocent?
8. Does our coverage contain a provision
that would limit my own exposure in the
event of fraud or misconduct by one of my
colleagues?
9. What is excluded from my employer’s
D&O insurance? Which exclusions are
typical and which should raise a red flag?
10. Does my coverage apply if I am sued
by my own employer or another company
officer?
11. How does corporate insolvency affect
the D&O policy? What happens to my
coverage if the ownership of my company
changes while I’m serving as an officer?
Adapted from a Chartered Accountants of Canada brochure
written by Richard J. Berrow in 2008. Title: 20 Questions
Directors Should Ask about Directors’ and Officers’ Liability
Indemnification and Insurance
business culture f
company’s subsidiary may be involved in a
legal tangle, she says.
To avoid potential problems, Colwell tells
executives to consider D&O coverage for offshore
subsidiaries placed by the corporate
headquarters, or as local laws require, placed
in the subsidiary’s country. An important
consideration for buyers is to make sure the
company’s D&O broker has access to partner
brokers abroad. “We need insurance policies
and programs that can adapt to various
indemnification scenarios, so that individuals
are protected in all jurisdictions.”
Hartmut Mai, the Global Head of Financial
Lines at Allianz Global Corporate & Specialty,
a major provider of D&O insurance, says
policies used to have global reach but are
now increasingly subject to local regulations.
He recommends one-stop shopping for D&O
coverage at larger insurance providers that
can meet needs in all territories and advise
on peculiarities. Mai also advises that managers
who are trying to steer their company’s
D&O program insist on close contact with
insurers to foster a mutual understanding of
risk exposure. “Keeping in constant communication
is not just good for underwriters, it’s
also good for the client because the client
begins to understand how the underwriter
thinks and what he is looking for in the riskassessment
process,” says Mai.
David Walters, who manages the commercial
D&O business of Chartis Insurance in the
UK and Ireland, a part of the former AIG and
one of the world’s largest D&O insurers, also
recommends that companies communicate
frequently with their insurance brokers and
insurers about business developments that
could potentially change a company’s risk
profile. According to Walters, companies
should treat their D&O providers just like
one of their stockholders—and for good reason:
“At the point of crisis, if the communication
has been two-way and open, a solid relationship
would be in place to back up the
claims process.”.
51

p business culture
JÜRGEN HAMBRECHT was born in Reutlingen in 1946.
He is married and has four children. He earned his doctorate in
Chemistry from the University of Tübingen in 1975. Hambrecht
has been CEO of BASF since 2003. Before that, he served the
company in various capacities around the world for almost
30 years. He is also chairman of the Asian-Pacific Committee of
German Business. In this year’s “Best of European Business”
competition run by Roland Berger, Hambrecht was honored with
the prize for best European manager. According to the award
citation, Hambrecht helped transform BASF into one of the
biggest companies in Europe without losing sight of its origins.

Benefiting from diversity
THINK:ACT Dr. Hambrecht, the effects of the
economic crisis were felt around the world
and we are still living with its aftermath.
How do you think Europe performed during
the crisis?
JÜRGEN HAMBRECHT One of the most important
effects of the crisis was to reveal where the
problems lie and intervention is needed. We in
Europe must now learn from this. We are still
facing the most significant challenge: it is costing
us an enormous amount of time and energy
to protect the European Economic and Monetary
Union from erosion. The crisis also showed
quite clearly that responsibility and sustainability
cannot be disregarded. European corporations
are undoubtedly among the leaders in
sustainable economic development, but we
must establish a global economy based on sustainability
and responsibility. That is the best
protection against crises. The world of politics
can certainly learn from business, here.
The chemical industry serves as a bellwether
for the economy as a whole. Many
chemical companies, including your own
as the industry leader, are posting improved
figures again—is this an indicator of sustained
recovery?
The crisis year of 2009 was stormy. We are
looking forward to better weather now, but
there are still a few dark clouds in the sky. And
we cannot be sure that 2010 does not hold some
surprises. This has been demonstrated by the
crisis in the Eurozone, which had been foreseeable
for some time. Certain risks will still persist
in 2010 despite the anticipated recovery.
Caution is still advisable.
Is there such a thing as a European management
style?
With the Societas Europaea (SE) we do have a
European corporate form, but in my opinion
there is no uniform European management
style. The question is whether it is even desirable.
One of Europe’s greatest strengths is its
enormous cultural diversity. A mix of management
styles and cultures is a competitive
advantage, not only in the European market,
but in the world as a whole. It is no coincidence
that diversity in the workforce and at management
level is being promoted most actively by
companies with a global presence.
Can you give any examples of this?
BASF has created a program dedicated to precisely
this end. With “Diversity & Inclusion” we
intend to harness the potential of the diversity
in our own enterprise more effectively. We are
convinced that heterogeneous teams have an
advantage: they are more creative, better able
to solve complex problems, they comprehend a
wider range of customer needs and markets,
and, importantly, it is exciting and inspiring to
be a part of such a team. I experienced this
myself when I worked as a manager in China.
Seeing the world from a perspective that was
not Eurocentric had a profound effect on me.
One has the impression that the European
concept is largely disregarded in the composition
of many boardrooms. Do we need
more pan-European executive boards?
The fact that executive boards are becoming
increasingly international is a good thing. But
this movement needs time to develop; I don’t
business culture f
Europe’s mix of styles and cultures give it a competitive advantage, says BASF boss Jürgen
Hambrecht. But to remain competitive on a worldwide scale, the continent’s economy must
focus on sustainability, innovative energy and globalism.
think it would help to encourage it artificially.
Candidates must fit the company and their
respective sphere of responsibilities. In our company,
all members of the executive board must
be able to demonstrate substantial international
experience. This is also the goal for the management
levels below that. Almost 80 percent of
our managers have already worked abroad.
What is your opinion of a “Europe quota”
on executive boards, along the lines of the
women’s quota?
It goes without saying, we need more women
and more international representatives in our
executive boardrooms—that must be a permanent
objective in the long-term development of
management staff. But I am completely
opposed to the idea of quotas of any kind. The
principle must be that the best person for the
job occupies the position, regardless of nationality
or gender.
The BASF executive board is dominated by
Germans. Do you aim to change this?
The composition of our managers of the next
generation is becoming more and more international—at
the moment over a third of our candidates
for senior management positions come
from outside of Germany. This will have a substantial
impact on the makeup of the executive
board in the future.
It sometimes seems as if Europe is successful
despite policies that are inimical to business.
Do you subscribe to this opinion?
No. Policies in Europe are not generally
designed to obstruct businesses. Of course, there
53

p business culture
54
“If we confuse safety with 100 percent
risk elimination, then we are standing
in the way of our own future.”
BASF SE has its headquarters in
Ludwigshafen am Rhein, Germany. In
terms of both sales and market capitalization,
it is the largest chemical corporation
in the world today. BASF currently employs
almost 105,000 staff in 170 countries
worldwide. In 2009, the group posted sales
of €50.5 billion and EBIT of €3.7 billion. The
corporation is listed on the Frankfurt Stock
Exchange, and its shares are also traded in
London and Zurich.
are many difficult issues, particularly for our
industry: how to proceed with regard to plant
biotechnology, emissions trading and the
REACH regulation to name just a few. But one
must also see that the EU Commission has
adopted entirely proper approaches in terms of
its industrial policies in the past. On the other
hand, much greater effort will be required in
order to ready Europe for global competition.
In particular, we need a larger pool from which
to draw innovation. We need better education
and research and we need clear, transparent
rules for everyone.
As a member of the “European Round Table
of Industrialists” (ERT) you recently helped
to prepare a “Vision 25.” What does this
vision consist of?
We want to make sure that in 2025 Europe is
an attractive place to live in, offering sufficient
jobs and a reasonable standard of living. The
European Union announced similar objectives
ten years ago in Lisbon, which were to be
achieved by 2010. We can judge for ourselves
the success of this approach today. This is why
we must learn the lessons of Lisbon 2010 for the
new EU strategy for 2020 and turn these lessons
into tangible steps. The ERT wants to contribute
to this process.
What are the most important steps?
Firstly, Europe must lead the world in terms of
sustainable economic growth. This means
achieving harmony between economy, ecology
and social responsibility. Secondly, Europe
must be well integrated in the global markets.
Ultimately, Europe will be weakened by protectionism
of any kind. Thirdly, Europe must
remain a powerhouse of innovation. This factor
is particularly important to me. There must be
enough money available for research and education,
even in hard financial times. It must be
our objective to dedicate at least 10 percent of
our gross domestic product to research and
education. Finally, Europe needs a transparent,
clear set of rules. Regulations must not arbitrarily
put any individual industries or regions
at a competitive disadvantage .
Some time ago, you stated that you thought
Europe was obstructive to progress. Has
much changed in the last few years?
I’ll give you an example: in March 2010, the EU
Commission approved commercial cultivation
of the genetically optimized starch potato,
Amflora, which we created at BASF. We had
run a marathon lasting 13 years to get this
far—the potatoes were tested again and again
by the authorities. All results clearly indicated
that the potato is safe. Such a drawn-out and
uncompromising procedure can certainly not
be called helpful to progress. In other regions,
comparable approval procedures take barely a
year, as shown by the recent approval of a highyield
soya plant in Brazil. The fact is, we can
only maintain our European standard of living
by embracing innovation more actively. In the
face of cheap labor in other regions of the
world, we can only compete in the market by
producing a steady stream of great ideas. Of
course, all new technologies and products must
be evaluated thoroughly according to the highest
standards in European industry. But if we
confuse safety with 100 percent risk elimination,
then we are standing in the way of our
own future.
You consistently generate 60 percent of your
sales in Europe. Will this remain the case?
Europe is our domestic market and our largest
market. We employ almost 68,000 people in the
region. Europe will continue to represent the
highest priority for BASF in the long term.
About 80 percent of BASF investments are
made in the EU region. What skills do you
want to continue to concentrate in Europe?
A major part of our international research

network is located in Europe. The main sites
are Ludwigshafen and, since the integration
of Ciba, Basel. We continue to invest heavily
in research and development even during
2009, even increasing the level slightly.
We are also investing in our growth markets,
such as the European gas market. Here,
we are working mainly on expanding the
natural gas infrastructure, for example with
the Nord Stream pipeline in the Baltic Sea,
a joint venture with Gazprom, E.ON Ruhrgas,
and Gasunie. The consortium is investing
a total of €7.4 billion in the pipeline,
which is over 1,200 km long and will
contribute substantially to securing Europe’s
energy supply.
Following the acquisition of Ciba, you now
have to consider the interests of a Swiss
company. Does it help that the national
cultures of Germany and Switzerland are
so similar, or is it only corporate cultures
that matter here?
We decided to buy Ciba because their products
complement our portfolio and they fit with
our strategy of becoming more economically
resilient and competitive through specialist
capabilities. When companies are integrated,
the objective is to merge different corporate
cultures. Nationalities are somewhat less
important, especially as Ciba was also an
international organization. Incidentally,
the integration went extremely well, more
quickly than expected, and is now complete
for the most part.
One final question: Do you consider
yourself to be first and foremost a German,
a European, a resident of Ludwigshafen,
or a citizen of the world?
I am a Swabian by birth, who feels at home
all over the world. At the same time,
I am a committed European and have chosen
to live in the Pfalz region of Germany..
WHAT MAKES EUROPE’S LEADING MANAGERS TICK?
In a current study, Roland Berger investigates the values of European managers.
In comparison with their US counterparts, the results show: Europe’s bosses are
almost as profit-oriented as the Americans, but don’t see themselves so much as
strategists or motivators
WHICH AIMS ARE MOST IMPORTANT FOR TOP MANAGERS
GOAL CATEGORIES (in %)
Profitability 42 39
Market positioning 21 23
Market performance 18 15
Power and prestige 7 7
Financial goals 5 7
Social goals relating to employees 5 5
Aims relating to society 2 4
ROLES OF THE IDEAL TOP MANAGER
ROLE
I NTERNAL
E X TERNAL
Strategist
Doer
Organization shaper
Motivator
Entrepreneur
Representative
Spokesperson
Networker
Philanthropist
COMPARISON: EUROPEAN VERSUS AMERICAN MANAGEMENT STYLES
EUROPEAN TOP MANAGERS AMERICAN TOP MANAGERS
Profitability most important GOALS Profitability most important
Internal management roles like IDEAL ROLE External management roles like
· Strategist · Networker
· Motivator
Requirement for more doing ROLE IN PRACTICE Requirement for doing and
motivation of employees
Less doing—more time for AIMS Less doing—more time for
strategy and people networking
Source: Roland Berger Strategy Consultants
IMPORTANCE
very important
not important
1 2 3 4 5 6
Europe USA
Strategist is considered less important
Motivator and entrepreneur
are considered less important
Networker and philanthropist
are clearly considered
more important

p business culture
56
WORK IN PROGRESS
One current study explains paths to growth, while another describes the prospects of the aerospace
industry. In a new book, consultants show why “green” business is a huge topic for Roland Berger. And
a project with the University of Oxford seeks the fundamentals behind good reputation management.
BOOK
Green benchmarking
More and more companies are now seeing
that making money via environmentally
sound business is not just a realistic possibility,
but actually an alluring way to tap new
sources of revenue. As a result, Roland Berger
has chosen the theme of “Green Business”
as one of this year’s five main topics. In addition
to a number of individual studies, the
consultants are currently working on a book
that summarizes both the various aspects
that make up green growth and the company’s
considerable experience in this field.
The book initially provides an overview of
the market, outlining the unbowed
dynamism of green business models in a
diverse range of industries. However, it also
raises the question as to how much different
approaches to regulation and technological
developments, in particular, will influence
potential yield in the future. Having highlighted
these questions, the book then turns
its attention to a collection of examples from
individual sectors and markets in search of
the answers. Lastly, the authors address the
question of how individual countries compare
internationally, thereby providing an
international green benchmarking index.
RESTRUCTURING
Top issue: growth
Upswing in Sight?: Business Development After
the 2009 Catastrophe is the title of the current
Roland Berger study on the topic of restructuring.
The consultants interviewed more
than 500 companies in western Europe, the
EEC, Asia, the Middle East and the US. The
Competence Center Corporate Performance’s
key questions were: Which industries
and regions have overcome the crisis
and how did they do it?
Initial findings are already available for Germany.
These state that four out of five companies
pushed ahead with their restructuring
measures during the crisis. The companies
were able to reduce their personnel
costs by 10 to 15 percent—without relying on
more reorganization-related layoffs. After
focusing on cost reductions, future growth
and sales initiatives are at the top of the
agenda, the report says.
Most decision-makers consider management’s
commitment and an integrated concept
as critical factors to success. Rapid
implementation remains important, but is
somewhat less of a priority.
STUDY
Challenges in the sky
The European aerospace industry has developed
swiftly in the last two decades. The
industry’s consolidation created various
world market leaders, on both the OEM and
supply side. Growth, solid profit margins and
the success of key space missions demon-

strated the industry’s strengths. However,
challenges are looming. The demand stemming
from national governments could
wane as may their support for the industry.
Regulatory measures will also likely
decrease. This means that companies’ business
models, product portfolios and operational
performance will be headed for the
testing area. A current Roland Berger study
begins its examination at precisely this point,
with consultants taking a look at major
trends and the primary factors behind success
in the aerospace industry.
RESEARCH PROJECT
How to manage a
brand’s reputation?
How does one manage a brand’s reputation?
The University of Oxford has chosen Roland
Berger as a case study for best practices associated
with international brand management.
Together with experts from the Centre
for Corporate Reputation at the Saïd Business
School, Roland Berger’s marketing consultants
will analyze the company’s reputation
among various target groups. Aim of the
analysis is to provide approaches geared
toward improved visibility and recognition
of a brand, while generating local and international
image effects. The project team is
also preparing a case study pertaining to
international brand management that it
intends to publish anonymously in an international
science magazine. Research partners
include Tim Morris, head of the Centre
for Corporate Reputation, and Will Harvey, a
research fellow at the center (see the interview
below).
INTERVIEW
Five minutes to ruin
a company
THINK:ACT Professor Morris, what is the aim
of the Oxford/Berger project?
TIM MORRIS Our focus is on the reputation of
Roland Berger across different groups, in particular
amongst partners, strategists, clients
and non-clients. We are also interested in analyzing
its reputation across different country
offices as well as in a variety of company areas
such as restructuring, corporate finance, marketing
and information management.
Why is reputation such an important issue
these days?
WILL HARVEY Warren Buffett is quoted
as once saying: “It takes 20 years to build
a reputation and five minutes to ruin it.
If you think about that, you’ll do things
differently.” Today, reputation is more important
than ever before because firms in most
sectors are not only faced with increasing
global competition, but also a greater exposure
and accountability to the public. Consequently,
the most competitive organizations will be
those that have the best reputation across a
string of different groups.
What is specific about reputation management
in the services industry?
MORRIS Unlike consumer product sectors,
where customers are willing to overlook the
quality of employees or focus on the product
rather than the people, in the service sector the
quality of consulting is the product. Quality is
difficult to determine from an outsider’s perspective
and therefore a company’s reputation
is a critical signal of quality.
What is the main mistake companies make
in their reputation policy?
HARVEY Firms tend to take a scattergun
approach; that is they do a lot of things but
with little focus, and neglect to make a consistent
investment in their reputation over time.
They also fail to understand how clients make
a difference in shaping their reputation, nor do
they properly understand how clients make
judgments based on reputation.
What outcomes are you expecting from
the project?
MORRIS We aim to provide a comprehensive
analysis of the reputation of Roland Berger and
produce a detailed executive summary and
presentation of our findings. Although it is
impossible at this stage to say what our exact
outcomes will be, one of our preliminary
observations has been that the decentralized
autonomy of different national offices appears
somewhat at odds with the centralized
endeavors of the headquarters. This presents
major challenges for achieving a unified and
global reputation.
TIM MORRIS is professor of management
studies and program director in the Centre for
Corporate Reputation at the Saïd Business
School, University of Oxford. He is also a fellow
of Green Templeton College.
WILL HARVEY is a research fellow in the
Centre for Corporate Reputation at the Saïd
Business School, University of Oxford.
57

p business culture
58
“Only money grants independence”
In his novel Angstblüte (Blossom of Fear), German author Martin Walser portrays a dealmaker.
As part of Roland Berger’s “Literature Meets Business” discussions, he met with Alexander
Mettenheimer, CEO of the private bank Merck Finck & Co. On the agenda: justice and independence.
THINK: ACT Gentleman, what do you spontaneously
associate with injustice?
ALEXANDER METTENHEIMER That not everyone
can live off of their wealth.
MARTIN WALSER I have a confession to make:
When I learned that this discussion would be
about justice, I felt deeply incompetent and
could convince myself to participate only if I
would not speak about justice at all but rather
The author Martin Walser often explores
the nature of capitalism in his works.
about injustice. Because that is the only thing
that I have experience with.
You recently said in an interview that
you are still a socialist as far as justice is
concerned.
WALSER Even though I don’t remember saying
that, it would probably be true. I was raised a
Catholic and a rather devout Catholic at that.
And the main impact this religion had on me,
and not just on me, of course, was that we
wanted the world to be a just place. That wasn’t
a theory, it was a feeling. Everything I have
expressed in a political context could only be
an extension of this youthful experience, that
there should be greater justice out there. I’ve
given up on that by now, however. I merely
talk about injustice these days.

Because there is no justice?
WALSER How can there be justice? We’ve all
experienced that socialism is incapable of creating
justice. Now I can even say: There is no
social order that can possibly create justice. If
someone claims that it can, then it’s always just
an ideological promise that can never be kept
in reality. You can only make people more sensitized
about injustice.
Mr. Mettenheimer, you once said in an interview
that the wider the gap between rich
and poor, the better.
METTENHEIMER It is easier when you think in
extremes. If we’re all equal, then we’re living in
the former East Germany. And if we’re someplace
completely unequal, perhaps Nicaragua,
where the gap between rich and poor is among
the widest in the world, then we have a minimal
number of people holding the greatest portion
of wealth, and everyone else is poor. And
somewhere in between is where we in Germany
all feel comfortable. The question is: Where do
we place ourselves?
And where could that be?
METTENHEIMER The renowned German economist
Wilhelm Röpke once said that any
attempt to found an economic order based on
morals that are higher than the social average
will end in coercion. And we’ve seen that in
socialism. Now we want to establish an order
that enables the greatest possible number of
people to take advantage of the benefits without
taking too much away from them. That will
be different everywhere. Yet statistically speaking
we can prove one thing: Economy growth
rates are the strongest where the gap is widest.
That may be unjust from the individual’s perspective,
but better for the collective whole,
because a growing economy is better than a
stagnant one.
Then are such contradictory statements
about justice self-deceiving?
METTENHEIMER We all know this: We are not
all equal. The state can only treat people equally,
but to claim that we are all equal is simply false.
If I demand that the state offers equal opportunities
to everyone, then equality is the right principle.
But do I expect that everyone will earn the
same afterwards? Then I have to say: No.
Mr. Walser, in your works you express that
injustice arises from injuries, violations
resulting from dependence.
WALSER Of course. We all know this.
So are we all injured, violated?
WALSER If we weren’t, we wouldn’t be here. My
most recently published stage of this development
is Karl von Kahn, an investment consultant
from Munich, who said: “Because people
are the way they are, we need to become independent
of them. Theologians and philosophers
can argue about freedom. There aren’t two versions
of the word independence. Independence
is the most desirable status.” My Karl von Kahn
goes on to say: “Merely money grants independence.
Money is the only way.”
In that regard he is quite different from another
man, someone whom he has every reason to
respect: American investor George Soros, who
has said that he would like to earn enough
money that other people are dependent on him.
My Karl von Kahn contradicts him in this
regard and says: “I don’t want anyone to
depend on me.” He is my mouthpiece and that
is the essential point: You can’t be dependent
on anyone. Everybody you depend on will take
advantage of it. That is called power. Power
can only be abused. There are no philanthropic
ways of using power. Power is always something
illegitimate. I can’t imagine that there is
a person anywhere who does not seek to be
independent from that.
So we are dependent on money, after all …
WALSER That’s what you say. I say: Only
money makes you independent. That does not
mean: I am dependent on money.
METTENHEIMER I’d like to contradict you when
it comes to independence. I have seen many
families with plenty of wealth and their members
are terribly dependent.
WALSER On what ?
METTENHEIMER On a collapse, a total failure of
the situation they find themselves in. Where
money rather harms them. In some cases,
wealth is experienced as a burden. People can’t
deal with it, don’t know what to do with it.
They sometimes attempt to escape.
WALSER But individuals are indeed in control of
that! You are not actually dependent on others
in that situation.
business culture f
METTENHEIMER I do agree with you here. But
the reality is that money and independence are
two entirely different things. You can also have
mental independence.
WALSER It is an ideology to believe that such a
thing as mental independence existed.
METTENHEIMER That is not an ideology. People
have an ability to form an opinion independently.
This doesn’t depend on money. I consider
it unjust that the state doesn’t give more people
the opportunity to build enough wealth to
allow them to live off it, that the majority of citizens
are financial transfer recipients. That is a
structural failure of our society. We need to create
a state where each person is responsible for
their own life first of all. Where everyone also
has the goal of supporting themselves from
their own wealth. If that doesn’t work, then we
truly have an unjust state.
Then how should we understand the title of
your article “Wealth Is a Flaw?”
METTENHEIMER Please don’t overlook the question
mark at the end. It appears in the context
of placing the focus on high earners, the
wealthy. Those are just a very few people. If you
look at tax statistics, you’ll see that only 12,500
people declare €1 million in income.
Who report it …
METTENHEIMER There are 250,000 people who
report an income of more than €250,000. Considering
the size of Germany, that is too few.
And they get called on for everything. Extra
duties, affluence taxes, high inheritance taxes.
The attitude: Take it from the rich.
It is probably understandable when a member
of the precarity says “I’d like to have
their problems.”
METTENHEIMER Yes, but it’s completely irrelevant
to the economic reality. The reality should
be that the majority of the people should pay
the majority of the taxes. When we have more
recipients than contributors, then you realize
that justice has transformed into injustice. The
collapse in Greece is unjust to the population.
Why? Because more money was spent than
was available. If we do the same, then that is
what awaits us. I consider that unjust. Every
hotel owner treats his best-paying guest the
best. Only our government says: Hammer the
59

p business culture
60
MARTIN WALSER is one of Germany's
most renowned authors. He
has received many awards for his literary
works, including the Georg
Büchner Prize in 1981 and the Peace Prize of the German Book Fair in
1998. In his body of work, he often writes about business as well,
most recently in his novel Angstblüte (Blossom of Fear) about financial
investor Karl von Kahn.
rich again. The media does it. Politicians do it.
But that just can’t be right. Money comes from
the businesses. No one becomes wealthy from
doing nothing.
WALSER The way you reacted to my word
“independence” makes me shiver. I don’t know
if you can imagine the condition of others having
power over you, and not being able to do
anything other than accept it. And that is
dependence. Dependence deforms people. And
in civilized, meaning non-dictatorial, conditions,
there is nothing so deforming as being
dependent on this, that and the other. People
would not be so dependent if they had money
and their only problem was where to put it.
METTENHEIMER I agree with you. I started out
with 800 German marks in my pocket …
WALSER I’ve never met anybody who didn’t say,
“I started out with 500 marks.”
Yet society has learned to deal with inequality,
after all.
METTENHEIMER What does “just” mean ? This
is a simplification, but: A police officer who
lives in the eastern part of Germany pays a
totally different rent than the officer who lives
in Munich. Both do the same job, but they will
have quite a difference in net income left over
after paying the rent.
ALEXANDER METTENHEIMER is the CEO and a personally
liable partner with Merck Finck & Co., a private bank. The 57-year-old
management spokesman has been with the bank since October 2001,
and is responsible for the Financial Markets department as well as the
Research, Legal, Communications, Auditing
and Central Administration departments. He
learned the subtleties of banking with
Citibank in London.
Very well, but what about women?
WALSER What women have to say, they should
say for themselves.
METTENHEIMER I started out at a bank, which
is a real meritocracy. There they always said
that it’s not a question of age, gender or race. A
person who is efficient will receive more than
one who does less. And I think that’s absolutely
right. But who decides that? Justice is not something
abstract, but rather the total outcome of
our actions. Someone, somewhere said: “I
would like to offer you this job.” And the other
person accepted it. These are two parties in a
contract who have taken action.
WALSER Do you think that justice can be established
in such negotiations, even in a dependent
relationship?
METTENHEIMER I have always taken guidance
from what I read by German philosopher Josef
Pieper about St. Thomas. He divides justice
into the principles of just exchange and distributive
justice. “I sell my house and receive a certain
price for it.” These are decisions that
everyone would like to make. Every person
needs to ask him- or herself: “Have I hired
someone after offering that individual an
unfair contract, after I have coerced or exploited
someone to make them relent?” That would
be unjust behavior.
WALSER Let me—please accept my apologies—
offer an example from one of my novels. Xaver,
a chauffeur, has a wonderful boss, Dr. Gleitze, a
Mozart lover, musical and cultivated. And nevertheless,
the relationship between them is
unequal, a non-relationship, and Xaver says
the following about this non-relationship,
which also ultimately makes him ill. He says:
“He thinks about his boss at night, and he
knows that his boss doesn’t think of him at
night.” That’s what makes him unhappy.
METTENHEIMER Yes, that’s certainly true. But
no one forced him to stay there.
WALSER EVERYTHING forced him to stay
there! It’s a wonderful job. There’s none better.
METTENHEIMER You see, that is the freedom
that you have as a writer. But in reality, he
needs to make a decision if he feels it’s making
him ill. I have moved during my life, because I
wanted a job that I found more appealing and
because it paid better and because I gained
experience there. .
This interview was conducted in cooperation
with the magazine Wirtschaftswoche, where
it will also be published. In the “Literature
Meets Business” discussion series, Roland
Berger aims to offer new perspectives on
economic interdependencies.

JOBS ON
DROPPING OUT
“I naively chose a college that was
almost as expensive as Stanford,
and all of my working-class parents’
savings were being spent on
my college tuition. After six
months, I couldn’t see the value in
it. I had no idea what I wanted to
do with my life and no idea how
college was going to help me figure
it out. So I decided to drop out
and trust that it would all work
out OK. It was pretty scary at the
time, but looking back it was one
of the best decisions I ever made.
The minute I dropped out I could
stop taking the required classes
that didn’t interest me, and begin
dropping in on the ones that
looked interesting.”
JOBS ON
BEING FIRED
“Woz and I started Apple in my
parents’ garage when I was 20.
We worked hard, and in 10 years
Apple had grown from just the
two of us in a garage into a $2 billion
company with over 4,000
employees. We had just released
our finest creation—the Macintosh—a
year earlier, and I had just
“Don’t settle”
Soon, think:act will be available on the iPad. The iPad is the latest
stroke of genius by Apple CEO Steve Jobs. Jobs is the ultimate
rulebreaker. But what drives him? Some personal insights …
turned 30. And then I got fired.
How can you get fired from a
company you started? Well, as
Apple grew we hired someone
who I thought was very talented
to run the company with me, and
for the first year or so things went
well. But then our visions of the
future began to diverge, and eventually
we had a falling out. When
we did, our board of directors
sided with him. So at 30 I was
out—very publicly out. What had
been the focus of my entire adult
life was gone; it was devastating.”
JOBS ON
STARTING AGAIN
“I really didn’t know what to do
for a few months. I felt that I had
let the previous generation of
entrepreneurs down—that I had
dropped the baton as it was being
passed to me. I met with David
Packard and Bob Noyce and tried
to apologize for screwing up so
badly. I was a very public failure,
and I even thought about running
away from the valley.
But something slowly began to
dawn on me—I still loved what I
did. The turn of events at Apple
had not changed that one bit. I
business culture f
had been rejected, but I was still
in love. And so I decided to start
over.
I didn’t see it then, but it turned
out that getting fired from Apple
was the best thing that could have
ever happened to me. The heaviness
of being successful was
replaced by the lightness of being
a beginner again. It freed me
to enter one of the most creative
periods of my life.”
JOBS ON
LOVE
“I’m convinced that the only thing
that kept me going was that I
loved what I did. You’ve got to
find what you love. And that is as
true for your work as it is for your
lovers. Your work is going to fill a
large part of your life, and the
only way to be truly satisfied is to
do what you believe is great work.
And the only way to do great
work is to love what you do. If you
haven’t found it yet, keep looking.
Don’t settle. As with all matters of
the heart, you’ll know when you
find it. And, like any great relationship,
it just gets better and
better. So keep looking until you
find it. Don’t settle.”.
�Steve Jobs’s rulebreaking
affects think:act, too.
Starting with this issue, this
magazine is also available
in an iPad version.
61

p service credits
62
FOLLOW-UP READING TIPS
Reformer takes over at Harvard
Since its founding, think:act has closely followed
discussions pertaining to management training
programs. Issue 4 initiated this coverage with a
pro/con analysis of whether the MBA is still relevant
today. One individual may give the debate
new impetus: Nitin Nohria, a professor of business
administration, will be taking the helm as dean of
the Harvard Business School. He is an unconventional
thinker who is critical of the standard contents
of traditional, elite MBA courses. Harvard’s
decision-makers did not have an easy time with his
appointment, evidenced by the string of regular
meetings held by 12 faculty members over recent
months. President Drew Faust also felt compelled
to solicit external input. It will be exciting to see
where Nohria will
tighten the screws
first. Observers have
high expectations—
as Financial Times
writer Stefan Stern
put it, “By appointing
Prof. Nohria, Harvard
University has signaled
that it is not
Nitin Nohria—to what extent will he
reform Harvard’s MBA program?
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AUTHORS
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ENGLISH EDITION
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PHOTO CREDITS
Cover: Illustration Pietari Posti, ullstein bild/
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p. 10: dpa/Patrick P; p. 14–15: Illustration Pietari
Posti; p. 16: AFP/Manan Vatsyayana; p. 17: gallerystock;
p. 18: gettyimages/Bloomberg; p. 20–21: pr;
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pr; p. 35: Benno Saenger; p. 36: imago/
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p. 38: gallerystock/Geof Kern; p. 39: gallerystock/
Pinault may make a move
As we report in think:act 14, PPR CEO François
Pinault wants to create a new concept of luxury.
Pinault’s understanding of luxury has a lot to do
with the exclusivity of hand-crafted perfection.
One name that would fit nicely into this philosophy
is luxury designer Hermès, whose patriarch
Jean-Louis Dumas recently passed away. Now
there’s speculation that with his passing, PPR
could take over Hermès.
Is the percentage of women relevant?
In Issue 12, we covered the debate about the percentage
of women in the ranks of top managers.
The University of Michigan has now shrewdly
asked: what has the Norwegian percentage
actually changed? Well, the average experience of
top managers dropped; more female CEOs have
MBAs; and more are likely to come from middle
management than from other senior positions.
Jim Krantz; p. 40: gallerystock/Derek Swalwell; p. 41:
gallerystock/Christopher Griffith; p. 43: Illustration:
iStockphotos/zubada; p. 44: gallerystock/Christopher
Griffith; p. 45: gettyimages/Bloomberg; p. 47: iStockphotos/blackred,
pr; p. 48–49: iStockphotos/Thomas
Vogel, Memjet; p. 49: Science Foto, General Electric;
p. 50: Illustration Sylvia Neuner; p. 52: ullstein bild/
Reuters; p. 54: Roland Berger Strategy Consultants;
p. 56–57: Illustration Sylvia Neuner; p. 58: Sven Paustian;
p. 60: Roland Berger Strategy Consultants; p. 61:
Apple, corbis/Kim Kulish; p. 62: Harvard University
News Office/Stephanie Mitchell
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Strategy Consultants? Just send an
e-mail to service@think-act.info
In his new book, Chaotics, marketing
expert Philip Kotler offers
strategy-related ideas for turbulent
times. It’s comforting to
know that even though strategies
are changing fundamentally,
developing and implementing
them is still possible, according
to Kotler. Professor Peter Cappelli
outlines the rise of the Indian
management model in The India
Way—worth reading for anyone
seeking a better understanding
of India’s economy and culture.
For those seeking more on India,
British finance journalist
Edward Luce gives an outsider’s
views on the many contradictions
of the country’s society in
In Spite of the Gods. How important
the Internet has become in
terms of generating new ideas in
today’s society is addressed in
Yale professor Yochai Benkler’s
weighty The Wealth of Networks.
PHILIP KOTLER:
Chaotics
PETER
CAPPELLI:
The India Way
EDWARD LUCE:
In Spite
of the Gods
YOCHAI
BENKLER:
The Wealth
of Networks

Highlights from this issue on CD
Listen to the following articles:
kINDIA INNOVATES DIFFERENTLY (P. 16)
Why India’s companies can do more than just cheap
kA LOT OF WHITE SHELVES (P. 22)
Local stores still dominate India’s retail trade—for how long?
kPRAISE TO THE MOTHER (P. 31)
Why are Indian CEOs so successful in global corporations?
kSOMETIMES POLITICS CAN’T BE POPULAR (P. 8)
Sergey Tigipko’s fight for reform in Ukraine
kLOCKING HORNS (P. 10)
Why management conflicts should not always be avoided
k“ALL MUSCLE AND NO FAT” (P. 44)
Philip Kotler explains how to market professional services