Hi all, i know this is not related to the topic bt still i feel this is the most feasible place to ask this... I hv some general questions related to business world, which i tried to luk in various places bt didnt got a lucid answer..:neutral: can ne1 tell me where to exactly get to know abt the various things like: 1.Equity 2.Shares 3.Mutual Funds 4.Investment banking 5.Underwriting n lots n lots of other biz things.... like how the share market is controlled n etc.. please tell me the name of ne book or the website where i cn get to know abt all these things... thanks a lot in advance....:)
Hey buddy--if u wanna know more bout such biz jargon--go to www.about.com and search--u'll get the answers. i'll try to answer em though:
Equity means owning somethin--generally used to refer ownership of stocks and shares.
Shares are exactly wat they mean--"Sharing"--but in terms of company loss or profit. When a company needs a lot of money to invest in let's say a new plant or somethin--it asks the general public to lend it some money--on the condition that it will share the profit with them according to their invesment--so a common guy can actually "own" a part of the company -- albeit a v small one!! This is v general description--do google for more.
Mutual funds are companies that take money from u -- and invest it in stocks, future, options etc...they have a group of experts who manage this money and invest to make profit--they take some commissionand give u the profits left out--it's a form of investment!!
Investment banking is a field of banking that aids companies in acquiring funds. In addition to the acquisition of new funds, investment banking also offers advice for a wide range of transactions a company might engage in.
Download a few simple guides available on the net--i'll try 2 post a few soon.
hey thanks a lot "holyshit666", i got a general idea..... i m interseted in the field of bankin n i wanna know a lot abt them.. bt d problem is i dont hv ne resources:neutral:. So if u cn please tell me where to luk out for them then it will be very helpful.. i m currently a b.tech student....
hey thanks a lot "holyshit666", i got a general idea..... i m interseted in the field of bankin n i wanna know a lot abt them.. bt d problem is i dont hv ne resources:neutral:. So if u cn please tell me where to luk out for them then it will be very helpful.. i m currently a b.tech student....
Net is the best resource my friend and Google's the key --some amount of smart searching should do the trick--try www.investopedia.com. I'm attachin a few basic guides to financial concepts and stocks--hope they help!!
Record bids for drilling rights demonstrate the big bets oil companies are making to secure reserves of black gold
Just how wild is the bidding for good oil acreage these days? Very wild, going by a recent auction of acreage in the Congo Basin, off the coast of Angola. To land the licenses needed to explore three deepwater exploration tracts, oil companies offered to pay an astronomical $3.1 billion in signing bonuses, plus another $240 million in commitments for social projects in the impoverished African country.
All the more remarkable, the bidding was for tracts that had already been "cherry picked" by other international oil companies. These bids were "the highest ever offered for exploration acreage anywhere in the world," says Catriona O'Rourke, an analyst at Edinburgh consultants Wood Mackenzie, which has published an analysis of data provided by the Angolans.
The Angola episode shows how governments and companies are adjusting to the new high-price oil environment. Governments are trying to recoup a bigger chunk of the money, while companies -- many of them hungry for crude -- are bidding properties up to unseen levels. These dynamics are eventually likely to squeeze the current high returns that companies are earning. Meanwhile, some of the big players such as ExxonMobil (XOM) and BP (BP) are playing a waiting game and staying out of some of the hottest auctions.
The most lavish bidder in the Angola round was a consortium led by China's Sinopec (SHI), which is desperately trying to line up oil and gas reserves. It bid a combined $2.2 billion for Blocks 17 and 18. Italy's ENI also put in a $902 million offer for Block 15. O'Rourke of Wood Mackenzie says these areas were "prime acreage," and high bids were expected. Even so, few expected the action to exceed $1 billion. How the projects will actually go forward hasn't yet been fully worked out, and talks between Sonangol, the Angolan national oil company, and the bidders are still under way.
Angola has been one of the great success stories in the oil business recently, and the values of Angolan tracts have risen enormously. Oil companies won exploration rights for these three blocks in the early 1990s for bonuses in the range of $6 million to $35 million. Some excellent discoveries were made there. They include Total's (TOT) Girrassol project in Block 17, which produces 240,000 barrels per day. Because of this stellar track record, later Angolan acreage next to these blocks went for as high as $350 million. Now, Angola, which has a relatively generous though toughening tax regime for oil production, is taking advantage of high prices and the scarcity of good opportunities to maximize its short-term revenue.
The lesson that may be learned from this round, Wood Mackenzie notes, is that companies are willing to pay very large bonuses to governments offering decent production terms. Another lesson: Governments may start looking for higher upfront payments. TENANTS' RIGHTS. In the Angolan case, the numbers could turn ugly. Having made such huge initial payments before even finding oil -- let alone producing it -- the oil companies will find it tough to secure the 20% or so rate of return they ordinarily seek for projects that involve considerable risk. In a study, Deutsche Bank (DB) reckons the new "winners" will have to make finds in the range of a billion barrels -- a very large discovery -- to make good money.
While not impossible, what works against the likelihood of massive finds is that companies including ExxonMobil and BP have already worked over each of the blocks, presumably drilling what they thought were the best prospects. ExxonMobil, for instance, has already found 3.3 billion barrels of reserves in Block 15, making 17 discoveries with 19 wells. As a result, Deutsche Bank reckons that 12% returns -- more typical of refining and marketing than exploration and production -- would be a "high-side case" for the ENI-led group with the new license. Much lower returns are possible.
The companies that have already found reserves in the blocks retain the rights to the oil and gas that they have found, while the new consortia will work in other parts of these massive offshore zones. In Blocks 15 and 18, ExxonMobil and BP, the operators of existing projects in these areas, bid only $120 million and $15 million respectively in the new round. BP's low bid came on the same block for which a Sinopec-led group offered $1.2 billion.
ExxonMobil and BP already have a lot on their plates in Angola, and, apparently, they figure they're better off waiting until better opportunities emerge. No matter: Other companies seem more than willing to bid sky high.
Must read for every B-school aspirant. Most Indian IT companies emerge as the major gainers on this years CRI*.
Management consultancy is the most preferred sector amongst students from premier institutes As per ACNielsen Campus Track T-Schools 2006 survey, global Internet search firm Google appears as the top-most prospective employer for the Indian engineering students of the 2007 batch. Yahoo!, featuring for the first time in the survey, emerged as the third most preferred employer. The survey analysed student perceptions about recruiters and the factors used by engineering students graduating in 2007 to evaluate prospective employers. From previous years, the scope of the study has expanded from the 20 leading engineering school to 73 this year. The other interesting finding is the increasing popularity of Indian firms as preferred employers compared to global giants. Infosys' relative position moved up by 14 places on the CRI as compared to the last track. Satyam and Cognizant were some of the other major gainers on the CRI this year. Engineers Eye Management Consultancy; IT/Software Favourite Sector Management consultancy follows IT/software to be the favourite career option in the premier engineering campuses. Preference for management consultancy is significantly higher amongst IITians as compare to other institutes. Energy/power and biotech are the other areas which are gaining interest amongst set of the student. However, telecom is no longer perceived as the industry of the future. Let's compare the trends of the years. The Top 10 companies on the CRI list of the 2005 batch included a wide spectrum of companies in IT/Consulting, FMCG and Core Sectors . The 2 006 batch wanted IT/Consulting and FMCG , and finally the 2007 batch has only IT/Consulting firms in its Top10 list. So, the shift in perception as 'Dream Recruiter' has narrowed down to only IT/consulting companies over the years. W hile there was only 1 Indian IT company among the Top 10 list of the 2005 batch, there are three this time - Infosys, TCS and Wipro. Opting for Higher Education The interest in pursuing a post-graduate degree continues to be high with students. About 55 per cent of all students want to pursue an MBA and this trend has been increasing over the years, as seen when compared with the earlier batches, making it even more attractive than M.Tech/MS. In fact higher study, especially MBA, is the reason behind engineering students wanting to move out of their first job early. This year's results show that about 70 per cent of the students expect to move out of their first job in 3 years or less, mainly to pursue higher studies. The percentage of students opting out of their job in the first few years for higher education has been increasing over the years . This is becoming a major concern for the HR departments. Since most students plan to pursue their higher studies, the HR departments should organise innovative retention plans like sponsored on-job MBA programmes for the Engineering graduates says Prasenjit Das, associate director, ACNielsen India. Remuneration expectations too have seen a change with this batch of engineering graduates. Average salary expectation from their dream company is close to Rs 6 lakh, a rise of 15 per cent from last year . Google replaces Microsoft at the top spot Google, Microsoft, Yahoo!, Oracle and IBM emerged as the top 5 companies among students from the top 20 engineering campuses. The study indicates that job content and growth prospects in the company as well as the size of the recruiting company and its market standing continue to be important parameters for selection. By ranking individual companies on these various parameters, the ACNielsen Campus Track T-schools can be used to devise an action plan by individual companies to attract better talent by analysing the various attributes of 'Goodwill' enjoyed by it, within the engineering talent pool. The overall effect on this goodwill is accumulated to compute a composite 'goodwill score' used to construct the Campus Recruiter Index. This index reflects the overall standing of companies in the minds of students. The CRI comprises companies mentioned by respondents and not all Indian companies. BOX 1: Rank in Terms of Campus Recruiter Index Batch of 2005, 2006 and 2007
BOX 1: Average Salary Expectations Batch of 2004, 2005, 2006 and 2007 (in Rs Lakh) *Campus Recruiter Index
After saturating its target market of working class, bargain-hunting consumers, Wal-Mart is ratcheting up its low-price strategy to appeal to more upscale shoppers by expanding its merchandise lines to include organic foods, better wines, high-end consumer electronics and new fashion-oriented apparel. It's an approach that carries some risk, say Wharton faculty and analysts, but that is dictated by intense competition and the lack of other opportunities for growth.
The changes come as Wal-Mart -- the world's largest retailer with annual sales of more than $300 billion -- has struggled with slowing growth and rocky transitions internationally as well as into urban areas of the northeastern United States. In a speech at the company's annual meeting this month, Wal-Mart chief executive Lee Scott outlined elements of the strategy and quoted Wal-Mart founder Sam Walton: "You can't just keep doing what works one time. Everything around you is always changing. To succeed, stay out in front of that change."
Wooing the Baby Boomers According to Wharton marketing professor Xavier Dreze, now that Wal-Mart has conquered the value end of retailing, its options are limited. "They are going upscale. It's the only choice available," he says. "They have expanded to the point where they can't expand in the U.S. anymore. If you can't grow by reaching more people, you have to grow by selling more -- and more expensive -- ."
Approximately 80% of American shoppers now visit a Wal-Mart store at least once a year and more than 170 million consumers around the world shop at a Wal-Mart store each week. In addition, the company has expanded to 6,100 stores in 70 countries. "Wal-Mart is sending a signal that they are about more than price," says Wharton marketing professor David Bell. "They have played price. Now they want to play quality and broaden their image. It will be interesting to see whether people believe it."
The new strategy will help Wal-Mart compete against Target, its chief discount-chain rival, adds Wharton marketing professor John Zhang. "Target is doing well. Customers perceive it as more trendy and higher-end. Wal-Mart now is forced to move to the high end to look more like Target instead of just looking cheap." Demographics are also driving the changes at Wal-Mart, which traditionally has had the most appeal to young families. The chain is making an effort to woo the nation's 70 million aging baby boomers, according to Zhang. "These are the customers with more spending power. You have to figure out a way to follow them and satisfy their needs."
The new higher-end products will be sprinkled throughout Wal-Mart's core offerings and are not likely to alienate the company's established base, suggests Wharton marketing professor Stephen Hoch, who says he sees no reason for the initiative to fail. "Target has been successful at going slightly above where Wal-Mart is. Wal-Mart may not be perfectly associated with a trading-up image, but my guess is they can buy brands that have that panache as well as anybody else, or even better."
Of course there is always a chance Wal-Mart could jeopardize its current position by aspiring to move up the customer ladder, Dreze notes, comparing the situation to regional airlines that do well in their niche, then expand nationally, but ultimately fail because they have lost their competitive edge. "The question for Wal-Mart is, if they sell high-end , is there a competitive edge to that? Or will it make them just another retailer? That's the risk."
In March, Wal-Mart opened an experimental store in Plano, Tex., an affluent area where the average income of $140,000 is triple that of the typical Wal-Mart shopper, according to market research firm Information Resources, Inc., (IRI). The store carries 2,000 premium items, including meat, cheese, wine and fresh produce not available in typical Wal-Mart supercenters.
In a report to clients, Bank of America analyst David Strasser says Wal-Mart's shift up the price continuum is already showing results. For several years, the chain's sales growth was led by food and consumables, while general merchandise was weak. Strasser analyzed sales of consumer electronics at 1,300 stores where higher-end merchandise, particularly flat-panel televisions, was introduced last year. For the first time in four years, consumer electronics became a non-grocery category to contribute growth to the overall sales mix at U.S. Wal-Mart stores.
Strasser also points to sales of the chain's new, more upscale private-label clothing line, Metro 7 -- which have been so strong that the company has had trouble keeping items in stock -- and its line of 400-thread count sheets, which have recently been selling out and are another symbol of Wal-Mart's move up the luxury continuum.
Even within the food and beverage category, Wal-Mart is changing its menu, most notably with new lines of organic foods, fresh produce and top-shelf wines and liquor. William Cody, managing director of Wharton's Jay H. Baker Retailing Initiative, says Wal-Mart's expansion in wine represents a departure from the chain's cultural roots in Bentonville, Ark., where founder Walton shied away from selling alcohol. According to Cody, changing federal regulations over the distribution of alcohol may open up new opportunities for Wal-Mart, Costco and other national retailers. Recent federal court cases have overturned statutes written at the end of Prohibition that gives states control over alcohol distribution.
Adjusting to Organics and Other Innovations Organics represent a new, growing category of demand for all retailers and is expected to experience double-digit growth through 2010, according to an IRI report issued in May that states: "Wal-Mart has been relatively slow to enter the fray, given a potential disconnect with its core lower-income consumer."
The $15 billion organic foods market represents just 2% of overall U.S. food and beverage sales, but is growing at a rate of 20% a year, compared to 2% to 4% for non-organic groceries, according to the Organic Trade Association. "The opportunity for the consumer is that Wal-Mart can hypothetically offer organics at a lower price, but that's assuming unlimited access to the supply," says Cody. "Can they position themselves as the low-price leader in organics? Possibly, but it's more a way to bring in new customers who buy organics."
Moving into organic foods will create new challenges for Wal-Mart's legendary supply-chain system, adds Serguei Netessine, Wharton professor or operations and information management. "Coming into organic foods is somewhat tricky, especially for someone as big as Wal-Mart. While Wal-Mart's typical supply model is to push vendors into a centralized distribution system, the wholesale organic foods market is made up of many small suppliers selling perishable goods that require complicated handling. "It's essentially hopeless and meaningless to try to centralize distribution. You have to change the distribution system somehow to go back to the model in which suppliers supplied directly to the nearest store."
Without major industrial-scale supply operations, Netessine says he doubts Wal-Mart's claim that it can substantially reduce the price of organic foods. Still, he's not counting Wal-Mart out just yet. "They will have to adjust," he says. "People incorrectly think of Wal-Mart as only supplying cheap goods to people on a budget. If you look at Wal-Mart merchandise, the list includes gold and diamonds and expensive electronics. Wherever there is some demand for something, even expensive items, Wal-Mart tries to come in. Every time, they have to adjust the supply chain for different merchandise, but for organic food seems especially tricky."
Another new innovation Wal-Mart executives are promoting is walk-in medical clinics, operated by outside firms like RediClinic, a healthcare startup created by America Online founder Steve Case. Wal-Mart leases space at 11 stores to pilot clinics and has said it may increase that number to 50 by the end of this year.
According to Cody, the clinics fall more in line with Wal-Mart's traditional consumer base, and while they may not be profit centers themselves, the clinics could help boost pharmacy sales or simply draw more shoppers into Wal-Mart stores.
Morris Cohen, Wharton professor of operations and information management, suggests the healthcare clinics will get leverage from Wal-Mart's real estate clout. However, they pose new issues of supply-chain management specific to services, as opposed to product inventory where Wal-Mart is viewed as the master. "It makes a lot of sense that Wal-Mart should be providing services in carefully selected convenient locations where you can share some of the overhead of the store," he says, noting that the chain already has optical and pharmacy services. "Why not manicures?"
Cohen explains the challenges of operating a service supply chain center around consistency and quality. "A service is consumed as it is produced, unlike a product that can sit on a shelf and come out of a box when the customer wants it. So often the quality rests on the dependability of the front-line people delivering the service." Consistent service, for example, requires companies to maintain excess capacity for times when they are not busy in order to meet customer needs when they arise, says Cohen. "It's still matching supply and demand, but the knobs you have to turn are different." The clinics may also fit into Wal-Mart's push to present itself as a kinder company, particularly after unions generated reports showing that Wal-Mart employees lacking health insurance coverage are among the top users of state and federal-financed Medicaid programs. CEO Scott has said that 30% to 40% of those visiting the Wal-Mart clinics are uninsured, while surveys indicate that if those people had not been able to come to the clinic, 20 to 40% would have sought expensive emergency room care. Another 10% to 20% would have gone without treatment.
Hoch points out that Wal-Mart is taking other steps to improve its appeal to shoppers, including new image-oriented advertising and a major initiative to operate with greater sensitivity to the environment. "I do think they are engaged in more outward-reaching public relations efforts to burnish their image, such as feel-good ads," he says. "They need to constantly evolve."
Successes and Setbacks Abroad Meanwhile, Wal-Mart's international expansion, which is an earlier attempt at generating growth beyond the company's well-established base, continues to have both successes and setbacks. In March, Wal-Mart raised its stake to a controlling 51% share in Central American Retail Holding Co., with 375 supermarkets in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. In May, it pulled out of South Korea, where it had 16 stores.
Wal-Mart officials have indicated that India, where government reforms lifting restrictions on foreign ownership of retail operations are underway, could be a major target market for the company. Meanwhile, Wal-Mart is expanding rapidly in China, where, Zhang says, there "are a large number of value-conscious customers and where infrastructure and logistics will play an important role. Wal-Mart has the advantage . I sense the company probably will do well."
Wal-Mart has had some success in Britain after stumbling in Germany, says Hoch. In Japan, after struggling for years, Wal-Mart several months ago took a controlling stake in the country's fifth-largest retailer, Seiyu Group. The company operates more than 400 supermarket and general merchandise stores in that country. "You win some and you lose some," Hoch says. "Each individual global market has its own set of issues. Wal-Mart has been successful in North America, including Canada and Mexico, and will continue to look for opportunities. The company is designed to grow. If it can't grow, it's in trouble."
Ray Ozzie is in. Bill Gates is heading out (but not entirely). And Steve Ballmer is staying right where he is (at least for now). What does this game of musical chairs among the members of Microsoft's high command portend for the world's biggest software company?
Far from being a source of confusion and uncertainty, Gates' recently announced decision that he will relinquish his full-time, day-to-day involvement in the company in July 2008 may be just the breath of fresh air needed for a firm facing major challenges to its core business, according to Wharton experts. Gates, in choosing Ozzie to replace him as chief software architect in 2008, has made a brilliant choice, they say. And while Ozzie and Ballmer bring different histories to their roles -- Ozzie is a relative newcomer to Microsoft, while Ballmer is a longtime friend of Bill's and a Microsoft veteran -- there is every reason for them to do all they can to work well together. If management problems do arise, Gates, who will remain chairman after 2008, will be available to help sort things out. Indeed, one faculty member says Gates and Ballmer may be grooming Ozzie to eventually take over Ballmer's CEO position when Ballmer decides to step down.
Gates, who has been the face of Microsoft for the last three decades, decided to ratchet back his involvement in the company to devote more time to giving away his $30 billion fortune to fund AIDS research and other causes through the Bill and Melinda Gates Foundation. Gates' intentions took on added significance earlier this week when Warren Buffett, another close friend of Gates', announced that he was donating $31 billion of his fortune to the Gates Foundation. The foundation will now have close to $61 billion to dispense, a far greater amount than that of the Ford Foundation and several other top charitable institutions combined.
At the same time that Ozzie was named as Gates' understudy for the next two years, there was another significant move at Microsoft -- the promotion of Craig Mundie from chief technical officer to the post of chief research and strategy officer. All eyes, however, will be on Ballmer and Ozzie, whose teaming up comes at a critical time for Microsoft.
"Ray Ozzie is a great choice," says Kevin Werbach, Wharton legal studies and business ethics professor, who has known Ozzie since the late 1990s. "Ray is widely recognized as being perhaps the most brilliant software engineer in the world, and on top of that, he is ... a wonderful and very engaging person. Ray is one of the few people who has the technological reputation to come into a place like Microsoft from the outside and garner respect."
In contrast to Ozzie's software expertise, Ballmer -- who took over the chief executive role from Gates six years ago when Gates assumed the title of chief software architect -- is known more for his sales and marketing prowess. Werbach describes Ozzie as "genteel of manner," in contrast to the more outgoing and occasionally bombastic Ballmer, "but you don't have the kind of success had without having an iron will behind it."
Steve Ballmer is "an extremely smart guy," Werbach adds. "I wouldn't challenge his technology knowledge at all. But he is a salesman and a manager more than an engineer, whereas Bill Gates was always seen as the technological inspiration for the company. Although Ozzie's personality is very different from Gates', he's also someone who is a technical visionary." Ozzie is best known as the developer of Lotus Notes and founder of Groove Networks. Lotus was acquired by IBM in 1995 and Groove was acquired by Microsoft in 2005, which is when Ozzie joined the company.
"These three have known each other for 30 years," Werbach adds. "I haven't asked Ray this point blank, but I suspect that part of the reason why Microsoft brought him in, and why he was willing to go, was the possibility that he would be the next CEO of the company. Gates' step back and elevate Ozzie and Craig Mundie reinforces that view for me.... This was a big decision for Ozzie. He didn't have to do this. This was also a big decision for Gates and Ballmer. Microsoft is a great company with a very deep bench of managers. It's not at all a trivial thing to bring in Ray from the outside for this visible role."
Two-Year Trial Period Evan Wittenberg, director of the Wharton Graduate Leadership Program, sees Gates' decision as part of an ongoing process of succession planning and says the Microsoft founder did the right thing in announcing a transition period. It allows for change without unsettling financial markets and provides continuity within the company.
"Six years ago, Gates stepped down as CEO, so that was the first step," Wittenberg says. "Now he's moving on to another role. He's still going to provide the philosophical underpinnings of the organization and its history, and he's going to provide consistency. And he says he's not retiring. Two years gives the organization plenty of time to reshuffle to look for other leaders from within."
Wharton management professor Katherine Klein says the transition period, even though unusually long, makes sense. "The transition is likely to keep Microsoft on a steady track, even though it is going through a lot of change. There's something somewhat conservative in scheduling a two-year transition, but I think that's wise."
Wharton management professor Lawrence Hrebiniak agrees that Gates has done the smart thing in establishing a transition period to give Ozzie a chance to get his sea legs. In addition, by handpicking Ozzie for this role -- Gates touching Ozzie on the shoulder with a sword is the image Hrebiniak suggests -- Gates ensures that Microsoft employees will accept him.
Hrebiniak also says, however, that Gates, Ozzie and Ballmer will have to work hard to carry out Gates' pledge to step gradually out of the way in deference to Ozzie's new position. "The next year or two will be a period of testing," Hrebiniak points out. "A two-year transition is a long transition. Gates is trying to say, on the one hand, 'I'm leaving,' but on the other hand, 'I'm going to hang around to make sure you do things my way.' If Ozzie does something Gates doesn't like, will Gates jump in and say, 'That's not what I want'"?
Wittenberg agrees that Gates has to tread carefully to avoid undermining Ozzie, perhaps by overruling his decisions, but says this is unlikely to happen since Gates appears truly dedicated to spending more time than he ever has on philanthropy. "It could be a problem if Microsoft starts to do something that wouldn't have been Gates' choice," Wittenberg notes. "If Gates starts questioning decisions and he has the urge to come back and reassert himself as the largest shareholder, that could be pretty disruptive. I don't know to what extent he is a micromanager. His challenge is going to be how to play a role in the company that was his life and make sure he's just putting his toe in the water. Pride in what he built may try to suck him back in."
Kendall Whitehouse, Wharton's senior director of information technology, says it will be interesting to see how the Ballmer-Ozzie relationship plays out because they are very different kinds of executives. "Politically, it's hard to imagine Ozzie having the same weight Gates had ," notes Whitehouse. "Ballmer is not seen as a technological visionary. He runs the company and runs it well. My suspicion is Ballmer will focus on delivering near-term shareholder value and be more concerned with tactics, while Ozzie will be teed up to look at long-term strategy. These roles often naturally conflict. How are going to make the tradeoffs between short-term tactics and long-term strategy? Where will the power lie? It will be interesting to see how much political power Ozzie will have to get his initiatives implemented across the company."
Hrebiniak says Ozzie's success will hinge on how well he can build on his technology background without stepping on Ballmer's toes. "If I were him, I'd use Gates as a resource," Hrebiniak says. "I would tell Gates what I'd like to do, then go to Ballmer. Ozzie should use Gates indirectly to influence Ballmer since they are friends." Hrebiniak also believes a key issue will be how Ballmer and Ozzie settle differences over strategic decisions. "If Microsoft is entering a new business or product line, who should have the final say, or the biggest say: Ozzie and the software guys or Ballmer and the business managers? It's not only a technical decision, but a business decision. You would think their roles and decisions would be clearly defined, but I've seen many cases in companies where they weren't."
Still, Hrebiniak notes that the changes at the top of Microsoft could be much-needed because sometimes a shakeup forces executives to sharpen their views of the company's strategy and their own individual roles. "There could be a positive outcome from this," he says.
Different Personalities Although Ballmer and Ozzie appear to have quite different personalities, Klein says it is not clear at all, according to the management literature, that personality fit is predictive of whether managers can work well together. "Extroverts often work with introverts. A lot of married couples have different personalities -- and that's not a bad analogy to what's happening at Microsoft. To work together, you need a clear fit around values and goals. My impression is that there is such clarity about what's needed at Microsoft. The company is incredibly strong but it is in challenging times and needs to be rethinking some of its strategies. That clarity is likely to serve Ballmer and Ozzie well and prevent too much jockeying for power."
The key challenge for Microsoft is to adapt and thrive in a new world where the competition is coming from the likes of Google, not from the software competitors that Gates had to contend with in the 1980s and 1990s.
"The great challenge for Microsoft is that, at its core, it's a software company -- and software as we know it is dead," says Werbach. "All the energy and economic activity is moving to the web. People more and more buy computers to of the web. They are going to question why they should spend hundreds of dollars on an operating system. And once they have bought it, they are going to question why they should bother to upgrade it. That's the challenge for Ray Ozzie. This isn't anything Microsoft hasn't anticipated. The fact that it is willing to bring in Ray is an extraordinary admission on the part of Gates and Ballmer that they needed to do something."
Longer term, Werbach says he would not be shocked if Ballmer steps down as chief executive when Gates gives up his post as chief software architect in 2008. "Steve Ballmer is a billionaire many times over. At some point, he's going to want to move on in his life. Ray is not a spring chicken either. If he's going to be CEO, it's going to happen in the next three to five years." As for Gates, Werbach concludes, "the company is his life and he's never going to stop being a significant influence on it."
I HAVE the choice between being considered someone dishonest or someone incompetent who doesn't know what is going on in his factories, said Arnaud Lagardre. I prefer the second version. Two days after the announcement on June 13th of the delay of up to seven months in deliveries of the A380 passenger jet, the co-chairman of the European Aeronautic Defence and Space (EADS) company ate humble pie. He rejected the accusations of those who suspect that he must have had an inkling of the company's difficulties when he sold a big chunk of his stake in EADS in April. But he admitted that he should have been informed of the new aeroplane's production problems.
Compared with Mr Lagardre, who has no operational role at EADS, the man who actually runs the group was not at all contrite. Nol Forgeard (pictured above), one of EADS's two co-chief executives, claimed in numerous interviews that Airbus, the subsidiary of EADS making the A380, was not late in admitting its production problems. (In fact, it took Airbus two months to make them public.) The relationship between Airbus and EADS is completely transparent. (In fact, Airbus is run as a semi-autonomous fief.) The war between German and French shareholders and managers is over. (In fact, they are at each other's throats.) And he categorically denied using inside information when he pocketed 2.5m ($3.2m) for himself and his family after exercising share options in March. He was, he said, shocked by presumptions of his guilt.
The problems experienced by Airbus's new super-jumbo do not threaten the survival of the company, although they are a serious setback. Industrial projects of such scope are rarely completed on time. What sets this crisis apart from other delays in aircraft production are the revelations about governance at this quintessentially European industrial group. For many years its internal politics and its dual management structure had been considered a bearable handicap. But recently they have become a bigger problem.
The troubles at EADS started when its German and French factions clashed in a fierce battle over the company's top jobs last year. EADS has always had French and German co-chairmen and co-chief executives because of the firm's binational shareholder structure. French shareholders own 22.5% of the firm (the government has 15% and the Lagardre conglomerate has the rest), Germany's DaimlerChrysler has another 22.5% and 5% is held by SEPI, the Spanish government's industrial holding company. The remaining 50% is publicly traded. The row over the nomination of Mr Forgeard (hitherto boss of Airbus) and Thomas Enders (until then in charge of the defence end of EADS) rumbled on for months, because Mr Forgeard wanted to be the sole chief executive or, at least, the more powerful of the two. The dispute delayed their official appointments and distracted top management. It also did not make Mr Forgeard many friends.
When the complicated quarrel was at last settled, the company's French faction embarked on another campaign that upset the German side. It lobbied the French government to broker a merger between EADS and Thales, a defence-electronics company controlled by the French state. The Germans blocked what they saw as another attempt by their neighbours to tilt things the French way. So Thales is still available for a corporate marriage.
The series of mishaps continued this year. Last month EADS sacked Jean-Louis Gergorin, a senior executive, who had been linked to the Clearstream affair, a smear campaign connecting important French politicians to secret bank accounts in Luxembourg. Shortly afterwards EADS came under fire in France because of its plans to shut a loss-making subsidiary near Bordeaux. After intervention from Dominique de Villepin, the prime minister, EADS bosses promised to keep about 300 of the factory's 1,000 jobs.
So news of the costly delays to the A380 project came at a tricky moment. The drop in the value of EADS shares after the announcement of the delays wiped 5.5 billion off the stockmarket valuation of the firm in a single day. Estimates of the final bill for compensation payments for the jet's delayed delivery are as high as 3 billion. So far only International Lease Finance, the biggest aircraft-leasing company, has threatened to cancel its order, of ten of the 555-seat planes. But Emirates, the biggest customer of the A380, and Singapore Airlines, another big client, are demanding compensation.
Who and what is to blame for the jumbo's delivery delay? After an investigation the firm concluded the main culprit was the installation of electrical wiring for the aircraft's entertainment system. Although this is not demanding technically, it does require a lot of labour. Each aeroplane needs some 500km (300 miles) of cables. Misplacing one cable means starting almost from scratch.
At an emergency meeting in Munich on June 19th EADS bosses also talked about making changes in the firm's structure. One important step to streamline the company is the planned full integration of Airbus into the folds of EADS, after BAE Systems, a British defence company, sells its 20% stake in Airbus. This will make the control of Airbus clearer and easier. BAE is expected to sell its stake this summer.
The group's main problem, however, remains its bicephalic structure. It was created six years ago after an Anglo-German marriage of British Aerospace (now BAE Systems) and Daimler-Benz's DASA collapsed acrimoniously. The Germans quickly found consolation in the arms of Aerospatiale Matra, a partly privatised French group. Thus EADS was born. The tensions inherent in such a delicate construct resurfaced almost immediately after last week's announcement. Mr Forgeard blamed a factory in Hamburg for the delivery delays of the A380, although he apologised later for his finger-pointing. In a barely veiled attack on his French counterparts Mr Enders said he considered it inopportune to exercise his stock options a few months ago. Investors are pricing the stock at a discount, because keeping the balance of power is the firm's priority above and beyond everything else, says Scott Babka, an aerospace analyst at Morgan Stanley.
Mr Forgeard is determined to cling on to his job. But he is not in a strong position. He is being investigated by French regulators because of his controversial share sales. Jacques Chirac, the French president, who is his main backer at home, is weakened. And he is one of the people accused in a lawsuit for misinformation and insider trading brought on behalf of EADS shareholders by Frdrik-Karel Canoy, a French lawyer.
Mr Forgeard's departure would not solve the group's problems, although it would be a welcome signal of a desire for change. It will certainly not be easy to take the politics out of EADS. At the beginning of the week Mr de Villepin dispatched Thierry Breton, his finance minister, to meet Mr Lagardre to discuss changes to the shareholder structure. The shareholder agreement may not give the state enough power, says Mr Breton. Hardly anyone, other than France's most interventionist politicians, agrees with that. Mr Lagardre would be wise to resist attempts by the government to extract more power from their shareholder pact.
The first Blu-ray and HD-DVD players have just arrived in stores. Should you upgrade? Dive into the summer's biggest drama. One will live. One will die. You make the choice. Okay, maybe that's overly dramatic, given that we're talking about a new standard for high-definition videodiscs. But this is the movie business and the drama is real, because potentially billions of dollars are at stake - not just the money spent and earned by big electronics companies and movie studios but your hard-earned dollars as well You'll thrill to the dazzling video and sound quality of the new high-definition DVD formats. You'll laugh out loud at the absurdity of another video format war, la Betamax vs. VHS. You'll cry if you spend $500 or $1,000 or more on a new player and new movie discs that are doomed to be obsolete in a year or two. It's the feel-confused movie of the summer. It's ... Blu-ray vs. HD-DVD! The plot starts with the digital videodisc's (DVD) introduction less than a decade ago as a superior replacement for videotape. Movie studios tried to kill DVD in its crib, saying the technology would destroy the movie business - just as they said videocassette recorders would destroy the movie business a generation earlier - but DVD grew up and made them lots of money. So much money, in fact, that they're now battling to establish a new, even better DVD format. The rival formats are HD-DVD and Bluray Disc (alias BD-DVD). Although they could survive in an undead state to battle for eternity, like vampires vs. zombies or the even scarier CD+R vs. CD-R, more likely one high-definition DVD format ultimately will conquer the other, just as VHS triumphed over Betamax. The first Blu-ray and HD-DVD players have just arrived in stores, along with a small but growing number of movie titles. Blu-ray discs will not play in HD-DVD players and vice versa, so until hybrid players come along - probably by the end of this year if you want to watch prerecorded movies in high definition, you'll have to choose sides.
The scene: In the center of the room is a Samsung (Charts) HL-S5087W 50-inch widescreen DLP HDTV with 1080p resolution. Tentacles of cables and wires from the Samsung TV snake out across the floor to a Toshiba (Charts) HD-XA1 HD-DVD player on one side, and a Samsung BD-P1000 Blu-ray Disc player on the other. Elsewhere in the room, chained to examination tables, are a Toshiba Qosmio notebook computer with a built-in HD-DVD drive, and a Sony (Charts) VAIO desktop computer with a built-in BD-DVD drive. To the side is another 50-inch Samsung HDTV with a hybrid Panasonic VHS and a standard DVD combo player attached. On a desk in the corner sits a diary. Excerpts follow: Monday: At last the 1080p Samsung TV arrives and the experiment can begin! No ordinary HDTV set will do, because I need the absolute best resolution available to test the new players, which means one of the new ones capable of displaying 1,080 lines in progressive fashion (1080p) instead of the slightly inferior, every-other-line, interlaced 1080i format that I recklessly bought a couple of years ago and that I plan to use as a control subject for this experiment. The Samsung DLP is beautiful, with a thin black bezel. Although the screen size is the same, the new 1080p model looks less bulky than the older 1080i model, and even Mrs. Mad Scientist approves. Fortunately, she doesn't scream when I tell her it costs $2,700. Tuesday: I'm pleased to discover an HDMI cable has been thoughtfully included in the Samsung BD-P1000 Blu-ray Disc player (and for $1,000, it should be). It's a beautiful, surprisingly small device with a piano-black case and glowing blue eyes - er, display lights - a perfect aesthetic match for the Samsung TV. Drat! The shiny black case is a magnet for fingerprints. The remote control is a disappointment. But, oh, the joy when the HDMI cable is connected and Igor hits the switch. It's alive Wednesday: A lost day. Once we figure out that we have to manually select HDMI as the source by pressing buttons on the front of the Blu-ray player, Igor and I are mesmerized watching the first batch of 1080p Blu-ray movie titles. We marvel at the rich colors and detail compared with standard DVDs. Of the handful of titles available, we especially enjoy watching the governor of California reveal himself to be a robot sent to destroy Los Angeles and exterminate mankind (Terminator). But it's clear that the selection of movies is minuscule for now and will still only be in the dozens by this holiday season. Mrs. Mad Scientist screams when she finds out that Blu-ray movies cost about $30 each and have scary copy protection. Thursday morning: Darn that Igor! Against my orders he dissected the entry-level Toshiba HDA1 HD-DVD player and discovered that it's a Pentium-based PC with a fancy DVD drive attached, and the parts alone cost way more than the $500 Toshiba charges for it. Maybe Toshiba is subsidizing the price of HD-DVD players, taking a big loss in order to boost the format's chances against Blu-ray systems. Sony is going to include a Blu-ray player in its $499 PS3 videogame console this November, after all. Thursday afternoon: Fortunately Igor did not destroy the high-end Toshiba HD-XA1 HD-DVD player, which costs $800. We hoisted it on a rack (a stereo rack, that is), because it is a brute and weighs 20 pounds. Connecting it to the 1080p TV was easy, but we had a minute or two of panic when the first few HD-DVD discs we fed it did not work. Surprise! Because the Toshiba players are really Pentium-based computers, it simply took them an eternity to boot up. Patience paid off when the video showed up onscreen, as colorful and sharp as the Blu-ray images. Friday: Another day lost watching beautiful but boring movies. Blazing Saddles is amusing in HD, but why can't they send me something truly great, like Young Frankenstein? The remote is no improvement player, the Toshiba HD-XA1 not only makes HD titles sparkle but also makes standard DVDs look better by "upconverting" them to 1080i. Mrs. Mad Scientist likes that, because HD-DVD movies are just as expensive as Blu-ray movies. Friday night: Agony. We have to decide between the two formats, because there are no Players with Two Heads on sale yet. Then, in an epiphany, we realize that only videophiles who already own a 1080p HDTV will really care at this point. It will be months before a wide selection of movies are available in either format. There are initial technical glitches in both formats (Toshiba released a software patch too late to be tested for this experiment). If we had to choose tonight, we'd go with Blu-ray and hope we were not stuck with a dead-end format. But we don't have to choose tonight. Instead, we'll download some videos over the Internet from YouTube.com. Idea for my next great experiment: Creating high-definition video downloads over broadband that don't use either Blu-ray or HD-DVD. That's a scary idea for the movie and electronics companies, isn't it? That they have wasted all this money and effort on format standards that no one will care about? Source : FORTUNE
The world of energy and oil isnt exactly known for innovation for the masses but a couple of leading brands made it publicly known via massive ad campaigns that theyre taking action. BP, the second largest publicly traded oil company in the world, is promising to build the planets largest alternative power company while GE is plugging its own foray into environmentally conscious power technology (including wind-based power) with its Ecomagination campaign.
BP believes the multi-billion dollar investment is capable of producing US$ 6 billion per year over the next ten years. Considering a recent Kudlow & Company (CNBC) survey reported that 71 percent of people feel negatively about oil companies, the overall brand halo effect the campaign may cast cant hurt either.
While there are no US federal subsidies for non-fossil fuel and nuclear companies, the global market for clean energies are estimated to reach $167 billion over the next decade. The potential market has caught the attention of Wall Street and investors as a slew of new clean energy index funds have been recently created including the NASDAQ Clean Energy Index launched on May 18 of this year. Oil and energy arent the only ones clamoring for a renewed image. On the consumer product side, 7-Up the un-cola soft drink stunned most consumers with its claim this spring that it is now 100% Natural. Begun in 1929 (and originally featuring lithium citrate, a 19th century mood stabilizing drug, as a primary ingredient), 7-Up has chased Coca-Colas Sprite for the last couple of decades for market share, prompting its last reformulation in 1998. The new improved natural version comes on the heels of an overall declining US soft drink sales market for the first time in two decades.
According to the company, the product is now sans artificial ingredients and preservatives, leaving five natural ingredients and a lower sodium content. The second ingredient is high fructose corn syrup, a multi-step industrial processed sweetener that lends one bottle of 7-Up a whopping 62 grams of sugar. No real fruit juices are in the product. The 100% Natural marketing makeover is already meeting resistance from public health and special interest groups due to the inclusion of high fructose corn syrup. The Center for Science in the Public Interest, a nonprofit group, is threatening to sue 7-Ups manufacturer Cadbury Schweppes based on its current all natural claims while using corn syrup. The US Food & Drug Administration currently offers no official definition for natural food. The controversial ingredient is also used by natural soda pioneer Hansen in its regular namesake sodas as well as in its Blue Sky natural sodas. Hansens sales doubled and profits tripled in 2005. Its too soon to report the effect on 7-Up sales since its reinvention.
And then theres the battle for the green bucks via green vehicles.
Back in January 2004, Toyota was all aglow in its newfound success via the Prius, its well-received hybrid small sedan. At the time, GMs vice chairman of product development, Robert Lutz announced to the press that General Motors Corp. had no plans to try to answer the success of the Toyota Prius and likened the Prius to bad business.
It just doesn't make environmental or economic sense to try to put an expensive dual-powertrain system into less expensive cars, which already get good mileage, Lutz stated at the 2004 North American International Auto Show.
Some analysts point to GMs obstinacy as at least a part of what landed the company in bankruptcy crossroads.
Earlier this year, GM rolled out its GM Hybrid Powered Buses in several US cities including Seattle, Philadelphia, Houston, Minneapolis, Portland and Honolulu. But on the consumer side, the company is slow to give consumers more options.
Most branding consultants agree that GM faces significant challenges to overcome its own image in the wake of out-of-control gas prices, near financial ruin and an out-of-touch grasp of what the market is calling for.
As of June 2006, GMs debt has been downgraded further into junkbond status. While GM lumbers painfully on, Ford is facing its own image challenges. In 2005, Ford chairman and CEO, William Clay Ford Jr. announced the company had to get on with it and produce a product other than its heavy, fuel consumptive vehicles, for which the brand is best known. At the time, the company projected its hybrid lineup to be approximately four percent of the company's global sales of close to seven million vehicles.
It has since introduced the Ford Escape hybrid to sell alongside its conventionally-fueled Escape. Since then, the windfall of green PR that some predicted with its announcement has yet to hit the company. In fact as of June 20, 2006, Ford stock dropped five percent due to analyst fears that the company is at a worse juncture than GM. Toyota is reported to double the number of hybrid models it will offer by early next decade to meet higher demand for fuel-efficient vehicles. US sales increased by 17 percent in May. The secret it seems to a successful movement is to show the value in going green.
One look at the largest corporations in the world and a single conclusion jumps out: Natural resources are driving the global economy as never before.
Five of the top ten companies on Fortune's 2006 Global 500 are oil companies, one more than last year. Another four are automakers, whose customers pump plenty of gasoline. The outlier in the top ten is Wal-Mart Stores (Charts), which was unseated by Exxon Mobil (Charts) from its four-year reign at No. 1. And, hey, in most places you have to reign at No. 1. And, hey, in most places you have to drive to get to a Wal-Mart.
Big Oil's domination is the product of a decade of industry consolidation combined with sky-high crude prices and a surge in global demand. Exxon's 2005 revenues jumped 26%, and its profits hit $36 billion - the biggest payday in the history of the Global 500. (The previous record holder was - you guessed it - Exxon.)
And two other American oil companies - Chevron (Charts) (No. 6), which acquired Unocal last year, and ConocoPhillips (Charts) (No. 10) - moved into the top ten, pushing GE (Charts) (No. 11) out of the uppermost tier for the first time since 1997.
"These companies have never had it so good," says Oppenheimer's Fadel Gheit, an oil industry analyst. "It's globalization. You have this wave of economic growth, and it's almost unstoppable."
Oil companies aren't the only ones prospering; 2005 was a banner year for most Global 500 companies. It took $13.7 billion in revenue just to make this year's list - up from $12.4 billion last year. And profits for the 500 companies jumped 30%. Total revenues for the Global 500 in 2006 add up to $18.9 trillion, a third of the world's GDP.
The old economy soars Companies of the old economy - commodities and oil - racked up the biggest gains. The mining and crude-oil sector, which excludes major oil companies that have large refining segments, enjoyed a 77% increase in profits. Add refiners to that group, and it accounted for $2.8 trillion in combined revenue, up 27% over the previous year. The only sector to perform as well was finance: It had the largest industry group revenue increase with 47%.
J.P. Morgan Global Equities strategist Abhijit Chakrabortti says the current trend is a shift from the 1990s, when software, media, health-care, and retail industries led economic growth.
Now emerging markets are driving the fastest expansion, and they have a huge appetite for materials and resources. "If I'd predicted you'd see BHP Billiton become a larger company by market cap than Intel, you would have laughed," he says. "But that's exactly what has happened."
Overseas, its oil too The title of largest company outside the U.S. went to yet another oil producer. Royal Dutch Shell (Charts) (No. 3) displaced BP (No. 4 this year and No. 2 last year), but that switch was due less to Shell's relatively modest 14% revenue growth than to a change in BP's accounting.
The company has stopped reporting income from commodity trades because it was offset by expenses. In case you're thinking that's just a detail, the change amounts to roughly $105 billion, which, if counted, would have made BP No. 1. Still, its profits were up 45%.
Rosneft Oil (No. 367), the Russian state-owned firm that holds some of the world's largest reserves and is gearing up for a highly anticipated public offering this month, quadrupled its revenues and quintupled its profits in 2005.
US cars still lead the pack While GM had a miserable year in 2005, losing $10.6 billion, it remained the world's largest automaker and captured the No. 5 spot on the list. Following are DaimlerChrysler, Toyota, and Ford (Nos. 7, 8, and 9, respectively).
It's not that the auto industry is growing much - revenue for these four increased just 4 - but they are very large companies that average $185 billion apiece in revenues. The pecking order in the auto world could change very soon. At its current rate of growth, Toyota will eclipse both GM and DaimlerChrysler to become the largest carmaker in the world in 2006 as measured by revenue.
Banks are on the money Banks account for one in nine companies on the list, and they are another beacon of hot performance. From New York to Mumbai, revenues were up across the board, boosting the group as a whole by 24%.
Thomas McManus, chief investment strategist for Banc of America Securities, says bank growth comes from the surge in metals and energy plus lots of borrowing that "clearly has favored international markets. You start getting a multiplier effect."
At European financial institutions, which now recognize gains or losses from derivatives and hedging strategies, results were particularly impressive. UBS's profits rose 73% last year, thanks in large part to a boom in wealth-asset management; France's Crdit Agricole saw an 88% jump in revenue; Fortis, based in Brussels, climbed 49%; Deutsche Bank rose 37%; and Belgian bank Dexia jumped 236 spots on the list to No. 55, with a 259% increase in revenues.
Bank profits extended beyond Europe. Citigroup, which opened more than 100 branches in places like Mexico, Brazil, and Russia, rang up the third-highest profits of any company on the list.
Bank of America, which integrated its 2004 acquisition of FleetBoston Financial in 2005, was in close pursuit with the fifth-highest profits. In South Korea, Kookmin Bank more than quadrupled profits on $18 billion in revenue. The State Bank of India (No. 49 made it onto the list for the first time - joining five other Indian companies.
And in China four banks, including the Industrial & Commercial Bank of China, which skyrocketed with a 15-fold increase in profits, had combined revenues of $93 billion, up from $76 billion the year before.
Emerging markets jump on China's banking boom points to that country's fasten-your-seatbelts growth trajectory. Four new Chinese companies - China Railway Engineering, Shanghai Automotive Industry Corp., China Railway Construction, and China State Construction - made it onto the Global 500 this year, more additions than any other country, bringing China's total to 20.
Mexico added three companies: Amrica Telecom and two that have been on the list before, Carso Global Telecom and CEMEX. Producing cement from the Persian Gulf to Central America, CEMEX acquired Britain's RMC Group last year and posted a 60% gain in profits, to just over $2 billion. And Austria joined the Global 500 for the first time with oil producer OMV hitting the list at No. 334.
Out of companies in 50-odd industries representing 32 countries, a few other shuffles warrant mention. Japan lost 11 companies, including Yamaha Motor and Central Japan Railway. Heineken Holding fell off the list, as did American companies OfficeMax, American Electric Power, and Texas Instruments.
Notable additions include U.S. homebuilder D.R. Horton and, at No. 500, Nike. And in a comeback, Apple Computer (No. 492) has returned to the Global 500 this year after a nine-year hiatus, with profits up 384%, to $1.3 billion.
Whether consumer goods companies like Apple maintain their momentum this year, though, remains a question. The world's voracious appetite for energy is threatening to ignite inflation around the globe. How ironic that the very factors that helped produce outsized profits in 2005 may be the ones that squeeze growth in 2006.
Nissan turnaround whiz Carlos Ghosn wants a chance to fix General Motors too. Here's how he might steer the ailing automotive giant.
Fortune Magazine) -- Carlos Ghosn circumnavigates the planet in his Gulfstream 550 once a month. He typically spends two weeks in Paris, ten days in Tokyo, and what's left of his time in the U.S. and the rest of the world.
But now the Nissan (Charts) and Renault CEO - the first person ever to run two companies on FORTUNE's Global 500 simultaneously - has decided he doesn't have enough places to go.
At the invitation of financier Kirk Kerkorian, Ghosn has proposed an alliance between his two auto companies and General Motors (Charts) that could put him at the helm of the troubled industry giant.
Add Detroit to the flight plan! Putting one man in charge of three companies separated by thousands of miles in an industry as complex and competitive as automobiles is a bizarre prospect and at the moment still an uncertain one.
The boards of Renault and Nissan backed Ghosn and have expressed wary interest in the proposal, under which each would buy 10% of GM's shares. But their support is conditional on GM's management and board endorsing the plan. The current forecast is for a lengthy GM study of the arrangement, with no guarantee of a favorable conclusion. Still, Kerkorian, who owns 9.9% of GM's stock, wants action. He is known to be unhappy with the pace of change under current CEO Rick Wagoner and has been prodding him to do more.
Ghosn is equally impatient. He performed a historic turnaround of Japan's Nissan after taking charge in 1999, embarked on a similar effort with France's Renault a year ago, and has reportedly been considering new strategic options for both companies.
Despite GM's gargantuan problems - it lost $10.6 billion last year - Ghosn would find the challenge of fixing it appealing, particularly if he could benefit Renault and Nissan by doing so. Even if Ghosn doesn't end up in charge at GM, it's useful to contemplate just what the world's most celebrated auto executive might change at the world's largest auto company.
Some of GM's problems, such as its huge health-care and retiree obligations, seem relatively intractable. For the others, a playbook already exists - the history of the Nissan turnaround that Ghosn has taken pains to document. Here's the path he might take.
Kill a few brands. Critics love to point out that GM divides its 24% U.S. market share among eight brands, while Toyota, two-thirds GM's size and growing, makes do with three. Kerkorian advisor and GM board member Jerry York has publicly recommended getting rid of Saab and Hummer; others have advocated dumping Pontiac and Buick.
But GM was pummeled for giving up on Oldsmobile a few years ago and could face billions of dollars in claims from dealers for effectively putting them out of business. Besides, engineering among the brands is so intertwined - Cadillac and Saab share a platform, as do Chevy and Hummer - that getting rid of one or more of them wouldn't necessarily save tons of money. Super Carlos, as he is sometimes known, might have no qualms about killing all four brands, and perhaps Saturn and GMC too, as part of a big initial write-off.
In return, he could offer dealers Renault franchises so that they could introduce U.S. buyers with Francophile tastes to such exotic models as Kangoo and Clio.
Invest in small cars. GM has suffered no end of embarrassment this year after launching gas-hungry SUVs and pickup trucks when a barrel of oil costs $75. The company's managers aren't quite as boneheaded as that makes them look - product decisions about this year's models were made three or four years ago, before fuel prices skyrocketed. Nonetheless, Ghosn's Nissan was significantly more prescient. The company is coming out this fall with a new version of its Sentra small car and a new, even tinier car called the Versa.
Ghosn, since he works in Tokyo and Paris, knows the value of small cars - he sees them parked on city sidewalks every day. Attractive new ones would go far in creating a more favorable image for General Motors. Step back from alternative fuels. Small cars would do for Ghosn what technology won't - boost fuel economy without costing a bundle.
Being a numbers guy at heart, Ghosn is deeply suspicious of hybrid and alternative-fuel engines - expensive new technologies for which customers have so far displayed limited willingness to pay. He has invested only reluctantly in hybrid power trains at Nissan. So he would probably scale down GM's investment in hybrid trucks and eliminate entirely its space-shot effort to put a fuel-cell car on the road by 2010. Find the elusive synergies.
At Nissan, Ghosn used cross-functional teams to burrow into the company's innards, uncover waste and duplication, and improve productivity. He's told Kerkorian he can do the same at GM, locating billions of dollars in savings from synergies among the three companies. But he's going to have to look hard. GM has already made substantial progress in bulk buying and parts sharing by clustering its products worldwide around a few platforms.
Lehman Brothers analyst Darren Kimball believes that savings from shared purchasing and engineering would be more than offset by organizational complexity and the stifling of creativity in a combined GM-Nissan-Renault. He thinks Kerkorian's plans have less to do with synergy than with "his desire to bring in someone he perceives is a more effective manager."
Public targets are anathema to Wagoner. Risk-averse at heart, he prefers to keep his cards close to his chest and reveals information only grudgingly. As a lifetime GMer, he has been embarrassed too often by having to explain why GM missed a profit or market-share target.
Ghosn brags about his ability to set financial and performance targets three years out - and meet or exceed them. At Nissan he even offered to resign if he missed. How many other CEOs have done that?
Magnify the myth of Carlos. Although still shiny, Ghosn's star has lost some sparkle this year as Nissan sales in Japan and the U.S. have slipped and Renault has issued profit warnings. "Ghosn is not a miracle maker," says one longtime industry observer. "He was merely a gaijin who did the unpalatable things that a Japanese couldn't do."
Some analysts view him as a turnaround specialist who is less effective at actually running a business. But rescuing the ultimate basket case would make Ghosn nearly immortal. "It is very tempting for Ghosn to try to prove he can fix GM - what some may define as the ultimate auto-industry challenge," writes Goldman Sachs analyst Robert Barry.
"Ego often trumps logic." Then again, ego could also prompt Ghosn to take the sort of shockingly bold steps probably needed to get GM back on track. With his multi-continental monthly commute already beginning to wear, Ghosn, 52, may have his eye fixed on his legacy. What could be better than being remembered as the man who saved General Motors?
Twenty years ago, the personal computer began to revolutionize the way we work and play. In recent years, though, the Internet has been the primary source of technological innovation, offering us everything from online auctions to networked research libraries. As web-based applications encroach on the desktop's turf and a myriad of smart "devices" perform increasingly computer-like functions, will traditional desktop software begin to fade away? And, what are the implications of moving from a private desktop to Internet-based computing, especially when it comes to sharing personal and financial data and protecting individual privacy?
Those questions were posed during two panels -- one on the future of the desktop, the other exploring the issues surrounding an individual's online persona -- at the recent Supernova 2006 conference, co-hosted by Wharton in San Francisco. None of the panelists offered easy answers, weighing not only the technology challenges but also social and legal issues as they theorized about what the next decade might bring.
Consider the sometimes bewildering variety of increasingly powerful devices used by a typical individual today, both at work and at home: not only desktop and laptop computers, but BlackBerrys, smart cell phones, game boxes, personal music players, digital cameras and so forth. Each of these devices has specialized software -- essentially an operating system -- of its own, noted Lily Cheng, head of the Windows user experience group at Microsoft. "Today, we may think of Microsoft when we think of operating systems, but there are many kinds of operating systems -- on your cell phone, on an Xbox," she said. "The question for the future is how we merge these, how all this specialized software comes together... to support a user experience that includes sharing, synchronizing information, making the experience expand and come alive."
A 'Magic' Blend
The current "chasm" between the web experience and the desktop experience is central, added Kevin Lynch, chief software architect for Adobe Systems. He predicts an eventual blend of the two that will be "magic." One challenge in achieving such magic, according to Lynch, is making web-based applications act like "first class citizens" on the user's computer by freeing them from the constraints of the browser -- such as the difficulty of moving data between applications or websites, for example. Applications built on the web will continue to be hosted on the desktop, he said. "But, we want to be able to go anywhere and use anything -- to take information from any site, and run it on any local machine. So, we need to build web-powered applications in a consistent way."
Another challenge is connecting all of the devices used by a single person, giving that individual access to, and control of, his or her information wherever it resides. "We all want control -- and we want to take advantage of applications on the web. How can we do both?" asked Tom Ngo, chief technologist for NextPage, which develops enterprise software to manage and control documents. "We have to find a way to cope with information scattered in a number of places." Ngo predicts hybrid systems combining the best of centralization and decentralization.
Those two approaches to computing represent an old and ongoing battle within the industry. Early computer users worked largely in a highly centralized environment, using terminals linked to a central mainframe computer. The personal computer changed all that by bringing computing power to the user's desktop, and decentralization was in vogue. With the rise of the web, the pendulum swung partially back again, with the web browser behaving much like a terminal displaying content stored on remote servers.
Privacy 'Drives Fragmentation'
On the web, however, the remote system may not be a central server owned by the user's company, but a global assortment of systems owned by dozens of different companies. This shift of control moves the debate away from technology issues to social and legal issues that are, according to some panelists, even more difficult to solve.
"Privacy is a huge driver for fragmentation," said Ngo, who described his own past experience working as a consultant with different employers. "My world was fragmented because that's the only way I know to definitely keep those interactions separate and private." As a result of such privacy concerns, he said, "We'll always want a rich environment that we control. In other words, we'll always want a desktop."
What does control of one's data really mean? In the context of web-based computing, there are three types of individual information that are central to an understanding of privacy issues: explicit data such as personal profiles and financial information; implicit data gathered as individuals interact with sites on the web; and information about one's reputation or influence such as how one's opinions on anything from digital cameras to political issues are viewed and reported by others online.
"Shocking" is how John McCrea, vice president of marketing for Plaxo, describes the willingness of many consumers to give out personal and financial information online. His company provides "smart" address book services to 10 million people who want a virtual list of contacts that can be automatically updated and available anywhere. "As custodians of that personal information, we need a high bar on privacy," said McCrea. "The user owns the information; we simply store it and enable users to share it. But we find that most people don't read a website's privacy policy...and they will give a lot of information, like cell phone numbers and their birth date, without a good reason."
Then there are those who do have a good reason for sharing their personal and financial data; in doing so, they become valuable to online services. "People who want cash fast and have bad credit will give you a lot of information," said Seth Goldstein, founder of Root Markets, an online tool to allow buyers and sellers of mortgages to exchange consumer data. That information, in turn, creates great value. For example, a California refinancing candidate with fair to good credit is worth about $150, and that person's customer data may be sold four times to four qualified lenders, he explained.
Root Markets and other online vendors concerned about ownership of this explicit data and implicit data (such as a user's online "clickstream") have formed Attention Trust, a nonprofit that advocates for consumer ownership of such information. "We think consumers should have the right to a copy of their "attention" data -- that is, data that reflects your interests, your activities, and your values," said Goldstein, "as well as have the ability to see how it's being used by others." This opens a window into the "black box" of data often maintained between buyers and sellers on the web.
"Do people care? Are consumers apathetic? Will they force companies to compete on the basis of privacy protections -- or will there be a race to the bottom?" Those are the key questions, said Goldstein.
Intel's chief strategist, Chris Thomas, framed the issue another way, seeing an opportunity as well as a threat: "As we create new services, we have new opportunities to create clear boundaries. If we can't replicate what a century of laws have protected, then we're doing something wrong."
Convenience store giant 7-Eleven recently launched its own Big Gulp-branded pop in two-liter bottles. You can find them in stores now, sitting inches away from what the biggest soft drink companies in the world have to offer.
Laurie Smith, communications manager for 7-Eleven Canada, Inc., says the two-liter plastic option enables fans of the traditional one-liter Big Gulp fountain drinkor its close cousins, Super Big Gulp (1.3 liters) and Double Gulp (two liters)to take their beverage home and enjoy it anytime they wish. The two-liter Big Gulps come in five flavorscola, root beer, lemon lime, orange and cranberry-raspberry. Most people who come in and buy a Big Gulp drink it right away. Now that its available in a bottle with a cap, they can drink it the next day or take it camping or on a picnic, she says.
7-Eleven has positioned Big Gulp pop as a value brand, which explains its knee-level shelf position. Smith explains, Value is becoming more and more important to a certain segment of the market. Our challenge is to find out what the customer wants and provide it.
Its not the first time 7-Eleven has offered its own white-label products. The chain previously sold Classic Selection branded soft drinksit still maintains the brand for bottled waterbut the customer response fell short of goals, so the switch to the Big Gulp brand was made earlier this year. We feel the Big Gulp branding is stronger and more recognized than Classic Selection, Smith says. The customers have a connection. Everybody knows what a Big Gulp isits synonymous with 7-Eleven.
With more than 27,900 stores worldwide, 7-Eleven is the largest convenience store retailer in the world. Those are impressive numbers, but Smith reports that the company hasnt received any negative feedback from the major bottlers about the chain's dual role as distributor and manufacturer.
The Big Gulp brand expansion story doesnt end there. While chocolate bars are rarely, if ever, gulped, 7-Eleven simultaneously launched a pair of Big Gulp chocolate barsone milk chocolate, the other dark chocolate. And yes, theyre a mouthful and then some. The plain milk chocolate bar is available in the 100-gram size, while the dark chocolate with rice crisps version weighs 85 grams. The marketing decision wasnt difficult, Smith explains, because the Big Gulp name stands for quality and value, and it transcends individual products. Customer recognition of the brand is the key. The chocolate bars represent the same thing to the customer. Its a solid serving for a value price, she says.
Rob Warren, director of the Asper Centre for Entrepreneurship at the University of Manitoba, says the decision to rebrand the soft drinks as Big Gulp products was the right move. Its a great name, especially in Canada; its very well known. 7-Eleven has done a very good job marketing itself. Even using the name on chocolate bars makes sense, he adds. People think of Big Gulp as a brand name more so than a fountain drink. 7-Eleven is guessing that a lot of people who buy Big Gulps also buy candy bars. Smith agrees, noting that private-label products are a growing trend in the marketplace for two reasons: they allow the retailer to own the brand and create a better connection with the customer.
And then there's another factor to consider. Both Smith and Warren are quick to point out that the margins on proprietary products are higher. Warren explains that distributors dont make significant margins selling national brands. Traditional players like 7-Eleven and Macs have been squeezed in recent years. Theyre being hit hard by the gas stations, which have opened up their own convenience stores. Even some grocery players are getting into the stop-and-shop game, says Warren. Theyre opening up small kiosks in the corner of their parking lots, offering a quick way to buy selected items.
Like 7-Eleven, Macs has entered the white label market, too. The firm launched an energy drink called Joker at the beginning of the year. Al Suggitt, operations manager for the stores Manitoba and Saskatchewan operations, says the logic in taking on the Red Bulls of the world was simple given the attractive margins.
We make a buck, he says. According to his figures, Joker, which comes in one flavor (citrus) and one size (591 ml) but in regular and low-carb varieties, became the number five energy drink in North America just seven months after its launch.
Macs has 3,200 stores across North America, including more than 600 in Canada. Among the retail names under its umbrella are Circle K, Big Foot and Dairy Mart, all of which are in the US. Reducing the firms dealings with independent distributors is a priority now. If we can do more in-house product, its beneficial to the company, Suggitt says.
Of course, 7-Eleven isnt the first store chain to offer proprietary soft drinks. Grocery outlets such as the Real Canadian Superstore have been doing it for decades. In fact, the introduction of its Presidents Choice branded pop (which enabled connoisseurs of carbonation to pick up their favorite drinks while shopping) marked the beginning of the end for some soft drink companies that had created a niche for themselves. Witness the Pop Shoppe and Pic-a-Pop, chains that required customers to make a special trip to their stand-alone stores. (After lying dormant for a number of years, both brands have recently re-emerged with new formats.) How all this will shake out in years to come is anyones guess, but as the Big Gulp move illustrates, convenience store chains are finding refreshing and potentially lucrative ways to live up to their billing.
There may be a link between the way memories are formed and the adverse effects of sleep deprivation SLEEP deprivation is an uncomfortable experience. In drivers and workers it can lead to fatal accidents. In those under interrogation it can lead to confession. But why it does what it does is mysteriousas, indeed, is the purpose of sleep itself.
Many theories have been proposed to explain why the pressure to sleep builds up until it becomes irresistible. The latest, presented at the recent annual meeting of the Organisation for Human Brain Mapping, in Florence, Italy, starts from the obvious proposition that the longer you stay awake, the more you learn. Giulio Tononi of the University of Wisconsin proposes that this extra learning makes the brain more and more expensive to maintain. Sleep prunes back the grey matter so that, come the morning, the brain is once again economical to run. If this pruning cannot take place, the organ becomes less and less efficient, and dire consequences result.
Even at rest, the brain is costly to run, consuming 20% of the body's energy production. Most of this energy goes towards maintaining synapses, the junctions across which impulses jump from nerve cell to nerve cell, keeping the brain alert even when it is not doing anything. When a person learns something new, certain synapses are strengthened relative to others. Over the course of the day, there is a net increase in the strength and number of the brain's synapses. And, as Dr Tononi observes, stronger synapses consume more energy. In addition, making them requires more protein and fats and they take up more space. Given that an organism has limited supplies of all of these things, something must happen to prevent the cost of having a brain from gradually spiralling out of control. That something, Dr Tononi believes, is non-rapid eye movement (non-REM) or slow-wave sleep. Knitting up the ravel'd sleeve of care Until recently, most sleep research focused on REM sleep. This is the time when people dream, and dreams have had a grip on the scientific imagination since the days of Freud, and on the popular imagination at least since biblical times. Lately, though, researchers have started to wonder whether they have been looking in the wrong place for the significance of sleep, for REMming occupies only about a fifth of the night.
During the other 80% of sleepthe part that is non-REMthe firing pattern of the brain's nerve cells sets up slow electrical waves that start at different points in the cerebral cortex and travel across it. These travelling waves occur hundreds of times a night, and most commonly at a frequency, 1 cycle per second, which has been shown to depress the activity of synapses. Within an hour of a person falling asleep, slow waves will have covered his entire cortex, affecting every nerve cell in it. At first, these waves are big and powerful, but their size decreases through the night. Dr Tononi believes that the function of these slow waves is to downscale synapses, reducing their size, chemical activity and electrical activityand thus the strength with which they connect their nerve cells togetherall over the brain.
The trick, he thinks, is that this downscaling is done in proportion to the existing strength of each synapse. When a sleeper awakens, the strength of each synapse is thus the same relative to all the others, but all synapses are weaker than they were when he went to sleep. Indeed, the weakest of them may vanish completely, taking part of the previous day's memory with them. In earlier experiments, designed to replicate normal learning, Dr Tononi found that the part of the brain showing most slow-wave activity during sleep was the same as the part that had been activated during the experiment. This fitted the prediction that the downscaling slow-waves would be strongest in those parts of the brain where the most changes had taken place during the day.
The team's latest work draws not on human subjects, but on fruit flies. Flies, too, sleep. Their geneticsincluding the genetics of sleephave been studied for almost a century, and many of the genes that play a role in human sleep resemble those that control sleep in fruit flies. Best of all, experiments on fruit flies are not subject to vetting by ethics committees. With the help of Chiara Cirelli, who also works at the University of Wisconsin, Dr Tononi has created a mutant fruit fly that sleeps only two or three hours a night. (A normal fly sleeps between eight and 14 hours.) The mutation itself is in a gene for a nerve-cell protein of a type known as an ion channel. Ion channels sit in a cell's outer membrane and let electrically charged atoms (ions, as they are known in chemical jargon) in and out of the cell. In this case, the ion is potassium. It is the movement of potassium (and also sodium) ions that causes the electrical impulses that nerve cells carryincluding the impulses found in slow-wave sleep. Moreover, the particular protein that the flies lack is most concentrated in brain areas involved in learning and memory. To nobody's surprise, therefore, though the mutant fly is capable of learning things, it forgets them within minutes. Healthy flies retain learned information for hours or even days.
The researchers' discovery finds an intriguing echo in a human disease called Morvan's syndrome. This is a rare brain disorder that is caused by an autoimmune response which destroys the human equivalents of the ion channels that are affected in the mutant fruit fly. Patients with Morvan's syndrome suffer from severe insomnia and have been known to go for months without sleeping. Eventually, this extreme sleep deprivation kills them. Dr Tononi's hypothesis is, it must be said, controversial. Many researchers hold almost precisely the opposite opinionthat sleep serves to re-activate synapses that were strengthened during the day, and thus reinforces their strength rather than diminishing it. There is, however, a certain logical sense to the Tononi view of the world. It is impossible to remember everything, so a process of winnowing must take place somehow. The idea that, after a period of expansion, the brain pares back its workforce to become leaner and meaner is somehow rather appealing.
A Finger on the Pulse of Berkshire Hathaway and Warren Buffett Throughout the spring, the snowballing financial scandal at insurance giant American International Group has put the spotlight on the firm's partner in the improper deal, General Re Corp. Could the damage extend to Gen Re's owner, Berkshire Hathaway Inc. and its legendary chief, Warren Buffett? The questions about Gen Re come on top of another that gets larger every year: Can Berkshire continue to deliver outsized returns to shareholders after 74-year-old Buffett, who has run the company for four decades, passes from the scene? Since 1965, Berkshire's average annual returns have been about double those of the Standard & Poor's 500. Gen Re, a reinsurance giant with worldwide operations, is among Berkshire's largest units. In 2000, it provided a $500 million finite insurance policy that AIG used to improperly dress up its financial statements to bolster AIG's stock price. The scandal led AIG directors to force out their chairman and chief executive, Maurice Greenberg, and AIG has since reported a number of other accounting improprieties. Greenberg, according to AIG, was directly involved in the finite-insurance deal with Gen Re. But it is not clear whether Gen Re executives knew that AIG improperly booked the deal, which in itself was legal. AIG had called the contract an insurance policy when it was in fact a loan. By mid-May, one Gen Re executive had been notified by regulators that he could face criminal charges, and Gen Re put him and a second executive on leave. Buffett has been interviewed by regulators, but he has been described as a cooperating witness rather than a target of the investigation. In a March 29 statement, Berkshire said that "Mr. Buffett was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions." Since the end of February, when the seriousness of the AIG scandal began to become apparent, Berkshire's stock has fallen about 8%, compared to a 1.6% drop in the Standard & Poor's 500. Investing the Float In 40 years, Buffett has converted Berkshire from a small New England textile manufacturer to a mammoth holding company. Among the publicly traded companies in its portfolio, the largest stakes in market value are in American Express ($8.5 billion), Coca-Cola ($8.3 billion) and Gillette ($4.3 billion). Its largest stakes as a percentage of shares outstanding are in The Washington Post (18.1%), Moody's (16.2%) and White Mountains Insurance (16%). Altogether, Berkshire's holdings in the publicly traded companies were worth $37.7 billion at the end of 2004, according to the company's annual report. In addition, Berkshire has a number of wholly owned subsidiaries. That includes a number of insurers, whose size is measured by "float" -- the money on hand from insurance premiums received from customers and not yet paid out for claims. Gen Re is the largest of the insurance subsidiaries, with a $23.6 billion float. Next are Berkshire Hathaway Reinsurance ($13.9 billion) and Geico Insurance ($5.3 billion). Total float for these and other insurance operations is about $46 billion. Reinsurers provide policies to other insurance companies, allowing them to cover potential claims that would be too large to pay on their own. Insurers of all types can make underwriting profits whenever the premiums exceed claims paid. But, typically, the lion's share of insurance-company profits comes from investing the float. Berkshire uses the float to invest in stocks and to buy whole companies. Gen Re has not been the most successful Berkshire unit. Underwriting profit was a scant $3 million last year, compared to $970 million and $417 million at the smaller Geico and Berkshire Hathaway Reinsurance units. But in his annual letter to shareholders this spring, Buffett blamed Gen Re's poor performance on bad decisions the company made before its current chairman and CEO, Joseph Brandon, took over three years ago. "At General Re, Joe Brandon has restored the long-admired culture of underwriting discipline that, for a time, had lost its way," Buffett wrote. "The excellent results he realized in 2004 on current business, however, were offset by adverse developments from the years before he took the helm." The finite insurance deal with AIG was done under Brandon's predecessor. Any repercussions from that deal therefore do not seem likely to up-end Gen Re's current management. Fines or other financial penalties are not likely to do lasting damage, either, as Berkshire is sitting on $43 billion in cash. But could Gen Re have been involved in other improper activities? "General Re is known as a pretty conservative operation," said Cummins, adding that unlike AIG, which has faced numerous questions about accounting practices and other matters over the years, Gen Re has a clean track record. "I would be mildly surprised if General Re had been into this in a major, major way. If this is the only involvement of General Re, I just don't see it as being a big deal. I think it will blow over." Siegel noted that Gen Re's business problems, mainly from writing policies that were too risky, probably turned out to be bigger than Buffett expected when he bought the company in 1998. But, he added, "I think he's got a better crew now." Also, it is not unusual for a new Berkshire acquisition to have some troubles at the start. Buffett hunts for companies he can get at bargain prices, usually because they are beaten down by problems he views as soluble. After Berkshire picked up National Indemnity Company in 1980, for example, it suffered losses in four of the next five years, according to Berkshire's 2004 annual report. That was followed by 16 years of handsome profits. The only loss since 1984 was in 2001, when many insurers were hammered. "Indeed, had we not made this acquisition, Berkshire would be lucky to be worth half what it is today," Buffett said in his recent annual letter to shareholders. Though Buffett is often described as a brilliant stock picker, publicly traded stocks now constitute less than half of Berkshire's net worth. And he is not an active stock trader; he generally buys only stocks he hopes to hold forever. In recent years, Buffett also has become a big investor in currency markets. At the end of 2004, Berkshire owned $21.4 billion in foreign exchange contracts involving 12 currencies. He strongly believes that the U.S. current accounts deficit will cause the dollar to fall. Although the dollar climbed slightly last year, causing a $310 million loss on these bets, Buffet said he would stick with his bets against the dollar. "The Buffett Way" of Investing At 74, Buffett says he is in excellent health and has no plans to retire. Nor has he named a successor. But if he did leave the company, what would happen to it? Buffett is universally viewed as the key to Berkshire's fine performance. "He's obviously a very bright man," Siegel said. "He looks at things very rationally. He doesn't like to get his emotions involved." While that sounds like a sensible practice anyone could emulate, it's very difficult to keep excitement, worry and other emotions from affecting decisions, Siegel added. Many books have been written about "The Buffett Way" of investing. But like most people at the top of their fields, Buffett has a talent that cannot be bottled, Siegel noted, and his departure would inevitably be something of a blow. He has no obvious successor: His long-time partner, Charlie Munger, is older. On the other hand, many parts of Berkshire may be able to chug along quite well without Buffett. Although he is a hands-on investor, choosing companies and stocks very carefully, he is not a hands-on manager. His style is to put good executives into place, or keep the good ones he gets when he buys a company. He then leaves them free to manage with little interference from his famously lean corporate headquarters. His departure could bring an end to the string of brilliant acquisitions. But not much is going on with that part of the company, anyway. "My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have," he said in his shareholders letter. "But I struck out. Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion in cash equivalents." While he promised to keep looking, he also said stock returns are likely to be smaller in the future than they were in the past. Hence, investors cannot count on dramatic gains in Berkshire even if Buffett stays on the job for some time. Neither, however, should they expect Buffett's advancing age to have much effect on the share price. "Everyone knows he's not going to live forever," Siegel said. "That's built into the price.... The market is thinking, maybe he's got five to 10 years.... If we knew that Buffett was going to live forever, maybe the stock would be 10% higher."
Source : Wharton Business School
Nice to know a NEWS rticle from WHARTON (PG)
I AM FROM XLRI INDIAS BEST BSCHOOL (! _)
ask me anything related to managemnt, economics
thanks
i am wid ICICI ex-LOMBARD INSURANCE
and would like to teach harvard and wharton studetns wbout indian philospohy
Buddy..u would like to teach wharton and harvard students abt "indian philosophy" but the link u have posted is related to "astrology" that too a "pay-for" site. Whats the relation between two here ? And alongwith ICICI ex-Lombard, do you work for kozmik horoscopes also?
made it onto the list for the first time - joining five other Indian companies. 
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