The business plan of Raju
Raju had outlined his model long ago when he was at Harvard. Out drinking with a friend one evening, Raju allegedly scribbled the plan on a napkin. Since he then omitted to pay for the booze, his drinking partner kept the napkin, writes Manas Chakravarty.india Updated: Jan 10, 2009 22:18 IST
Satyam Computer Services’ vision statement, displayed prominently on its website, says ‘Business Transformation. Together’. It extols the virtues of what it calls ‘Execution: Ordinary people doing extraordinary things’. And it says the company’s objective is to ‘Demystify business challenges’.
These are important clues in deciphering what Ramalinga Raju did. He clearly transformed the way of doing business, although it’s uncertain whom he was referring to when he used the word ‘Together’. He probably meant the auditors. He was also an ordinary guy, rising from humble beginnings and going on to do extraordinary things like a Rs 7,000-crore swindle. And nobody can deny that he has neatly executed the company.
But it is the third mission statement that is important. The biggest challenge in business is to make profits. Ordinary people go about making profits in a very complex way. They start off by producing something and then trying to sell it. They spend a lot of effort in cutting costs so that expenses are less than revenues so they can earn a profit. Raju’s genius lay in cutting through all that complexity and deciding on a profit number right at the beginning.
Sources say he had outlined his business model long ago when he was at Harvard. One evening, out drinking with a friend, Raju allegedly scribbled the plan, after six pegs of Bourbon, on a table napkin. Since he then omitted to pay for the booze, the guy he was drinking with kept the napkin. “I now understand what Raju meant when he said he was riding a tiger,” said his friend smugly. “It’s a very difficult habit to get rid off. You start off in a small way by not paying for the booze and before you know it, you’ve swindled a billion dollars.”
Be that as it may, thanks to the friend we now have the original business plan hatched by Raju at Harvard. Here it is:
Step 1. Think of a very large profit number. Take a sheet of paper and write it down. Then add some numbers for your expenses and revenues. Call this your Profit and Loss Account. Next, put down random numbers as the cost of buildings and computers. Insert liabilities and capital. Label it a balance sheet. Name the company ‘Truth Ltd’.
Step2. Get a top auditor, but first make sure he’s blind, deaf and dumb. Pack your board with top independent directors, preferably sleepy ones. Arrange to get international prizes for corporate governance and entrepreneurship. List the company on the New York stock exchange. You are now in big business.
As you can see, this did demystify business challenges considerably.
There are also other theories. Some believe that Raju, the pioneer of outsourcing, took his job very seriously. He had been very upset with the frauds at Enron and WorldCom. During the current credit crisis, he was saddened by revelations about the huge swindle committed by banks in the US. “We too can do this thing,” he is reported to have muttered. "We need to outsource this stuff as well."
“When the Bernie Madoff scandal erupted, Raju got a painting of Bernie and hung it up on his wall,” said a source. “‘My hero,’ he would gush, standing misty-eyed in front of the picture.” That’s why, said the source, Raju confessed to the scam, just as Madoff had done. He added, “Raju is a proud man these days because he has successfully outsourced fraud."
What about the position of investors, whom Raju has let down so badly?
“I think the best position now for investors is the missionary position,” said an investment advisor, “They should pray.” “They could also start collecting Satyam balance sheets,” he added, pointing out that these could soon become collectors’ items, “because they are works of art.”
And finally, observers say that Professor Krishna Palepu of Harvard, who specialises in corporate governance and was an independent director on Raju’s board till recently, will be using Satyam as a case study in his lectures this summer.
Manas Chakravarty is Consulting Editor, Mint