 "Kingfisher crisis: Management lessons on how Mallya could have cut his losses")
In the not-so-pleasant scenario that Kingfisher Airline’s Vijay Mallya finds himself in now, the detractors and nay sayers are many. And justifiably so. Owing Rs 7,000 crore to 17 banks is not loose change. From being the most sought after CEO, with the chatterati and glitterati vying with one another for a photo opportunity or an invite to his famous yacht parties, Mallya is now the pariah that no one wants to be associated with.
FirstBiz spoke with management schools to find out what lesson in business management did the once successful Vijay Mallya not get right. What led to his fall from grace?
In Mallya’s case, his image overrode everything he was capable of. Professor Debashis Chatterjee of IIM Kozhikode prefers to label that as ‘hubris’ - the Latin word that stands for excessive pride or self arrogance. “In Mallya’s case,” says Prof. Chatterjee, “it is a matter of disproportionate assessment of one’s own organisation. Fundamentally, the brand and its owner’s flamboyance did not reflect the reality on the ground.”
Kingfisher Airlines (KFA) is a big brand and can be still termed a very good one, reiterates Chatterjee. It was among the best in the skies with its service, quality and in-flight entertainment. Hence, the value of the brand to the current owner or any other owner is ‘immense’, Chatterjee feels.
He compares KFA to the iconic status of Virgin Atlantic and its owner, Richard Branson. “Kingfisher had the same kind of upswing that Virgin Atlantic reflects. But that is where the comparison ends. Unlike Branson, Mallya could not assess reality and overshot his ambitions.”
Management lessons
Assess brand viability: A brand is as good as its performance. Mallya did not assess his brand’s viability on the performance metric. By not paying salaries to his employees, and with his planes being grounded; it was only a matter of time before the brand faced erosion in its market value. Soon banks started asking each other the shattering question: Who gave the loan to Kingfisher? Predictably, no one wants to touch Kingfisher when it has crash landed.
Depersonalise the brand: This lesson is a perennial one. Like in the case of Satyam Computers and now, Kingfisher. If only Mallya had depersonalised himself from the brand, it could have been sold to anyone, says Chatterjee. Mallya faced a trust deficit with his stakeholders, employees, banks and the public at large, which further erodedthe brand.
Maintain vigil on cost-effectiveness: Mallya overpaid for things at Kingfisher that were good on their own like the premium service it provided that benefitted its passengers. However, this service bled the airline as it was not cost-effective. Astrict focus on the cost-effectiveness of each element of its business would have saved the day, feels Professor Rajesh Chakrabarti, Executive Director, Bharti Institute of Public Policy at the Indian School of Business (ISB).
Concentrate on core business: Mallya thought that inter-corporate loans would be able to solve the mounting debt of the airline business whose business model was based on ‘surrogate advertising’, remarks Dr. Anupam Rastogi, Senior Professor (Finance), Narsee Monjee Institute of Management Studies (NMIMS), Mumbai. KFA was floated to carry out proxy advertising for Mallya’s liquor business, he adds. Smart corporate managers cut advertising budgets to the bone during financial stress. Mallya did not do it as his Twitter account on April 28, 2010 indicated that he was running a booze company and an airline because ‘both make u fly’. (Tweet @TheVijayMallya 28 April, 2010). Worse, he did not stop it at that. Mallya went on increasing the advertising budget by buying Formula F1 Team, says Rastogi.
Cut your losses: In order to deal with the financial stress faced by KFA, Mallya should have sold his IPL cricket team and cut down on other advertising expenses including the F1 team. As the last attempt to save his wealth, he should have sold KFA itself rather than borrow from banks on personal guarantees, adds Rastogi of NMIMS. With softening of crude oil prices in the last one year, the KFA story would have been different then.