IE & Consulting - Match made in heaven

Among the hustle bustle of the B-school life, silence is a rare trait. With students competing for the limited air time in every class its extremely difficult to have them listen instead. But this is exactly what was achieved by the 3 of the biggest consulting firms of our era at the recently concluded IE Consulting Day. Organized by the IE Consulting Club, the event brought together consultants from Accenture, Booz & Co and Capgemini for an evening of presentations, discussions and networking. With the increased focus of IE students on consulting as a future career option, this event helped them gain a much deeper understanding of what the industry has to offer and how some of the big firms operate their business. At the same time it also introduced some of the higher up reps in these companies get a taste of the strong consulting talent that has been developing in the shadows of one of the top 10 b-schools in the world.

For a long time IE has been a popular choice for junior consultants in order to receive their MBA and progress further along their career path in their respective companies. The consulting club through the help of these students and its imminent faculty has conducted in the past half year several events to hone the consultants within the new students. The consulting day was a way for the IE consulting community to show-off what they had achieved and for the companies to entice them even further by giving them a glimpse of life as a consultant.

But why is it that consulting is becoming such a popular choice among IE students? IE Business School has long been known for fostering entrepreneurial spirit in its alumni. But just because you have the vision and motivation doesn't ensure your success. There are several facets of business in real life that cannot be simulated in a class room learning course and this is where a career in consulting steps in. Not only does a career in consulting provide one with valuable contacts, it also helps gain a much deeper understanding of any industry that you wish to associate with. A combination of the entrepreneurial abilities developed by IE and the experience provided by the consulting is something and student would hold in high regards and gives him/her the right recipe for success.

And if you're still unsure whether consulting is the right fit for you... come and talk to us. For we are the consulting club and we want you!

Circle of life

The business plans done, the pitch delivered and now on from the world of entrepreneurship into the corporate endeavors as people start scrambling for last minute internship deals and exchange opportunities slipping by in a hurry. Yes, we're back to the time of the year when a huge wave of MBA students hits the job market hard in an attempt to drive down the world unemployment rate!

But why are some people cutting corners or even throats to secure an internship while many others have this not even as the last thoughts on their mind? Is it that some people are too lazy or indifferent to make an effort? I believe there is more to it than just a question of willingness. In the words of Prof. Carmen Alonso Munoyerro "Life is more complex than just an excel function".

So, what is life of an MBA student and why do 100 people react in 200 different ways when presented with the same situation? As any manager would tell you IT ALL DEPENDS! It depends on what one expects from the school, whether one wishes to make best of a given opportunity, or if someone wants to explore different things at the same time or may be someone is just looking to enjoy a well-deserved year off from their otherwise hectic life as a consultant in one of the top 5 firms.

And then there are the prospective students who always ask me whether it is a good idea to go for an internship or if the career center is effective? There are no easy answers. Again, it depends on what you want out of an internship or how you want to use the services provided by your school. Good and bad are no longer absolute terms. Their nature and even interpretation differs from person to person. So, if you are considering an internship, ask yourself: what do you want out of the internship experience? Is it the exposure? Is it the network? Or may be its simply the extra cash? All are valid reasons but which one do you think you value the most and is it worth the lost opportunity cost.

So current students and future MBAs, before you make a big life decision you better think it through. MBA is no longer a means to an end. And surely its not an investment if you don't even know if the returns will have any value for you. And sure there will be some uncertainty but the key is to be prepared and "know thy self".

Thank You

To be or not to be -- An MBA?

Ceiling high bonfires, loud chants and noises and the smell of smoke and spirit in the air! No, this isn't the scene of another protest. This is typical of the weekend party following the end of first term at IE.

Less than 3 months into the program, everyone was forced to face, what has come to be known as, the dreaded CURVE! The only thing people could talk about for the last 2 weeks was decision trees and bonds and maslow hierarchy and what not. From the basic Debit-Credit theory to the most complicated forms of Markov chains, people stepped and stumbled at all different points in between. And with just a weekend of sigh and relief before everyone dives head first into Term 2, this gives me a perfect opportunity to recap.

So, what've we learnt so far? We now know how some of the biggest accounting scandals took place in the last decade. From the enron's and worldcom's of the world we have but one lesson to learn - Know thy balance sheet! And the best way to test the ethical and moral standards of your actions - The Phone Test i.e. how would your friends and family react when you give them the news about your proceedings. While it may be difficult for some to comprehend, but if one's true to themselves, at the least, this test should give a fair bit of warning when you take your business and accounting decisions.

While most accounting scandals take place because someone in the management didn't have the right ethical outlook, most strategic blunders take place when people are ill-informed. We have seen how some of the most thought after strategies have that innate flaw in them that somehow people miss out on. Look at the new Coke of the '80s or the Nike ERP failure of 2000. And though we have seen these failures and learned from them, there is no guarantee that we won't see such disasters in the future. In fact we know that we're bound to see even bigger ones as companies get bigger and start taking more and more expensive projects. While this is the story for every company in the world, this is also the basis on which the consulting industry runs and has become so big. But one needs to remember that consultants have limited information compared to the industry tycoons but they know exactly what to look for.

And finally the mother of all industries. This is an industry that single handedly accounts for almost everything that we know and buy and use in the world. Every firm was once a part of this industry and thousands more become a part of this year after year. This is the reason why IE is amongst the top B-schools in the world. This is the era of Entrepreneurship! While most people would agree that this industry creates more employment in the world than other other still there are not enough governments that are willing to invest in this heavily. This is the only sure shot solution to resolve the world economic crisis yet not many people are willing to take this up. The reason behind this is what people call in Game Theory - Belling the Cat! That's right. Though the industry has much to offer, the owners have much to lose as well. And its not just the failure of the business associated with it but the Economic effect of opportunity cost. Why would one give up a perfectly comfortable 9-5 job and the opportunity to earn hundreds of thousands a year for a career path that offers years of hard-work, sleepless nights, loss of health, loss of family connection and very little chance of ending up in a zero-profit situation?

The answer lies in human psyche. What is the one thing people value more than greed? The one thing that you can't get in any other job? The one thing that will make that loss of money worth it?

FREEDOM!

It's about freedom. Not just for yourself, but also for the whole world. Where would the world be without the Steve Jobs, the Bill Gates, the Einstein's and even the Zuckerberg's? We not only want the entrepreneurs, we need them.

So, I hail to all theses people. Those who gave meaning to our life, progress to our civilization and better future to us and our generations. For to be an entrepreneur is nothing shy of being a rebel and to break the shackles so often that the rule breaking itself becomes a norm!

Gracias, por favor!

The dark knight approaches

One ring to rule them all, one ring to find them
One ring to bring them all and in the darkness bind them!!!

The word has it... Number Eleven possesses the qualities of intuition, patience, honesty, sensitivity, and spirituality, and is idealistic. Others turn to people who are 'Eleven' for teaching and inspiration, and are usually uplifted by the experience.

But for the MBAs at IE, 11 is the number of weeks that are put into classes for Term 1. While intuition is all that people are relying on, patience, honesty and most of all spirituality are taking a serious battering. Having just started to figure out the various course materials, everyone will be facing their personal dark knights in a week's time. What's it gonna be for you... Accounting, Organizational Behavior, IT or the lord of all "Quantitative Analysis"?

As the cold wave engulfs my comrades and I, we scamper desperately to get the last drops out of the dying flames of the coziness' of our groups. Ready to face a new challenge we prepare tirelessly.

No matter what... my friends, always remember! There will be a new dawn! And remember if nothing else we will be MBAs...

The end is near!

1 day is already gone of this new year, the year many believe to be the last. But is this really the end? Even if it is the end should life be any different than what it used to be?

Enough with the philosophy of things. A little more than 24 hours ago, I witnessed a site like none other. Thousands of people huddled together in the then seemingly tiny Puerta del Sol waiting for 3 hours just so that the big clock strikes 12. Considering the amount of singing, dancing, hooting and celebrations going on during the lead up to the new year's, one would think that at the stroke of 12 everyone would burst out. But nothing of the sort happened. For 12 seconds the entire square was more silent than it had possibly ever been in the whole last year.


The reason behind this stunned silence was 1 of a kind superstition. Yeah, that's right - the 12 grape theory. Luckily, I was right in the middle of this sea of people witnessing a more than 100 year old tradition. And the world calls us India superstitious :D

But the sight showed what amazing belief the Spanish have. It sounded silly at first to stand around doing nothing for over 3 hours just to be able to eat a few pieces of fruit but unless you've seen it firsthand and that too at Sol you wouldn't wanna do it yourself.

After two and a half months, when I was started getting the hang of the Spaniards, they came around to surprise me with their strong beliefs. The people of Sol this day truly believe that their desires would come true for they had continued the age old tradition and I have no doubts that they would continue doing so year and year again.

Lets hope that we live to see the Spaniards eat another 12 grapes! Amen

A new beginning

This post had been in the offing long enough that I was finally beginning to believe that it was never gonna happen. And it would never have had it not been to a 3-day cold and throat infection which is right now not only keeping me from attending a birthday party but also restricting me totally to the confines of the bed. And while I'm here, I figured why not get this over with. This could either be a start to hopefully a long journal or may be just one of those one odd instances when I get on the internet and try something for the fun of it. We'll see in due course.

How did I get here?

The first week of my MBA classes ended just a little over a day ago. This was followed obviously by a rad party which in the hindsight might have added a few more days to my illness :( Anyways, the first week of classes went through without much hiccups. Sure, most people spent fewer hours sleeping than reading but I guess everyone had expected that to happen anyways, so no complains so far. As expected Marketing and Entrepreneurial Mgmt turned out to be the classes I liked the most but Accounting proved to be a wonderful surprise considering my fascination for numbers.

I complete 1.5 months in Spain tomorrow, a place that I longed to visit. But now that I'm all settled down here, it seems like any other place I have been to before. The cleanliness level (or dirtiness rather) is pretty much the same as back home in New Delhi at least if you consider the city part of Delhi. The one thing I found different, however, is the people. Not in terms of the behavior, cause you can pretty much find all your garden variety jerks and good guys here, but in terms of their attitude I would say. They love to party and know how to enjoy life here. For gods sake, I haven't been to a single club that opened before 1 am and closed before 8. Most days people party till the morning and then go off to class straight afterwards. I feel too much of a chicken coz I haven't doing this yet and this is what inspires me everyday more and more to get there. This I think would be the perfect time for first of my unbreakable :P public promises to try this out.

IE Campus in Segovia

One thing I liked about the place was that even if you don't speak the language, its much easier to get by than others would have you believe. Most big stores have an english speaking personnel and the streets here are so organized that you never get lost. Of course it helps if you have a smartphone in your pocket with loaded maps :) I was hoping it would be much harder thus promoting the need to learn Spanish. However, when you hear others speak something you don't understand that's motivation enough. So, I eagerly await the info session this Monday for the spanish language course but having heard negative reviews about it, I'm also looking for alternative options. The audio lessons that I was banking upon were able to do only so much good (no offense, Ira, my lovely friend who generously provided me with the cds for the same) but now I need hands on experience.

So, I march forward with hopes to learn Spanish and lot more of MBA stuff as I enter the second week of the course. While staying in bed does keep you away from friends and parties, it gives me a lot of time to prepare the cases for the coming week, catch up on my reading and finally get to the one thing that was being procrastinated for the last 2 years, writing this blog.

My first room in Madrid that I shared with the sweetest and the most beautiful Italian girl

I hope I can come back often and update this space as much as I like. You'll find that I have posted some sporadic photos in this entry which have not much meaning to the surrounding text. But this is for the benefit of those friends of mine who constantly pester me photos of Madrid. Hopefully the next set would be more meaningful.

Until later

How Porsche hacked the financial system and made a killing

 Adolf Merckle, one of the world’s richest men, committed suicide by throwing himself under a train, Bloomberg reports. Financial difficulties, and particularly great losses he suffered on Volkswagen stock, are being cited as the key reason he ended his life:

[Merckle's company] VEM was caught in a so-called short squeeze after betting Wolfsburg, Germany-based Volkswagen’s stock would fall. Merckle lost at least 500 million euros on the bets on VW stock, people familiar said on Nov. 18. VEM lost “low three-digit million euros” on VW stock, the company said in November.

A “short squeeze” sounds inconspicuous enough; you wouldn’t tell it by Bloomberg’s language, but Merckle’s Volkswagen bet lost out to one of the most masterful hacks of the financial system in history.

For those of us who don’t live and breathe finance, this is that story.

 

● ● ●

 

In 1931, Austro-Hungarian engineer Ferdinand Porsche started a German company in his own name. It offered car design consulting services, and was not a car manufacturer itself until it produced the Type 64 in 1939. But things got interesting for Porsche long before then.

In 1933, he was approached by none other than Adolf Hitler, who commissioned a car designed for the German masses. Porsche accepted, and the result was the iconic Beetle, manufactured under the Volkswagen (lit. “people’s car”) brand. Today, Porsche’s company is one of the world’s premier luxury car brands, while Volkswagen (VW) is itself the world’s third-largest auto maker after General Motors and Toyota.

Three years ago, Volkswagen found itself fearing a foreign takeover. Porsche, the company, decided to step in and start buying VW stock ostensibly to protect the landmark brand, widely fueling market expectations that it would eventually buy Volkswagen outright. Of course, this isn’t quite what came to pass.

For three years, Porsche kept accumulating VW stock without telling anyone how much it owned. Every time it purchased more, the amount of free-floating VW stock would decrease, driving the stock price up slightly; your basic supply and demand at work. Eventually the share price became high enough that, to outside observers, it wouldn’t have made any sense for Porsche to buy Volkswagen. It would simply have cost too much.

To explain what happened next, I’m going to first tell you about a financial maneuver called shorting.

 

● ● ●

 

At any given point, only a certain amount of a publicly traded company’s stock is floating freely in the market. The rest is held in various portfolios, funds, and investment vehicles. Now, everyone’s familiar with the basic idea behind the stock market: you buy stock when it costs little, and you sell it when it costs a lot, profiting on the difference.

But that assumes a company’s value is going to increase. What if, instead of betting a company will go up, you want to make money betting the company will go down? You can — by selling stock you don’t own.

Say you borrow a certain amount of stock from someone who already owns it. You pay a fixed fee for borrowing the stock, and you sign a contract saying you will return exactly the same amount of stock you took after some amount of time. So, you might borrow a thousand shares of Apple stock from me (I don’t actually own any, but play along), pay me $100 for the privilege, and sign an obligation to return my stock in 3 months. At the time, Apple stock is worth $10 per share.

After you borrow the stock, you immediately sell it. At $10 a share, you get $10,000. Two and a half months later, another rumor about Steve Jobs’ health sends AAPL crashing to only $6 per share for a few hours, so you buy a thousand shares, costing you $6,000. You give me back those shares. Because you successfully bet the company would go down in value, you earned $4,000 minus the borrowing fee. This is called short-selling or shorting the stock, and the downside is obvious: if your bet was wrong, you would have lost money buying back the shares that you have to return to your lender.

 

● ● ●

 

Now things get kinky.

When Volkswagen’s share price exceeded the point where it made sense for Porsche to buy the company, a number of hedge funds realized that Volkswagen shares have nowhere to go but down. With Porsche out of the picture, there was simply no reason for VW to keep going up, and the funds were willing to bet on it. So they shorted huge amounts of VW stock, borrowing it from existing owners and selling it into circulation, waiting for the price drop they considered inevitable.

Porsche anticipated exactly this situation and promptly bought up much of these borrowed VW shares that the funds were selling. Do you see where this is going? Analysts did. According to The Economist, Adam Jonas from Morgan Stanley warned clients not to play “billionaire’s poker” against Porsche. Porsche denied any foul play, saying it wasn’t doing anything unusual.

But then, last October 26th, they stepped forward and bared their portfolio: through a combination of stock and options, they owned 75% of Volkswagen, which is almost all the company’s circulating stock. (The remainder is tied up in funds that cannot easily release it.)

To put it mildly, the numbers scared the living hell out of the hedge funds: if they didn’t immediately buy back the Volkswagen stock they were shorting, there might not be any left to buy later, and it isn’t their stock — they have to return it to someone. If their only option is thus to buy the VW stock from Porsche, then the miracle of supply and demand will hit again, and Porsche can ask for whatever price it wants per VW share — twenty times their value, a hundred times their value — because there’s no other place to buy. They’re the only game in town.

And that, my friends, is called a short squeeze.

 

● ● ●

 

Porsche’s ownership disclosure sent the hedge funds on such a flurry of purchases for any Volkswagen stock still in circulation that the VW share price jumped from below €200 to over €1000 at one point on October 28th, making Volkswagen for a brief time the world’s most valuable company by market cap.

On paper, Porsche made between €30-40 billion in the affair. Once all is said and done, the actual profit is closer to some €6-12 billion. To put those numbers in perspective, Porsche’s revenue for the whole year of 2006 was a bit over €7 billion.

Porsche’s move took three years of careful maneuvering. It was darkly brilliant, a wealth transfer ingeniously conceived like few we’ve ever seen. Betting the right way, Porsche roiled the financial markets and took the hedge funds for a fortune.

Betting the wrong way, Adolf Merckle took his life.