Sunday, December 18, 2011

BT investor presentations-a study in the art of spin and euphemisms

As I read through BT Plcs investor presentations and conference call transcripts, I was struck by the extent of 'spin' and euphemisms. Some examples are
  1. Referring to cost reduction/restructuring as cost transformation
  2. Referring to staff retrenchment payment as leaver costs
  3. Exceptional gains/costs as specific items
  4. Economic downturn as economic headwinds
To be fair, they are probably just trying to make it easier to understand. But it seems to me as sugar coating, something more expected from a USA company than a UK one. Still, the company IS transparent in other ways. For instance, during the Q2'11 conference call, it highlighted that
Revenue in Global Services was up on an underlying basis excluding transit, up 3%. A big part of that  however, whilst it was on any metric a significantly improved  performance, was due to a milestone recognition which came  forward from Q3 into Q2. Basically we delivered really well and we  accelerated the recognition into Q2. That was worth £60m. Excluding  that milestone basically, revenue was flat. As I said, that's quite an improved performance from previous quarters, but it did come out of Q3.
Very few CEOs would prominently highlight that(instead leaving it to the analysts to pick it out from the notes or speculate), and that took up my respect for them by a few notches. Still, their surprising choice of vocabulary does not change with this.

Friday, December 16, 2011

We overrate 'new' things in the wrong ways

After the death of Steve Jobs, I've lost count of the leaders/writers who praised his innovative nature. In the Indian context, while doing that, some also trashed the innovativeness of us Indians. If we define innovativeness to mean churning our new products/variants frequently, then yes one may not be innovative. But the way I understand innovation, is merely an improved way of doing things(improved by resource consumption/functionality) and not necessarily just design/art work. And what may be innovation for the early adopter, may not be so for Joe Citizen, whose needs are limited. For example. one may not need to throw out the old smart phone for the iphone4, if that does not give any more relevant functions for that user. Of course, being seen with that brand is a different psychological  push which I don't address

There is even a logical fallacy around this(, titled appeal to novelty, which is explained well below.

Appeal to Novelty is a fallacy that occurs when it is assumed that something is better or correct simply because it is new. This sort of "reasoning" has the following form:

  1. X is new.
  2. Therefore X is correct or better.
This sort of "reasoning" is fallacious because the novelty or newness of something does not automatically make it correct or better than something older.This sort of "reasoning" is appealing for many reasons. First, "western culture" includes a very powerful committment to the notion that new things must be better than old things. Second, the notion of progress (which seems to have come, in part, from the notion of evolution) implies that newer things will be superior to older things. Third, media advertising often sends the message that newer must be better. Because of these three factors (and others) people often accept that a new thing (idea, product, concept, etc.) must be better because it is new. Hence, Novelty is a somewhat common fallacy, escpecially in advertising.The age of thing does not, in general, have any bearing on its quality or correctness (in this context), except of course food quality etc.

In my view, in fields like economics, law and philosophy, old is gold for sure! After all, people read classics for a reason, and not just to give publishers money. They are rich of ideas and philosophy, and if anything is eternal, that is. Given that the focus today is on self managing teams and human beings(as opposed to technology only), the old lessons assume much more importance. Of course, we should not swing to the other extreme and accept 'time tested' things due to Appeal To Tradition. Blindly doing that would discount survivorship bias, institutionalized prejudice etc. For instance, anyone using Tintin comics to support racism  is committing this fallacy.

Thursday, December 15, 2011

What should an university be like-lessons from John Henry Newman

The classics often have great lessons for today's situations, because they oft contain eternal truths uninfluenced by the mass media/indoctrination of today. After reading the book The Idea of a University Defined and Illustrated: In Nine Discourses Delivered to the Catholics of Dublin (,  I felt some of the ideas deserved a wider audience especially given the debate about how higher education should be/education bubble etc. I tried to do justice to the main ideas but given it was written in old English and digressed a lot on the Church-University relationship, it may not be 100% faithful to the old text. 
  1. Teaching Focused:- University is a place of teaching universal knowledge. This implies that its object is diffusion and extension of knowledge rather than the advancement. If its object were scientific and philosophical discovery, I do not see why a University should have students..
  2.  Separate research and teaching:-To discover and to teach are distinct functions; they are also distinct gifts, and are not commonly found united in the same person. He, too, who spends his day in dispensing his existing knowledge to all comers is unlikely to have either leisure or energy to acquire new. The common sense of mankind has associated the search after truth with seclusion and quiet. The greatest thinkers have been too intent on their subject to admit of interruption; they have been men of absent minds and idosyncratic habits, and have, more or less, shunned the lecture room and the public school. Examples given are Pythagoras, Thales, Plato ,Aristotle ,Friar Bacon,Newton etc. There were  great examples the other way, perhaps Socrates, certainly Lord Bacon; still I think it must be allowed on the whole that, while teaching involves external engagements, the natural home for experiment and speculation is retirement. 
  3. The tendency for professional overeach/rent seeking Every professional man has rightly a zeal for his profession, and he would not do his duty towards it without that zeal. And that zeal soon becomes exclusive, or rather necessarily involves a sort of exclusiveness. A zealous professional man soon comes to think that his profession is all in all, and that the world would not go on without it. This collision, this desire on the part of every profession to be supreme,—this necessary, though reluctant, subordination of the one to the other,—is a process ever going on, ever acted out before our eyes. The civilian is in rivalry with the soldier, the soldier with the civilian. The diplomatist, the lawyer, the political economist, the merchant, each wishes to usurp the powers of the state, and to mould society upon the principles of his own pursuit.I remark, moreover, that these various usurpations are frequently made in perfectly good faith. There is no intention of encroachment on the part of the encroachers. 
  4. The danger of  too much liberal arts education:-Nothing is more common in an age like this, when books abound, than to fancy that the gratification of a love of reading is real study. Some have a taste for reading, but in whom it is little more than the result of mental restlessness and curiosity. Such minds cannot fix their gaze on one object for two seconds together; the very impulse which leads them to read at all, leads them to read on, and never to stay or hang over any one idea. The pleasurable excitement of reading what is new is their motive principle; and the imagination that they are doing something, and the boyish vanity which accompanies it, are their reward. Such youths often profess to like poetry, or to like history or biography; they are fond of lectures on certain of the physical sciences; or they may possibly have a real and true taste for natural history or other cognate subjects;—and so far they may be regarded with satisfaction; but on the other hand they profess that they do not like logic, they do not like algebra, they have no taste for mathematics; which only means that they do not like application, they do not like attention, they shrink from the effort and lab-our of thinking, and the process of true intellectual gymnastics. The consequence will be that, when they grow up, they may, if it so happen, be agreeable in conversation, they may be well informed in this or that department of knowledge, they may be what is called literary; but they will have no consistency, steadiness, or perseverance; they will not be able to make a telling speech, or to write a good letter, or to fling in debate a smart antagonist, unless so far as, now and then, mother-wit supplies a sudden capacity, which cannot be ordinarily counted on. They cannot state an argument or a question, or take a clear survey of a whole transaction, or give sensible and appropriate advice under difficulties, or do any of those things which inspire confidence and gain influence, which raise a man in life, and make him useful to his religion or his country. 
  5. Need to study theology:-When was the world without it? Have the systems of Atheism or Pantheism, as sciences, prevailed in the literature of nations, or received a formation or attained a completeness such as Monotheism? We find it in old Greece, and even in Rome, as well as in Judea and the East. We find it in popular literature, in philosophy, in poetry, as a positive and settled teaching, differing not at all in the appearance it presents, whether in Protestant England, or in schismatical Russia, or in the Mahometan populations, or in the Catholic Church. If ever there was a subject of thought, which had earned by prescription to be received among the studies of a University, and which could not be rejected except on the score of convicted imposture, as astrology or alchemy; if there be a science anywhere, which at least could claim not to be ignored, but to be entertained, and either distinctly accepted or  distinctly reprobated, or rather, which cannot be passed over in a scheme of universal instruction, without involving a positive denial of its truth, it is this ancient, this far-spreading philosophy.
  6. The need for active reading/learning We must carefully distinguish,  between the mere diversion of the mind and its real education. Supposing, for instance, I am tempted to go into some society which will do me harm, and supposing, instead, I fall asleep in my chair, and so let the time pass by. The opportune sleep has but removed the temptation for this once. It has not made me better; for I have not been shielded from temptation by any act of my own, but I was passive under an accident, for such I may call sleep. And so in like manner, if I hear a lecture indolently and passively, I cannot indeed be elsewhere while I am here hearing it,—but it produces no positive effect on my mind,—it does not tend to create any power in my breast capable of resisting temptation by its own vigour, should temptation come a second time. A man may hear a thousand lectures, and read a thousand volumes, and be at the end of the process very much where he was, as regards knowledge. Something more than merely admitting it in a negative way into the mind is necessary, if it is to remain there. It must not be passively received, but actually and actively entered into, embraced, mastered. The mind must go half-way to meet what comes to it from without. You have come, not merely to be taught, but to learn. You have come to exert your minds. You have come to make what you hear your own, by putting out your hand, as it were, to grasp it and appropriate it. 

Tuesday, December 13, 2011

Why we need border-less interdisciplinary thinking

In a speech at IIM Calcutta, Dr Mashlekar(ex DG, CSIR) made some interesting points that triggered some further thinking. While I reproduce those salient points below for the sake of brevity, I would suggest reading that entire speech in full there( His points were

  1.  Explosive advances in adjacent sciences are shaping up the future of core disciplines. New paradigms of “seamless sciences” and even “seamless engineering” are emerging. 
  2. We work and think in isolation. The examples are
    •  Mixing is a challenge in diverse disciplines. In the case of astrophysics, one is concerned about the mixing of the interior of stars. In mechanical engineering, it is combustion. In environmental sciences, we are concerned with mixing and dispersion in the atmosphere. Oceanography deals with mixing and dispersion in oceans. Chemical engineers are concerned with mixing in chemical reactors. Physiologists look at mixing in blood vessels. Bioengineers are interested in mixing & aeration in bioreactors. Geologists deal with mixing in the mantle of the earth. All these diverse mixing phenomena occur on diverse time and length scales, differing by several orders of magnitude. However, these disciplines rarely benefit from each other, and discovery & rediscovery of concepts and ideas is common place.
    • Scientists from different disciplines have turned to the study of the human mind.  These days one meets engineers who work on speech perception, biologists who investigate the mental representation of spatial relations, and physicists who want to understand consciousness. And, of course, psychologists continue to study perception, memory, thought and action. However, I have not seen a meeting of these computer scientists, linguists, neurophysiologists, anthropologists, engineers, and so on! Understanding of mind cannot be made possible without meeting of minds of all of them.
  3. We need to ensure that our mind moves through diverse disciplines in a borderless way. The ability to correlate and link the non-obvious can lead to major breakthroughs. In the management context, an example is creation of  flexible management structures by using the concepts of self-organisation in chemical and biological systems- van der Waals model of Management
Prof JR Varma made a similar point in his Mar-11 IIM Ahmedabad working paper on improving MBA(Finance) education, where he sought the integration of conventional investing theory with neurology, economic history and other relevant disciplines. 

And in fact, the oft-cited fact of 'MBA broadening one's horizons/perspectives' can be attributed to the exposure to cross disciplinary functions and hearing those diverse perspectives during class discussions. But these are incremental innovations so as to say. 

The biomimicry(adapting insights from Nature to create business models) is in its infancy in India, with a few salient exceptions like Prof Anil Gupta, who devised and named an entire organization inspired by the honeybee behaviour. And in the field of organizational dynamics, this has ample potential, given that there is ample debate today about the role of and purpose for existence of corporates.

How to ask better questions for an email interview

Recently, as part of my responsibilities of editing my club's finance magazine, I've had to write questions for sending to very busy people, who'll respond at their leisure. Now, that exercise is easier said that done. In a live interview, one can use the feedback to adjust the pace/nature of questions, or even improvise on the spot. But in a long distance interview, that is just not possible. You are stuck with the questions you sent. And godforbid, if they are cliched/very general/beyond the person's specialization, then the person may even decline to answer them. Therefore, the exercise is tricky and needs thought. Some pointers which I've found useful are
  1. Understand your theme:-This is quite obvious but in case you were not involved in the brain storming sessions which led to the theme/concept behind the publication, then get a clear understanding of it from someone involved, so that you do not deviate too much
  2. Understand WHY you asked that person/decide what you would like from him:-Some people are invited for their knowledge, others for their brands and yet others because they are easily available. Decide which category your interviewee is in, that will inform your other decisions.
  3. Google is your saviour:-One has NO excuse to remain ignorant about people in this digital era..
  4. But try not to duplicate content of publicly available data:-Remember you are not a reporter/friendly analyst just interested in filling space. Remember that you want good original content from that person. So try not to be too close to earlier interviews.
  5. People like answering about their passions:-Whether it be distressed debt, economic cycles, corporate governance etc, people are usually passionate about one or more work related aspects(assuming we can't ask about hobbies in a serious publication). Try to find that
  6. For academics, read their latest research/course outlines:-Academics's interests can be gauged by their research publications(remember these take months/years to create!) and by what they teach(assuming they have a fair level of choice/discretion in that). So questioning in those areas would probably produce a very good answer.
  7. For those in industry, read up on their company/sector: Remember the person is daily focusing on that sector/company and literally lives it. So asking related to that, would ensure instant recognition and act as warm up for next. The research would also supply context to explain many of the answers.
  8. Try asking open ended questions instead of those to which you know the answer:These are the most difficult questions but the most rewarding. Prefer 'what'/'why' over 'how'.
  9. Try to sequence the questions in a logical flow:-That makes it easier for the person to get a birdseyeview of the questions, and to structure the answers accordingly

Wednesday, December 7, 2011

Does it make sense to self publish on Kindle Store?

 Amazon has recently been making waves by signing up 150 authors in the last quarter, to write books on its platform. Naturally, the mainstream publishers are unhappy about Amazon's ambition to transition from retailer to publisher, but for the author, this represents wider choice. Now, even before Amazon entered, it offered authors a 70% royalty, with some caveats like $0.15/MB charge for electronic delivery, 30% IRS withholding tax, and 70% only on few areas(else 35% w/o the delivery fee)! So I can my own analysis of the 70% scheme, assuming sales are in the eligible countries at different list prices, and found that to get that $100 royalty check(threshold to issue check is $100), one needs to sell 74 books priced at $2.99. Considering that a print run of 10,000 copies is considered good for a book on which an author may get say Rs 20(max)=>$0.4/copy, those figures are quite good. Lets see if I use that platform someday as a test drive of my writing talent

Analysis of Amazon 70% royalty scheme          
List price($) 0.99 1.49 1.99 2.49 2.99
Royalty @ 70% 0.69 1.04 1.39 1.74 2.09
Data Cost @ $0.15/MB -0.15 -0.15 -0.15 -0.15 -0.15
Net From Amazon 0.54 0.89 1.24 1.59 1.94
Net After 30% witholding tax 0.38 0.63 0.87 1.12 1.36
Sell these many for $100 check 264 160 115 90 74
Net Realization to author(% of list price) 38% 42% 44% 45% 45%

Sunday, December 4, 2011

Tips on how to analyze economic time series data

Be it stock prices, index valuations, budgetary spending, deficits, exchange rates; virtually any significant economic data is analyzed using time series data. In these days of Excel 2007, it is a great temptation to just plug the numbers in, select a graph and use it for whatever purpose one wants. But such a simplistic approach would be doing an injustice to the analysis, and also would reduce the chance that the data is analyzed, understood and appreciated in the way it should be. So what to do? Based on my not insignificant experience of this, I add some guidelines below. I don't claim this to be an exhaustive list, and comments are welcome
  • Adjust for Inflation:-Specially for monetary values and interest rates, this is crucial. And sometimes it gives very interesting insights. For example, the real interest rates in India have been negative for quite some time, and that makes us appreciate why the RBI is chary about reducing it.
  • Try per capital/per unit numbers:-It allows for adjustments for population/volume growth, and yields interesting results. Thanks to its population, India lags behind on such data
  • Put the numbers in context:-Expressing as market share, budget share, relative data etc puts the numbers in context, like in per capita.
  • Use Indexing if possible:-That makes the growth trend easier to understand
  • Use secondary axis if useful:-For example, you want to show that FDI inflows fell when the exchange rate appreciated. Instead of using 2 graphs, you can use 'Plot on Secondary Axis' option in Excel, and plot them on the same graph
  • Try to cover an entire economic cycle:-Otherwise, the result may just be because we are in a boom or a burst. This is true especially for stock price/valuation data
  • More the better:-We often tend to forget history, and that is a reason why bubbles repeat, whether it be across countries or across time periods. Hence, a longer data set with more sources, helps to triangulate trends and have a broader perspective. 
  • But be careful of underlying structural changes:-With Excel 2007, one can use callout and other options to depict the reasons for inflection points. Use those with care where warranted. For example, the 1991 liberalization would have lead to inflection point in most Indian data.
  • Strike a balance between aggregates and subclasses:-Given the high Gini Index/Digital divide etc, one should be careful about what the data signifies for India as a whole. Often, the divide between states/castes/gender/urban-rural population parameters, would be large enough to vitiate any extrapolating of the conclusions. For example, India telecom boom should be read in the context of rural teledensity just being 32%(versus urban of 140% or so).
  • Focus on outcomes not just on spending:- Especially in case of data on spending, avoid the tendency to mistake spending for outcomes. Try matching the spending to the outcome(say education and pass rates, health spend and mortality rate/life expectancy). For share price data, that may mean investor participation, retail folios etc

Thursday, December 1, 2011

Prof Anil Gupta's ideas on pushing the frontier of education

I had blogged earlier about Prof Anil Gupta's innovative approach( As his electives on intellectual property and sustainable agriculture draw to and end, his approach is even more in evidence. For example
  • Crowdsourcing of exams:-He invited 3 questions from each student, stating that he may modify and ask these good questions in the exams. He said that since his purpose was to increase the learning(not to assign a letter grade), he would be more than happy 
  • Focus on learning by doing:-He gives higher grades for projects/reports which can be built into something rather than gather dust somewhere. For example, studying local waste management or making a small change locally, is valued highly by him.  
  • Building on ideas built earlier:-He lamented that there was no repository of projects, and that each batch may end up reinventing the wheel without making any institutional progress towards knowledge. And to counter the concern of copying, he said that peer pressure/fear of being called out in public would stop people from copying, and also ensure that the topics are reasonably original. Actually, this is quite an obvious idea, but not done so far anywhere. He suggests having it on the intranet, and later on the internet for all and sundry. 
  • Feedback on projects:-He uploads the project proposals on the blog, and gives credit for students giving useful projects on each other's projects.
  • Student presentations given importance to:Despite his huge intellectual stature, he pays deep attention to student presentations and is free with compliments and suggestions. And to ensure that others pay attention to that, he sets questions based on the class presentations etc. 
  • No attendance sheet:-This is rare, but his logic seems(he has not explained it explicitly) is that since the outputs are graded(report, presentation), monitoring inputs are not that essential.

Monday, November 28, 2011

Not documented equals not done-leads to great quality or checkbox mentality?

While reading professional standards, it struck me that the basic premise of documenting a professional services engagement is that in case the professional is sued for malpractice, the working papers will prove the extent of, and diligence put in, the work done. Of course, it has positive uses also such as helping plan the assignment, building the knowledge bank for recurring assignments, and infusing a general discipline into the whole process. Also, there is always merit in having a checklist to avoid making mistakes during complex processes. Hence, I cannot reasonably argue the merits of following a checklist/process. The only issue is whether the person performing the assignment, will consider the checklist/standard as the end of his responsibility, given the protection from negligence lawsuits filed by disgruntled clients.

So now we are at a corundum. The protection from negligence lawsuits is the trigger to motivate professions to comply with service quality standards. But senior professionals themselves write the standards, so chances are they would incorporate recent memory, and rarely include future looking requirements identified from academic research. For example, India is going through several paradigm shifts in terms of introducing IFRS/XBRL/e-filing. But while ICAI has been quick to clamour for new professional work in these areas, it has been slower to issue fresh/modified guidance. And this is not a new phenomenon. New standards are often issued after the horse has bolted from the stable(viz scams/issues/controversies). For instance, while complex financial instruments valuation made the headlines in 2008, their formal auditing guidelines were published only in Oct-11. So for mistakes done before that, the auditor could claim protection. And some standards have been issued only when the ICAI has been dragged kicking and screaming. For example,the reporting standard on segment reporting/cash flow statement needed SEBI to step in, and cut the red tape.

So how do we motivate professionals to go beyond the minimal standards? There could be a best practices repository, and the professional submitting the most/top rated ones could be awarded. Or there could be awards for uncovering the highest amount of scam, mistakes, issues(subject to client confidentiality agreements) etc. Also, the data base could have a weightage while selecting auditors for key assignments and complex work. Lets see if this idea sees the light of day in my life!

Sunday, November 27, 2011

Burning issues remain that way because people don't delve into data

Recently, I presented a business plan to set up a chain of rural warehouses for storing post harvest produce. Amongst the 4 member jury, 2 of them had no prior experience in the agriculture sector(investing/operations) etc, and this showed in the slightly naive questions they asked. While my team's rigorous ground work helped, it opened my eyes to the fact that people often do not seek out publicly available data on the internet, and prefer to rely on the sensational and biased media reporting. This is why several burning issues/misconceptions prevail on the net. Some of them are below
  • Human rights violations by police/armed forces:-Activists are prompt to critique the 'rampant' human rights violations under AFSPA and other laws, but forget that the members of police/army are often drawn from the same poor classes whom they oppress. Also, the numbers are not analyzed(how many incidents vs overall scale of violence) etc
  • Agricultural input subsidy:-Lobbies commission exquisite reports about how agriculture needs subsidized electricity, seeds, fertilizer, higher MSP, cheap loans etc. What is not highlighted is who gets the lion's share of these(not small farmers), and whether these are effective or not(Prof Anil Gupta cites evidence that non sustainable farming is costly AND a failure).
  • Actual volumes/outcomes:-India has good patent laws, but very few design registrations(even though at Rs 100/design it is the cheapest IP). Similarly, the number of beneficiaries of certain schemes are quite low. It is easy to understand spending trends, but not that easy to search for outcomes. But how many of us bother to do that?
  •  Election result analysis:-With a wealth of data about voter turnouts, victory margins, constituency trends, election expenditure etc, there is scope for an entire website devoted to analyzing in an user friendly way(dashboards, drill down, export to Excel) election data. But this is not done, and often the only time it happens is the day post elections. Thankfully, papers like TOI are giving this wide coverage and hopefully election analysis will soon go way past the number of seats won/vote share.
  • Ticking timebombs like budget deficits:-As an equity research analyst would know under the mosaic theory, weaving together numbers from different perspectives gives a good view to avoid '7 wise men of Hindustan' type of tunnel vision. Unfortunately, only consultants/investment bankers do such narratives, and in the public discourse space, this is not done. 
  • Reservations:-Few issues match this in the public divide, vitiated debate and lack of data/research. there is no way to settle this issue one way or the other. But unfortunately, worthwhile data/stats are tucked away in obscure sociological research. and are not part of the public debate sphere. 
The Way forward:-Google Scholar gives access to otherwise unreachable data, and the same is true for Wikileaks/Google Public Data explorer. It is now the public duty to delve into data, atleast for data one is interested in, and then share the results with the public via open source platforms like updating Wikipedia entries, editing Wikibooks or publishing on blogs. 

Wednesday, November 23, 2011

Knowledge-the major new factor of production

Knowledge is power-but only when applied and commercialized. In the minds of some, knowledge is something which is taught, discussed, published and understood-with the burden of its application passed on to those in the sordid 'industry'. But they forget that one cannot separate knowledge and its application, because what use is knowledge which cannot be applied?

History is replete with examples of wars won by superb battle strategy/tactics(Genghis Khan, Alexander's win, USA civil wars, British East India conquest etc) where smart warriors used their minds to win battles over much larger foes). In the retail industry, WalMart used its information centres and data analytics to introduce JIT/improve supplier coordination etc to improve sales and profits, while actually shrinking the need for inventory. That is a great example of replacing physical assets('inventory') with information(via RFID/barcoded inventory). An interesting example is the online retail of goods, music, books, insurance search, banking etc which have replaced the need for brick and mortar store. Yes, they do depend on a physical logistics backbone for execution, but that is much smaller than the cumulative assets they replaced.  The low carbon movement has led to a spurt in energy efficiency, green supply chain planning etc which drastically lowers the resource requirement. Even in the military era, the use of nukes as a deterrent may reduce the need/size of standing armies in future. This is true also given the new dangers of cyberwar, where a handful of hackers can bring down entire countries on their knees.

Of course, the limit to this is that knowledge is always a complementary factor of production, which would always need some other factor. That said, applied knowledge can cut resource use substantially. And that is why it is necessary to increase interest, improve curriculum quality etc of the STEM subjects(Science Technology Engineering Medicine)-since the fruits of these can really help the economy in future. But non STEM graduates also should not shirk their responsibility to think innovatively on how to replace assets with knowledge. If that leads to more virtualization, so be it.

Are shareholder value maximizing managers like Valmiki of Mahabharata?

Those who have read the Mahabharata would recognize what I'm alluding it. For the others, it is suffice to explain that saint Valmiki was originally a highway robber, who robbed others for a living. Once, he tried to rob a wise person who asked him about whom was he doing all that for. When the robber replied that he was doing this to support his family, the wise person asked him to return home and confirm with them whether they endorsed his actions or not. Hea was quite confident that the very people he was doing it for, would endorse and support his actions. To his shock, his wife and children(for whom he was robbing others) said that they did not want his sins to rub on to them. They felt that a basic living was his duty to provide, but they certainly did not want to share in his sins. Shocked by this, the robber saw his error and then reformed, to become the renowed saint Valmiki.

So what is the point of this parable? Under the garb of shareholder value maximization, other stakeholders are often squeezed. Suppliers are compelled to sell at unremunerative prices and often paid late; employees are underpaid and overworked; society is denuded of clean air/water and loaded with congestion/pollution; Governments are deprived of their due tax revenues etc. But it is often argued that this is what shareholders want! But in the absence of direct democracy for routine issues, it is not possible to ask them. But if companies did ask their shareholders, I'm sure their response would be similar to that of Valmiki's family. After all, psychological studies show that humans are not 100% rational, and are often suckers for a sob story.

Now, some may point to the 'Knowing Doing' gap i,e the importance of looking at people's actions instead of their professed sentiments. There is some truth in this because people are aware of the causes and ill effects of smoking, obesity and a host of other vices. Still, they remain addicted to it OR inertia stops them from changing habits. Similarly, in the investing context, though many investors especially the institutional ones have learnt the importance of inclusive corporate governance etc, it is doubtful that they give a damm, With the exception of Norway SWF, Calpers and a handful of other investors; few investors have behaved like Valmiki's family(censure and repudiation) when confronted with evidence of corporate wrong doing. The market capitalization may suffer in fear of economic penalties but not otherwise. So the managers may not be wrong, when they feel that they have the support of their shareholder family, in whatever they do.

Monday, November 21, 2011

The online forum users who get my hackles up.

Be it Rediff/Facebook pages/online job postings etc, one invariably sees a lot of spam and clutter. This is because of the people below.
  • The Q jumper:-This person does not bother to use the 'report abuse'/'customer service ticket' options but straight away plugs in a forum message
  • The spammer:-This person advertises their product/services ranging from Nigerian letter fraud to work from home to online retail for certain err..drugs.
  • The English challenged:-This person posts rants in broken English. Nothing wrong in that per se, just that I dislike it.
  • The Agenda pusher:-This person has a rant against a person(say AzimPremji/Sonia Gandhi/Congress/missionaries) and whatever be the topic, somehow finds a way to insert their views into the fray and create a mess. 
  • The CAPSLOCKER:-This person imagines that by  writing everything in caps, they will somehow get more attention. Nothing can be farther than the truth.
  • The hoarder:-When a kind soul states that s(he) will email/share a resource with all those who email them, the hoarder is too lazy to send an email, but instead decides to
  • The potential social engineering victim:-This person gives their personal details like name/address/contact details and even account numbers, hoping that the customer care person will take care of it OR that the

Friday, November 18, 2011

The Vocabulary premium-part 2

The limits of my language are the limits of my world-Ludwig Wittgenstein(Philosopher)
Earlier, I blogged on the importance of vocabulary( This post takes those sentiments forward, as I take a break from completing those umpteen assignments in the twilight days at IIM-A.

As a kid, my parents and teachers emphasized the importance of having a good vocabulary. What I am today, is significantly attributable to my reading habit, which stoked a virtuous cycle of curiosity driven reading. Yes, I did miss out on watching the TV serials/comics and other junk, but I think it was a good bargain. Of course, for some periods in between, I did get addicted to fiction, which then became a hobby. Thankfully, that hobby did not break the mental concentration and interest necessary to complete a non fiction book. I know people who can spend the night reading the latest best seller, but get bored of reading a non fiction book after just 30min. And that is NOT because of the dry writing style.

While any kind of reading will improve vocabulary, some kinds of reading are better than others for that purpose. Reading biographies, classics and the kind of stuff which could be mandatory school readings; not only improve vocabulary but are also time tested ways of boosting critical thinking and analytical skills. Therefore, do not think that reading that pulp fiction bestseller will confer that vocabulary premium, but do widen your reading,

Sunday, November 13, 2011

Corporate Governance and Political governance deficit-the similarities

In 2010/2011, several scams rocked the Indian political scenario right from the mother of them all(2G spectrum allocation, Karnataka mining licenses, Adarsh housing society etc). Chief Ministers were dismissed, inquiry commissions set up and heads rolled. The media gleefully credited their reporting and publicity as a deterrent factor. All that was to change when the spurt of corporate scams errupted. Just recouping from the FY09 Satyam scam, multiple scams were exposed right from the mining licenses(Jharkhand, Karnataka), land acquisition(for SEZ, projects), Radia tapes, bribery, cases etc. While some CEOs were arrested/dismissed(Gautam Doshi, Everonn CEO, Money Matters, LIC Housing Finance), industry forums were quick to pass them off as rotten apples. But on deeper reflection, one should not have been surprised for these scams. After all, the inconvinient truth is that corporate governance reflects the society it resides in. And the common reasons are
  • No separation of powers:-Like how most political parties are one man shows, so are most companies. The CEO-Chairman position is not separated.
  • First past the post:-Like how 30% voting share is often enough to win seats, the same is true for companies as well. As there is no proportional representation, the shareholders with even 30% voting power can often control the Board easily.
  • Redistribution focus over governance:-Few Indians would genuinely expect their MP/MLA to debate larger issues in the assembly/parliament, at the cost of giving attention to local issues. Similarly, investors do not expect their directors to show exquisite coalition dharma viz corporate governance; but instead expect share price maximization
  • Opaque funding/controls:-like how political parties benefit from anonymous contributions and exempt income, often without tax returns scrutiny; company promoters benefit from related party transactions that enable major siphoning out of funds. 
However, there are major exceptions also
  •   Contest ability is much more in politics than in companies, where hostile takovers are quite rare. Companies can be defeated at the market place, but rarely are corporate power battles(especially takeover bids) fought in public.
  • Coalition dharma is much more relevant in companies than at the assemble level in politics. While the company must juggle the interests of workers, investors, employees, government(at the bare minimum!!), the politician is often content with jugging the interests of his voters(or atleast appearing to do so).
This analogy is so relevant that next time we blame the Government for anything, it is better to take a hard look at our corporates, to see whether we are committing the same sins or not. 

Saturday, November 12, 2011

Assisted Access to e-governance services-will this be its Waterloo?

Corporate and Tax laws/procedures have been significantly modified to allow for e-governance. Some examples are mentioned below
  • All excise/service tax returns must be filed online irrespective of amount etc
  • Significant chunk of income tax returns are filed online 
  • All company law forms/returns are filed online, and payments
  • Many state VAT laws now mandate electronic filing of returns/audit reports/registration
To ensure greater data integrity, the initial mandate was that certain practising professionals(CA, CS,CWA) could pre-certify the filing, using their digital signature. But the issue then rose about accessibility. After all, not all are techsavvy, even fewer have a good broadband connection etc. Therefore, the concept then arose of Certified Filing Centres(CFCs) for both corporate and tax laws, which essentially provide administrative support for filing including scanning, uploading, reformatting etc. The primary responsibility of the filing remains with the filer though. These CFCs may be run by professionals themselves or by private parties.

The Code of Conduct of the respective professional institutes may ensure good quality work by professional run CFCs but the issue is whether this is sustainable? After all, such work does not need a CA to do it, and would result in higher fees than compared to non CA/CS/CWA doing it.

But if one throws open CFCs to persons not regulated by their respective professional councils, then the issue comes about compensation for erroneous filings etc. No amount of security deposit can really suffice, nor can the amount be readily computed. To strike the balance between public interest(lower fees) and information integrity, a good midway could be online checks/validations which would avoid gross errors, as well as random confirmations in case of outlier numbers. This is done for TDS returns, MVAT returns etc, and can be extended to all. I'm sure the IT industry would be ready to help set up and design forms allowing for live validation checks and confirmations. If this is not done, then the inevitable errors when publicized, may lead to loss of faith in the new system

Where familiarity breeds contempt-the case of IT engineers

At the outset, let me clarify my immense respect for those engineers/other graduates who have helped India's ITES companies become world beater. As someone said, success is not an accident, and the ITES industry success is due to excellent skills in management, control, quality, knowledge management etc. While these functions are often siloed, the professionals working in those companies, if having done the work sincerely, do pickup those skills especially disciplined approach, domain expertise etc.

Then why is the apparent bias against them, when it comes to MBA admissions? Read any interview of the Admissions Director/faculty of Bschools, and they all stress on the need for diversity. Now, diversity can be viewed through many lenses(education, gender, experience)-but it is usually boiled down to rejecting male engineers who have worked in ITES. Granted that they make up a large chunk of the applicant pool, but it may be too much of a logical stress to argue that consequentially they think alike, and so should be weaned out.

I must confess to an initial bias that engineers in ITES switching to MBA, were self selecting themselves out of the rat race there, and so 'were not the cream'. This is true for freshers(especially IIT/NITians) where the 'creme de lae' often study abroad or pick up plum jobs post engineering. However, despite that, the ITES guys and IIT/NIT freshers often 'kick ass' the collective derrieres of the others. Is this a reflection of their quality or indictment of the education system is hard to say, but needs some thinking.

Still, I conclude this rant by stating that before passing value judgements on a 'typical' IT guy turned MBA aspirant's CV, we should understand the person's work domain(support/coding/sales..), client work(which sectors), work appraisals(awards, promotions) and quality(say 1yr+). It is difficult because appreciation letters are dime a dozen,something like some army medals/service awards in the USA. But that does not deprive us of the responsibility of taking the time to understand the 80:20 rule to shortlist CVs etc.

Saturday, November 5, 2011

So what are priority sectors anyway?

A careful listener of the annual Union Budget speech(and related commentary/analysis) would hear the term 'priority sector' used(overused?) ad-nauseum, in the context of tax relief, subsidies, soft loans etc. Some known sectors are textiles, agriculture, renewable energy, gems etc. While the rationale for some of these are political like for sugar(powerful barons in Maharashtra/UP) or wheat(powerful farmers in Punjab/Haryana), the reality is that some are prompted by quite logical considerations.  The National Manufacturing Policy of Oct-11( gives an interesting analysis of priority sector, in the context of proposing sector specific interventions. To quote from Section 7 of that document,The priority sectors as identified in the Planning Commission and NMCC papers are:-
a) Employment intensive industries like textiles and garments; leather and
footwear; gems and jewellery; and food processing.
b) Capital goods like machine tools; heavy electronic equipment; heavy transport, earth moving and mining equipment; high technology equipment like telecom, power, ICT and electronic hardware.
c) Strategic industries like aerospace; shipping; IT and electronic hardware;
renewable energy; solar, wind etc; defence equipment.
d) Industries where India enjoys a comparative advantage like automotive; pharmaceuticals.

While the socialist legacy of India politics would explain (a), (b) & (c), the post liberalization budgets have slowly begun to push sectors where India has a comparative advantage viz (d). One would like to believe that the above sectors are favoured for logical reasons, and not just for crony capitalism. Hence, the purpose of this post to try giving some credit to the Govt.

Monday, October 24, 2011

How does Infibeam make money on Pi2?

While browsing the Infibeam website, I noticed that they had launched their new ebook reader with a touchscreen, to rival Amazon's Kindle. They price it at Rs 9999, and give 10 vouchers of Rs 1000 each. Hence, effectively, the kindle seems free. This strategy is not unique having been followed earlier by Gilette(sell the razor and earn money on the blades). A friend tells me that Amazon's Kindle costs over $150. Assuming that Infibeam can manufacture at the same cost(despite India's higher tax and cost structure), that means it would make a 20% gross profit on the same. Given that Infibeam's discount on books is 25%-40%(on average), it would not make more than 15%-20% gross profits on books. So they are effectively giving away their profits and making no profit on no loss on the transaction. So what is going on here? Why would anyone do it? The reason in my view is that
  1. Boosting revenue multiples:-When dotcoms are valued on revenue multiple basis, then there is no reason why Infibeam should not book Rs 20,000 despite the transactions cancelling out each other
  2. Shrinkage:-As any coupon seller knows, not all gift cards/coupons are used. Even taking a 30% shrinkage, that is money directly to the bottomline. And to encourage that shrinkage, Infibeam has
    1. Limited the usage to 1 voucher/transaction=>If an item costing>Rs 1000 is purchased, then the user ends up paying cash for the difference. 
    2. Relatively low limit(Rs 1000) for the voucher
    3. Time limit of 6 months to use 10 vouchers. That implies an order once every 18 days!
    4. Limited book selection of academic/other low profit books like NCERT etc! 
  3.  long term customer value:-Anyone who places 10 orders of books/ebooks is likely to come back for more. This would expand the market and 10orders would increase their faith in Infibeam.
 However, one important disadvantage of this is the potential of misuse for institutional purchases. If I was a librarian, I would order Pi2, and use the infibeam gift vouchers to make purchases which I may anyway have done. So the concept of incremental customer value may be defeated.

Another issue is that are 10 orders enough to make the Indian into a book buyer? Few Indians read, fewer are willing to pay. And the surfeit of pulp fiction costing less than Rs 100 has devalued the category. Would more expensive books cause Indians to pirate them online? On file sharing sites, one can download illegally the latest version of books even costing $5 or less. I think that after exhausting the vouchers, it is optimistic to expect an Indian reader to purchase ebooks rather than download them from filesharing websites.

Anyways, I shall follow this matter with interest, and update you all if I purchase that reader

Wednesday, October 19, 2011

Chemical pesticides, antivirus software, education and medicines-conflicts of interest galore

While analyzing the business models of the chemicals, pharma and technology industries, I began to connect the dots and notice some interesting common threads, some of which I explore in this post.

Chemical pesticides are needed if the seeds are inherently weak or are not able to cope naturally against their pests. Agribusiness companies often produce both the seeds and pesticides, thus sparking an inherent conflict. Better seeds resistant to pests need less pesticides, which affects the business performance of that division. And pesticides ARE likely to be more profitable, because they cannot be reused/recycled unlike seeds(as Bt terminator gene is not widely used in India). of course, there are likely to be be Chinese walls as well as specialized seeds and pesticides companies which will keep a healthy competition-but care should be taken that consolidation sprees does not destroy that.

Similarly, writing robust code slowens the time to market and reduces the demand for anti virus. Why not kill two birds with one stone by leaving known errors, which you can then solve with your proprietary anti virus? A few techie friends of mine accuse microsoft of this.

And while pharma companies do not(yet) sell food, they do sell nutritional supplements of doubtful efficacy. And given the low awareness even among medical professionals of the interaction effects of drugs, cocktails of drugs may cause resistance and other unknown effects, thus boosting the demand for new drugs to combat that issue as well!

Some Indian education majors like NIIT, Educomp, Everonn, EdServ, Manipal Group etc are present/entering into both school/college education and also coaching/tutorials. This begs the question-which segment will be canibalized? Will a good school remove the need for tutorials or vice versa?

In all the above, the risk is greater when conglomerates take over independent and competing businesses. Therefore, having independent focussed players cuts the risk for consumers.

Wednesday, October 5, 2011

Is Kindle the new Napster?

Napster killed the records industry. When customers discovered that they could listen to unlimited music online without being forced to buy bundled tracks on vinyl CDs, they defected en-masse to P2P sources of pirated digital music. Though the records company legally fought back and got Napster shut, it was clear that digital music was an idea whose time had come. Hence when the Apple Store decided to sell most songs for 99 cents, music companies reluctantly joined the party because they realized that the customers had now tasted blood, and would not return to the old system. But despite the 99 cents thing, I can say from empirical evidence of both Indian and foreign friends, that the quantum of pirated music is mindboggling. Students already cash strapped with high tution, rent, mess and other expenses, are most willing to cut their spend(not consumption!) of music/films. Also, going online does make our ethics a bit more elastic. The person who would never dream of stealing 5cents from a blind beggar on a desolated street, has no compunctions downloading media content worth thousands of dollars. Whether it be rock music, Hollywood films(or even Bollywood for that matter), torrent sites and DC networks on college campuses/apartment complexes lead to large scale revenue linkage.

The books industry is quite similar. It also depends on backlists(old content that sells as classics like Enid Blyton, old classics etc) and on blockbusters(Harry Potter, fiction franchises). And given the higher entry barrier for books(literacy, time investment), people saw it worthwhile to spend on physical copies, given that they could use it during the downtime of commuting, breaks etc,. But the disruptive innovation of ebook readers like the Kindle, ensured that now ebooks could be as convinient as books. In metros, the factor of not having to endure traffic jams/long distances for buying books, is a factor. And though online shopping and free delivery of physical books is now a global phenomenon, ebook downloads allow for instant gratification,at prices often lower than physical books. Given that adults are likely to read books at best once(research shows that upto 40% of books go unread!!), ebooks are value for money, and save the space crunch which results from having huge collections of physical books.Not so long ago, children's books were the most expensive because publishers felt that children would prefer the paper and ink version of books. That assumption may no longer be valid. Kids used to their screens(TV, mobiles, PS3) may readily accept a fourth screen. And the Kindle costs just $79(around INR 3900). Infibeam's version of the Kindle costs Rs 9999-but they give 10 vouchers of Rs 1000 each, which are redeemable against purchases of books/ebooks within 6 months. So cost is no longer an excuse to avoid buying an ebook reader. And the high battery life(upto 1 month) and ease of handling makes the ebook readers suited to Indian conditions. And publishers(especially niche books) find that ebooks leapfrog the poor and often expensive distribution chain for physical books.

But as the music publishers found, the costless distribution of digital content is a two edged sword. Any level of digital rights management pioneered so far, has been unlocked by pirates. The publishers have been losing the cat and mouse battle with pirates. Cloud computing may hand the technological victory to the publishers, because they can control and revoke access at any time, and have on the clock information on WHO is reading their content. Still, given the vast ebook piracy which Kindle allows for, it can be said to be the new Napster, for more reasons than one.

Tuesday, October 4, 2011

Few Business systems see genuine goal subordination

Today, I opened a systems textbook and noticed the idealistic definition of system where a set of interrelated and interdependent sub systems, work together to achieve a common goal. And perchance if the sub system's individual goal(s) conflict with the overall goal, then the overall goal takes precedence. For instance, if the company's goal is to achieve maximum profitability, then it may conflict with an Operations Goal of 100% stock-in/Sales goal of 100% client coverage/Production goal of 100% capacity utilization. But it is naive to expect the respective functional heads to bend over and take it, just because of an idealistic sense of honour. After all, if their function underperforms, they can kiss their bonuses/promotions good bye, specially in the pay for performance mindset of today. Hence, controls and systems are set in place to ensure that sub units act as per the invisible hand to achieve overall goals. For instance
  • Top Down Planning:- This ensures that sub units can only plan and execute within the overall boundaries laid down by management, consistent with superior goals
  • Profit Centre and Transfer Pricing:-Profit Centre approach can ensure individual sub unit optimization, but may affect overall margins. That is why transfer pricing sets ground rules and dispute resolution for interactions between units, to ensure that the squabbles do not harm the organization too much.
  • Cross Selling:- An acid test of the extent of integration between sub units, is the extent of cross selling done by SBUs. This metric is important especially for banks. Hence, encouraging cross selling will improve peer interaction, and boost overall profitability.
  • 360 degree appraisal:- If peers have a role in appraisal, then atleast more civil behaviour and bother for overall goals will ensure.
But the best laid plans often fail. Top down planning without a strong internal audit function, often remains a paper tiger. Transfer pricing can be tweaked by smart management accountants, or rendered useless by faulty data/analysis. And cross selling is not always in the SBUs control, and may lead to misselling/fracturing the primary unit client relationships. These things are a reality of life in organizations, and how they are handled often determines 

Sunday, October 2, 2011

Why politicans should make good managers

Those who have studied organization structure(right from Robbins onwards) agree on the pivotal role of organizational politics. To rise to the top level, besides competence and luck, one does need a very good ability to navigate organization politics. In both India & USA, several politicians have strong business interests/affiliations, which often predate their entry in politics. Indian examples are the Reddy brothers of Karnataka, Maharashtra sugar barons, Dhanbad coal mafia, Goa ministers, Jindals etc, while USA examples would cover a large chunk of the House of Republicans. So why does this happen? Below are some ideas
  • Sociologists hold that where people need to divide limited resources among themselves, they start politicking to maximize their share. Whether the arguments be rational('economics'), spiritual('religion'), social('democracy') or by force('muscle power')-politics is the common strain. This limited resources fight is true for organizations as well. 
  • The trend in India is to build a coalition of friends(and a few enemies) to keep out the common foe. These coalitions navigate several minefields, but are the way ahead in India atleast. Even in organizations, the manager needs to coordinate various functions, and have them work in harmony, or atleast work on the coalition model of acting on common minimum program(organization goals). Even outside the organization, the tendency to form alliances is now growing beyond the technological world, and entering areas like auto(Renault-Nissan) and pharma.
  • By playing the divisive politics card of caste/region/creed etc, politicians instinctively know how to divide and rule. This skill would serve them well in organizations, where under the pretext of 'segregation of duties/maker checker concept', different sub units are designed to check and neutralize each other's over reach.

Friday, September 30, 2011

Balaji Wafers-David vs Goliath turned on its head

I recently read on Gaurang Kapupara's blog( about the success story of Balaji Wafers. It did not strike me with much surprise, because I've witnessed this phenomenon during my travels in Maharashtra, Gujarat and Rajasthan. While its competitors(Pepsi/ITC) own the distribution relationship, with Haldiram having the premium branding, Balaji Wafers has carved out a value positioning('cheap at its price' in MBA jargon). And now, others struggle to match it despite their fully depreciated machinery and existing relationships, or maybe because of it.

Another player(Samrat Namkeen) has taken the chips market by storm. While others offer a measly airfilled 35gm potato chips pack, it gives 60gms pack for Rs 10, that too masala flavoured chips. No wonder then, that its stocks run off the few shelfs they are kept on('few' because the price differential is so much that retailers know they will not be able to easily sell the other stock if they keep Samrat).

So what do these teach us? It is essentially conventional marketing turned on its head. These players do not spend(waste?) money on branding, and instead let quality and price do the talking. This was the earlier(non American) way of doing business before the marketing/advertising craze caught on. So will these players remain or be brought out/turn into contract manufacturers? There is plenty of material for a MBA case here, if only people will bother to step out of their ivory towers and smell the roses.

Monday, September 26, 2011

Legalizing speed money-the global trend?

Today, we had a guest lecture by one of India's renowned intercultural consultants, Sreemathi Ramnath( While mentioning the different cultural attitudes towards bribery, she made a distinction between speed money(paying to get your legal right faster) and bribery(getting what you are not entitled too). I dissect this issue further in this post.

  1. Any temple of repute has a 'special darshan' where well heeled(or well connected) devotees can avoid standing in the serpentine Qs, and instead finish their darshan in a jiffy. Initially, this used to outrage me because if devotees are not equal before God, then where else are they equal? Then it struck me that those in a hurry would devise some way to break the Q, and end up enriching the guardians/priests. Instead, this system ensures that the temple grabs that economic surplus. 
  2.  Another example is the tatkal reservation system in trains, which replaced the earlier manual manipulation of reservation charts to benefit those in a hurry. Now, tatkal transparently allocates seats to those willing to fork up that extra bit of money. 
  3.  Even for that citizenship identity(the passport), those in a hurry can pay an extra fee and legally get their application processed faster.
  4. Inventors in a hurry to publicize their patents, can pay the Patent Office an extra fee to get their patents published on a priority basis(and thereby signal their belief in its commercial utility and validity). 
  5. The Ministry of Company Affairs can now approve company formation in less than a day, provided the applicants use a professional to pre-certify the application forms. Granted that the professional runs the risk of penalties and disbarment for wrong filing, but for the most part in routine cases, this provision allows the professional to extract a 'rent' from the company-a refined version of speed money. The applicant pays the professional extra fees, so that the processing is done faster
But then, this practice is not that new fangled. Banks, Photography studios and courier agencies have a hallowed tradition of charging more for faster delivery. The modern science of activity based costing has merely justified this practice, as has another favorite consulting jargon of value based pricing. 
Takeaway:-Try spotting more such practices around you, and do not get pissed off. It is just economic logic-the system captures the rent instead of corrupt people within the system.

Sunday, September 18, 2011

What gets measured gets done-some unintended consequences from poorly designed metrics

Whether as students, employees, business persons or investors; we are measured by, and measure others by, metrics. The standard rationale for that is to use a standardized way to be more ‘objective’. But wrongly designed metrics have unintended consequences 
  • ·         Research/Industry Interface/Foreign experience/Perception being given weightage in B-school rankings encourages colleges to encourage creation of poor quality research, invite industry personnel to ‘sell their company’ on campus under guise of industry interface and market the foreign student exchange as a fun trip instead of an educational experience.
  • ·         The expectation to beat the street consensus EPS was a factor pressuring CEOs/CFOs to cook the books and focus on that metric, to the exclusion of cash flows, profits etc
  • ·         Customer service has been given lip service in Indian service organizations(so ironic that the same outsourcing companies who win rave reviews from foreign clients do not seem giving a damm for their Indian clients), and now the regulators(IRDA/SEBI/RBI) have had to step in. If the investors/regulators/’Best Company Rankings’ had taken this factor into account earlier, surely there would have been some improvements.

So how to get it right? Like everything else in life, this is an art. But some get it right, by aligning the metrics to its strategy. For instance, the premier engineering conglomerate L&T has expressed its intention to divest some subsidiaries by 2015. Hence, the compensation plan of its top executives adjust the reported profits to exclude any divestment gains/losses, which are not wholly decided by them.

Takeaway:- List the Critical Success Factors, find the performance measures needed to address them, and then numerically express those measures as KPIs. And then you MAY begin to get it right. 

Why is the reading habit dying?

·         Expensive books-we are poor(!)
·         School Libaries-in the budget strapped scenario, that’s the last priority.
·         General dumbing down of syllabus-it is possible for State Board students to clear the Std 10 exam(maybe even get a distinction) without having read a single book.
·         Comic Books-the general introduction to reading- replaced by those same comic serials.
·         Reluctance to spend on non academic books-seen as timepass and not worth it even for food. This reluctance to spend on CPE/self development extends beyond books, perhaps because the quality of programs/training is not that good
·         Attention deficit-TV has really reduced our attention span and made us used to instant gratification.
·         Multimedia-books not multimedia. Ebook reader allows colour BUT audio books still quite expensive and presently impracticable
·         ‘Uncool’ since reading associated with being a studious type which teenagers don’t like
·         Parenting-not all literate, nor do all give time to read to their young children(best way, it worked for me atleast).
·         Indian editions out of data(both academic and others).
·         Indian ‘pulp fiction’-Gresham’s law-Wheeler’s stalls as examples-'good' books are driven out by the pulp fiction of today priced under Rs 100(I'm not meaning to sound elitist it is just a fact)

The light at the end of the tunnel
·         Libraries which supplement corporate librarires
·         Libariries on wheels-free home delivery
·         Ebook readers.
·         Comics on mobile/relaunched

Presenting data properly-some dos and donts for power point PPTs

After years of seeing poorly presented data in slides, I thought it was time to design my own.pointers for that. This post is more from the MBA side of me. Comments are welcome. 
·         Zoom in to fit within the screen:- Else within the time you scroll to and fro for making your point, you have already lost the audience.
·         Proper use of decimal rounding-Please do not show stuff like 1.348575 on slides, it really slows down the reader’s pace of comprehending.
·         Color Code cells aptly:- For cells containing key assumptions, results and information, you may like to highlight them for the audience to look at
·         Embedding is fine but check that it opens:- Embedding the spreadsheet as an icon is elegant and good, but test that it opens on the system you are presenting on. Otherwise, it could be a flop show.
·         Stick to slide wherever possible instead of opening workbook:- People have done their homework and should be convinced by your story enough to avoid demanding that. If you can present the key aspects of the spreadsheet as a slide, it will avoid breaking the flow of the PPT.
·         Appropriate units:- As per audience level and background-applies both to unit size(MM/BN/Crore) and currency($/INR)

How CAs are like doctors, archaeologists and other professionals.

A practicing CA and a visiting Prof to my college Prof FCA Gokhale sparked off this thinking with his repeated analogies comparing the medical and CA professions.  That got me thinking to other analogies, and this post was born.
·         CAs and doctors:- A good doctor reads the patients symptoms(indicators) and tacitly elicits information(like management representations!).
·         CAs and archeologists:- Given that a statutory financial audit is on transactions which happened in the past, the CA does not have a time machine to go back and check that everything was done 100% in order. That is why the assurance is ‘reasonable’ not ‘absolute’, and hence the need to triangulate evidence as good archeologists do(carbon dating, historical records, land patterns..)
·          CAs and lawyers:- Despite the abundance of lawyer jokes out there, good lawyers DO exist, and they tell it to the client as it is-merits/demerits of case, chance of winning and cost-benefit analysis. Also, they generally operate on fixed fee irrespective of case outcome. That is what CAs are supposed to do in most litigation support and advisory assignments.
·         CAs and statisticians- Statistics is all about presenting data in its most relevant and useful form. And that is what adds value to plain numbers. After all, any MIS/report is ultimately numbers sliced and diced in a context. And beyond descriptive statistics, the huge data volume and resultant sampling requirement is making CAs master the nitty gritties of statistical sampling, test of hypothesis and other inferential statistics. Ultimately, all audit standards are a fine balance between Type I and Type II error
·         CAs and detectives:- Detectives(as those detective novels/CID/films would have told us) excel in finding patterns and looking for the unexpected. In case of audits, the obvious thing is the final entries/vouchers. But the invisible stuff(non J/V adjustments, cost allocation spreadsheets, computations & recomputations, reconciliations) is often more valuable, as is peer analysis.
·         CAs and historians:- Like many other things in life, financial statements audit is a path dependent process. As generations have discovered(and will doubtless discover in future), those who forget the past are bound to repeat its mistakes. Therefore, the auditor’s permanent file provides some continuity to the audit to record the cumulative learnings/client insights. 

Saturday, September 17, 2011

Are we are slowly losing our ability to think?

During a discussion with my IIM-A strategy Prof Sunil Sharma, in the context of dependence on spoon feeding, he mentioned a very interesting point that we are slowly losing our ability to think. That got me thinking, on several recent events.
  • During the Lopkal bill debate on campus and even outside, I'm sure that less than 10%(even that is generous) people commenting on the issue would have read the bill and its competing versions, to form their own opinions. Yet, everyone and his uncle was commenting and liking Facebook status messages, and demonizing those who did not agree.
  • When asked to submit comment papers/letters on economic, legal, taxation and even public interest matters, the number of individual comment letters are quite few. This is sadly true even for professionals who do not take time out to critically analyze draft documents relating to THEIR work. 
  • The reading habit is dying, in favour of short spurts of concentrated entertainment.
  • During lectures at IIM-A and elsewhere, few people put in meaningful class participation. And even fewer have the temerity to seek clarification/question a Prof or a student presenter. This is true even for public seminars/talks/conferences.
Taken together, this trend is not an encouraging one. Thinking critically is not just for analysts, journalists or others but is for everyone, if they want to avoid being classes as sheeple. 

My ideal professional reference book

    After referring to many books for projects, MBA course work, CA/CMA preparation etc, I think I'm well equipped to comment to how an ideal reference book should be. Hardly 10% or fewer of books I've seen meet even 50%+ of this wishlist.Note that this does not cover books intended merely as textbooks only.
  1. Bridge the gap between theory and practice instead of leaning too much towards one side;-Some industry experts like Taleb critique nearly all academics, while most academics works do not refer much to practice. Hence, a book written by a professional with some academic background(to ensure proper referencing/language use) is often the middle way out.
  2. The 'inaccessible' material like quant stuff is contained in an appendix/online version. This is done successfully by John Hull's landmark book on Options, Futures and Other Derivatives. This reduces the printing cost, while allowing more detail to be put online.
  3. Spreadsheets/Simulations to practice the material, preferably with data also. This may be either on CD or downloadable/playable from webite. I've seen this in OM books.
  4. Downloadable data tables:- Instead of giving the data in PDF/text, how about being brave enough to give that same data(especially economic ones) as a supplement? That would let the student do some checking on his own as to the conclusions. 

Meet the true professionals.

During the past two months, I have interacted with several finance & other experts. While all of them are undoubtedly experts in their fields, few would qualify to be called professionals. And the reasons are manifold.
  1. Right from law firms, accountancy firms, medical practices etc, all have been tainted by the profit motive. Pro bono work is rare, and is given undue media coverage. 
  2.  Earlier the conception of a professional was that of a person who would have service motto as the driver, put clients first due to which profit would follow. But now, under the guise that clients are big boys who do not place reliance in them, investment banks have made a fine art of disclaiming any fiduciary responsibility. Clients have become counter-parties. 
  3. Under the guide of CRM/value based fees etc, clients who cannot pay much are relegated to the background, both quality and availability wise. Or those who work on those accounts view that as a punishment posting. 
  4. The unwritten social compact for professions was that in return for sacrificing some prime years in low paid public service(articleship, rural internship, clerkship), there would be material rewards later. But now, professional aspirants wish to avoid rural medical internship, do dummy articleship or go only for premier clerkships-and still they expect that same level of status/earnings. 
Show me a 'professional' who is content with 'grunt work' and low pay, and I'll show you a liar! But I met some professionals in every sense of the word, who make life better for everyone they meet. The unfortunately small list is below.
  1. Publications Counter guy at WIRC-ICAI:-This guy sits behind a counter and dispenses the ICAI books/material to those who want to buy them. But his job is not that easy. Navigating the byzantinere requests of often non English speaking people, he goes around his work with a smile
  2. Those helping with probono work:- Prashant Bhushan is an excellent example of this, irrespective of what his other motives may be. 

Anonymous blogs-the best way for industry professionals to share knowledge.

During my 2 month summer internship in the Singapore branch of a UK based investment bank, I tried my best to keep myself updated-besides 'on the job updation' of course! Word documents got filled with the notes I had made during my reading, work, leisure etc. But however much I tried, the process of converting rough outlines to blog posts was much harder than it seemed. Putting pen to paper is much easier than putting finger to keyboard! And the reasons are not far to seek. When a person is in the academic domain, he may not have the information explosion of the busy trader/structurer/research person but he has the benefits of

  1. No compliance limitations on what to write(eg-not on companies under live deals) and when to write(not during blackout periods etc)
  2. Lesser egg shells to tread on warily. When a professional writes(specially someone in industry compared to Big4) more so on controversial issues in variance with his employer's line, it does create awkwardness for everyone concerned. 
  3. No fear of divulging trade secrets-practioners must strike that fine balance between revealing enough to establish their reputation/evoke reader interest, but not so much as to lose competitive advantage.
Navigating these 3 limitations takes more time than it seems, For example, during my internship I had strong views on certain structured products. But voicing them openly on a public forum(a blog IS a public forum) would not have been the best thing, and would have been probably prohibited by some fine print nested away in that contract. Hence, those views will probably not see the light of day for quite some time.

An anonymous blog may still divulge 'trade secrets', but in the small world of finance, innovations rapidly spread through clients/pitch book forwarding/grapewine/new hires etc. So the risk of this is lower. An example of an anonymous blog is one on M&A/markets/finance in general( It is quite widely followed. 

The benefits of these blogs are that once the professional is willing to 'come out', he may be deluged with book deals, consulting requests or merely popularity. And for blogs with active commentators(unlike this one!), the author can also learn and refine his thinking. That is why even Seeking Alpha permits this.

Why Indian service businesses need tighter regulation

There was a time when a fool and his money were soon parted, but now it happens to everybody.
Adlai E. Stevenson

If you are a typical Indian, chances are that you have been hit by VAS charges for services you did not ask for, have called 'free entry' contest numbers @ Rs 10/minute, been levied bank charges for patently unfair situations, seen your general insurance(auto/mediclaim) claims contested to the last penny etc. And if you also an investor, then don't even get me started. The charlatans and cheats far outnumber the honest people(if there were any in the first place). While NSE did limit the extent to which the brokers could fleece the public, they found other mechanisms via power of attorney, unauthorized trades, PMS services etc.
Athithi Devo Bhava applies while serving expats from Indian BPOs. But when it comes to domestic service, then customer is the king-in the same way that a joker is the 'king' of the carnival-where everyone pokes fun at him explicitly or otherwise.

Thankfully, regulators(IRDA/SEBI/RBI/CCI/TRAI) are all waking up to this reality and are tightening their regulations to provide for SLA times, escalation procedures, penalties, opt out(do not call registry in telemarketing, explicit consent for levying VAS charges, banking fee prenotification etc).
But there is a lot more to be done in this space. And that is why I have no sympathies for Indian service providers when they bemoan the declining customer loyalty. They have dug their own graves.