Sunday, August 31, 2014

Stock Markets for the Masses of India in a De-risked Manner: The Concept of Social Stock Investment and Trading Corporation of India

There was an interesting article in the Business Standard of August 29, 2014 that those who invested their savings a year ago in three blue chip stocks of India would have seen their net worth double effortlessly by today. These three stocks, Axis Bank, Maruti Suzuki and L&T belong to three different sectors, banking, automobiles and capital goods. Interestingly, four blue chip companies Reliance Industries, Tata Power, ITC and Infosys which belong to four other sectors oil & gas, power, FMCG and IT provided no more than 20 percent growth. All the 7 companies are leaders and blue chips in their sectors but the diversity in growth in market capitalization has been remarkable. A deeper dive in each sector and across sectors reveals that several firms that qualify as blue chip companies have demonstrated similar divergent rates of growth.

Neither is it easy to hypothesize that sector outlook has a greater say than company’s outlook in driving a company’s market capitalization. A study of each sector demonstrates that there is a high variability in the performance and market capitalization of various firms in each sector. This applies to defensive sectors like pharma, forex driven sectors like IT, consumer based sectors like FMCG, economy based sectors like automobiles, metals and infrastructure, to quote a few. Over and above, governance issues in companies tend to convert high growth stocks into either highly volatile or free fall stocks, just in a matter of days. Managing the excitements and pitfalls of Indian stock markets has become a frighteningly hazardous exercise for the retail investors who put their hard earned savings into the stock market with expectations of high growth.
Virtual Reality
Stock market has been the most innovative financial forum that has been established by the business ever. It is the only forum that brings the companies and investors face to face based on goals and performance on one hand and expectations and resources on the other. For the company, it offers a foundation to build market capitalization to attract risk capital into the shareholding structure at the right time and at the right price. For the investors, it offers a forum to participate in industrial growth based on their understanding of the sectors and companies. Over time, with the evolution of mutual funds, emergence of high net worth investors and entry of domestic and foreign investment houses, the domestic small retail investor has become marginalized. Expectations have turned virtual while volatility has become real for the small investor.   
Over the last several years, the level of independent analyses that are available on Indian companies has grown manifold. The number of business papers and investor forums has also grown substantially. With availability of software, minute by minute tracking of individual stocks and highs and lows as well as volumes is available at the click of a mouse to individuals. For those who want to rely on knowledgeable advisors, portfolio managers have emerged. Yet, there is no clarity  if all of these serve to provide greater assurance or insurance to the retail investors. There is no hard research on how and to what extent the stock markets benefit the small retail investors. There is no research on the benefits of investing through mutual funds vis-à-vis direct investments. There is also lack of clarity if the scores of analyst reports that are available are of any help for the retail investor.     
Managing expectations
Over the last several years, many steps have been taken by the Securities and Exchanges Board of India (SEBI) and the Bourses (Stock Exchanges) to protect the investors. These steps focus on improved corporate governance, better regulations for initial and follow-on public offers as well as other equity and debenture issues, more evolved systems for mutual funds, foreign institutional investors (FIIs), circuit filters on regular and volatile stocks, greater oversight on insider trading and operator driven trading, wider public information campaigns and so on. That said, the small domestic investor continues to be vulnerable. Highly capitalized and leveraged companies in high market capitalization mode have seen their stock prices collapse by 40 to 50 times in just matter of days, with no understanding or clarity on what would it take to recover, and when as well as to what level. While such cases may be attributed to tainted stocks or misgoverned companies, it is clear that such companies continue to beat the elaborate financial and securities systems. Even well governed companies are induced to focus on the short term quarterly profitability than on long term sustainability.
Over and above the above, Indian stock markets have become coupled with global economic developments on one hand  and the movements of funds by FIIs and other global investors across countries based on their needs and perceptions. These two factors, including global geopolitical risks, make the Indian stock markets a slippery ground waiting for the unexpected to happen.  Public information campaigns advise the investors to be watchful. However, given the variety of investment options for several hundreds of stocks, the daily masthead news on exuberant appreciation as well as unstoppable collapse of stock prices, lack of knowledge and time on the part of small investors, such well merited advice can only moderate expectations but not prudentially manage them. Clearly, in a growing economy like ours it is important to have healthy and vibrant capital markets with as much investor participation as possible. This blog post suggests some unique ways to manage the all-round expectations with focus on productive wealth generation as opposed to wasteful wealth circulation.  
BRL, like BPL
All said and done, India is committed to an egalitarian society. The several schemes that successive governments have initiated such as ration card systems, subsidized food systems, rural employment schemes, subsidized transport fares, price and tariff regulations and several others seek to help the people below the poverty line (BPL) cope with the stress caused by unemployment and underemployment on one hand and scarcities and inflation in factors of living. Irrespective of party ideology, all leaders and governments in power have endeavored to be creative on this score. While skeptics may dismiss them as populist schemes, it cannot be denied that they help the people in the BPL category.  Inclusive development is the sine qua non of a stable democracy. The latest policy initiative by the Prime Minister of India, Shri Narendra Modi, the Pradhan Mantri Jan-Dhan Yojana (PMJDY) is an innovative and bold step for universal financial inclusion. With a target of opening bank accounts for 7.5 crore families in a year, PMJDY comes as a package of more than account opening. It also offers RuPay debit card, Rs 1 lakh accident insurance cover and Rs 30,000 life insurance cover for accounts opened before January 26, 2015.
Taking a cue from this, this blog post proposes Below the Risk Level (BRL) as a foundation concept for universal capital market investment. Unlike the BPL and PMJDY schemes that reach people directly and are intended to protect the people, any move to make the common man participate in the stock markets directly has the potential of destroying the meager wealth. A risk-proof plan for inducting the BPL population into the capital markets with the assurance of long term capital appreciation would be ideal but has to be carefully developed. Fundamental to that strategy would be the definition of BRL concept. The BRL concept should provide a definitional basis to identify the section of the population that should qualify for participation in the universal capital market scheme. An easy way to kick-start the concept is to define BRL population as those earning a multiple, say up to 10 times, of the BPL earnings level. Such BRL population should be linked to special bank and DMat accounts under the PMJDY.  
Social Stock Investment and Trading Corporation

Social Stock Investment and Trading Corporation of India Limited (SSITC) will be a wholly owned enterprise of the Government of India with a corpus contributed by the Government of India. The corpus would be say Rs 20, 000 (X) multiplied by twice the number of BRL accounts. All those who open the PMJDY accounts and qualify as BRL members would be provided a stock holding of Rs 20,000 in the SSITC, free of cost. The balance corpus would be used by SSITC to invest in Indian companies and trade on them. SSTIL would act as the umbrella stock investment and trading company for all the BRL members. The stocks issued for a BRL member would have a lock-in period of 5 years. At the end of the 5 years, the holding can be sold in part or full but only to another BRL member or to SSITC itself. If the holder sells the holding and the value of the holding increases by more than 1.5 times (base plus appreciation), SSITC would retain the excess over the 1.5X amount and return the 1.5X amount to the holder. The shares of the SSITC would be traded in the National Stock Exchange.
The financial burden on the Government of creating the corpus for SSITC may be reduced by making contributions to SSITC an admissible activity under the Corporate Social Responsibility rules under the New Companies Act 2013. SSITC as an investment arm of the society, for the society and by the society can do wonders in terms of bringing the stock markets within the reach of the masses in a risk free manner. It would be risk free because the original investment is a government subsidy on one hand, and is managed by SSITC as a professional organization on the other. As the SSITC holders get to know the value of their holdings through periodic newsletters, they would be encouraged to invest their savings as additional contributions in SSITC. Such contributions would not have any restrictions of sale, lock-in or retention of excess value appreciation. There would be an expert professional management team to oversee and run the day to day operations of SSITC. Obviously, a lot more thinking and strategizing would need to happen before the SSITC concept can be finalized, including how to consider members who graduate above the BRL.
Markets for masses
India’s two top bourses, NSE and BSE have an average daily turnover of Rs 376,391 crore (August 2014 data) comprising both Cash and Futures & Options segments. It would be tragic if most of the massive trade were to be in the categories of wealth circulation, with wealth erosion for the unwary, completely skirting the masses who do not know the outlines of the stock markets. The SSITC concept with its social objectives can not only bring the stock markets to the masses of India in a risk free manner but also act as stabilizing ballast for the choppy and deep waters of the stock markets. It is hoped that the proposal of bringing the stock markets to the masses of India through the Social Stock Investment and Trading Corporation of India would bear fruition sooner than later.
Posted by Dr CB Rao on August 31, 2014                                   


Friday, August 29, 2014

Advocacy, Influencing and Directing (AID): A Leadership Aid to Aligned Progress

The human race, by and large, is genetically programmed to keep the interests of self ahead of satisfying the interests of the society. Fortunately, civilization has devised, over the centuries, a number of structures and processes to achieve alignment between social and individual interests. Organization is one of the most important structures that are designed to achieve alignment. Goal setting and goal realization is one of the most important processes that are designed to achieve progress. Progress would be optimal when it is achieved by organizations with alignment of all the members of the organization. Several leadership and managerial processes have been designed and practiced to achieve aligned progress. Yet, a successful model to achieve aligned progress could be surprisingly simple in its components though complex in practice.

Advocacy, influencing and directing are proposed in this blog post as the three core components of the aligned progress model. Interestingly, all the three are facets and forms of communication, each of which requires not only a different skill but even more importantly results from a personality type. The Advocacy-Influencing-Directing (AID) leadership communication model is a three step sequential yet iterative process that enables leaders to accomplish aligned progress of their organizations. Advocacy is the ability to argue a public cause or an individual view that could qualify as a public cause. Influencing is the ability to steer a person or group of persons to a particular view.  Directing is the ability to make people execute as per the agreed thought. Clearly, advocacy is a prerequisite for influencing which is, in turn, a prerequisite for directing. When all the three take effect in a seamless manner, aligned progress tends to be an automatic result. Interestingly, each of the three components has different shades.
Advocacy is the espousal of a public cause for a definitive positive judgment. The courts of law and the judicial system are the primary areas of advocacy. In the context of social or business organizations, however, advocacy works two ways. It requires private acceptance of public causes as well as public acceptance of private causes. A couple of examples illustrate. Corporate Social Responsibility (CSR) as mandated by the new Companies Act 2013 in India, or CSR even otherwise commonly understood, is a positive public cause. However, how the agencies of government interpret CSR and how the business organizations perceive their own responsibility towards CSR require advocacy. This is a classic case of a well accepted public cause requiring private or individual advocacy to gain traction. The ongoing advocacy efforts on establishing the new capital for Andhra Pradesh is another example of advocacy of a public cause from multiple angles. The takeaway is that however well conceived or well merited a public cause is, it triggers and requires advocacy with multiple stakeholders in relevant forms.
The example of a private or individual viewpoint gaining a more public or total public advocacy can be had from business. An entrepreneur who has an innovative technical idea or a viable business idea needs to mount an advocacy campaign at multiple levels; with professionals to build his or her management team, with investors and lenders to attract the resources, with governments to secure the necessary approvals, with vendors and channel partners to become a part of value chain, with customers to establish a value proposition, and even more fundamentally with his or her own family members to become an entrepreneur. The strength of advocacy of an individual viewpoint into wider public consensus is the core of entrepreneurship. Even in established organizations, the ‘command and control’ approach has to be replaced by an ‘advocate and influence’ approach if the plural intellectual views have to be harnessed for the best possible outcomes. With advocacy comes the next step of influencing.  

Language being what it is, the word ‘influencing’ evokes both positive and negative connotations, often caused by the interpretative mindsets of the viewer or bystander, and not necessarily of the participants. For the purpose of the AID model, we may assume all influencing to be positive only. Influencing is the way of getting an important constituent to accept the proposed viewpoint. Influencing cannot occur without advocacy. Powerful and cogent adequacy makes the job of influencing easy but not necessarily automatic. To return to our examples, a public cause such as CSR becomes an individual leadership or business cause when the outcomes impact the individual leader or the business in some manner; like, CSR in community education improving the quality of people a firm can hire from the local community. The committee constituted to recommend options on AP capital, Sivaramakrishnan Committee, may advocate decentralized capital(s) model but the AP Government itself may not be influenced by the recommendation. If the Committee also had the powers to allocate financial support to different capital models possibly such advocacy would have led to influence.  
In organizations and businesses too, influence has a capping up role to advocacy. Advocacy, especially for a cause or a change, often challenges established mores and positions. The entrepreneur who advocates his technology solution or business model challenges the status quo and is typically met with skeptical response initially (“if you are novel, what is the guarantee of success”, and “if you are a follower, what is the guarantee of superiority”, for example). When the entrepreneur offers stock options to his or her startup team members sharing his wealth, he or she would be following up the advocacy with positive influencing. In the case of established organizations, the stakes of individuals in established structures and processes tend to be so enormous that they tend to be resistant, if not impervious, to change. A logical extension of ‘advocate and influence’ approach, for example, would be to create organizational or business think-tanks which can serve as forums to pool in diverse thought processes and develop advocacy and influencing choices. These channel the intellectual power of large organizations towards convergence.
At the end of advocacy and influencing processes, the need for directing inevitably comes. Directing, as a process, involves establishing goals and moving the organization towards accomplishment of the goals. In the standard managerial template, the leader is expected to direct. However, that is not the only option in the emerging managerial context. Self-directed management of organizations is entirely possible, especially if the processes of advocacy and influencing have been gone through. In fact, these processes bring in ownership and accountability that makes self-directed management at least as successful as leader-directed management. Organizations can excel in CSR activities through such self-direction. As we may note, self-help groups have been an important success component of the microfinance movement in India. Building of a new capital could be a self-directed effort if the interests of land owners and the capital builders are aligned through a special purpose vehicle (SPV) for ownership.
In organized businesses, managements and leaderships find it difficult to strike the right balance between decentralization and centralization (self-direction and command-direction, correspondingly). Skeptics may wonder the need for advocacy and influencing (or such other participative concepts) if the final need is to direct. This skepticism arises from the inability to appreciate the power of an aligned individual. Truly entrepreneurial organizations are self-directed organizations that clock rapid growth on a number of fronts. Large organizations and businesses should establish several incubators for business ideas and technology solutions, and follow through the successful ones with business units. Yet, many firms would be reluctant to adopt a diversified federal structure until the whole monolith becomes completely unwieldy and unviable. The AID model of leadership communication would result in aligned progress of societies, organizations and businesses.
Aligned progress
Certain minimal factors support progress of organizations and businesses as well as of societies and economies. The issue is whether the full potential of an organization or a business is reached in such routine ‘lowest common multiple’ manners. Despite the anecdotal evidence of weak strands of thread when intertwined forming a strong rope, the powerful impact aligned progress can have on enterprise activity and outcomes is not fully appreciated. Aligned progress typically gets viewed in a gross manner than in a subtle way; for example, a common slogan that is accepted by all or a common brand that is related to by all is considered good enough reflection of alignment. In a conglomerate setting all constituent companies buying each other’s products may also seem to be aligned development. True aligned progress, however, gets accomplished based on advocacy of the best causes or ideas, influential stakeholder participation and self-directed management of affairs.
The concept is not necessarily an inversion of the classic pyramid of power; nor is it an abandonment of the concept of organizational pyramid either. On the other hand, it is a unique pyramid which has three sides of advocacy, influence and direction converging into pivotal power. Just as there can be no pyramid without three sides aligned progress cannot come about without these three planks. It is a sequential and iterative interaction between the three aspects; the leader at the helm needs to be an advocate, influencer and director – all rolled into one. The issues to advocate, the outcomes to influence and the efforts to direct would constitute a holistic communication competence for the AID leadership communication model. In their heydays several topnotch business leaders of India could achieve unique combinations of advocacy, influence and direction for their enterprises with aligned progress for them. Dr Homi Bhabha for BARC, Dr Abdul Kalam for DRDO, V Krishnamurthy for Maruti Suzuki, N R Narayana Murthy for Infosys, Azim Premji for Wipro, A M Naik for L&T, Dhirubhai Ambani for Reliance and Ratan Tata for Tata Group are just a few examples.
Posted by Dr CB Rao on August 29, 2014



Wednesday, August 27, 2014

Less and More as Combinations: Intriguing Contextual Connotations

An interesting life mantra is that we should achieve more with less. The entire productivity paradigm is based on achieving higher output with lower input. The ratio of output to input is defined as the efficiency index. A criticism of this simple approach has been that it does not integrate other tangible parameters as quality and other intangible dimensions such as esteem. The simple model can therefore be expanded to integrate such tangible and intangible factors both on the input and output sides. Despite doing all that, the ratio tends to be one of output to input, with a higher index meaning higher efficiency or productivity. Another alternative critique has been that efficiency by whatever way measured is not the whole thing but effectiveness is!

If efficiency is the way of doing something well with no waste of time or resources, including money, effectiveness is producing a result that is wanted or intended. Efficiency and effectiveness may exist independent of each other but together they ensure competitiveness. Effectiveness is achieved when one is clear on the intended or desired result, understands the inputs required to achieve the outcome and deploys them in the right manner. If ‘less is more’ exemplifies the efficiency mantra, ‘right is right’ probably reflects the effectiveness credo. That said, life is more than efficiency and effectiveness. ‘Less’ and ‘more’, the defining blocks of any effort or result, have contextual combinations with interesting and intriguing connotations. This blog post considers some of these, as useful pointers for life journey.   
It is not necessarily true that less would need to be more. We know that only a small percentage of human brain is typically used for human faculties and actions. If only the humans are able to use more of their brains (no pun intended!) the human race as a whole would be more accomplished. There are operations, occasions and transactions when more tends to be more. For example, a higher load factor means higher profitability to an airliner. An event of celebration generates more happiness with greater attendance. A higher investment transaction, judiciously made, should generate higher returns. These truisms do not necessarily mean that the less is more efficiency paradigm is inappropriate; on the contrary, it is still appropriate and both approaches are synergistic. Any airliner would be more competitive if it is able to carry more passengers (more load factor) with less number of aircraft. Such proportionality may not work out in other two examples, however.
Rather than consider that less is more and more is more are intuitive or counterintuitive, one may hypothesize, therefore, that there is a contextual dimension in all these relationships. The context depends on the entities involved in any interaction. The nature of entities and the nature of relationship often determines how less and more interact in terms of accomplishment. As a general principle, one must have the ability to use more of one’s faculties. There is, however, little point in deploying excessive intellect of repetitive minor or mundane matters. To understand the contextual nature, we may appreciate that for any activity there would be a trigger and a receptor or a provider or receiver. A 2X2 matrix of less and more would provide contextually meaningful frameworks to conceptualize and analyze internal and external interactions for optimal outcomes.
Value arbitrage
In every interaction, there is a possibility for the giver to give less or more; equally for the receiver to receive less or more. There is thus a 2X2 matrix possibility in every transaction. We can see the power of this concept by way of a few illustrations. A Guru just needs a short profound verse to convey its deeper meaning to a group of accomplished sishyas. The same guru would need to annotate and explain in detail if the sishyas are first time learners. There are therefore situations when the giver needs to modulate between less and more depending on the receiver. Whether the giver gives more or less, or the receiver receives more or less depends on the nature of the entities. While ideally less should lead to more there would be occasions when more would lead to less or more would need to be provided to achieve the maximum, or even the very minimum.
In every interaction, there would be a perceptional, and at times real, arbitrage. An intelligent student may think that an hour of study is less important to him or her than it is to a less intelligent student, and may therefore while away time. But as a unit, time has equal importance to both types of students, albeit at different levels. A rich man may think the a hundred rupee note is less valuable to him than a thousand rupee note and may feel inclined to donate the former than latter. However, for the charity that receives the donation while the hundred rupee note is more valuable in its hands than in the rich man’s hands, the thousand rupee note helps the charity more than proportionately in its objectives. While there is a perceived value arbitrage, more fundamentally there is only a value exchange in the transactions. Dysfunctional economies are characterized by huge gaps between perceived value arbitrage and real value exchange.
True value
Every transaction or activity involves value exchange. When an unknown person asks and pushes the right lift button for another person in the lift and the other person thanks him, there is a value exchange. A lecturer teaching the students may seem to reflect a transaction of knowledge transfer for a salary. However, the lecturer derives value from the record of teaching students over time, getting challenged with new questions that prod him to gain new knowledge. A student may seem to reflect a transaction of getting taught for a fee to the institution. However, the student derives value from the experience of learning with other students (ie., in an ecosystem) and the learning of a behavior pattern besides the subject. The point is that in addition to any product/service or money exchange that occurs in any transaction there is inevitably an embedded value exchange.
In a competitive world, the monetary levels of a product or service are set by the level of competition. Products and services are offered discounts. When a product or service is offered at a lower price, it is considered a value for money for transaction. However, the true value that is embedded is neither the discount nor the money saved; rather, it is the value accrual that takes place for the buyer through the saving of money. For the company that offers a ‘value for money’ product, the true value that is embedded is neither the additional sale or additional market share achieved; rather, it is the value accrual that takes place for the company through better sustainability of business.  The true value for the economy lies in the improved domestic savings and enhanced business sustainability. The need, therefore, is not a blind perception that less is more but that multiple combinations of less and more are value accruing.
Less and more
In transactions, the giver can provide low or high effort. The receiver may receive low or high value.  There exist four quadrants: Low Effort – Low Value (LELV), Low Effort – High Value (LEHV), More Effort – Low Value (MELV) and More Effort – More Value (MEMV). Of these, LELV and MEMV represent the rule of proportionality intuitively. MELV quadrant is clearly an unacceptable quadrant while LEHV is the most desirable quadrant. The entities (givers and receivers) could be businesses and societies, businesses and customers, businesses and businesses, businesses and governments, governments and societies, and so on. They can even be the internal self and external person, even within an individual. There are contexts in which the true value moves across the quadrants. The typical journey is from LELV in the startup phase, to MEMV in the growth phase, to LEMV in the maturity phase to MELV or LELV in the decline phase.
The conceptualization, analysis and management of product life cycle or business life cycle that governs business development must be based on true value analysis. Driving numbers, either of investments or of revenues without regard to inherent value that is generated and accrued would lead to sub-optimization. Business strategies and/or functional strategies such as marketing strategies, talent or manufacturing strategies must look beyond value arbitrage and focus on exchange of true value between entities. Perception of true value increases stakeholder loyalty and makes the wait for successive generations of development exciting and rewarding. The relationship between successful alumni and prestigious alma maters is an excellent example of how embedded value exchange continues to provide lifetime value alignment.  
The ability to calibrate effort and value is an important characteristic of development psyche, individual or institutional. Typically, the life of a product in use is a multiple of the time span put in the development and manufacture and delivery of the product. The life multiple is a function of the true value embedded in a product. The higher the true value, the faster a product moves into the LEMV quadrant and the longer it manages to stay in the quadrant. True value would be a better metric to judge the worth of a product strategy than the compression of time to develop. The principle holds good for individuals as well as institutions operating in the respective ecosystems, or the products and services they generate and offer to the ecosystems.     
Posted by Dr CB Rao on August 28, 2014          



Sunday, August 17, 2014

Economic Independence of India: Need for Multiple Regulators, Three Missions and Three Objectives

As India celebrates the season of sixty seventh anniversary of Indian Independence, there is a new hope and aspiration, which is reflected by the President Shri Pranab Mukherjee who said in his customary pre-Independence Day speech, that the twenty first century belongs to India. The Prime Minister, Shri Narendra Modi, reinforced the message while unfurling the national flag at the Red Fort on the Independence Day with a call to make India strong with economic growth and social equity. A cornerstone of the new aspirations will need to be economic independence for the country. This has a connotation greater than non-independence on economies of other nations. True economic independence means the emergence of a policy structure that rests on the logic of economic growth and social equity than on dogmas like self-reliance or maximizing foreign direct investment (FDI).

True economic independence happens when every adult in every family has a productive and earning job, whether through agriculture, manufacturing or services. The Prime Minister has given a number of inspirational slogans ever since he took office; these could verily serve as credos of development for a New India. Some of these are; ‘Skills, Scale and Speed’, ‘Per Drop, More Crop’, ‘Minimum Government, Maximum Governance’, ‘Come, Make in India’, ‘Zero Defects, Made in India’, ‘Reduce Imports, Maximize Exports’, ‘Zero Defect (of Product), Zero Effect (on Environment), and other exhortations are reflective of Modiji’s passion to develop India as an economic power. To these, if ‘Zero Unemployment, Productive Deployment’ gets added as the exhortation that is translated gainful realization through tangible action it could lead to micro level wealth creation. The issue with economic development is that there tend to be no easy solutions. A holistic approach is needed to make things work for true economic independence.
From licensor to regulator
One of the first tenets of economic liberalization of the 1990s was that licensing stymies industrial and economic development. The two decades of liberalization has demonstrated how unshackling of industries and businesses can lead to unleashing of growth. Two caveats are, however, necessary.  Firstly, growth cannot be fuelled only by continuous removal of licenses or liberalization of investment caps. All said and done, there would continue to exist sectors of strategic importance where licensing or investment controls would be in play. Barring a few such strategic sectors (defence, multi brand retail, railways, insurance and banking, oil and gas, mining, for example), all the rest are probably free of licensing and investment controls but are still anemic in growth for various reasons. Secondly, free market economy does not by itself guarantee non-cartelization nor does it by itself prevent exploitative economics (real estate, for example). There must be an oversight role for the governments, particularly in a huge democracy like India where the disparities in wealth, education and health are three of the most galling pain points.     
At a conceptual level, the governments must move from being licensors to regulators. Regulation commonly is seen as taking care of customer interests through good business practices including pricing. Truly effective regulation goes deeper, with an approach and guidance that ensures quality, innovation and competitiveness. Each of this is an important parameter that must be defining in its essence. National regulatory bodies should have expertise to monitor how various industrial and business sectors are performing in terms of the three parameters and periodically issue guidelines, rules and regulations to course-correct the erring or sub-optimized industries. Regulators, who will be industry specific need to matrix with three pan-industry commissions on each of the three parameters mentioned above; quality, innovation and competitiveness. Three national expert commissions can be conceptualized as discussed below.

Three national missions
Quality, of the product and process, is the key to make India global manufacturing hub. From a situation where the quality standards are derived from the developed world, India must be able to set global quality standards. Looks unbelievable? In the 1950s, setting global quality standards appeared infeasible for Japan and in the 1970s for Korea. Yet, today Japan and Korea lead in quality. Why not, therefore, India? If the Indian industry and talent pool is seen to deliver quality, India would automatically become a global manufacturing hub. For that, the existing base must be developed to reach and set higher standards of quality. A National Quality Mission would be well in order.
Innovation, of the product and process, is the engine of growth. Innovation leads to new products and processes as well as continuous improvement in existing ones. Innovation is commonly seen as a result of research. However, innovation, as with quality, is a matter of mindset. An inventive mindset is required to foster innovation as much as laboratories are required to convert ideation into innovation. For a resource scarce country like India, innovation lies in doing more with less; for example, more crop per drop. The ability to identify sources, uses and forms of innovation is a characteristic of successful nations such as Japan and Korea. India requires a continuous scan of product and process landscape to drive innovation; a National Innovation Mission would help.   
Many times, competition is misconstrued as competitiveness. Competition is simply presence of more players in the industry, which it is hoped will lead to each firm excelling over one another offering improved products or services to customers (it is a hope, not a given!) . Competitiveness, on the other hand, is the ability of a company to excel over the others in the industry in terms of products or services to the customers (it is a demonstrated competency, not a hope!). Mere competition, however high it is, does not guarantee competitiveness; in fact, excessive fragmentation affects viability. Indian airline industry and domestic pharmaceutical industry are examples. Competitiveness builds on quality and innovation with management and leadership processes that assure business growth and sustainability. A National Competitiveness Mission would identify appropriate technical and managerial perspectives.

Three national objectives
There are three beliefs that inhibit the genuine embedding of the three principles of quality, innovation and competitiveness in emerging economies, and these need to be countered by the three expert missions. The first is a sense of false correlation between the product level and quality level. It may be presumed, for example, that a Mercedes Benz E series car is one of higher quality than a lower end popular car. Such thinking leads manufacturers and consumers equate specifications with quality, which is not necessarily right. Each product needs to be designed, manufactured and delivered with a purpose in mind, and quality represents fitness for the purpose as expressed through specifications. The functionality, design principles and quality levels form a total ecosystem, which must be continuously elevated. Whatever be the level of product, the level of quality cannot be compromised. A smart phone and a feature phone are both bound by respective quality parameters as would a blacktopped road and concrete road would need to be. The National Quality Mission would need to embed Quality as a national mindset.    

The second is a belief in generational lag, in products and processes, and in social and industrial infrastructure, almost as if it is a matter of destiny for emerging economies. Domestic governments and consumers as well as foreign investors and corporations believe that the latest technologies must first get embedded in the advanced countries before they can be offered, developed or manufactured in an emerging nation. As a result of this belief, which is driven by technological protectionism of innovating countries and the economic weakness of follower countries, emerging nations tend to be in a perpetual catch-up game in respect of innovation. The National Innovation Mission must continuously explore where, why and how India should leapfrog in innovation rather than be just content with followership.
The third is a belief that competitiveness is a firm level concept, and government has only fiscal policies to improve or reduce competitiveness. As Porter’s study on comparative advantage of nations showed (Michael E Porter, The Competitive Advantage of Nations), certain nations tend to become good, and internationally competitive, in certain industries or businesses relative to others. Governments in India, Centre and States, can integrate infrastructure developmental initiatives with industrial development initiatives as well as social development initiatives to generate competitive advantage at firm level and comparative advantage at national level. The freight corridors that are being developed with Japanese investment could be combined with Indo-Japanese industrial clusters and social communities that provide free flow of technologies and goods and services between India and Japan. The same could be accomplished in multiple manners with multiple nations, in diverse product lines. The National Competitiveness Mission must analyze and integrate the several public, private initiatives to generate national comparative advantage.
Challenges as opportunities
Modiji has exhorted to minimize imports and maximize exports. India imports 80 percent of its crude requirements. India also imports gold, and most of the sophisticated plant and machinery for a wide range of industries. It may therefore look impossible to minimize imports. However, if value added export platform is adopted as the basis, all imports can be exported as value added products; for example, gold as ornaments, and even crude as diesel and petrol, at least to the neighboring nations. Sophisticated plant and machinery may be assembled at site with local content rather than imported as complete built units. This, in turn, requires confidence that the Indian industry is at its pinnacle on quality, innovation and competitiveness.
Skill, Scale and Speed have helped China achieve exactly this, as Shri Narendra Modi aptly observed. China’s acquired expertise in telecom gear, smart phones, fermentation and bullet trains are striking examples. For India to be up to speed on this platform, governments and industries should backward integrate to the fullest extent, in a complete sense. There is certainly utility in indigenously producing new generation products even if in imported equipment, compared to import of the products. However, the full utility accrues when the equipment is also indigenously produced. India, a nation of 1.3 billion people, has now global scale demand levels for a range of products and, therefore, for plant & machinery for such products. It requires holistic planning and execution to recalibrate India on a global scale. The paradigm of industry specific national regulators, and quality, innovation and competitiveness specific national missions have the potential to help translate all of the Prime Minister’s powerful principles into national wealth with social equity.
Posted by Dr CB Rao on August 17, 2014

Sunday, August 10, 2014

KBC/MEK Paradigm: A Knowledge Game Show for Prizewinning or a Digital Platform for Social Reengineering?

Most Indians know “Kaun Banega Crorepati?” (“Who Will Become Crorepati?”), or KBC, as the pioneering and highly popular knowledge based reality game show, in Hindi and English, that inspired millions to compete for the hot seat and to aspire to win the Rs 1 crore prize money (initial stake, now getting increased to an astounding Rs 7 crore in the seventh season, and in the forthcoming eighth season)  to fulfill their life dreams. The show got completely identified with Big B, Amitabh Bachchan, despite Shahrukh Khan hosting a midterm series, and despite a four year holiday. Whether KBC transformed the lives of the prizewinners, it sure did transform the image of Amitabh as the master showman as a person of elegant intellect and touching emotion. While the excitement of climbing up the ladder of questions with the three lifelines in tow was exciting, the connectivity and rapport which Amitabh established with the participants and the audience alike was a delight to watch.

The Telugu version titled “Meelo Evaru Koteeswarudu?” (“Who Will Become Crorepati Among You?”) started to be aired from June 9, 2014 as a forty-episode version with Akkineni Nagarjuna donning the role of host that  Amitabh played in KBC. Pre-telecast, there was skepticism about the show’s nativity for the Telugu population and Nagarjuna’s ability to measure up to the historic benchmark set by the mighty Amitabh. However, as the MEK show closed its first season with its fortieth episode on August 7, 2014 it became evident that MEK was no less popular than KBC, and Nagarjuna became no less transformed and transformative than Amitabh was. In addition, its translation into Telugu nativity was perfect and the connectivity with the Telugu audience was instantaneous.  For students of social engineering, however, MEK offers several interesting insights and corresponding hypotheses.  Five of these are discussed below, with some suggestions for making this knowledge based game show an instrument of micro level social entrepreneurship.
Human touch
MEK demonstrated that if the basic DNA of any show is emotional as well as intellectual the show can transcend all barriers of geography. After all, KBC itself was an adaptation, with a significant Indian emotive touch, of the popular UK game show “Who Wants to be a Millionaire?”. The objective of any product or service is to fulfill the human needs. Human needs have two integral parts; one of rational need (influenced by knowledge and logic), and the other of emotional need (influenced by belongingness and empathy). MEK went one step ahead of KBC in unraveling the rational and emotional experiences and goals of the hot seat participants. The MEK show could succeed in bringing out emotional aspects of the show by focusing on humanism without unduly leveraging the materialism of the prize money. This sensitivity brought the show close to an initially skeptical audience. Social engineering through a product, service or a host is possible only when the human touch is understood and embedded in them, and is manifest in features.
Hope and determination  
It is more than a coincidence, in fact a clear pattern, that the story of each participant in the MEK show has been one of hope and determination. Irrespective of the contemporary status of each participant, it was clear that all of them faced some very serious odds in life, and most continued to face more challenges for future; yet, all demonstrated remarkable grit, courage and hope to overcome the difficulties. Some of them had their near and dear in financially, physically or medically challenged state but each was determined to work for their benefit as much as for their own. There were participants who moved up the ladder from humble beginnings to reasonably settled jobs but none lost sight of the difficult past. The common thread is that a combination of hope and determination makes life. Hope without determination is facile while determination without hope is purposeless.
Social entrepreneurship
It is well understood that entrepreneurship holds the key to rapid and sustainable economic growth with social equity in India. It is, however, not so well understood that many Indians, contrary to the perception that they are risk-averse job seekers, have an entrepreneurial spirit, and that a socially inclined one, in them. Some participants in the MEK show were already self-employed while almost everyone desired to set up a socially relevant entrepreneurial venture if they were to win a substantial prize money. It also transpired that those who underwent troubles experienced firsthand an aspiration to create their own little ecosystems that could educate and train people or establish businesses and services. The spirit of social entrepreneurship was palpable here even though the prize money stakes were less than the KBC stakes. This emphasis on social aspiration contrasts with a somewhat excessive emphasis in the KBC show on the size of the prize money.  It was interesting to perceive that a combination of life’s challenges and personal skills provides the right motivation to set up socially responsible entrepreneurial ventures.
Professional rebirth
The adage that nothing succeeds like success is typically validated by great corporate or leadership achievements. This adage is true at a micro level as well. In fact, many participants found a distinctive confidence and a unique motivation as a result of participating in the MEK show successfully. Umakant was a participant who knew all the answers, together with the entire background, even before a question was read, so much so he earned the sobriquet of Acharya Umakant from Nagarjuna. He said that despite his hard work he never got a chance to prove his worth, and finally the MEK show helped him establish his competence; he gratefully said that he was reborn because of the show. Similar has been the experience of another intelligent and sharp participant who lost his confidence due to a head injury; the very fact of his being in the hot seat demonstrated his alertness and acumen, and to boot Nagarjuna could extract a promise to rediscover his confidence. Clearly, certain landmark competitive or successful events can reinforce one’s confidence and propel one to greater heights.
Leadership transformation
Prior to KBC, Amitabh was a national hero within the shade of the past ‘angry young man’ image. The failure of business ventures and an inability to manage the generational transition in the 1990s took some sheen of his image. It is to the credit of Amitabh that he could utilize the KBC game show vehicle that started in 2000 to bring out his histrionics, knowledge, emotions, humility and empathy as a unique personality of intellect and emotion that connected with not only the participants but also millions of households. Like Amitabh, Nagarjuna had a distinct screen presence, relative to the Telugu film industry. Nagarjuna, a generation younger than Amitabh, started as an ‘angry young student’ in movies and consolidated as a boisterous mass hero with evergreen characteristics but also blossomed with unexpected histrionics in religious movies. As seamlessly as Amitabh, Nagarjuna could acquire the shades of an emotionally intellectual showman, with a homely television presence that is distinct from his screen image, playful or devout. Leadership, it would seem, is contextual, and adaptive leaders can build on their latent competencies to transform themselves contextually; leadership rebirth seems to be entirely possible and feasible.
Digital social reengineering
A successful TV show is, at best, seen as a string of episodes that momentarily transports audience each specified time of the day to think differently. As the analysis on KBC and MEK in this blog post demonstrates, certain reality shows that combine intellectualism and compassion under a voluntary experiential canopy of social awareness are much more than just successful TV shows; they have the right ingredients for mass social transformation. There are five distinct lessons for social development which must be grasped. Firstly, from governance to business, human touch must prevail in all product, process or service delivery. Secondly, good times, and better times, will come only with hope and determination. Thirdly, most individuals, especially those who came up through troubled times, can evolve, and re-evolve, as natural leaders for social entrepreneurship and social reengineering at micro level. Fourthly, competitive successes are opportunities to rededicate oneself to professional rejuvenation. Fifthly, given the right challenges and opportunities, leaders adapt and transform themselves to be inspired themselves, and inspire others.
Digital communication through media impacts millions of minds on a 24X7 basis. If positive messages are conveyed through entertaining and engaging shows, anchored by inspiring icons, they become integral to life journeys.  If the digital power and imaging is constructively channeled, knowledge and achievement based reality shows can become truly mass movements which can convert a normal society into a knowledge society and create wealth and wellbeing with social entrepreneurship. Siddhartha Basu, the iconic quiz master of India and the force behind the KBC/MEK shows has demonstrated how intellect can lead to engagement and how knowledge with emotion can not only mean good business but also transform lives. A few incentives from the promoters of the shows as well as from the governments could take forward the concepts and unleash creative social energy. Siddhartha Basu, himself, can evolve from being an intellectual authority and a successful businessman to a knowledge developer and social transformer.  
The knowledge game shows can be social game changers with the following few tweaks. Fundamentally, the game shows should be seen as social entrepreneurship ventures which are inspired through individual aspiration for intellectual and material development. The games should have socially inclined sponsors so that the prize corpus is significantly enhanced. The prize money in lower bands of Rs 1000 to Rs 80,000 should be significantly enhanced, and that in the Rs 160,000 to Rs 1 crore band doubled so that more money is deployed in the hands of prizewinners. Rather than scale up the apex prize to astronomical levels, the corpus must be deployed to generate as many lakhpatis as possible. The prize money should be exempt from taxation if the money is invested in social entrepreneurship. The KBC/MEK organization must maintain a registry of the winners and their ventures so that more sponsors can support such ventures on an ongoing basis. The show formats can themselves be made in all the Indian languages and in each region anchors like Amitabh, Surya and Nagarjuna should take up this as a developmental mission. KBC/MEK paradigm with its intellectual and emotional engagement, and with social passion and entertainment quotient, can uniquely engage individuals, families and societies in India’s knowledge based social reengineering.   
Posted by Dr CB Rao on August 10, 2014     

Sunday, August 3, 2014

Short Term Versus Long Term, and Other Distinctions: The ‘One Horizon - One Domain’ Concept

From the 1950s till now, long range planning, also called strategic planning, has been serving as a prescription for growth. The concept has become so ingrained in organizational psyche that potential managers and leaders are expected to acquire, develop and demonstrate skills for crafting and executing strategy over a long career span. Superimposed on this is the ability to visualize a future and channel the strategies towards realizing this future. This has percolated to individual domains too with the responsibilities and competencies for operational management and strategic management becoming differentiated. In terms of understanding managerial and leadership processes, the distinction has become, over the years, rather sharp. The long term is seen to require strategic and planning approach while the short term only tactical and execution approach. Extending the philosophy a bit, it is believed that if one has a good long term plan and executes as per that in the short term, the job is done.

This approach, good for most parts, has a few unanticipated consequences. Firstly, the separation of execution in the short term and planning for the long term weakens the feedback and course correction loop. Secondly, the differentiation of long range planning as an annual, fixed period exercise and short range execution as a daily routine actually disconnects the perspectives. Thirdly, the differential approach makes the young professionals, scientists, technicians, who constitute the young talent base with fresh thinking and new knowledge, mechanical and controlled in thinking. As a result of these deficiencies, the intellectual and leadership wealth of the organization tends to get sub-optimized. Merging the paradigm of planning, long range and strategic, with the paradigm of execution, short term and tactical, is a challenge; the differences of approaches and skill sets between the two paradigms would still need to be maintained for orderly planning and execution. This blog post tries to separate the fiction from facts between the two paradigms and explores ways to optimize the wealth of talent through three optimized organizational processes.
Definitional optimization
The differences between what constitutes the long term versus the short term or the strategic versus tactical, or even planning versus execution are relative. Even in a steady state industrial and economic environment, technology shrinks or extends these definitions significantly. With regulatory changes and environmental volatility superimposed, the irrelevance of the long term plan to the short term and the relevance of the short term to the long term become highly pronounced. Let us take the example of the Indian airlines industry. The top national carriers (except possibly IndiGo) have posted a combined loss of USD 1.7 billion (Rs 10,201 crore) in 2013-14 and are expected to post another huge loss of USD 1.4 billion (Rs 8,408 crore) in 2014-15. In fact, the cumulative losses of the industry over the last seven years have hit a staggering USD 10.6 billion (Rs 63,633 crore)! It is estimated that the ailing firms require an immediate capital infusion of USD 1.6 billion (Rs 9,610 crore) just to stabilize operations.  No wonder that the long range plans of all the ailing (and possibly non-ailing) firms are anchored under external capital infusion on one hand and cost reduction with operational efficiency on the other.
Even before the ink could dry on the plans, news is out that AirAsia has launched its operations and Tata-Singapore Airlines would launch its operations in October 2014. Tougher still, six new airlines have also been given approval to fly by the new Government. Stable oil prices become volatile with every geo-political crisis. Rupee value becomes unpredictable every equity cycle. On the positive side, a resurgent India could see the development of at least 25 new international airports and 75 new domestic airports, and a helpful Government may just provide a relief in terms of tax burden.  Clearly, the airlines industry cannot rest on long range planning of conventional mode; it would need to make a long range plan possibly once in a quarter or each time there is a material change. This is a perfect example of the short term being more relevant than the long term and the long term getting secured with the short term. Many other industries are witnessing the need to merge short term and long range approaches rather than separate them.
Talent optimization
Today’s talent is commonly judged on a variety of skills; technical skills and communication skills, hard skills and soft skills, conceptual skills and analytical skills, to name a few. More important than all of these, which will be present in one measure or the other, are two sets of skills or competencies which are hard to get. The first is the ability to see a firm’s value chain on an end to end basis, and appreciate the impact of the value chain on one’s role, and vice versa. The second is the ability to understand the relationship between short run performance and long run plans of a firm. Typically, it is felt that these two skills of critical thinking get developed with experience in an individual. If this were to be true, the tendency to separate short term delivery and long term planning under two sets of talent pools (for example, front level executives and senior level managers, respectively) would only deny further the opportunity for frontline executives to acquire the two critical skills. In addition, the separation of (only) doing as the (sole) responsibility of front line executives and (only) planning as the (sole) responsibility of senior managers serves to delay the development of such critical skill in young professionals.

At the firm level, opportunity to promote the ability to perceive end to end thinking and think of short term and long term simultaneously helps organizations develop the intellectual capital of a firm better and make the firm more competitive. A marketing executive who is trained to understand the design connectivity will be able to relate customer feedback to potential for product improvement. In fact, without end to end thinking approach, the executive may even fail to observe a whole sweep of market triggers. Similarly, the executive who understands how easy or difficult it is to remove costs of a component would understand if a particular product design has reached the end of life, or there is potential to extend the product life cycle with a next generation of product. In addition to the above tangible benefits, the nurturing of creativity that takes place results in an overall creative organization. This requires that senior managers and leaders make it a point to integrate the short run execution and long run planning processes, and to promote value chain thinking.
Technological optimization
Technological change is profound but essentially continues to be incremental. Optimizing rather than accelerating technology holds the key to ensuring that short run product plans stay on for a longer term in a company’s life horizon. When the progress of product design in an industry, be it automobile or computer, is reviewed over a long period, say over two decades, one would be puzzled that the changes that looked major improvements each time look merely incremental over a longer time span. As an example, minimization of bezels in a phone or tablet to  provide greater display size within the same form factor is not a rocket science discovery but it took close to ten years and an LG G3 to take it to perfection (and Apple is yet to get that)! With the rapidly growing popularity of ‘selfies’ it again is not breakthrough thinking to incorporate high performance front cameras (equal in capability to rear cameras) in smart phones, yet only one or two phone models go beyond 2 MP front cameras!
Like with the other two thought processes discussed earlier, technological optimization is a matter of mindset. It requires a mindset to think of all technological features in a totalistic manner and get the best of the technology package. This requires that every member of design school understands the limits to which each sub-technology can be pushed and how such frontier-testing technologies can synergize themselves in combination. A light weight gearbox and a fuel-efficient engine, cannot, for example, be effective on a chassis with high tare weight. A light weight suitcase need not skimp on multiple sub-folders just to drive down total carried weight. Managers and leaders must go all out to give out the best technology package each time rather than hold back available knowledge for future use. Delayed deployment of technologies could, in fact, be counter-productive. ‘Develop now - deploy later’ has never been, and will never be, a winning proposition in techno-commercial thinking; in fact, it has proved to be counterproductive as being ‘too little - too late’.
One horizon, one domain
A review of the above three thought processes which correspond to certain organizational processes reveals that the various differentiations we have, namely short term versus long term, strategic versus tactical, planning versus execution, firm-level versus unit-level, executive versus leader – are all certain convenient methodologies to manage division of responsibilities and accountabilities as well as hierarchical differences in an organization and not necessarily the most optimizing processes. Given the range of external and internal factors (“factors”), and their unpredictability, firms need to have one horizon for planning whose time span is limited by the first material change in any of the factors, and one domain whose relevance is defined by firm level competitiveness accruing through individualization and collectivization of all the organizational functions or units. Young executives and mature leaders must embrace the ‘one horizon - one domain’ concept so that intellectual capital in the firm is built up for competitiveness and growth.
Posted by Dr CB Rao on August 3, 2014