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Friday, January 14, 2005

The shattering of the value chain & making of millionares

This is going to be one of those economic analysis posts where my bored self will try to spew gyan about things I have no idea about. Ok , here goes nothing.

First read this & this. These articles/papers deal with the emerging business models in the strat consulting spaces. Interesting reading. I won't repeat what has been already written but ponder over a few unsaid points.
The article mentions "Knowledge building" as one part of the value chain that is increasingly going to be captured by firms based in India & other low cost destinations. Agreed. However,I have feeling that not everyone can set up such a firm. Going through the resumes of fouders of Evalueserve, Lex Orbis & others like them, it seems obvious that you need a lot of contacts to get the business off the ground. These contacts can't be gained by working in India. Therefore, most of the "Knowledge building" firms in India will most probably be set up by NRIs. Most of these NRIs are likely to have some strat consulting background. The US/European setups are most likely to be managed by thier ex-colleagues in their former workplaces/industries. If you go through the profiles of the current leadership of Inductis ( a high-end data analytics company) you will see that most(?all) of them have worked at the Mitchell Madison Group.

All this was about the supply side of the strat consulting. What about the demand side? There are lots of businesses in India growing at a CAGR of 70+% but no one knows about them. Sooner or later, they would need some sort of consulting experience to guide them through the especially murky world of globalization. Moreover, with shorter learning cycles nowadays & intense competition small Indian companies face a serious organizational learning handicap(which is a legacy of family owned structures) they need external help which is = a muti-billion $ business oppurtunity.
I wonder who will be clever(? astute? plain lucky?) enough to tap this & make a few millions. There are firms like Haldiram's , Foodworld, Murugappa group which are some of well known but still very small family business houses.

Let's try to put a number on this oppurtunity. India's GDP = 500 bn $ . Revenues of typical medium-scale businesses = 10 % of GDP. = 50 bn $. I took 10% because 20-25% mentioned in the articles are for countries without product reservations small & medium enterprises. (Anyways, that's a lot of money :-). If consulting is even 1% of the gross annual revenues then the total market size for consultancy = 1% of 50 bn $ = 500 mn $ = 2500 crores. The current market in contrast for all consultancy is 1000 cr & management consultancy is around 30% of that = 300 cr ( this is my guess).
Let's try to guess the timing of the oppurtunity now. Most of the medium scale businesses between 1960 & 1975 which was a period of extraordinary economic growth(don't have any data, so take this with a pinch of salt) & would have been started by an adult aged 30 years ( I am guessing again). Considering the mean of 1960 & 1975 =1967. The average patriarch would be aged 2005-1967 + 30= 68 yrs. The business patriarch would probably be thinking of handing over the business/already handed over the business to the next generation. Here lies the goldmine. It would have been very difficult to convince the average family patriarch(with socialist mindset & all) about the usefulness of hiring consultants to increase the competitiveness of their family businesses. But today's generation knows the premium of time & good,objective advice.
End game: The next 5 years would see the emergence of third tier consulting companies who would be the get-your-hands-types consultants maybe even taking a stake in the company running it during a difficult transition & streamlining it's procedures & helping it realize it's core competencies. This new industry structure is likely to very fragmented with most of the firms staffed with less than 50 consultants or less. Who will be these people? I hope I can catch the wave :-).
As always there are a lot of things I haven't covered, but what to do I have a day job as a mechanical engg student. More later(this is turning out to be a bad habit :-).

On this weekend, I am on the HR panel for a round of preparatory round of placement interviews for the third years understand the nuances of the placement process. I was just wondering what kind of questions I will asking them. I don't want to ask them them crap like -father's name, mother's name, sister's name, dog's name, dog's father's name, cat's occupation.....you get the idea. I was thinking of formulating some interesting questions which will catch them off-guard, yet will provide new insights to them about their problem areas that might have escaped attention. Some questions swirling in my mind:-
1)Your CGPA is too low. You must have been good in extra-currics( this would be deliberately asked to a person with poor acads & poor extra-currics)
2)Your CGPA is quite high. I hope your hobby isn't cricket (asked to a girl ( I know, I know , I'm evil :-))
3)You have answered most questions pretty well. Did you know the questions before entering the room?
4)If you have two tasks in the organization & both of them can't be finished in the allotted time. Which one will you choose?
5)Position in class? (I'm sure some people will lie, let's see if I can catch them. If I do then next question will ..........). Is that in ascending or descending order?
6)Your English is too poor. Why haven't you improved even after 3 years? (If yes), then are you a poor learner? (If no), don't you want to acquire new skills in life?
7)The technical panel tells me that your C/C++ is frightfully good. Don't you have any managerial ambitions ?
8)Why do you want to work for our company, especially when the pay is too low? So, you think the pay is too low? How do you know? So, you can't manage your expenses within this initial pay?
9)Any ambitions of MS/MBA/IAS? (Obviously, they will answer no). I see, so no further ambitions?(They mostly say, haven't thought about it till now). Ok, so you will start thinking of further education at 25? 30? 35?
10)Do you plan on getting married? If so what do you think about dowry? If you don't want to take it but your parents are insisting on it to pay for your sister's medical college fees, then?
11)Do you believe in secularism? If I ask you how much of our national character is Hindu, how much Muslim, etc , can you calculate it using sound logical reasoning? If yes, how?
12)Are you a athiest? If yes, what principles guide you day-today life? A Muslim & Hindu beggar ask you for money at a traffic stop, & you can give only one, which one will give you money?Why?
13)How much do you tip waiters? What % of total bill does it generally comprise?
14)How many hobbies do you have? Why so many? Why so few? Do you indulge in you rhobby in your free time or do you carve out free time? Don't you think the concept of a hobby is flawed? (My hobby is studying, since that is what I do in my free time :-) ).
15)Define good/evil? How are they different? Mention one person who was pure evil/good? Why haven't you met someone like that? What about Dawood, is he pure evil?
16)What is failure? Explain failure in statistical terms. Failure is the stepping stone to success - right or wrong? If right, then how many times should you fail in a particluar task? Can't you use stepping stones left by others? If yes, then is the original statement still valid?
17)Why are you dressed the way you are? Why not something more formal/informal? Our culture is very formal/informal, will you able to adapt?
18)Rate your sense of humour on a scale of 1-10? Why 5 ? I don't think you are that funny? What is the funniest joke you know?
19)What are your views on money? (Most will parrot out, somewhat important). On a scale of 1-10? If a colleague from the same institution is earning much more then how will you feel? If someone from a big-shot foreign university but doing the same work as you gets twice the money? We do have such differential pay? Do you know thedifference between money & power? Which comes first? Why?
20)Your strengths/weaknesses? (Some rusted answers will no doubt be there). You call that a strength? In our organization that's a weakness? That's a really serious weakness, you shouldn't have told us? I don't you can improve upon it?
21)Do you believe in first impressions? If no, then isn't the whole interview stuff flawed? If yes, then are you sure you should be rejected because of one bad day?
22)Household income? Don't you think the govt is unnecessarily subsidizing your education? What can be done? Do you support differential fees? If yes, won't it crate a feeling of animosity between students? If no, then what's the way out?
23)Is the entrance exam for this institution flawed? Why? How to improve it?
24)Your learnings fro your extra-currics? (Some usual crap) Those learnings can be had from a book. Give me some real learnings, maybe I can use them?
25)Will you try to aggresively supersede your boss, irrespective of his seniority? Why? Don't you think his seniority counts for anything? Don't you think competence is what ultimately matters?
26)Most of our hires at this position have left within a few years to pursue MBAs causing us considerable loss in training, replacement ,etc. Apart from the bond ,how do I know for sure you won't quit? Don't you think the bond amount is too minimal? Calculate the appropriate bond amount based on data I will give you?
27)Is the weather always this unpleasant in this town? Why? Don't know anything about geography? I am a BSc(Geography) grad but worked my way up based on my talent & caliber, will you feel ok to work under me? (A real interview question by Patni guys. Most will say yes) Past data don't support you?
28)Being a woman do you feel at a disadvantage? What kind of disadvantage? Have you faced any implicit harrasment in this institution/home/elsewhere? What was the cause? Why do men harass women & not the other way round? What do you think about the 33% reservation rule in Parliament for women? Why?
29)Suppose you discover a major ongoing scam at your workplace in which your boss is involved. What will you do?
30)How will you break up a fight between two girls fighting over the same boyfriend?

Phew. That should be enough. Will post notable responses to any questions I finally end up asking.
Going out of station for a day, tommorow. Missing Prof A's classes is giving me the creeps. Have already missed 3. Margin is 12. Yikes!!

Wednesday, January 12, 2005

Culture & Branding

What is culture?
For a particular company on the campus last year there was an employee recruiter who was aged 23 & joined a year earlier!!!! What would he know about the company culture? Very little, you will say & I agree. Culture is very easy to put in words with afew snazzy punchlines but very difficult to feel & imbibe ? Which companies have a culture which is synonymous with it's name? You say McDonalds & you connect it with hamburgers in a decent place with very efficient service. That's it just 3 things - hamburgers, decent place & great service. Is it a surprise that McD sells 10 bn $ of hamburgers worldwide.

Ok, let's play a game. I will write down the names of some non-typical brands & you think of the first 3 things that come to your mind. If my list matches with yours then it proves .........nothing but let's try anyway. My list is given way down after a lot of blank space. Don't cheat :-).
Tata
Indian Railways
Bengalis
Rajasthan
Common Admission Test(CAT)
Ambassador
Amitabh Bachan
Indian Politician


Tata - Around for a long time, Honest folks, Great place to work
Indian Railways- Dirty toilets, cheap, corrupt
Bengalis-mostly intelligent folks, quirky, West Bengal
Rajasthan-deserts, palaces, camels
Ambassador-been around for a long time, reliable , outdated
Amitabh Bachan-awesome actor, longevity, unique style
Indian Politician-hopelessly corrupt, obstacle to development, elections

Though no great insights are possible with such a short sample - one thing struck me as odd. Except Rajasthan none of the brands has all attributes as neutral. Why? Split-second decisions are said to be crucial in many situations yet careful perusal shows most of my opinions about these brands is superfluous? How did I not mention business for Tata or transportation for Railways or car for Ambassador or superstar for AB? It's almost criminal on my part. Indeed. What could be the reason? Although I am no neuroscientist with PhD ambitionsI think it it fair to say that my brain has pre-judged the brand & deliberately ommitted the most obvious attribute in most of the cases? If true this has some serious implications ......like , let's say I place an Indian amidst Americans & repeat the above exercise. After the exercise is over , the surrounding Americans would know the Ambassador has - been around for a long time, reliable , outdated - but won't know that' it's an automobile. Ironic or what. That is exactly what could happen in high pressure telephonic interviews where I use a local idiom & the admissions committee on the other end totally misinterpret it.
There's a company called Interbrand which does something really cool like calculating what is value of a brand. According to them, Coke had a brand value of ......... 68 bn $ last year. Then again it's not surprising considering the money Coke has invested in brand buidling over the years. I wonder if a brand can have -ve value? Is so what would it mean? I don't know if Interbrand answers thess questions.

Value chain disaggregation & how to join it, if you can't fight it!

Disaggregration of the value chain is inevitable given the lowered costs of transaction facilitated by the Internet. Most of the things firms do inhouse today will be outsourced either to a different geographic location or to a different firm.
How do established companies in areas other than( & including) strat consulting counter this? Hmmmmm. Let's see. Voila!!!!. Companies should also disaggregate their internal value chains using the internet(or is it intranet?) I was thinking about the feasibility of this idea in my 10 ft x 8 ft room.
What is the main problem in achieving the most profitable cost structure wrt of a firm's(let's say XYZ) purchasing deptt?Think for a minute before you scroll down.
Well, as you might have guessed,it's competition. XYZ's pd isn't inefficient/ineffective by itself but is so in relation to others. In a perfect world you should have been able to fire your entire pd & get a brand new pd the nest day. Unfortunately, life doesn't work like that. Your pd might rightly complain that other deptts didn't furnish it with the right information in time & that's why it made the faulty decisions? It might also claim that it doesn't get any leeway in recruiting staff for it's deptt. Incompetent staff is thrust on pd by the HQ. What a mess!!! What to do?? One firm tried to disintermediate it's own firm by actively encouraging poaching among it's own divisions & giving employees a lot of freedom. That firm was(?is) Enron. Ouch. Obviously there are risks are at either end of the pole. Free market competition is the most efficient of them all causing a firm into extinction if it fails continuosly. Although, difficult to implement in a closed firm setting, some parts of free markets theory can be applied.
Here are my suggestions:-
1)A set of progressive benchmarks should be set after research on best practices at other firms & the compensation structure tied to it.
2)Depending upon the criticality of the pd in the overall setup it should be allowed recruiting autonomy subject to some central norms.
3)The compensation structure of the pd & all other deptts should also be tied to the overall business performance such that inter-deptt costs can also be lowered.
4)All said & done a certain amount of inefficiency has to tolerated since a internal deptt's employees jobs just aren't on the line unlike external firms whose survival depends on their competitiveness.

Warped sense of reality

I just read something on the net which just reminded me of my grandfather & father. My father's father was a railway guard in colonial Bengal & I really can't imagine how he must have brought up a family of 5 children with his meagre salary. He passed away when my father was 15. I again don't know how it must have felt for my dad to lose someone so close at such a young age. My grandmother & my eldest uncle took to caring/looking after the family & they did a fairly good job. Dad made a lot of tough choices of staying away from family for his graduation & living in Calcutta. He fortunately got a bank job & made a smooth transition into the great Indian Middle Class. Some of uncles haven't done that well & ironically my eldest uncle is in dire financial straits & in constant need of money.
My mom's father was a aristocratic doctor in Bangladesh. He had also 5 children. They had to run away from Bangladesh during the Indo-Pak war of 1972 where they spent a good amount of time in bomb shelters in the constant fear of bombers. My mom wanted to study arts further but family pressure forced her to marry just after her graduation. Just after I was born, my grandmother was diagonsed with cancer(I still don't know which type) & died shortly afterwards. My mom watched her die in the throes of pain.
Strangely enough I don't remember having a meaningful conversation with any of my grandparents, maybe except once with my dad's mom just before her death.
I will pass out of undergrad engineering in 4 months ready to face the world & all that crap with a plum job offer & all. I/we think of the sacrifices we have made to study in this prestigious institution, the hours of mugging & close calls. Staying in a town like this has however meant lots of comprosises in material comforts.

But can my small, trifling efforts to make the great middle class cut ever compare to the kind of sacrifices my parents made? Indeed, the other day I was ruminating over who is my role model in life. Guess what the answers were: NRN, Gates, etc & all that media fed trash. I want to be an entrepreneur but I missed out on two of the greatest entrpreneurs I have known so very closely, my parents. We have become so accustomed to measuring success by the size of one's ego, that we sometimes don't see what is truly valuable & readily accessible. The need for external validation is so strong that we dismiss opinions of our parents as old fashioned.

Being a thoroughbred rationalist I was just thinking of some of the major my parents have made & estimating their success ratio. It turns out in a surprisingly large number of crucial cases(too cumbersome & personal too mention here) my parents' hunch was right. How can I explain this? Well, if you consider my mom & dad have a combined age of over 110 comapred to my 21, plus thier unbeatable insight about me as a person makes their judgement not only emotionally viable but has a sound logical ring to it. Lesson learnt-Listen to your parents more carefully. Don't have to to do everything as they say but a lot of mistakes can be avoided by just leveraging their experiences. Maybe I will do some more economic type analysis on this later.

Monday, January 10, 2005

Organizational Dynamics: Learning #1

As a student I have been the chief co-ordinator of one tech fest, president of one student innovation cell, & assisted in organizing many other fests & events. Why I am in such a boastful mood you may ask? Well, I think the unexamined life is not worth living. I was just thinking about my learnings from all this organizing stuff & what I have learned , gained in experience,etc. I have another student meeting regarding our cultural fest coming up in an hour & I was thinking of all the meetings that I have attended in the past.Let me jot all the points down. Most of the things might be already known to you. The following things are I believe the necessary attributes to emerge successful in a high performance group.
1)Impression is of paramount importance importance in group settings. Contrary to popular belief, what you say is not much important as to who is saying it. What's his/her background, his general standing, his people skills,etc.? Though some things such as fluency in English have no relation to the task to be performed, they are given undue importance because they are percieved to be important. I believe my impression among my batchmates is very favourable (sometimes without reason). I believe some tasks that I have undertaken in the past could have been better executed by my other friends whose skills weren't very apparent at first sight.
2) Goodwill among peers-This is justifiably given lots of importance since in my experience only a person with lots of goodwill can push through tough decisions & still manage to remain relatively unscathed. Again because of the ocean of goodwill I enjoy there is a lot of weight given to my words, my mistakes parodned easily & some tough decisions made by me in the past were accepted by my peers.
3)Ability to make changes mid-stream. When you feel that the plan that you thought will work isn't working then it's time to make some painful decisions & kill your own baby. This skill is critical especially when time is short. Once our techfest's posters were to be sent to ouside colleges but they were supposed to be embossed with the logo of the lead sponsor. Our lead sponsor was taking it's own sweet time. I (was in charge &) miscalculated that the lead sponsor's logo was an absolute must on the poster as a magnet for outside participation. We lost many crucial days because of that but thankfully made some key changes by sending out an email invitation which got circulated rapidly & we managed to save the situation.
4)Ability to sieze the situation quickly - A prof( Prof R) had given me the charge of organizing a quiz. Due to a goof-up of others in putting up notices , the turnout was very low & I was blasted. I apologized & promised to conduct it the next morning. That night I went to the first years hostel & literally threatened my juniors with dire consequences if they didn't turn up next morning & I took down thier names to make sure they did. As expected more than 200 people turned up. I seized upon the situation quickly & swiftly dispensed with any moral hazard problems that might have been imprudent at that time. Not flexible moral standards, but a flexible interpretation.
5)Ability to assimilate a lot of information & decide quickly - Very important. In the techfest some girls' events were scheduled at night. We hadn't got permission from the warden but were confident of doing so. After a lot of tries, he finally refused on the first day of the techfest. Me & AR sat down with the schedule having over 44 events & quickly worked out an alternate event schedule for boys & girls.It went off smoothly.
6)Ability to feign anger- Useful when you have to get work out of your lazy friends. In the recent past I have used it many times. It does work most of the times, but then again your acting has to solid.
7)Ability to act tired & overworked - If you don't want everyone else to pile you with work, you better get a mirror & start practising.
8)Being organized- You don't need to organize everything but you do need to get some of your more important things in order.
9)Time management - The skill to master. If you have got this then everything else is a cakewalk. How to do n number of things in m number of hours is a calculation I have performed almost on a daily basis.
10)Prioritize - Even the savviest of time management skills won't be able to help you if you don't have a priority order for things. Grades or Extra-currics? Hanging out with friends or taking care of that assignment? Playing baddy or applying for summers? One thing I have learned is that life is a unending stream of choices. You have to take your pick. Else you will be overwhelmed.

Calculating the value of my BTech with NPV

The other day I came across the NPV(Net Present Value) method for deciding the present value of an investment by aggregating the cash flows expected from it in the future to a net present value. The relevant page is here.
Now what is the value of my BTech degree. Assuming a starting average salary of 2.6 lacs (gross) & a yearly increase of 10% (inclusive of inflation). Modify the formula a bit so that cash flows are in geometric progression. Take a working life of 60-22=38 years.
Do the math & you get a figure of 1.26 crores. After taxes & all you are left with 88 lakhs.

For a MBA?
Starting average salary = 6 lacs, yearly increase =15% , working life = 60- 24(for a MBA straight out of graduation)=36 yrs.
Gross=7.2 crores & after taxes & all = 5.04 crores.

The reasons for doing a MBA in India are clear from an economic perspective.The figures here are a bit on the lower side, since the salaries will probably rise much faster & one is likely to change employers many times which will lead to much higher salary jumps. But these figures do provide a baseline figure.

My BTech in this hugely subsidized setup costs <1.5>might be able to generate (@ 15% per annum) 3.03 crores.

Moral of the story - If you have an uncle or aunty who's working at Goldman Sachs, you better not get into engineering. Just give your money to you uncle/aunt & watch it grow. On the other hand if you don't have any such contacts (GS won't take you on as a client if you have only 1.5 lacs to invest) better to get that BTech as fast as possible & quicly go for a MBA. Considering that per capita income in India = Rs 21,000 a BTech+MBA in India is an unbeatable combo for a marked improvement in standard of living. More analysis on this later. Got to meet a prof in 10 mins.


Sunday, January 09, 2005

Where it all began

Ok , statuory warning - My first attempt at blogging. So beware. Of whatever's written here.
Who am I? Well you will find out in due course of time. I don't have anything interesting to say now so I guess I'll have to come back when I do.