samvid Student Management Review
Volume 1.0 | Issue 1 | July 2012
ARTICLES PAPERS MANAGEMENT CASES LEADERS SPEAK BOOK REVIEWS MOVIE REVIEWS
Our Inspiration
“The essential spring of all growth is within you. All that you can get from without is some food - material or spiritual - with which to build your own organism, and some stimulus to spur you to activity. What is really essential in your development, you must do for yourself.” - Alfred North Whitehead
Alfred North Whitehead “A hundred times every day, I remind myself that my inner and outer life depend on the labours of other men, living and dead. And that I must exert myself in order to give in the same measure as I have received and am still receiving.” -Albert Einstein
Albert Einstein
Aim & Scope Samvid is a journal published by the students of S.P. Jain Institute of Management and Research (SPJIMR), Mumbai to disseminate the most relevant and contemporary management thinking from among the SPJIMR fraternity. It aims to serve academicians and practitioners alike with a blend of cutting edge research and insightful opinions targeted at adding to the body of management knowledge and influencing practice. It is edited by a board of students from SPJIMR who accept or reject submissions based on an independent review process conducted both by the editorial board and the faculty review panel. Vision To help in positioning SPJIMR as a leading research business school by publishing relevant, topical, and insightful features on management ideas, theory and practice and disseminating them to a global audience. Mission To draw upon the body of management research performed at SPJIMR and act as a vehicle for publishing the most relevant among them, with the aim of encouraging a healthy debate in the academia and business.
Publication Team Editor in Chief Hari Iyer
Editors Abhineet Rawat Abhishek Goud Aditya Narang Anirudh Kunjal Anshuman Gautam Ayush Kapuria Khushboo Sharma Swati Dogra Swati Sachdeva Vipinsingh Parihar
Faculty Advisory Board Creative Team Aditi Saronwala Ankit Thakral Shashank Shekhar
Dr. Ajit Prasad Dr. Debasis Malik Dr. D.G. Karmakar Prof. Jiban Mukhopadhyay Dr. Uma Narain
Administrative heads Vaibhav Kher Vishwas Venkatesha
Disclaimer Reasonable care is taken to ensure that the articles and features in Samvid are as accurate as possible. However, the editors do not take responsibility for any errors or omission contained herein. Readers are advised to exercise caution before acting on any information contained in this publication. Further, the opinions expressed are those of the authors only and do not represent the views of the editors or of SPJIMR.
Editorial It gives me great pleasure to bring out the inaugural edition of Samvid, the student management journal of the S.P. Jain Institute of Management and Research (SPJIMR), Mumbai. SPJIMR, founded in 1981 on the twin pillars of 'promoting value based growth' and 'influencing practice', has grown to be one of the premier business schools of the country. Research is one of the important components of the institute's functioning and a natural extension of its motto of influencing practice. This journal aims to be a compendium of working papers showcasing the best of management thinking among the students of SPJIMR. It draws on the considerable body of research performed by students during their stint at the institute, both in curricular and co-curricular activities. The breadth of features published in this issue – ranging from cases on non profit institutions to papers on statistical models for predicting mortality rate – are indicative of the diversity of thought of the student body. The journal consists of a mix of articles, research papers, management cases, book and movie reviews and excerpts from talks at the institute. Prasad Vaidya's article challenges the current definition of the poverty line in India and urges a re-look at the calculation formula. Swati Koul proposes an idea for enhancing the experience for visually challenged people in virtual environments, and Vaibhav Kher talks of the emerging social, economic and political risks and the ways to convert them into opportunities. Anshuman Gautam, et al, propose a new framework for evaluating business at the group level, while two other papers by Hari Iyer and Pooja Shrivastava provide statistical models for estimating mortality rate of a population. The case on the National Rural Employment Guarantee Scheme (NREGS) by N.V. Satya Dutt brings a social perspective to the journal. Piyush Guilani's case outlines the transformation of Air Deccan through adoption of IT, while Pooja Shirwaikar, talks of adherence to ethical practices at Deloitte in her case. Two leaders from academia and industry, viz., Dr. T.V. Rao, founder president of the National HRD Network, and Mr. C. Devdas Nair, Customer Care Associate and Head, Supply Chain & Mission Control at Shoppers' Stop, share their views on various topics at the institute. 'The Ascent of Money' by Niall Ferguson is reviewed by Hari Iyer while Abhishek Goud reviews Dheeraj Sinha's 'Consumer India: Inside the Indian Mind and Wallet'. Rahul Unnikrishnan interprets the movie 'Moneyball' from the management perspective. I hope reading this journal gives you fresh ideas and perspectives in management. I look forward to your feedback on this issue and suggestions for the future.
Hari Iyer Editor in Chief
Contents Articles Ÿ The Poverty Line Controversy - Is the Current Definition Faulty? - Prasad Vaidya Ÿ Second Life - How to Provide a Better Virtual Experience for Visually Challenged
4 6
People? - Swati Koul Ÿ Emerging Risks - Icebergs in the Global Socio-Economic Ocean - Vaibhav Kher
9
Papers Ÿ Causes of Infant Mortality - A Cross Country Analysis - Pooja Shrivastava Ÿ The Impact of Education, Income Inequality and Primary Healthcare on Mortality
13 20
Rate - An Empirical Study of US Census Data - Hari Iyer Ÿ Taming the Future - A Framework to Analyse Businesses at the Group Level - Anshuman Gautam
27
Management Cases Ÿ MGNREGS in Andhra Pradesh: Social Transformation through e-commerce
33
- N.V. Satya Dutt, Kirthiga Sridhar and Shruti Parthasarathy Ÿ Air Deccan: IT's in the Air - Piyush Guilani Ÿ Ethics in Action - Pooja Shirwaikar
41 46
Leaders Speak Ÿ The Need for Social Transformation in Corporate India - Abhishek Goud Ÿ Supply Chain Initiatives at Shoppers Stop - Abhineet Rawat
51 53
Book Reviews Ÿ The Ascent of Money - A Review - Hari Iyer Ÿ Consumer India - Inside the Indian Mind and Wallet - Abhishek Goud
55 57
Movie Reviews Ÿ ‘Moneyball’ and Management - Rahul Unnikrishnan
58
ARTICLES
The Poverty Line Controversy Is the Current Definition Faulty? Prasad Vaidya (PGDM 2010-12 Marketing) This article aims to define the poverty line as laid down by the government, and its misinterpretation by the citizens of the country. The methodology used is to refer to the Minimum Daily Dietary Requirements for a person as specified by the Food and Agriculture Organization (FAO) in 2008 and the NSSO survey of 2004-05 for benchmarking against the existing consumption by Indians. Defending the absolute threshold in India is justified by references to the government policies and schemes that take into account the poverty line and those countries that don't. The author makes a quiet plea to the public, the government and the politicians to look beyond the apparent illusion that is the poverty line and instead focus on implementation of development programs.
does it make a subjective comment that any person even marginally above this line is living a perfect life. The objective of drawing a line is to see how many people have risen above it over a period of time. This objective makes it impossible to move away from the old definition, as any major changes in the mode of calculation will make the poverty line historically incomparable. The Government of India draws a separate Food Security Bill to which almost 96% of the Social Benefit Schemes are linked and which defines almost 41% of the population as beneficiary. Hence the benefit of these schemes is spread over a much wider target population than defined by the Poverty Line. Only about 4-5 schemes such as pension, total sanitation campaign, national social benefit scheme, state subsidies for kerosene etc. are linked to Poverty Line, others are not.
“YOU ARE POOR, YOU ARE NOT!� The issue of a poverty line definition has gripped the minds of all strata of people. One can hear discussions on this issue from street-side tea stalls to high-tea events. Public perception that the planning commission has made a mockery of poverty has been heightened by the Rs. 32 per day representation of the original affidavit. While this represents the very argumentative side of the Indian populace, the concept of poverty line remains elusive to many. The poverty line in the definition, calculation and suggested modifications need a closer look. The poverty line, in its present form, is an economic indicator among many others, indicating the equitable distribution of a country's economic progress. First established in the 1970s, the poverty line has been updated every decade by taking into account the inflationary pressures and rising consumer expenditure on different goods and services. By checking the exact percentage of people that lie below this benchmark, one can see whether economic growth has trickled down to the country's underprivileged as well. In fact, about 70% of Indians lay below this line in 1970 and 32% remain so even today. Rather than stirring a hue and cry on the definition of poverty line, it is more important to debate and discuss the past practices which led to this fall in percentage and how they could be strengthened to make the reduction even faster.
Nevertheless, a huge amount of time, energy, manpower and money are invested in calculating the poverty line and hence it is only sensible to have a uniform definition which will serve the purpose of both economic monitoring and allotment for social benefit schemes. India's GDP has grown exponentially after the 1990s, and hence, benchmarking of India's economic progress in the post-liberalization era is more logical. Even the Tendulkar Committee report, which has been used as the basis for calculation of poverty line by the Planning Commission, has documented some preliminary work for re-estimation of poverty lines after the 1990s with a modified mode of calculation.
Talking of the confusion created over the issue, let's clarify the conceptual understanding on the poverty line. As per the affidavit submitted by the Planning Commission to the Supreme Court, a family of 5 spending less than Rs. 4824 per month in urban areas, or less than Rs. 3905 per month in rural areas is defined to be Below Poverty Line. The affidavit neither makes any reference to the daily expenditure per person, which has been widely exaggerated through various media channels to be Rs. 32 per day per person, nor
Here some light has to be thrown on the methodology of calculation of poverty lines and the suggested changes in it. The calculations are based on the nationwide survey conducted by National Sample Survey Organization, which collects consumer expenditure on various products and services. Certain basic products and services such as Food, Education, 4
Medical expenses, livelihood expenses, rent etc. are collected together into a Poverty Line Basket and consumer expenditure on it is analyzed. The latest poverty line calculation has used the Minimum Daily Dietary Requirements for a person as specified by the Food and Agriculture Organization (FAO) in 2008 and the NSSO survey of 2004-05 for benchmarking against the existing consumption by Indians. By matching the minimum dietary requirements (1770 calories per person) with the total expenditure on the products in the Poverty Line Basket by a family of 5 which meets that requirement, the poverty line has been set.
country, whether these people lack essential resources or not. The core of poverty line fixation in this case lies in fixing the threshold percentage. This percentage in different European countries and US ranges from 49% to 60%. There, the poverty threshold is more of an indicator of income inequality than anything else. Also, since poverty threshold is defined as a percentage of median consumer expenditure, an automatic inflationary correction happens. While such a concept in India will surely throw a huge percentage of people below poverty because of the wide rich-poor divide, it will be of little use in gauging economic growth penetration and allotment of beneficiaries for social benefit schemes.
But there is an anomaly in fixing the minimum dietary requirements (MDR). The MDR used according to the specifications of FAO was originally defined for a sedentary worker whereas the people below poverty line are mostly involved in heavy work. Even considering the work done under the NREGA scheme as the norm for the amount of work done, the MDR will be much higher for a person and hence the total expenditure of a family of 5 which meets that MDR (3800 calories per man and 2925 calories per woman, as mentioned in the Food and Nutrition Security Bill released by planning commission on its website) will shoot up. The latter MDR is actually used for defining the Food Security Bill (FSB) beneficiaries and the use of the same will benefit in bringing parity between the two measures, i.e. Poverty Line and FSB.
CONCLUSION Thus, while India must continue with its policy of defining the poverty line based on Poverty Line Baskets, the baskets themselves should be modified as detailed earlier and a benchmark should be set from the year 1990. Setting such a comprehensive poverty line will give a clearer picture of economic progress and its benefits to the poor. This will also cut the doubling of efforts for calculating the two separate measures. While the experiments with living on Rs. 100 per day abound and public insinuations of making a mockery of the poor get hurled at the Planning Commission, there is little interest in going behind the apparent facts and finding the objective behind the actions of government officials. Of course, the picture is never black and white and there are bound to be some grey areas in deciding who is poor and who is not. What a poverty eradication scheme really needs is an efficient and effective implementation of the development programs, a sense of purpose in each responsible officer to see no hungry face in India and a solidarity shown by all stakeholders: the public, the government, the systems as well as the politicians. Defining who is poor is just the first step.
Apart from the technical issues of MDR, there is also a need to relook the Poverty Line Basket and allot more product categories and services to it. For example, even “Entertainment”, as very broadly defined by the NSSO in its “2007-08 Household Expenditure Survey”, should be considered as a necessary part of personal life, however negligible its share may be in the total expenditure of underprivileged people. Such measures may not drive the poverty line up, but will make it only more comprehensive in its definition. Having described the poverty line calculations, it is interesting to note how the same concept is used in other economies. The Poverty Line definitions in the US shows similar confusion as well, where the two main measures of poverty viz., “Poverty Threshold” defined by the Census Bureau and “Administrative guidelines” issued by the Dept. of Health and Human Services do not match. At the same time, US and many other European countries such as France use the “Relative Poverty” line concept (For calculating Poverty Threshold). A state of “Relative Poverty” means “having significantly less access to income and wealth than other members of society”. Thus, Relative Poverty encompasses all people below a certain percentage of median consumer expenditure of the
REFERENCES 1. Report of the Expert Group to Review the Methodology for Estimation of Poverty, Govt. of India, Planning Commission, under chairmanship of Prof. Suresh Tendulkar, November 2009 2. Household Consumer Expenditure in India, 200708, National Sample Survey Organization, March 2010 3. Food and Nutritional Security Bill, part of Tenth Five Year Plan 2002-2007
5
ARTICLES
Second Life How to Provide a Better Virtual Experience for Visually Challenged People? Swati Koul (PGDM 2011-13 Information Management) This article aims to provide insights into some of the shortcomings of the virtual world software for the aid of visually challenged people. The methodology describes the current features of the virtual experience, and shifts focus from a one way communication to a dialogue based approach between the user and the software by describing the second person in the form of an Avatar. The virtual appearance, communication aspects like tone, accent and actions can be mimicked with the technology in place. Finally the implementation suggestions are stated along with relevance, complexity as well as perceived benefits to the users.
INTRODUCTION
the icons on the Second Life client.
Companies constantly endeavour to make products that are usable by the widest possible customer base. As a logical extension, new products that come into the market should be such that they are usable by physically challenged people as well.
Direct conversion from voice to text and vice versa has been implemented. However for a more intuitive experience, the context of the environment needs to be brought to the physically challenged user.
SOLUTION PROPOSED
Virtual world software is gradually becoming a reality. A lot of effort is currently being made to embrace the virtual world in all aspects of information technology. People with disabilities like complete or partial blindness might find it difficult to use this environment. The paper tries to propose a solution to provide a better virtual life experience to people with complete blindness or partial blindness through Second Life, a leading online virtual world client [1].
FEATURES 1. To associate the tone of an avatar with the nuances of it's physical appearance. (For example, an avatar having a jazzy outfit may have a similar kind of voice and normal looking avatar may have a plain voice) 2. To use the mechanism of letting the physically challenged user set these associated tones based on his/her preferences.
The problem is not one that can be tackled easily because of the following reasons. 1. Second life has features like whisper, shout, etc. that involve emotions or expressions.
3. To intersperse the virtual environment's voice along with the avatar's voice to give a better virtual experience.
2. The voice needs to be determined based on the avatar. (For example, Male/Female)
4. To make a rich database of sounds available to simulate a virtual environment [2].
3. The accent needs to be modified based on the user's social profile. (For example, geographic location).
5. To generate voice based on tags that can be associated with a second life environment. For example, if a virtual environment can be associated with a pool and a mountain, and these locations are tagged with these keywords and voice samples associated with these tags in the database mentioned above, then a new location which does not come with any voice sample for its environment can be easily dealt with by using the tags that were part of a similar location in second life [3].
4. Effective voice modulations need to be implemented so that the visually challenged user can get a feel of the actual activity that is happening in the Second Life world (For example, if an avatar is flying or jumping) 5. For a visually challenged person, it would be easier to issue voice commands rather than type them/click 6
6. To use voice commands to control the avatar's maneuverability [1].
1. The user needs to associate an avatar template with a voice.
7. To associate emotions with voice modulation and then convert these modulations accordingly to second life actions like shout, whisper etc.
2. The user needs to configure whether he wants audible alerts as and when he approaches a location. (This will be useful for normal users who do not want unnecessary audible alerts when they can see where their avatar is going)
IDEA BEHIND THE PROPOSED FEATURES
3. The user also needs to configure his second life to be connected to the voice toolkit which exists on the same host as that of the second life client.
1. The visually challenged user will be able to associate a voice pattern for each avatar template allowing him to visualize the avatar better.
4. The user has the option to import a set of voice samples into the proposed database.
2. The second life client would come shipped with a database of voice samples that can be associated with a virtual environment. This rich database would enable a real life virtual experience for the visually challenged.
5. The user has the option to import the set of tags (geo tags) which could be made generally available on the second life server itself.
3. The use of voice commands will enhance the navigation experience through the environment. The voice would be interpreted as a command if the user holds down the mouse button or uses a special voice pattern, say the word "command" to mean that the next few words should be interpreted as a command [1].
IMPLEMENTATION FLOWCHART For each voice input, the second life client tries to check whether the command mode is enabled. The detection of the command mode can be checked by determining whether a particular mouse key is pressed or the word “command” is uttered. This issues a directive to the second life client to interpret the next few words as a command. The textual equivalent of the command is looked up in a database of commands and the appropriate action is triggered. Some of the example commands that can be given at this point are jump, fly, talk, whisper, shout etc. There is also a possibility that navigation commands like “move right” are issued which would trigger the second life client to simulate a right arrow key press. After the command is processed, the user interface is updated in the second life client as per the user's activity.
4. The user will get audible indicators during navigation. For example, a welcome message on entering a classroom would indicate that he has reached the classroom which otherwise he may not have promptly comprehended [2]. 5. After the user approaches the location of his/her choice, he/she will use voice to interact with the avatars in the surrounding space. 6. The second life client will fetch the surrounding avatars' information to simulate the voice as set by the visually challenged user in his/her preferences as per step one.
Since locations in second life can be tagged, the tags can be used to generate the appropriate voice stream. For example, if a location has tags like water bodies or forests, and there are voice samples that have been associated with these tags, the corresponding voice streams will be activated by the second life client.
7. The second life client will also alert the visually challenged user about the proximity of avatars.
IMPLEMENTATION DESIGN OF THE PROPOSED FEATURES
After arriving at a particular location, the second life client checks to see if there are any avatars that are in the vicinity of the user's avatar. Then profile information of these adjacent avatars is fetched so that it could be used by the second life client to find out which user voice template that each avatar belongs to. This categorization can be done on the following parameters.
CONFIGURATION DETAILS The visually challenged user would need to set following preferences in order to improve his virtual experience:
7
Start Command is triggered in SL client
Reset voice modulation for each adjacent avatar
User logs in
Is command mode enabled?
Y
A SL client captures voice stream using voice toolkit
Convert voice to text
Lookup command directory based on text
UI is updated along with audible hints
Send feed of environment voice sample to the main voice stream
Audible alerts given as per tags
N
Has any avatar communicated ?
Enable the command mode
Y
Fetch pitch, loudness and other emotion params
Y
Are avatars present in vicinity ?
A
Is more communication required ? Convert text/voice to appropriate tone
N Fetch avatar template
Log out
Stop
Feed to main voice channel
1. The look and feel of the avatar
REFERENCES
2. The profile information of the avatar. For example, its geographic location information as per the profile could be used to generate the accent and features of the voice that needs to be emitted.
1. White, G.R., Fitzpatrick, G., McAllister, G., “Toward Accessible 3D Virtual Environments for the Blind and Visually Impaired”, sussex.ac.uk, <http://www.sussex.ac.uk/Users/gw43/publications/ White,%20Gareth%20R.%20Toward%20Accessible %203D%20Virtual%20Environments%20for%20the %20Blind%20and%20Visually%20Impaired.pdf>
After applying the voice decorations for each of the adjacent avatars, the second life client can also proceed to construct the voice samples for the location itself. The flowchart above gives the full implementation details of the idea.
2. wordpress.com, “Second Life Accessibility” < http://twinx45.wordpress.com/>, 2007
CONCLUSION
3. Axistive, http://www.axistive.com/virtual-worldsopen-up-to-blind.html,< http://www.axistive.com /virtual-worlds-open-up-to-blind.html > 13th October, 2007
An effective mechanism can enhance existing technology to provide a better virtual world experience for visually challenged users. With the help of audio aids, they can maneuver the virtual World and interact with the Avatars of other users. The voice modulation of Avatar, voice tags in the background, audio commands and audio indicators will make the tool user-friendly for visually challenged people.
8
Icebergs in the Global Socio-Economic Ocean Vaibhav Kher (PGP 2011-13 Operations) The article attempts to describe the emerging risks witnessed in the late 20th century under three broad categories – economic growth, technological advances and social changes. The inversion of the demographic pyramid and its' consequences on the dependant population as well as the potential threat to the “bottom of the pyramid” market are discussed with current examples. The economic growth faces risk of the dollar bubble and lack of consensus on successor to Kyoto protocol. Political risks in the Arab countries threatening energy security as well as China's State Capitalism favoring unrealistic expectations are some of the risks discussed that could entail the global economy today and change the future.
The word “Risk” fetches 1.02 billion hits on Google while the word “Opportunity” fetches 1.2 billion. This observation is symbolic of the equity of the two constructs of human behaviour.
have a median age of 60 by 2050! Inversion of the demographic pyramid Demographic risk may lead to reversal of the demographic dividend which could worsen the fiscal position of countries due to reduced tax revenues and a slowdown in Gross Domestic Product (GDP) growth. The rising working population of the late 20th century would now become the rising dependent population to be supported by fewer working people. This inversion of the demographic pyramid would put an increasing burden on inclusive governments that support welfare programmes, such as those in Western Europe where the spending on welfare is around 15% of GDP. This ratio is expected to rise to an unsustainable level of 40% by 2040 [2]. According to the Organization for Economic Cooperation and Development (OECD [2]), the gross public pension replacement rate is over 50% for most of the developed European countries which are already burdened with over or around 100% debt.
“If you don't risk anything you risk even more” This quote by Erica Jong perhaps explains the behaviour of a risk taker like China, which still relies on United States Treasury Bonds for its surplus reserves despite the latter's poor fiscal position. Already into the second decade of the 21st century, the world economy, after an initial boom period, has gone into a recession and a sovereign debt crisis. A global slowdown looms ahead. This is but one example of the many emerging risks that seem poised to confront the world in the coming decades.
EMERGING RISKS OF THE EARLY 21ST CENTURY
Social Inequity – “Failure of the Bottom of the Pyramid” Although emerging economies, predominantly in Africa, appear to be sizeable potential markets, socioeconomic inequity would render this class of consumers powerless resulting in a zero-sum game. Inequity is mainly due to poor infrastructure, unemployment and volatile oil prices. This benefits neither the global industry nor the people of these countries. However, short-sightedness and excessive emphasis on bottom-lines has rendered the global industry oblivious to this fact, when actually it should be developing these markets. For example, when millions of people are succumbing to preventable and curable diseases and to malnutrition, it makes one wonder whether actions like exorbitant prices for patent-protected drugs and speculation on food grains in the commodity markets are ethical.
The “Emerging Risks Survey 2010” [1] published by the Canadian Institute of Actuaries defines emerging risks as those with little or no historical precedent. The late 20th century was characterized by unprecedented technological advances such as the digital revolution and socio-demographic changes that led to higher economic growth rates. However, this also crystallized certain inherent risks which now lie ahead of the current working generation.
EMERGING SOCIETAL RISKS Demographics According to the US Census Bureau [2], the world's median age is around 29 and is projected to rise to over 37 by 2050. Germany and Japan already have median ages in the range of 45, while Hong Kong is projected to 9
ARTICLES
Emerging Risks
EMERGING ECONOMIC RISKS The Dollar Bubble The Real Estate bubble that triggered the 2008 recession has demonstrated not only the fragility of the US Economy but also the dependence of the global economies on the US. This is just a prelude to the dollar bubble which has the potential to unleash economic devastation upon anyone with exposure to US Treasury Bills and other dollar denominated assets. Mounting public debt & the recent downgrading of the sovereign credit rating of the US serve as a clear indication of the most significant emerging economic risk: the world has taken the US' solvency for granted, for far too long. The Sino-US Stalemate US Treasury bills, apparently the most secure investment, have historically attracted the bulk of excess Chinese reserves, creating a debt fuelled economy in the US. As of November 2011, China's holdings of US Treasury Bills were valued at $1.13 trillion [3]. With the US federal debt forecast at around 105% [4] of GDP in 2012 and the US federal budget deficit around 8% [5] of GDP, there is a great risk that the dollar and the US economy may not be able to support the weight of value placed on them by China & the rest of the world anymore. China, being the biggest external creditor to the US Treasury, stands to lose if it starts pulling out of its investments, since the loss of confidence would erode the value of the dollar and hence all dollar-denominated assets. On the other hand, if China continues to step up its investment, it risks increasing its dollar-exposure even more. It's indeed a catch-22 situation- like riding a tiger but not knowing how to get off without being eaten [6]. The interdependence of China and the US has fueled the dollar bubble and a lot depends on how these two economic partners take this relationship forward. The Euro Zone Crisis The sovereign debt crisis in the European Currency Union countries has led to a loss of confidence in the Euro as the alternate reserve currency to the dollar. In fact, it is a supplementary cause of increased dollardemand in spite of the weak structural position of the US economy. The likelihood of Euro mitigating the risk of excess dollar-exposure now looks bleak. The Dollar Hegemony The US Dollar is the world reserve currency, simply because there is no other alternative. Dollar hegemony has become the US' biggest disincentive to maintain its fiscal and monetary discipline. The power of the dollar has become a double-edged sword that has the potential to cut through both the US and the global economy. The dollar bubble is perhaps the greatest emerging 10
economic risk the world would have to deal with in the future because the scariest part is that nobody knows how to react to a possible US default. Unsustainable Economic Growth With the Kyoto Protocol set to expire in 2013, and no sight of a global consensus on the road ahead concerning environmental protection, the risk of unsustainable growth looms ahead. Global oil consumption is set to cross the 100 million barrels per day (bpd) mark and at 2010 production levels, the global oil reserves will reportedly [7] last for about 131 years. With absence of formal sustainability agreements, there is an impending risk of energy shocks, price volatility and reckless growth, particularly by former non-signatories to the Kyoto Protocol such as the US.
EMERGING POLITICAL RISKS India – Emerging Governance Deficit Risk In India, the ruling government has come under heavy fire in the current term for a multitude of scams, some of which are to the tune of trillions of Indian Rupees (or a few tens of billion dollars). The prominent ones are the “2G Spectrum Scam” and the “Commonwealth Games Scam”. The former relates to the auctioning of 2G mobile telephony spectrum licenses at prices below market standards. The Comptroller and Auditor General of India (CAG) estimated the losses to the exchequer at 1.76 lakh crore Indian Rupees or US$ 33.56 billion [8]. The latter scam concerns a variety of matters including over-priced contracts, infrastructural compromises, delays etc. on account of serious corruption by officials of the Games' Organizing Committee. The Commonwealth Games Scam became a national shame and faced boycott calls & withdrawal from a few countries, drawing global media attention. These scams have scarred the “India Shining” image and are becoming major hindrances in India's growth objectives. The Jasmine Revolution – Political Instability and Oil Shocks 2011 was marked with political upheaval and regime changes in the Arab world. Till date, governments of 3 countries have fallen and many more are on the brink. While this appears to be in favour of the oppressed masses, the lack of political stability & credible democracy is a big risk to these countries. Fragmented political factions and armed militia make matters worse, potentially leading to anarchy and governance problems. The uncertain geopolitical outlook has raised concerns about the potential repricing of risk and the impact on international oil and
gas markets, not to mention bubble creation in other assets like gold. It is estimated that for every $20 price increase per crude oil barrel, the world would have to forego 1% of GDP [9]. This translation of political risk into economic risk is a deadly consequence especially in times that lie ahead. Dark Clouds over China's State Capitalism China's state capitalism model [10] has helped it groom global corporations that have thrived and turned into big businesses churning out money for the state, increasing Chinese footprint in global markets. Yet, for all its upsides, state capitalism has inherent flaws such as conflict of interest in regulation, political interference in business and lack of innovation. Moreover with rising per capita income in China and emergence of educated youth, the next generation is all set to demand more freedom, rights and liberty. This is already visible in the form of protests against the government when the latter introduced internet access restrictions. It is likely that imminent risks would be soon evident, should the ruling class in China fail to address this issue. The credibility of the business environment in China would be at stake with serious political & economic consequences.
TRANSFORMING EMERGING RISKS INTO OPPORTUNITIES
China could focus on domestic consumption to tame its surplus reserves. This would potentially restore the global trade balance. Sustainable growth, however, would require a major commitment from developed countries. To counter the implications of a deadlock over environmental agreement by the US, the European Union could set stringent import regulations linked with environmental policies, besides the imposition of carbon tax which would incentivize the move towards sustainable growth. Transforming political risk into opportunity is the toughest. Nevertheless, measures such as the “Lokpal Bill”, a bill to bring accountability to politicians and bureaucrats, are being proposed and debated in the Indian Parliament. This is the right time (just after the scams) to channelize public opinion towards bringing about an anti-corruption bill. The Arab countries on the other hand, could be assisted in bringing in a democratic and politically stable regime through economic aid and other forms of support from developed economies which could imply oil price stability. China, on the other hand, could capitalize on the success of state owned enterprises (SOEs) by disinvesting and strengthening regulation at the same time to ensure that a free market capitalist disaster such as the 2008 recession is avoided.
SUMMARY As expressed earlier, every risk comes with an opportunity. The key lies in transforming the risks into opportunities. To counter the demographic risk, countries experiencing the inversion of the demographic pyramid need to encourage immigration of skilled & semi-skilled labour. This may result in cultural assimilation problems in the short term, but would prevent the country from going into a phase of slowdown in the long-term. Policies to boost demographic figures, such as tax-breaks to couples bearing children could be implemented along the lines of policies in Germany. To foster social equity, publicprivate partnerships could be undertaken in emerging economies to develop infrastructure. Global corporations could chip in to aid this inclusive growth by bringing in technology at affordable prices, since they too stand to gain in the long run. Capitalizing on dollar bubble risk would require bold moves from both the US and the rest of the world. China being a major global trade partner could open currency swap lines with other large economies to reduce dependence on the dollar as the trading currency. The US could swing into savings mode while
The world, with its emerging risks, may not be the world that the current generation would have wished for. Nevertheless, that's what it will inherit. Will the demographic risk weigh down on the current generation & will social inequity hamper balanced growth? Will the dollar bubble burst & will the world make a transition to a green economy? Will the corruption in India, the political turmoil in the Arab world and the changing socio-political environment in China impact the regional and global economic growth? Only time can tell.
REFERENCES 1. Emerging Risks Survey 2010, prepared by Max J. Rudolph, FSA CERA CFA MAAA, Rudolph Financial Consulting, LLC; sponsored by Joint Risk Management Section, Society of Actuaries, Casualty Actuarial Society, Canadian Institute of Actuaries. Publication date: Feb 2011 2. “Economic Outlook: Beware of demographic risks” by Alejandra Grindal, to be published in the January 2012 issue of Euromoney. Abstract of the 11
article accessed on http://www.euromoney.com/Article/2951993/Econo mic-outlook-Beware-of-demographic-risks.html Access date: 25-Jan-2012
Access date: 30-Jan-2012. 112 years of oil reserves by OPEC countries and 19 years of reserves by nonOPEC countries (collectively 131 years of global oil reserves).
3. Source: English.news.cn article dated 20-Jan2012.http://news.xinhuanet.com/english/china/201201/20/c_131370259.htm Access date: 25-Jan-2012
8.“Performance Audit Report on the Issue of Licences and Allocation of 2G Spectrum”, by the Department of Telecommunications, Ministry of Communications and Information Technology, Government of India, No. 19 of 2010-11
4. Source: http://www.usgovernmentdebt.us/ Access date: 27-Jan-2012
9. “Investment Implications of the evolving Jasmine Revolution”, Analyst report by Fidelity International. Accessed on: http://www.fundsupermart.com/main/articleFiles/web articles/4950/SG/FID%20MktPersp%20%20Jasmine%20-%20Feb11E.pdf Access date: 28Jan-2012
5. Source: http://www.usgovernmentspending.com/us_deficit Access date: 27-Jan-2012 6. Quote from Ramalinga Raju's letter to employees dated 7-Jan-2009 (ex-Managing Director of former Satyam Ltd, charged for accounting and other financial frauds that led to dissolution & subsequent takeover of the original company)
10.“The visible hand”, Special Report on State Capitalism, The Economist, January 21st 2012
7.Source: OPEC website http://www.opec.org/opec_web/en/press_room/179.htm.
12
Pooja Shrivastava (PGDM 2011-13 Finance) The paper attempts to perform a cross country analysis of the correlation between infant mortality and various socio-economic and demographic factors. The methodology adopted essentially consists of using cross country data and running statistical tools on it. The author finds that infant mortality rate is dependent more on health and demographic factors than income for the least developed nations, and on both for the developing nations. Income and health related factors do not seem to significantly affect IMR in developed nations.
INTRODUCTION Infant Mortality Rate (IMR), defined as the number of deaths of children before the age of one year for every thousand live births, is often considered as a summary indicator of socio-economic development of a country or region. Systematic demographic data is available for almost all countries for the past several decades. IMR has been declining in all countries, although at a varying pace. Data for 2011 indicates that the IMR varies between 2.6 for Singapore and 144 for Afghanistan [1]. The reduction of IMR is an important policy objective for all governments. Towards this end, governments have committed significant resources for providing education, health care and livelihood support programs. Nevertheless, the outcomes of such programs across regions and nations vary. Thus, there is still a running debate on both the cause of infant mortality and the best strategy for reducing it. The present study is an attempt to capture the variables most affecting IMR by analyzing the latest cross country data and to arrive at some specific policy prescriptions.
BACKGROUND At the turn of the 19th century, infant mortality showed a rapid decline in Europe. This decline was broadly associated with a general rise in living standards. By the 1950s, the IMR for most of Europe varied between 30 and 50. Data is available for almost all the countries from the 1950s [2], [3]. IMR is low for the more developed nations but there is variation among countries within the same income group. Thus, while income could be an important variable affecting IMR, there are other factors also at
work. A similar situation is seen within India. Here, Kerala, with a low per capita income has exceptionally low IMR but Punjab, with a much higher per capita income has a significantly higher IMR [4]. It is therefore important to clearly understand the interplay of demographic, economic, and healthcare availability factors and devise policies and programs accordingly.
LITERATURE SURVEY A subject as important as this one has naturally been intensely studied [5][6][7]. One of the more comprehensive works in this area is the publication, 'The decline of Infant Mortality in Europe â&#x20AC;&#x201C; 1800-1950 â&#x20AC;&#x201C; Four National Case Studies' [8] by UNICEF in 1993. This work highlights the debate on whether the decline in IMR is due to economic factors alone or whether access to preventive and curative healthcare is also an important factor. The accepted view is that a host of socio economic factors affect IMR. Mosley and Chen (1984) [10] grouped the proximate determinants into five categories, viz. maternal factors (age, parity, birth intervals), hygiene and sanitary factors, availability of nutrition, availability of preventive healthcare and accidental or intentional injury. A similar classification is adopted by Gandotra and Das (1988) [11]. Pandey, et. al. (1998) [12] considered mother's literacy and the child's sex also as possible variables. Another study by Dr. Mohamed Salih Mahfouz, et al, [13] has considered child immunization as one of the factors. Shruti Kapoor[14] analysed district level data in India to find that female literacy had a strongly beneficial effect on infant mortality. Sunita Kishor & Sulabha Parasuraman [15] discovered that infant mortality was somewhat higher if the mother was employed either at home or outside for cash. J. 13
PAPERS
Causes of Infant Mortality A Cross Country Analysis
VanDerslice, B. Popkin, and J. Briscoe [16] have found that breast feeding could positively affect infant mortality, especially if sanitation was poor â&#x20AC;&#x201C;the reason being that it protected the child from diarrhoea. An Indonesian study [17] too reported that infant mortality rate was greatly affected by the level of education of the mother. On similar lines, Julie DaVanzo, Jean-Pierre Habicht, [18] who studied the causes of decline in infant mortality in Malaysia between 1946 and 1975, concluded that mothers' education and improvement in water and sanitation were the main causes for the improvement in IMR. However, it is found that a change in breast feeding habits significantly offsets such gains. In their study of state level infant mortality in India, F.Ram, et al, [19] concluded that mothers' education is the most significant determinant of infant and child mortality. Mizanur Rahman , et al, [20] found that neonatal mortality (death within 28 days) was not affected by either access to latrines or size of the household, but post neonatal mortality (death between 28 days and 11 months) was very significantly affected by access to latrines and also on whether the household size was more than 10. Quamrul Hasan, et al, [21] inferred from their study that mothers' education, sanitation and electrification were an absolute must for a quick decline in infant mortality. John M. Shandra , et al, [22] found through a panel regression of data from 59 countries that multinational corporation penetration could adversely affect infant mortality, especially in countries with weak democracies. Schell CO, et al, [23] have concluded that extrapolating health strategies across income groups could be inappropriate as the causes for infant mortality may vary significantly across nations. They found that the per capita public spending on health did not correlate strongly with IMR and there could be significant advantages to be gained from improved female education in low income countries.
DATA COLLECTION AND METHODOLOGY
population growth rate, total fertility rate, crude birth rate, crude death rate and life expectancy at birth. This study also extends the scope of coverage from 152 countries to 211 and uses more recent data. However, this study does not take into consideration the time series analysis of the data. The data used is a snapshot in time. Second, the inequalities in income in the various nations considered, which can be addressed using the Gini Index have not been considered to due lack of consistent data for the entire sample. Third, the size of the country has not been considered as a parameter directly, though we have taken population as a major influencing factor. These limitations could be addressed in further studies. The data on the demographic and economic parameters was obtained for 211 countries from the CIA â&#x20AC;&#x201C;The world Fact book, 2011 [1] and the United Nations Development Programme website [9]. Since the number of countries considered is large and they have diverse characteristics, this study aims to investigate whether any patterns or groups can be observed in the data, and further, to discover the dependence of IMR on the selected demographic factors. For the study, the following statistical methods were employed: 1. Cluster Analysis: It was desirable to see if the data could be clustered into more homogenous groups or some pattern could be observed. 2. Factor Analysis: It helped segregate variables that were highly correlated, reducing the number of independent variables that had to be regressed. 3. Stepwise Linear Regression: The independent variables and factors were tested to see whether they enter the model.
MODEL BUILDING AND FINDINGS
This study is based on the work of Schell CO, et al. (2003) [23]. The income levels are represented by GDP per capita, electricity consumption per capita, and mobile users per thousand population. The educational attainments of mothers are represented by mean years of education. In addition to these parameters, this study also considers the impact of factors relating to population growth, which have not been included in their study. These parameters are population, 14
Taking Infant Mortality Rate (IMR) as the dependent variable, a cluster analysis (using Wards method) was carried out on the above mentioned variables for all the 211 countries. This was done due to the large number of cases and high variability of the data.
CLUSTER ANALYSIS OUTPUT The following points were observed: 路 Data got neatly divided into three more or less homogenous groups representing the least developed, developing and the developed countries. 路
It is seen by analyzing the range and the mean for the variables that there is very minimal overlap among the three clusters with respect to each of the variables. Thus the variables selected are seen to go together, giving a multidimensional view of development.
As these clusters represented a very natural classification of the countries according to their development, we retained the number of clusters at 3, despite the first cluster (containing developed countries) having relatively lower number of countries. The second step was to consider a factor analysis for the 10 independent variables for each cluster. This was done independently for each cluster to investigate cluster specific correlations.
FACTOR ANALYSIS OUTPUT The following points emerged from the factor analysis of each cluster 路 The ratio of cases to variables was more than the required 5:1, except for the first cluster of least developed nations. This was taken as an 15
exception in order to maintain the natural clustering of data. Here, less than 50 cases were taken, since the variables are significantly correlated a factor analysis was expected to reveal significant grouping. The results of the analysis bear this out. ·
It was ensured that the correlation coefficient was greater than 0.3 for atleast 2 variables.
·
Bartlett's test of sphericity was done to check if the significance value (p- value) was satisfactory.
·
Overall Measure of Sample Adequacy (MSA) was checked to be greater than 0.5.
·
MSA values for each variable from the Anti Image correlation matrix was investigated to make sure that they are above 0.5. Then the value of communality for the variables was observed to check if they were above 0.5.
·
The number of optimal factors was found using Eigen Values.
·
A rotated component matrix was used to indicate the components of various factors. The loading of each variable in a particular factor was ensured to be greater than 0.4
CLUSTER II: DEVELOPED NATIONS Two factors were formed with factor 1 including birth_rt, and TFR, factor 2 being death_rt, mean_yrs_edu & pop_grwth_rte. The variables rejected by factor analysis viz. population, LEB and GDP_ppp, mobile_usage, and electricity_consumption and the two factors were considered for the step wise regression.
CLUSTER III: DEVELOPING NATIONS Three factors were formed with factor 1 being GDP_ppp, mobile usage & electricity_consumption, factor 2 being birth_rt, TFR, and pop_grwth_rte, and factor 3 being death_rt, and LEB . The variables rejected by factor analysis viz. Population and mean_yrs_edu and the three factors were considered for the step wise regression.
CLUSTER 1: LEAST DEVELOPED NATIONS Three factors were formed with factor 1 including birth_rt, death_rt and TFR, factor 2 being mobile_usage,& electricity_consumption and factor 3 being mean_yrs_edu and population. The three variables rejected by factor analysis, viz. pop_grwth_rte, LEB and GDP_ppp and the three factors were considered for the step wise regression
STEPWISE REGRESSION OUTPUT A step wise regression was run on the variables after the factor analysis with acceptance criteria of 5% to enter the model. The null hypothesis and alternate hypothesis were as follows:
H0: The independent variables and factors mentioned above do not have explanatory power over the dependent variable, IMR. H1: The independent variables and factors are capable of explaining the variation in the dependent variable. 16
For the cluster 1, the regression model can be expressed as IMR = 94.1574 + 4.5791* Factor1 7.7690*Popultion_grwth_rt - 0.0503*Factor21.3935 * LEB Where
correlation though, is weak as this group represents the developed nations where systematic causes of IMR have been adequately addressed leaving the random factors more significant. For cluster 3, the regression model can be expressed as IMR= 73.3706 - 0.0026 * Factor1 + 0.0053 * Factor 3 + 1.6700* Factor 2 - 1.2413 * Mean_yrs_edu
Factor1:0.316891*Birth_rt+0.405734*Death_rt+0.27 7375*TFR
Where
Factor2: 0.290376*Mobile_usage+0.709624*Electrical_consu mption
Factor1: 0.344325* GDP_ppp + 0.291217 * Mobile_usage + 0.364458 * electricity_per Cap Factor 2: 0.30528*Birth_rt + 0.294842 * TFR +0.399878 * Pop_grwth Factor 3: 109.4404 * Death_rt -108.44 * LEB
Thus we see that, IMR is positively correlated with Birth Rate, Death Rate and TFR and negatively correlated with population growth, mobile usage and electrical consumption. This seems to show that within LDCs, correlation of IMR with health and demography related factors affect IMR more than income related factors. For the cluster 2, the regression model can be expressed as IMR = 50.25725 + 0.9358* Factor1 - 0.5235* LEB 0.0001*GDP_ppp - 0.3152* Factor 2 Where Factor 1: 0.490078* Birth_rt + 0.509922* TFR Factor 2: 0.647155* Death_rt + 0.994655*mean_yrs_edu 0.64181*Pop_grwth
We see that IMR is positively correlated with Birth Rate, TFR and population growth, but negatively with all other variables. The signs are as expected. The
It is seen that IMR is positively correlated with Birth Rate, TFR, Population growth and Death Rate and negatively correlated with all other factors. The regression equation for this cluster shows a direct dependency on GDP per capita and mean_yrs of education. These are middle income countries and both demographic and income related factors have an impact on the IMR.
CONCLUSION AND POLICY PRESCRIPTION The IMR for the countries in cluster 1 (least developed Countries) is pretty high. In these countries the dispersion around the mean is not so much related to income related factors as much as health and demographic factors. Thus, an LDC can achieve reduction in IMR by focusing on health and education parameters. The countries in cluster 3 (middle income countries) show an intermediate IMR. The dispersion of the IMR about the mean depends upon the health, demography and income related factors. Thus, to reduce IMR 17
further, they may need to look into health and education on one hand, and income and livelihood issues on the other. The countries in cluster 2 are developed countries with low IMR. As systematic factors have already been addressed here, IMR seems to be a little random and weakly correlated with health, education and income related factors. Further reductions may be difficult to achieve in this case.
10. Mosley, W.H., and Chen, L.C, “An Analytical Framework for the Study of Child Survival in Developing Countries.” 1984 11. Gandotra, M.M., and Das, Nayaran, 1988. “Infant Mortality: An Analysis of Recent Births.” In: Infant Mortality in India – Differentials and Determinants; Edited by Anrudh K. Jain and Pravin Visaria, Sage Publications, New Delhi, 1988
REFERENCES 1. The CIA –The World Fact Book available online at https://www.cia.gov/library/publications/theworldfactbook/rankorder/ 2091rank.html accessed 12 April 2012.
12. Pandey, Arvind; Choe, Minja Kim; Luther Norman Y.; Sahu, Damoder; and Jagdish Chand, 1998. “Infant and Child Mortality in India”, National Family Health Survey Subject Reports Number 11, IIPS Mumbai
2. Indicators and facts about IMR across the world available online at http://www.indexmundi.com/facts/indicators/SP.DYN .IMRT.IN accessed 12 May 2012.
13. Level and Determinants of Infant and Child Mortality in Malakal Town – Southern Sudan available at http://www.sjph.net.sd/files/vol4i2/SJPHvol4i2-p250-255.pdf accessed 12 May 2012.
3. List of IMR country wise available at http://en.wikipedia.org/wiki/List_of_countries_by_in fant_mortality_rate accessed 15 May 2012.
14. Shruti Kapoor; “Infant Mortality Rates in India: District Level” available online at http://www.isid.ac.in/~pu/conference/dec_10_conf/Pa pers/ShrutiKapoor.pdf accessed 14 May 2012
4. SRS Bulletin Volume 46 No 1 available online at http://pib.nic.in/archieve/others/2012/feb/d20120201 02.pdf accessed 15 May 2012
15. Sunita Kishor & Sulabha Parasuraman; “Mother's Employment and Infant and Child Mortality in India” available online at http://scholarspace.manoa.hawaii.edu/bitstream/handl e/10125/3474/NFHSsubjrpt008.pdf?sequence=1 accessed 14 May 2012
5. Poverty, nutrition and mortality: A comparative perspective available online at http://www.cicred.org/Eng/Publications/pdf/Trivandr um_LIVRE_SHS_200208_def.pdf accessed 17 May 2012
16. J. VanDerslice, B. Popkin, and J. Briscoe; “Drinking-water quality, sanitation, and breastfeeding: their interactive effects on infant health.”
6. Relationships between water, sanitation and infant, child, and maternal mortality. Environmental Health 2012, 11:4 doi:10.1186/1476-069X-11-4 Published: 27 January 2012
17. “Infant and Child Mortality” available online at http://www.measuredhs.com/pubs/pdf/FR147/10chap ter10.pdf accessed 16 May 2012
7.Godelieve Masuy-Strooban; “The determinants of infant mortality: how far are conceptual frameworks really modelled?”
18. Julie DaVanzo and Jean-Pierre Habicht; “ Infant Mortality Decline in Malaysia” Rand publication, 1946-1975
8. Carlo A. Corsini and Pier Paolo Viazzo; “The decline of Infant Mortality in Europe – 1800-1950 – Four National Case Studies” available online http://www.unicefirc.org/publications/pdf/hisper_decline_infantmortalit y.pdf accessed 09 May 2012
19. F. Ram, S.K. Mohanty, Usha Ram; “Progress and Prospects of Millenium Development Goals in India.” Available online at www.iipsindia.org/pdf/a08mohanty_report.pdf accessed 17 April 2012 20. Mizanur Rahman; “Impact of environmental sanitation and crowding on infant mortality in rural Bangladesh”, The Lancet : Volume 326, Jul 06, 1985
9. www.undp.org.in/ accessed 09 April 2012
18
21. Quamrul Hasan Chowdhury , et al,; “Socioeconomic determinants of neonatal, post neonatal, infant and child mortality”, International Journal of Sociology and Anthropology Vol. 2(6), pp. 118-125, June 2010
23. Schell CO , et al,.; “Socioeconomic determinants of infant mortality: a worldwide study of 152 low-, middle-, and high-income countries.” Available online at http://www.ncbi.nlm.nih.gov/pubmed/17530551 accessed 17 May 2012.
22. John M. Shandra;” Dependency, Democracy, and Infant Mortality: A quantitative, cross-national analysis of less developed countries”, Social Science & Medicine 59 (2004) 321–333
19
PAPERS
The Impact of Education, Income Inequality and Primary Healthcare on Mortality Rate An Empirical Study of US Census Data Hari Iyer (PGDM 2011-13 Operations) This paper studies the causal relationship between mortality rate and social development indicators such as education, income inequality and primary healthcare in the United States. Traditional studies on this subject have focused primarily on the effect of income inequality. Using the methods of factor analysis and linear regression, this author argues for broadening the set of variables under consideration, and concludes that additional variables such as the percentage of population below the poverty line and the number of hospitals in each state are strong predictors of mortality.
INTRODUCTION Mortality rate, or the number of deaths per unit population in a year, is an important indicator of public health and human development in a country. The developed regions of Western Europe, the Scandinavian countries and North America have low mortality rates and score better on human development indices than the rest of the world. It is of interest to every government to reduce the mortality figure to the extent possible. There are different ways to do this – it could boost spending on public hospitals to provide better healthcare, give this money to citizens in the form of transfer payments, increase the number of physicians' training colleges, and so on. Given the limited budget, it is of interest to know which factors influence mortality rate the most, so that resources can be directed optimally. This study aims to capture the variables affecting mortality rate in fifty one US states for the year 2009 and identify the most important contributing factors. This is done by means of a factor analysis and stepwise linear regression on the data. US data is chosen since the US has among the highest income inequality levels (measured by the Gini coefficient) among the OECD nations. US data is also standardized and comprehensive, making any regression analysis meaningful.
BACKGROUND Mortality rate is defined as “the ratio of deaths in an area to the population of that area, expressed per 1000 per year.” [1] US mortality data is age adjusted, that is, mortality figures for each age range are multiplied with pre-determined weights, and the weights add up to 1. Age adjustment is necessary to compare populations 20
with different age profiles – for instance, a population with a larger proportion of young people may exhibit lower death rates, and so on. Since the US census data is collected periodically, it is important that the data be standardized to enable comparison across years. One such table of weights is taken from Klein and Schoenborn [2]. Mortality rate has been shown to be strongly associated with income inequality in the United States. Similar reports have confirmed a relation between these variables in the UK and other OECD countries. These studies have been used in various policy documents across the world, such as the National Health Strategy Unit in Australia, the World Bank, the Canadian Program in Population Health, and the Commission on Social Justice in Britain. Despite the widespread popularity of this hypothesis, doubts have been raised about the validity and completeness of these studies, i.e., that mortality rate cannot plausibly depend on one factor alone. Proponents argue that income inequality is not just a variable, but also an indicator of a number of other factors such as social status, prestige, etc. [3]. The present study attempts to bridge this gap in understanding, and identifies some other factors that may be responsible for a variation in mortality rate.
LITERATURE SURVEY A large number of studies have confirmed the link between income levels and their distribution and health indicators such as mortality rate, incidence of cardiovascular disease, and physical, psychological and cognitive functioning. Lynch, et al concluded from their study of population samples in Alameda County, California that there were significant associations between poverty (measured as the number of times in a range of years that the total household income was less
than twice the federal poverty level for that year) and measures of functional status (in terms of activities of daily living, physical performance scale, etc.), psychological functioning (depression, cynical hostility and optimism) and cognitive function (difficulties in remembering things, paying attention, etc.) [4]. Lynch and Kaplan argue that apart from individual characteristics like education or income level, health is affected by social and economic factors such as inequality of income distribution [5]. Other studies have established a correlation between socioeconomic factors and cardiovascular disease [6, 7], while yet others have verified the link between these factors and mortality rate, both in the US and internationally [8-11]. The seminal study in this field was conducted by Wilkinson, who hypothesized that variations in mortality rate could be explained by socio-economic measures such as occupational class, education, unemployment, etc. As a proxy for these measures, he tested the explanatory power of gross national product (GNP) per capita and income inequality on mortality. Data was taken for nine European and North American countries. He concluded that while GNP per capita had no significant effect on mortality beyond the level of $ 5000 per person, the relative (rather than absolute) income helped explain a significant amount of variation in mortality rate [12]. Similar research work carried out in the United States and Canada confirms this correlation. Lynch, et al, have studied the variation of mortality with different measures of income inequality such as Gini coefficient, Theil entropy index, Atkinson deprivation index, and so on in US metropolitan areas. Data for 283 metropolitan areas was taken from the 1990 US census. It emerged that metropolitan areas that exhibited high income inequality also had higher age-adjusted mortality rates [13]. Ross, et al, performed a similar analysis with data for 10 Canadian provinces, the 50 US states as well as 53 Canadian and 282 US metropolitan areas. They concluded that while Canada bucked the trend of income inequality accounting for variation in mortality, the United States showed a strong correlation between the two, both in provincial as well as the metropolitan areas. They surmised that Canada did not exhibit similar tendencies because of “the different ways in which social and economic resources are distributed in Canada and the United States” [14]. Shi, et al investigated the existence of a similar relationship in the United States for four time periods, viz., 1980, 1985, 1990 and 1995, taking income
inequality as well as primary care (measured by the number of physicians per unit population) as the independent variables. Significant explanatory power was found for both variables through all the four years investigated. The relation persisted after additional measures such as health insurance, per capita income, education, poverty and minority status were introduced. However, income inequality ceased to be an important measure after their inclusion [15]. Muller additionally introduced education, measured by the percentage of people aged 18 years or higher without a high school diploma, as a variable, and found that the effect of income inequality disappeared when education was added to the regression model. He argued that lack of high school education itself accounted for the income inequality effect [16]. Others have cautioned against excessive reliance on income inequality as a sole explanation for mortality. Judge argues that it is the “product of many influences, which probably interact over long periods of time.” He suggests using more sophisticated methods and more factors [17]. Bishop, et al suggest that family income may not be as good a measure as individual income as internationally, family sizes vary with change in income levels, making comparisons difficult [18]. Gravelle opines that the relationship between income inequality and health may simply be a statistical artifact, and that absolute income is sufficient to explain variations in population health [19].Wolfson, et al counter this by saying that the strength of association between income inequality and mortality extends beyond what can be explained as a statistical artifact [20]. Most of the studies mentioned here suffer from poor adjusted R-square values of the statistical model, i.e., the explanatory power of the independent variables is not sufficient. The typical range of adjusted R-square values is between 30 and 40% (see Conclusion section for details). This indicates a need to include some additional explanatory variables apart from measures of income inequality to account for variations in mortality rate. While Shi, et al attempted to consider other indicators of social status and inclusion, their study did produce a sufficiently high R-square value. This indicates the need to further expand the scope of the variables considered. The present study aims to increase the explanatory power of the model by considering additional variables like education levels, quality of primary care and government transfer payments to individuals. While some of these variables have been found significant, others have not contributed to model formation. This study produces an 21
improvement in the R-square value and paves the way to a better understanding of the causes of mortality.
DATA COLLECTION AND METHODOLOGY The present study draws principally on the work of Muller and Shi, et al, and considers variables that broadly fall under the following categories (concepts) as being responsible for accounting for variation in age adjusted mortality per 1000 population (which is the dependent variable): 1. Education levels 2. Income and income inequality 3. Quality of primary care Data for the study is taken from the 2009 US census [21]. Data for 51 states form the 'rows' of the data table. The US Census Bureau uses the American Community Survey (ACS), whereby data is collected continuously using independent monthly samples via three modes – mails, telephone calls and personal visits. The sample for this survey is generated from the American national Master Address File (MAF), which is the Census Bureau's official record of living quarters (which includes housing units and group quarters) and some non-residential units. For the American Community Survey and the Puerto Rico Community Survey (PRCS), two separate samples are taken – Housing Unit (HU) addresses and persons in Group Quarters (GQ). For Hus, address samples are taken from each of the 3142 counties of the US and the 78 municipalities of Puerto Rico, making a total of 3 million HU addresses annually in the US and 36000 HU addresses in Puerto Rico. For GQ samples, approximately 2.5% of the number of residents in GQ facilities is included [22]. Following Judge, excessive reliance on few variables is avoided. The variables which are derived from the concepts outlined above are shown in Table 2. The objective of this study is twofold: 1. To investigate whether the correlations worked out by earlier researchers up to 1995 hold true for 2009 data, given the demographic changes; and 2. To investigate whether additional variables outlined above have any effect in predicting mortality rate To carry out this study, factor analysis and stepwise linear regression are used. Factor analysis helps club variables that are highly correlated, while stepwise linear regression identifies whether each variable or factor enters the model or not. A significance level of α = 5% is used as an acceptance criterion. The null and alternate hypotheses for stepwise 22
regression are formed as follows: Null hypothesis H0: Each of the independent variables, viz., HSgrad, BachDegree, Gini, BPL, Physicians, Hospitals and TransPayment, do not have explanatory power over the dependent variable, viz., age adjusted mortality rate per 1000. Alternate hypothesis H1: The independent variables are capable of explaining the variation in mortality rate.
MODEL BUILDING AND FINDINGS The dependent variable is the age adjusted mortality rate. The remaining 7 independent variables are considered for factor analysis. The total number of cases considered is 51 (one case for each American state).
FACTOR ANALYSIS OUTPUT The following salient features emerge from running a factor analysis in SPSS: Ÿ The ratio of cases to variables is 7.28:1, which is more than the required ratio of 5:1 Ÿ Bartlett's test of sphericity has a significance of
0.000, indicating that the factor analysis is valid (see Table 1) Table 1
Ÿ Measures of sampling adequacy obtained from anti-
image correlation shows that all variables have MSA values greater than 0.5, meaning they are suitable for factor formation. However, values of communality for two variables, viz., Hospitals and TransPayment, are below 0.5. The one with the lower value, viz., TransPayment, is chosen for removal first. In the next run, only Hospitals has communality less than 0.5, and hence it is removed. In the third run, all variables have communality values above 0.5 (see Table 2).
Table 2: Communalities (Extraction method is Principal Component Analysis)
Factor loading values are extracted from SPSS and transferred to an spreadsheet; and are multiplied with the variable values to form Factor 1 and Factor 2. The data is now ready for a stepwise regression analysis with four variables – viz., Hospitals, TransPayments, Factor 1 (consisting of BPL, Gini and HSgrad) and Factor 2 (consisting of Physicians and BachDegree).
STEPWISE REGRESSION OUPUT
Ÿ Looking at the Eigenvalues, it is seen that two
components have eigenvalues above 1, indicating the formation of two factors (see Table 3) Table 3: Eigenvalues
Stepwise regression is run on two variables and two factors with acceptance criteria of 5% to enter the model. The following features are observed: Ÿ Pearson correlation table shows low correlation between different factors and variables (all correlation values below 0.5), meaning that the data is suitable for regression analysis without the problem of multicollinearity (see Table 5).
(Extraction method is Principal Component Analysis)
Table 5
Ÿ The rotated component matrix indicates that
Physicians and BachDegree form one factor, i.e.,they are closely related, while the other three variables, viz., BPL, Gini and HSgrad, form another factor (see Table 4). Ÿ Highest adjusted R-square value of 0.458 is
Table 4: Rotated component matrix
obtained with model 2, which shows that it has higher explanatory power that model 1 (see Table 6 for model summary)
(Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 3 iterations)
Table 6
Ÿ
23
The ANOVA table shows that model 1 has an F value of 35.236 and model 2 has a value of 22.101. Both of them have a significance of 0.000, indicating that the null hypothesis of independent
variables having no explanatory power is rejected.
graduation rates, percentage unemployed, and so on. This is reflected in the factor formation, in which two measures of income disparity (viz., Gini coefficient and percentage of population below poverty line) have been found to correlate with education levels.
Table 7: ANOVA table
Ÿ The coefficients table indicates that Factor 1
and Hospitals have entered model 2, while TransPayment and Factor 2 have been excluded. Since the constant has a significance value of 0.000, unstandardized coefficients are to be used in building the regression model (see Table 8). Table 8: Coefficients and collinearity statistics for regression model
Using the coefficients obtained, the regression model can be expressed as follows: Mortality rate = 16.048 + 0.088*Factor 1 – 0.003*Hospitals
CONCLUSION From factor analysis, it emerges that Hospitals and TransPayments are independent variables and do not enter any factor. This is quite intuitive, since transfer payments does not belong to any of the three concepts outlined above, and the number of public hospitals has little correlation with the number of physicians in a state, or with education or income inequality levels. It is interesting to note that the percentage of people below poverty line, the Gini coefficient and the percentage of population that has a high school diploma have entered a single factor, showing that these are highly correlated. This is consistent with Wilkinson's assertion that income inequality is an indicator of a wide range of psycho-social factors. Lynch, et al, assert that income inequality corresponds to per capita medical expenditures, high school 24
The other factor consists of the number of physicians per 100,000 population and the percentage of population with a bachelor's degree or higher. While intuitively it may seem that percentage of population with a high school diploma and the percentage with a bachelor's degree should enter the same factor, it must be kept in mind that being a high school graduate by itself guarantees an economic status above the poverty line (from US census data, high school graduates' mean income in 2009 was $30627 – well above the poverty line), and further educational attainments have little bearing on income inequality, and hence, on mortality rate. The association between number of physicians and percentage with a bachelor's degree can probably be explained by the fact that educational qualification accounts for higher income, and a greater concentration of physicians can be found in high income areas. From the regression model, we find that Factor 1, which consists of the percentage of people below poverty line, the Gini coefficient and the percentage that has a high school diploma are highly significant in explaining mortality rate. This validates Muller's findings and introduces an additional important income variable, viz., percentage of people below poverty line, as a predictor of mortality rate. The number of hospitals in thousands also directly influences the health of the population, and hence, the mortality rate. Factor 2 and transfer payments do not enter the regression model. As explained earlier, educational attainments beyond the high school diploma do not have a significant effect on income inequality or mortality rate. Surprisingly, contrary to the findings of Shi, et al, the number of physicians per 100,000 population has no effect on the dependent variable. This is most likely a result of the fact that difference in health care access has already been accounted for by the number of public hospitals. Transfer payments from the government to citizens occurs through multiple channels – for instance, through retirement and disability insurance benefits, education and training payments, veterans benefits, and so on – leading to a diffusion of benefit and hence, a weakening of its explanatory power. Additionally, transfer payments are usually not made to immigrants and non-citizens – a vulnerable group whose mortality rate is higher than average. The present study has an adjusted R square value of
0.458, meaning that 45.8% of the variation in the dependent variable is explained by the independent variables. While an adjusted R-square value of > 0.60 is usually preferred, a comparison with previously published studies indicates an improvement in this value. The comparison is shown in Table 9. Table 9: Comparison of adjusted R-square values with prior studies
Expectancy: a Critical Appraisal”, BMJ, vol. 311, November 1995. 4. Lynch, J.W., Kaplan, G.A. and Shema, S.J, “Cumulative Impact of Sustained Economic Hardship on Physical, Cognitive, Psychological and Social Functioning”, New England Journal of Medicine, vol. 337, December 1997. 5. Lynch, J.W. and Kaplan, G.A., “Understanding How Inequality in the Distribution of Income Affects Health”, Journal of Health Psychology, vol. 2, 1997. 6. Lynch, J.W., Kaplan, G.A., Cohen, R.D., Tuomilehto, J. and Salonen, J.T., “Do cardiovascular risk factors explain the relation between socioeconomic status, risk of all-cause mortality, cardiovascular mortality, and acute myocardial infarction?”, American Journal of Epidemiology, vol. 144, November 1996.
It is seen that the adjusted R2 value obtained in this study is better than most of the previous published data, indicating that the current research is valid. The key takeaways from this study can be summed up as follows: What is already known: Income inequality, education levels and primary care availability are strongly correlated with mortality rate in the US and other OECD countries in data leading up to 1995. What this study adds: The conclusions of prior studies are largely valid for 2009 data also. The percentage of population below poverty line and number of hospitals in each state are strong predictors of mortality rate. The number of physicians per 100,000 people, percentage of population with a bachelor's degree and transfer payments from government to individuals do not affect mortality rate
REFERENCES 1.Princeton WordNet, http://wordnetweb.princeton.edu/perl/webwn?s=mort ality%20rate, accessed 31st May 2012. 2.Klein, R.J., and Schoenborn, C.A., “Age Adjustment Using the 2000 Projected U.S. Population”, Number 20, Healthy People 2010 Statistical Notes, Centers for Disease Control and Prevention, January 2001.
7. Kaplan, G.A. and Keil, J.E., “Socioeconomic factors and cardiovascular disease: a review of the literature”, Circulation, vol. 88, October 1993. 8. van Doorslaer, E., Wagstaff, A., Bleichrodt, H., Calonge, S., Gerdtham, U.G., Gerfin, M., Geurts, J., Gross, L., Häkkinen, U., Leu, R.E., O'Donnell, O., Propper, C., Puffer, F., Rodríguez, M., Sundberg, G. and Winkelhake, O., “Income-related inequalities in health: some international comparisons”, Journal of Health Economics, vol. 16, 1997. 9. Haam, M.N. and Kaplan, G.A, “The Contribution of Socioeconomic Position to Minority Health”, Report of the Secretary's Task Force on Black and Minority Health. Vol. 2, 1985, available online at http://deepblue.lib.umich.edu/handle/2027.42/51552, accessed 31st May 2012. 10. Kaplan, G.A., Pamuk, E.R., Lynch, J.W., Cohen, R.D. and Balfour, J.L, “Inequality in income and mortality in the United States: analysis of mortality and potential pathways”, BMJ, vol. 312, April 1996. 11. Kennedy, B.P., Kawachiaki, I.K. and ProthrowStith, D, “Income Distribution and Mortality: cross sectional ecological study of the Robin Hood index in the United States”, BMJ, vol. 312, April 1996. 12. Wilkinson, R.G, “Income distribution and life expectancy”, BMJ, vol. 304, January 1992. 13. Lynch, J.W., Kaplan, G.A., Pamuk, E.R., Cohen, R.D., Heck, K.A., Balfour, J.L., and Yen, I.H., “The
3. Judge, K., “Income Distribution and Life 25
Relationship Between Primary Care, Income Inequality, and Mortality in US States, 1980–1995”, The Journal of the American Board of Family Practice, vol. 16, 2003.
Tests for Lorent Dominance Across Nine Countries”, Vol. Working Paper No. 207, Working Paper Series, Department of Economics, Finance and Legal Studies, University of Alabama.
14. Ross, N.A., Wolfson, M.C., Dunn, J.R., Berthelot, J.M., Kaplan, G.A., and Lynch, J.W., “Relation between income inequality and mortality in Canada and in the United States: cross sectional assessment using census data and vital statistics”, BMJ, vol. 320, 2000.
19. Gravelle, H., “How Much of the Relation Between Population Mortality and Unequal Distribution of Income is a Statistical Artefact?”, BMJ, vol. 316, January 1998.
15. Shi, L., Macinko, J., Starfield, B., Wulu, J., Regan, J., and Politzer, R., “The relationship between primary care, income inequality, and mortality in US States, 1980-1995”, Journal of the American Board of Family Practice, vol. 16, Sept-Oct 2003. 16. Muller, A, “Education, income inequality, and mortality: a multiple regression analysis”, BMJ, vol. 324, January 2002.
20. Wolfson, M., Kaplan, G., Lynch, J., Ross, N. and Blacklund, E., “Relation Between Income Inequality and Mortality: Empirical Demonstration”, Western Journal of Medicine, vol. 172, January 2000. 21. U.S. Census Bureau, “The Statistical Abstract of the United States”, available online at http://www.census.gov/compendia/statab/, accessed 31st May 2012. 22. U.S. Census Bureau, “Design and Methodology American Community Survey”, US Department of Commerce, Economics and Statistics Administration, Washington, D.C., 2009.
17. Judge, K., “Income Distribution and Life Expectancy: a Critical Appraisal”, BMJ, vol. 311, November 1995. 18. Bishop, J.A., Formby, J.P. and Smith, W.J., “International Comparisons Of Income Inequality:
26
Anshuman Gautam (PGDM 2011-13 Operations) This article attempts to provide a framework for analyzing the capability of business to perform in the future in light of the trends governing the dynamic business environment. The framework developed with some modification can be used to analyze conglomerate performance with an opportunity to compare companies across industries so as to provide strategic thinkers a platform to understand where the business is headed. The Earth Model explains the position of companies in the "layers" of the earth with the core having best performing companies using parameters such as market value and intrinsic value. The 5 As of Strategic Drive further provide a directional viewpoint to the corporate executives on where to take their businesses in the future.
INTRODUCTION The principal purpose of business is to increase shareholder value over the long term. For this, businesses need to understand and predict how their operations should be aligned to the environment. This paper aims to provide a framework to analyze environmental changes and the best ways to align businesses with them. In the process a framework is presented, viz., the 5 As of Strategic Drive, which, if applied in its true sense, will help businesses gauge the changing business landscape and calibrate their response accordingly.
GLOBAL FORCES CHANGING THE BUSINESS LANDSCAPE The changes that are likely to affect businesses in the near future are: 1. Growing number of consumers in emerging economies – The 2011 BCG global challenger report [1] says that the middle class in recently developed economies will grow to 30% of the world population by 2020 and to 50% by 2030. Businesses, therefore, would need to segment the world into “developed” and “developing” markets and design focussed plans to serve consumers from both the worlds. 2. Increasing role of External Factors – In the 2010 McKinsey global forces survey of more than 1,400 executives [2], 48% are reported to feel that the environmental factors are affecting their business and a significant 51% say that their company is addressing this issue actively. Nearly half the businesses, therefore, are passive in their reaction to environmental
changes, which will be a major factor in determining organizational success. 3. Shifting Industry Structure/Corporate Portfolio building – The McKinsey report “Strategy In An Era Of Global Giants” of 2004 [3] says that the net income of mega institutions (world's top 150 public companies at the end of 2004 based on market capitalization) has increased 3 fold whereas their market capitalization has grown 6 fold over 1984. This points to a trend not only of expansion, but also of corporate portfolio building and large businesses using their intellectual and financial assets to acquire smaller companies in a variety of sectors. This phenomenon will accelerate in the future and affect the operations of businesses. 4. More Intense backlash against Businesses – The recent financial crisis and is aftermath have created a backlash against businesses, as witnessed in movements like 'Occupy Wall Street'. Now more than ever, companies need to focus on ethics and transparency. In the 2007 McKinsey survey “Acting on Global Trends”, approximately 60% of executives rate social backlash as 'important' or 'somewhat important'. This figure has doubtlessly increased after the financial crisis of 2007 and the Euro crisis of 2011-12. 5. Shift of economic activity to emerging economies – This phenomenon, which dominated businesses in the last 20 years, will continue in the foreseeable future. Businesses will constantly look for new opportunities that will be created by the changing geo-political environment across the world. “Acting on Global Trends” says that 58 % of the executives felt that the effect of increasing global labor has had a significant effect on their business. 27
PAPERS
Taming the Future A Framework to Analyse Businesses at the Group Level
6. Increasing communication between social realms and businesses – With the rise of social networking and Web 2.0 tools, communication between businesses and society has increased to a great extent. This will put extra pressure on businesses to be accountable to the society at large.
THE IDEA In light of the above changes, businesses need a forward looking framework to help analyse their performance. There are two viewpoints from which a framework can be made – one, from the scope of a burgeoning diversified company like ITC Ltd., Tata Sons, etc., and two, from the scope of a growing industry attracting a large number of players (like the telecom industry in India). These viewpoints would help in understanding the competitive position of the firms, where they are at the present and where they want to go. Thus, the Earth Model is proposed. There are 3 layers – viz., the core, the mantle and the crust. To fit companies into this model, the Market Value and Intrinsic Value of firms are to be calculated. Market value is found out by using the market price of the stock and financial ratios of the firm, mainly using the DCF (Discounted Cash Flow) methodology. Intrinsic Value of the firm is found out by the available cash flow statements of the firms. The Crust consists of companies which have high Market Value and low Intrinsic Value. The Core consists of companies high on Intrinsic Value and Market Value while the Mantle consisting of companies having medium market and intrinsic values. Post that, to understand the movement of companies within the model, the 5 As of Strategic Drive is proposed. In order to give strategic direction to companies, it is critical to establish the 5 Advantages that a company can leverage– viz., competitive advantage, people advantage, learning advantage, social advantage and risk advantage. These parameters (the 5 As) may be calculated based on surveys conducted with senior executives across companies who are asked questions with specific rating scales. After plotting these ratings on a normalised scale to eliminate discrepancies; we get an indexed score to compare companies across sectors, whereby a diversified portfolio of a conglomerate can be analysed. A database approach always helps in quantifying a qualitative finding and giving a standardised platform for cross sector comparison of businesses and finally, provides a direction for strategic movement of companies within the Earth Model framework. The three step process can be summarized as follows: 28
Step 1: Measure intrinsic value & market value Every firm has value creation for investors as its major goal. Measuring value helps to understand the business potential of the company Step 2: Represent the business on Earth model (explained further) - This gives a competitive view of the industry and information about the players that have the ability to acquire and the ones that can be acquired.[5] Step 3: Apply “5As of strategic drive” (explained further) framework to assess whether a conglomerate should continue with a business in its portfolio or move out it.
MEASURING INTRINSIC & MARKET VALUE Intrinsic value can be measured through the discounted cash flow (DCF) method if a company maintains a stable debt to equity ratio (D/E). When the company's D/E is expected to change then adjusted present value (APV) can be used. However for companies in the banking sector where D/E forms an intrinsic part of business, methods like capital cash flow or equity cash flow can be used [6]. Market value calculation for companies that are publicly traded can be done by taking the share price. However, if company is not traded publicly, peer valuation can be used as a proxy. After that, based on the intrinsic and market values, the companies can be plotted on a 2X2 matrix as shown below.
Financial Stability – A company lying in this quadrant should be considered for potential divestment. As the market value is higher than the intrinsic value of the firm, selling the firm could add synergy benefit to the buyer and unlock value for the investors of the company being sold[7]. Strategic View –Firms that are low on market value but have a high intrinsic value need to work on their capital
market communication. This shows that the firm is not able to communicate properly to the financial market about its capacity to generate value [8]. Core Business – This is the best position for any firm to be in. This shows that the firm is not only investing in value adding activities but also communicating well with the capital market which is valuing its existence. Firms with low intrinsic and market value need to move out of the business as they are destroying shareholder value and the markets are well aware of their actions. After calculation of market value and intrinsic value for themselves and for competitors in the industry, all the competitors may be represented on the Earth model.
temporary period to create business synergies and raise their intrinsic value. However they must understand that this state is not going to exist for long and the market will eventually understand the value adding capacity of these companies. These companies should also look for potential buyers because it is the best time for companies to move out of business, thereby creating maximum value for shareholders. The Mantle: This comprises of companies that have a relatively low market value and possibly low intrinsic value. These are the companies that need a strategic drive to move either towards the core or the crust. The best way to decide which direction they should move in will depend on the strategic drive that exists in these companies.
THE EARTH MODEL
Mantle : Companies with lower Market & Intrinsic Values and which are comparable Needs Strategic Direction..
For instance, based on calculations of the intrinsic & market value [10] of consumer product companies of the TATA group, the following earth model was developed:
MOUNT EVEREST MINERAL WATER Mkt Value – 99.65, EPS – -3.48, Intrinsic Value - NEGATIVE
Core : Companies with High market Value & High Intrinsic Value Forms the Core of Portfolio..
TRENT LIMITED Mkt Value – 907.30, EPS – 13.49, Intrinsic value – 654.27
TATA GLOBAL BREVERAGES Mkt Value – 119.35, EPS – 6.29, Intrinsic Value – 179.27
Crust : Companies with High Market Value & Low Intrinsic Value Forms the Financial Portfolio..
TITAN INDUSTRIES Mkt Value – 243.45, EPS- 6.76, Intrinsic Value – 408.98
This model will help the managers of a conglomerate understand which businesses it makes sense to be in and in which businesses there is a potential for divestment. For businesses in the future, divestment should also be considered as a value adding activity [9]. While striving for growth, companies enter many businesses that never add value to their portfolio in the first place.
At this juncture, managers of the Tata group can ask a question, “Is it the right time to divest Mount Everest mineral water?” Reaching a conclusion only on the basis of earth model is taking a narrow view of business, and further analysis is required. This requires a new framework, viz., the 5 As of strategic drive.
EARTH MODEL EXPLAINED
5 A'S OF STRATEGIC DRIVE
The Core: The businesses that lie in the core are the ones that not only create value for their investors but also communicate well with the market. These businesses are in the best position to take advantage of innovation, market growth and their knowledge base. These will be the companies that will look for potential M&As in the sector.
Strategic Drive is the force that decides the direction of movement of companies within the earth model so that they either move towards the core or to the crust. This strategic drive is measured on the basis of the advantages that the company enjoys in that particular sector. The advantages that will decide the future of the company in that sector are given below. These advantages are hereby referred to as the 5As of Strategic Drive.
The Crust: The companies that are in crust are in need of working on their value creation. They need to take advantage of the high market value that exists for a
29
2. How much do currency & exchange rates affect the sector? 3. How much does an economic slowdown affect the sector? 4. How much does a financial market crisis affect the sector? 5. How much do pandemics affect the sector? 6. How much does a raw material price rise affect the sector?
COMPETITIVE ADVANTAGE (TO MAINTAIN OR INCREASE MARKET SHARE)
7. How much does a natural disaster affect the sector? 8. How much does geographical instability affect the sector?
The questions [11] that businesses should ask to understand the competitive advantage of their existence are:
LEARNING ADVANTAGE (TO REDUCE COST & GAIN CUSTOMER BASE)
1. How much does the improvement of capability of competitors affect their relative position? 2. How much does the entry of low cost competitors affect their relative position? 3. How does the number of competitors affect their relative position? 4. How does the growth of competitors affect their relative position?
The market/book ratio of top 150 companies has increased significantly in comparison to the same ratio for top 2000 companies [12]. This shows that businesses are becoming more valuable on the basis of the intellectual assets that they have in the field of operation. This trend makes learning advantage one of the critical parameters for success in the future. So a company needs to understand whether it has the capability to create intellectual assets.
5. How does an innovative market entrant affect their relative position? 6. How does a regulatory change affect their relative position?
Equity of Top 2000 Companies 100% 80%
7. What is their consumer awareness index?
60%
Book value Remaining mkt value
40%
8. What is the growth potential that exists in the sector?
20%
RISK ADVANTAGE (TO CATER TO OPPORTUNITIES IN THE MARKET)
0%
Managing risk is key to corporate success in a fast moving, increasingly competitive global environment. Strategic risk planning offers a method to identify opportunities that exist for a particular market in the future. The questions that business should ask to understand the competitive advantage of their existence are:
Equity of Top 150 Companies 100% 80% 60%
Remaining mkt value 40% 20%
1. How much do regulatory changes affect the sector?
0%
30
Book value
The questions that businesses should ask to understand the learning advantage of their existence are: 1. How much has the capacity to innovate increased in the company? 2. How much do consumer awareness & knowledge exist within the company?
The questions that businesses should ask to understand the people advantage of their existence are: 1. What is the company's contribution to an employee's learning opportunities? 2. What is the flow of knowledge to and from the company? 3. What are guiding principles of its operations?
3. What is the company's ability to customize a product or a service? 4. How good is the company in target marketing? 5. To what extent do supply chain insights exist within the company? 6.To what extent does the company involve the consumer in product development?
Further to the discussion on Mount Everest mineral water, it seemed that the company is a candidate for divestment. Managers of the group should try to answer the questions that are discussed in the 5A framework. This will give a set of values that decide the either capability of movement of the company towards the core or potential to move out of the model. Based on the analysis, the scores for the company on the 5As are
SOCIAL ADVANTAGE â&#x20AC;&#x201C; (TO ATTAIN SUSTAINABILITY) In the wake of the global financial crisis, businesses across the world are losing traction with the society, which makes this a critical parameter to judge the future viability of a business. Companies need to make social responsibility the core value of their operations. Companies should not only be proactive in compliance with regulatory requirements, but also have a farsighted vision in ensuring sustainability of business processes, restoration of biodiversity, and so on. The questions that businesses should ask to understand the social advantage of their existence are: 1. What are the social & ecological costs of doing business? 2. What is the level of trust that the company enjoys among suppliers, customers & vendors? 3. What are the social contributions of the company? 4. What is the ability of the company to affect the industry ecosystem?
PEOPLE ADVANTAGE â&#x20AC;&#x201C; (TO ATTAIN ADAPTABILITY) In a world when every tangible capability can be copied by competitors, it's the people who have become a company's most important assets. Moreover, to best use M&As for inorganic growth, companies need to develop people advantage in their portfolio.
** The detailed calculation is outside the scope of this write-up. The values are worked by writer's analysis of the company as an external agent. The values show that all the advantage factors, except risk advantage, for the company are low. The company bears a high risk advantage because as the natural resources across the world are getting scarce, this company gives the Tata group a hold over the supply of pure water. So divesting may not be a great idea, but the company does need to work on the other advantages to move itself towards the core.
CONCLUSION The implementation of the Earth model to formulate strategy is highly dependent on the data supporting the qualitative factors. The first part of the model, viz., comparison of intrinsic and market values, comes from equity research. The second part, viz., the 5 As of strategic drive, are calculated based on surveys conducted with senior executives across companies who are asked questions, the answers to which have specific ratings, which are then normalized to enable comparison across companies. Ultimately, this provides a direction for strategic movement of companies within the Earth Model framework. This approach needs to be conducted every year to understand how effective the initiatives taken in the past year have been and also to assess new opportunities and risks needing strategic attention that have developed in the environment. 31
REFERENCES 1. “Companies on the Move – Rising Stars From Rapidly Developing Economies Are Reshaping Global Industries”, BCG Global Report, January 2011.
7. Nippa, Michael.,Pidun, Ulrich., and Rubner, Harald.,”Corporate Portfolio Management: Appraising Four Decades of Academic Research”, BCG Perspectives, Volume 25, Number 4, November 2011. 8. “Closing the valuation gap”, BCG Impact Stories.
2. Bisson, Peter, Stephenson, Elizabeth, and Viguerie, S.Patrick,“Global Forces – An Introduction”, McKinsey Quarterly, June 2010. 3. Bryan, Lawell L., Zanini, Michele., ”Strategy in an era of global giants”, McKinsey Quarterly, November 2005. 4. Koller, Tim., Goedhart, Marc., andWessels David., “Valuation – Measuring And Managing The Value Of Companies”, Wiley Finance, 2005. 5. D'silva, Vijay.,Fellan, Bob., and Mehta, Ashit.,“Enduring Ideas – The Strategic Control Map”, McKinsey Quarterly, July 2010. 6. Damodaran, Aswath ., ”Security Analysis For Investment And Corporate Finance”, Wiley Finance, 2006.
32
9. Nees, Danielle,”Increase your divestment effectiveness”, Strategic Management Journal, Volume 2, Issue 2,April 1981. 10. “Safe Stock Investing the Warren Buffet Way: Fundamental Analysis and Value Investing”, http://minteasy.com/intrinsic-calc.do, accessed 22 June 2012. 11. “An executive take on the top business trends: A McKinsey Global Survey”, McKinsey Quarterly,April 2006. 12. “Insights – Mergers and Acquisitions”, http://www.bain.com/publications/capabilityinsights/mergers-and-acquisitions.aspx
N.V. Satya Dutt (PGDM 2010-12 Information Management), Kirthiga Sridhar (PGDM 2010-12 Information Management) and Shruti Parthasarathy (PGDM 2010-12, Operations). The case aims to highlight the need to harness the potential of Information Technology in order to bring about economic and social progress in rural india. It emphasizes on the use of Information and Communication Technology for social development and transparency in e-governance in villages. The author brings forth this idea by discussing the adoption of smart card technology for wage disbursement as a big step towards better implementation of MGNREGS scheme in Andhra Pradesh.
“Five years is a short period but the achievements are amazing. About 10 crore poorest of India's poor have earned a livelihood through MGNREGS. There are several benefits but there are also challenges in the implementation of the world's largest social welfare scheme. I think that is what makes my work interesting” –Murali Akunuri, Director, MGNREGS, Andhra Pradesh.
But one question has been constantly bothering Mr. Murali – what next? In order to plug any leakages in the disbursement, provide greater flexibility and faster payment to the wage seeker, Murali came up with a grand plan – smart cards. While smart cards are being used by approximately 50 percent of the wage seekers, several unforeseen problems have cropped up, forcing Murali to wonder if his plan should be scaled up or scrapped. The benefits and risks associated with it must be carefully assessed along with the social and technological impact of such a usage. “Can Smart Cards be the next big step towards better implementation of the scheme?” thought Murali as he walked into the conference room of his office building
After attending a series of fairly long interviews and panel discussions conducted by several Indian television channels, Murali Akunuri (Murali), Director, MGNREGS Andhra Pradesh, finally got a chance to visit his office at the Commissionerate of Rural Development, located in Hyderabad. While he was tired, this feeling was overshadowed by the excitement of meeting his employees and celebrating the occasion. February 8, 2011 was a special day for the entire MGNREGS-AP team. It was the day MGNREGS was awarded the 'Genpact NASSCOM Social Innovation Honours – 2011'. Innovation in the use of Information and Communications Technology (ICT) for social development and transparency in e-governance were two of the several criteria considered by NASSCOM foundation for selecting it as the winner.
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME MGNREGS is a legislation passed by the Indian Parliament guaranteeing wage employment to any adult who is willing to do unskilled manual work. MGNREGS was started in Andhra Pradesh in the year 2006. It now covers all districts of the country. The important objectives in the implementation of the scheme are:
Murali had a smile on his face as he vividly remembered the statement made by one of his colleagues when the idea of using ICT in MGNREGS was discussed. “You are talking about taking technology to the village level. There is no precedence of any such usage at such a large scale. It would involve lot of cost and the implementation might fail.” Murali was happy that he could prove many naysayers wrong on several forums of international repute. Andhra Pradesh's implementation of MGNREGS is one of the most successful implementations among all the states and has completely changed the e-governance space.
1) To enhance livelihood security in rural areas by providing at least 100 days of guaranteed wage employment in a financial year to every rural household willing to do manual unskilled work. 2) Regenerating natural resource base and creating productive assets protecting the environment; reducing rural urban migration. 3) Strengthening grass root processeses of democracy infusing transparency and accountability in governance.
33
CASES
MGNREGS in Andhra Pradesh Social Transformation through e-commerce
MGNREGS envisages that physical work leading to development of community assets like irrigation canals, all-weather roads, water tanks, etc. be created through this scheme in rural areas. The central government has released over Rs. 75000 crores in the past four years to state governments under MGNREGS and 69 % of the amount has been paid as wages to workers. 4.15 crore rural households have been provided employment under the programme so far. The budget for Andhra Pradesh for the year 2011 is more than Rs. 6000 crores. This scheme had performed better than most other antipoverty initiatives undertaken in India. It was estimated that in 2009-10, around five crore families were provided around 300 crore person-days of work under the scheme. This was more than three times the employment generated in 2006-07. What was even more remarkable was the coverage of SC/STs and women under the scheme. The share of SC/ST families in the work provided under MGNREGS in the past four years ranged between 51 and 56%, while that of women was 41-50% in the corresponding period. The scheme appeared to be sinking under the weight of corruption in some states. Therefore, in Andhra Pradesh, MGNREGS implementation was monitored by drafting social audit rules and setting up a separate organization for framing them. This has paid rich dividends and is borne out by the fact that while in Andhra Pradesh, misappropriation to the tune of Rs. 88 crores has been detected so far, it is not even Rs. 8 crore in the rest of the country. Besides, about 5,000 officials have been removed on charges of corruption and other irregularities. MGNREGS is being implemented in 21,858 Gram Panchayats, 1098 mandals and 22 districts in Andhra Pradesh, providing wage employment for 100 days to more than 1 crore households every year across the state. The scheme is being implemented by more than 21,000 Field Assistants at the Gram Panchayat level, 3500 Technical assistants each handling 7 Gram Panchayats in a mandal, 2196 Computer Operators working at the mandal level, 820 Engineering consultants working at the mandal level, 1098 Additional Programme Officers working at the mandal level and 1098 Programme Officers heading the mandal team. (Refer to Exhibit 1)
technologies (ICTs) herald new opportunities for growth and development in countries around the world. Governments worldwide are seeking to harness the potential offered by these new technologies to create new dimensions of economic and social progress. Immediate challenges relate to the need for requisite efforts by governments to aim at transcending the digital divide by narrowing the gap incrementally through the following measures. 路 路 路
Putting in place the necessary national information infrastructure; Developing and nurturing human resources to operate the national information infrastructure Providing adequate financial resources to implement both infrastructural and human resource requirements.
The Government of Andhra Pradesh, in partnership with technology providers such as Tata Consultancy Services, launched an ICT based solution in support of MGNREGS. Specifically, its mission is to strengthen accountability in public service delivery through enhanced transparency and enabling the poor to demand their rights based entitlement to employment as set out by the scheme. The study takes a snapshot of how the large scale of operations, the limitations of outreach of various services and the need to handle large volumes of information in a transparent manner necessitated the use of ICT for successful implementation of the above scheme. But the enthusiasm for realizing the potential of ICTs is often dampened by the barriers to successful implementation. In the implementation of the scheme, the role of ICT comes at several places. They are: 1. Computer Operator uploading all the data received from workers at the village level, generating pay orders, fund transfer orders, pay slips for wage seekers, using RAGAS software. 2. Maintaining and updating MGNREGS website so as to provide maximum information to the end users and ensure transparency. 3. Field Assistant using eMMS to record and upload attendance. 4. Use of eFMS for fund transfer and Smart Cards for wage disbursement
ROLE OF INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)
5. Overall usage of IT infrastructure at CRD.
The rapid development, deployment and proliferation of new and emerging information and communication
The most critical of all the above processes is the wage disbursement process. It is of utmost importance because the highest scope for mismanagement and
34
corruption exists at this step. Beyond the obvious benefits of automation across the workflow and access to real time data for government officials, an ITpowered MGNREGS in AP not only raises the standard of living, but also helps people lead a dignified life. With a wage slip, savings account and access to all information, wage seekers earn respect apart from better monetary benefits. And in order to ensure that the wage seeker gets the right pay for the right work, wage payment processes were designed. THE TRADITIONAL WAGE PAYMENT PROCESS Wage seekers and village administration officials choose the work from the Shelf of Sanctioned Works for execution. The Gram Panchayat intimates the same to the Mandal Computer Center (MCC). Field Assistant and wage seekers congregate at the work site and carry out work as per standards already made public. A wage seeker willing to work comes to the work site and performs the allocated work. Once a week, the Field Assistant prepares the summary of Work in Progress Report and submits the report along with the Muster Roll to the MCC. The field assistant also gives an acknowledgement slip to each wage seeker duly mentioning weekly work details. At the MCC, attendance is captured from the submitted muster roll. The data is validated and stored in the database. Based on the reported progress of work and the number of person-days spent, payment to the workers is computed. The system generates individual pay slips, wage list and pay order to the bank / post office. The generated wage list is then sent to the Village Panchayat and the paying agency. The paying agency can be the Post Office savings account, bank account, village organization or the Gram Panchayat, whichever is convenient to the wage seeker. The funds required for disbursement of wages is transferred to the account of the post master or any other paying agency and is also credited to the wage seeker’s account in the post office or the bank. The post master or the corresponding payment authority withdraws the fund from this account and makes the payment to the wage seeker. The wage seeker then signs an acquittance which has his acknowledgment for the receipt of money. Based on this acquittance, a corresponding amount of money is deducted from his account. The process of reconciliation matches the pay orders with the acquittance form and makes sure that all the pay orders have been executed. The Field Assistant reports work completion to the executing department, which sends an official who
prepares the work closure report and submits the same to the MCC. The Village Panchayat also endorses their remarks in the work closure report on the quality of work (Refer Exhibit 2). PROBLEMS WITH THE TRADITIONAL METHOD The above method of wage payment led to leakages of funds due to malpractices by middlemen who were responsible for wage disbursement: Ÿ The death of a wage seeker was not recorded in due
Ÿ Ÿ
Ÿ
Ÿ
Ÿ
time in the system. This lapse opened up possibilities for several malpractices such as follows: o Impostors of a dead wage seekers could collect the wage payment entitled to him o The Post master could himself pocket the money which was entitled to a dead wage seeker as it stayed uncollected in his account, thereby accruing interest Many wage seekers could enroll twice for job cards and collect multiple payments Many women were facing trouble because their husbands would forcefully collect their wage payments .There was no mechanism such as a photo-ID verification to ensure that the payment was made to the right wage seeker Collaboration among paying agencies (the postmaster or the VO) and some of the local people ensured that malpractices were not reported There was only one post office for a set of villages. Wage seekers often had to travel long distances, compromising their earnings for the day, in order to collect their wages from the post office. Many times they had to make multiple visits to the post office due to a timing mismatch or non-availability of the post master. This increased the extent of dissatisfaction among labourers and affected their motivation to enrol for NREGS The process was highly manual and required a lot of effort for reconciliation. It also involved too many middle men, thereby reducing transparency and accountability to a great extent
INTRODUCTION OF SMART CARDS FOR WAGE DISBURSEMENT In order to alleviate these leakages and to improve the overall wage-seeker satisfaction, the Department of Rural Development, AP, introduced the system of wage payments using the biometric smart card technology. The prime motive behind this move was to ensure transparency and accountability in the system. Smart 35
cards are unique identification cards for every wage seeker. They contain the wage seeker's photograph and registration information (Refer to Exhibit 3). They are similar to ATM debit cards owned by bank customers. Instead of a PIN number, these smart cards require the wage seeker's biometric identification as part of the authentication process for every transaction. Every wage seeker's smart card is linked to his bank account number. How does the smart card system work? Smart cards can be considered akin to mobile ATMs. The wage seeker swipes his smart card in a hand-held POT (Point of Transaction) machine which records his transaction in a pre-loaded chip and issues the payment slip to him. The money disbursement alone is done manually. Later, the chip is synced with the server and the amount is deducted from the wage seeker's bank account automatically. Since the transaction is not possible without the finger prints of the wage seeker, the system proves to be a fool proof mechanism for making sure that leakage of funds due to impostors is arrested. The smart card system can also be extended to avoid multiple payments to the same person using Biometric de-duplication which is a system for ensuring that the same wage seeker has not collected his wages more than once. The Benefits of Biometric Smart Card · No one other than the wage seeker can collect his wages · As every transaction is recorded in chip automatically, it is easy to track wage payments, thereby bringing transparency to the payment system · The service provider is made accountable for wage payment as it is necessary for him to produce the acquittances matching with the transactions recorded in the chip · Wage seekers can collect the wages anytime at a place near their residence in the village instead of having to walk miles to a distant post office SMART CARD IMPLEMENTATION The pilot initiative started in a phased manner with great promise in 2006. Banks and service providers became a part of the payment system (Refer to Exhibit 4). As of March 2011, cards have been issued in 14227 villages and payments started in 8597 of these, out of the targeted 21702 villages. Banks MGNREGS outsourced most of the payment process to the banks. The government has taken the initiative to 36
provide 2% commission to banks on the amount disbursed. Every week payment details of who should be paid how much and the cash amount are transferred to the bank. The bank is accountable for the disbursement of wages and return of undisbursed money to the government account. These transaction falling under priority sector lending, aroused the interest of many banks like ICICI, UBI, Axis Bank, SBI, Andhra Bank, ING Vysya, Corporation Bank, etc. But it is very uneconomical for these banks to set up a branch in gram panchayats and operate accounts of the beneficiaries. The low transaction amount and high volume did not justify the costs incurred. So the banks had to turn to service providers. Service Providers (SPs) Service providers like FINO, FinTech Foundation, Zero Mass Foundation are technology and operations providers. They serve as conduits between banks and the beneficiaries partaking1.75% of the commission given to banks. In fact, FINO has covered over 2.5 lakh persons under the MGNREGS scheme in AP. Service providers are responsible for enrolling beneficiaries, issuing smart cards and disbursing cash regularly. They are accountable to the bank. Wage Seeker Enrolment Armed with the beneficiary and job card details given by MGNREGS, the service providers visit the Gram Parishad with the village officials. The point of transaction (POT) machines (Refer to Exhibit 5), a cell phone with requisite software built-in and an enrolment form are the prerequisites. The beneficiaries are asked for the ID proof. Ten finger prints are recorded using the POT machine and a picture taken using the cell phone. The form is filled in and the process continues for all beneficiaries. The data collected is uploaded to the SP’s server where accounts are created with the help of the bank. The data is further used for printing smart cards which are distributed to the respective beneficiaries at the gram. Village officials short-list a few women for the position of 'Customer Service Provider' (CSP). This is a conscious step taken towards women’s empowerment. One woman is selected by the SP after a written test and an interview. She disburses the amount to the beneficiaries at a banking outpost set up at the gram by the village officials. A POT machine is given to each CSP at the village by the SP. Payment Process The work measurement input into the RAGAS Software raises a Fund Transfer order (FTO) and an Electronic Pay order (EPO) (Refer to Exhibit 6) The
FTO is sent to the bank after being approved by the Mandal head using a DSK (Digital Security Key). The bank verifies the amount in MGNREGS's account and transfers the amount to the nodal bank and then sends a confirmation to TCS which is the technology provider for MGNREGS. The EPO generated at the Mandal office is sent to the smart card bank (Bank where the SP holds an account). The EPO received is forwarded to the SP who sends cheques to the Mandal offices with consolidated amount as per the EPO. The Mandal office of the SP gives the cheques to the Mandal Officers who encash it at the nearest branch of the bank handling the operations. An acquittance is collected at the Mandal office of MGNREGS. The cash is distributed to the CSPs in various villages along with the acquittance. The CSP swipes the smart card on the POT machine and authenticates the biometric identification. The wage amount is automatically debited from the account, and she hands over the cash to the beneficiary. A thumb print is also taken on the acquittance as physical proof. The undisbursed amount and the acquittance are collected by the MC who returns a copy of the acquittance to the bank and another to the MGNREGS Mandal office after reconciliation. This is a process of matching the amount given to the SP to the amount returned to bank and paid to beneficiaries.
bank and thereby the reconciliation effort by the bank. Manual Payments The CSP, under the influence of the village officers overrides protocol and pays manually. The SP has little control over her and is unable to prevent manual overrides despite Government orders. This discourages the bank in its participation as it become liable to pay the overriden amount to the government. Some villages have power shortages and the battery backup of the POT machines are rendered insufficient for disbursement to the wage seekers. This again necessitates manual payments. The pressure on the CSP is high given her responsibility. She is paid Rs. 300 per month and 0.25% commission for every lakh disbursed. In some villages, the CSP earns as much as Rs. 2500 per month. But most others hardly make a thousand. Hence the position sees high levels of attrition. The MC has to disburse the cash and acquittance to all the villages in the Mandal. There being no regularity in the pay orders, he is overloaded with basic work. Service providers constantly replace the POT machines as the usage is harsh. Faded impressions on thumb due to person's age and toil are not captured by the reader leading to manual payments. Cash Management
ISSUES WITH SMART CARDS Though process, on paper, seems transparent and accountable, the implementation is not free of glitches. It has been observed that payment delays occur and the poorest of the poor constituting 20% of the wage seekers drop out. This basically defeats the purpose of the scheme. â&#x20AC;&#x153;The service provider, FINO, that has its operations in over 50% of the State, is the main cause for the delay. The accountability factor is very poor tooâ&#x20AC;? says Murali. Enrolment Process The enrolment process produces a lot of errors in the data uploaded and delays in the issue of smart card payment. Re-enrolment is uneconomical for the SP and the wage seekers do not understand its significance thereby rendering the process incomplete. Technology The technology at FINO consists of high interaction with the banking back end processes. Some banks let the SP operate the Core banking Solution (CBS). This restricts the data sharing on transaction details with the
The government emphasizes that the SP should carry the entire amount due for the week without consideration to undisbursed amount left with the CSP. This increases the security risk of MC and CSP for handling and storing large amount of cash. The CSP is harangued by wage seekers for their due for the week in case of delay. But there is no way of knowing where the payment is stuck unless one physically calls all the players in the system. The EBT coordinator on behalf of MGNREGS manually collects information to monitor the process. This is a long winding and time consuming process which only solves the problem temporarily. The service providers have come up with new systems like 'Bandhu card system' (Refer to Exhibit 7) that have improved their processes. MGNREGS has come up with information capture at each level. But the different technologies used by the service providers will require more investment and time to make it compatible with the MGNREGS server. The infrastructure at the village level limits the amount of information captured, and hence, the transparency. 37
CONCLUSION Even before becoming fully operational in the State, the smart card scheme is witnessing many trying challenges. Teething problems are continuing to
harangue the scheme and the poor are affected the most. “We are even considering the option of reverting to the payment process through village officials and post offices” said Murali.
Exhibit 1 Key Implementing Agencies
Village level Field Assistant (FA) – 1 per village Technical Assistant (TA) – 1 per 6-7 villages Panchayat Secretary – 1 per village (Gram Panchayat)
Mandal Level Engineering Consultant – 1 per Mandal Additional Project Officer – 1 per Mandal Mandal Project Development Officer – 1 per Mandal Computer Operator – 2 per Mandal
Cluster Level Additional Project Director – 1 per Cluster
District Level District Resource Person – 1 per District Project Director – 1 per District
State Level Director Special Commissioner Commissioner Principal Secretary
Exhibit 2 Traditional Payment Process
38
Exhibit 3 Smart Cards
Exhibit 4 Smart Cards Enrolment Process
Enrolment prerequisites: POT machine Enrolment form
Data goes to Govt., cash transfer from Govt. to bank
SPs visit villages with Govt. officials for enrolling beneficiaries
Data captured. Conversion of data to smart cards & a/c opening
Smart cards prepared Bank transfers funds to SPs account
Appoint CSP
Procurement of POS machines by SPs and distributing to CSP
Smart cards distributed to the beneficiaries
Cash distributed by SPs to CSPs
39
Beneficiaries swipe cards and collect cash from the CSPs
Exhibit 5 Finger print authentication on a PoT machine for a transaction using smart card.
Exhibit 6 Wage disbursement process using Smart cards Issue of payslips by FA FTO TCS SERVER INTERFACE
NREGA MCC EPO
Confirmation of transfer
Return of acquittance by MC
NODAL BANK Govt. a/c
Pooling a/c
File containing EPO details
SMART CARD BANK
FINO HQO
MC collects to encash SUB BANK
Return of acquittance by MC
FINO Dist Office
Transaction
Cash transfer by MC CSP
BENEFICIARY
Collection of acquittance by MC 6 days of work
3 days
1day
1day
day 1 1 day slack
7 days target
Exhibit 7 Bandhu Card System FINO has a system of accountability in place by means of a 'Bandhu Card'. Every CSP is given a Bandhu card. When MC hands over the cash to the CSP, he updates the POT machine with the amount handed over after debiting his card. The POT machine debits this amount after every transaction. The CSP credits her card with the remaining amount in the POT machine. At the end of the day, the POT transactions are uploaded. The CSP is liable to the amount unaccounted for in the transactions. The MC transfers the amount from CSP's card to his own card after all payments are done. He then electronically credits the amount from his card in the district office. Here the acquittance and the carded payment transactions are matched. 40
CASES
Air Deccan: IT's in the Air Piyush Guilani (PGDM 2010-12 Finance)
The case is based on Air Deccan, India's first low cost airline. The case attempts to showcase the significant role played by Information technology in providing cost advantage to businesses. The case details the benefits to airlines through the use of IT for cost advantage and issues involved in vendor selection for key services offered by a business. The case stresses the need for effective customer relationship management systems in predominantly service oriented industries. The case offers insights on how IT can be used as a strategic lever within a firm. It illustrates the manner in which Air Deccan integrated technology in its business model and leveraged outsourcing as a business opportunity. The shortcomings in customer relationship management due to technological limitations may come at a huge cost for businesses in a growth industry.
INTRODUCTION AND OVERVIEW
would go on to change the Indian aviation sector.
Air Deccan is the story of India's first low cost airline. Through an innovative business model and a ruthless focus on cost, the airline changed the dynamics of the industry. The case illustrates how Air Deccan used IT as a tool to bring about a transformation in its business processes.
Starting with a single aircraft and scaling up to a fleet of 30 aircraft by March 2006 [See Exhibit 1], the airline had rapidly expanded its operations within just three years of its launch. By June 2006, it increased its market share to 19% and became the third biggest player by market share in the Indian aviation sector [See Exhibit 2]. A pioneer of the low cost model, it offered fares close to 30% lower than those offered by other low cost airlines [3]. Its low fares were comparable to those offered by the upper classes of the Indian railways. Deccan's strategies were aimed at generating additional revenue and reducing costs. In order to increase revenue, the airline reduced the turnaround time of its aircraft; and planned aircraft selection, flight scheduling, ground handling and route selection so that utilization rates were maximized. The airline also followed a lean staffing model aimed at maintaining a low aircraft-to-employee ratio, thereby further reducing costs. It did away with in-flight meals, rationalized crew to the barest minimum and added more passenger seats. Through its ruthless cost containment initiatives, it became the pioneer of the low cost aviation model in India [3].
“Are you planning to book an Air Deccan ticket online or through travel agents? Then be prepared to waste a few hours” [1] Feb 2006: This is how DNA, a national daily in India, summed up the concerns of frustrated customers who had spent hours trying to book Air Deccan tickets online. Col. Arvind Saksena, Air Deccan's CIO, was rather prompt in addressing customer concerns in the media, attributing the speed of the server to a surge in customer traffic. According to him, this was driven by a one-time special discount offer made by the airline. His assurances on previous occasions regarding the problem being solved had failed to address the concerns of customers and travel agencies, who still complained of poor speeds. To handle the rising online traffic and to ensure efficiency in operations, Air Deccan had started making investments in technology, but nothing concrete was expected in the next four months. Till then, the airline risked antagonizing more customers and travel agents as its server grappled with surging customer traffic.
In many ways, Air Deccan had changed the dynamics of the Indian aviation sector. Before Air Deccan started its business, air travel remained an expensive dream for many middle class Indians. Even upper class Indians preferred to travel by road as flights were prohibitively priced.
AIR DECCAN AND ITS LOW COST MODEL “We will be the Udupi hotels of the airline business [2]” remarked Capt. Gopinath, using the metaphor for the popular budget Indian restaurant, as he looked set to launch his low cost, no-frills airline, in a move that 41
OVERVIEW OF THE INDIAN AVIATION SECTOR The history of the civil aviation industry in India can be traced back to the year 1912 when the first flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. In 1995, the Indian Government ended the monopoly of state owned aircraft carriers by allowing private players to operate in the sector. By 1995, six private airlines accounted for more than 10 % of the domestic air traffic but only Jet Airways and Sahara could survive in the domestic market [4]. As incomes grew and business activity accelerated, domestic air passenger traffic shot up. [See Exhibit 3]
USE OF IT AND AIR DECCAN'S TRANSFORMATION While many associated Deccan with its low frills model and its cost focus, it was the strategic use of information technology that enabled the airline's real transformation. Using technology allowed Captain Gopinath to adopt a sustainable low cost model and the airline became the first player in the Indian aviation sector to offer an electronic ticketing facility to its customers. Turning the existing reservation system upside down, it adopted its own system and allowed customers to book tickets online. The company defied conventional business practices and created its own Airline Distribution System (ADS). Traditionally, most full service airline carriers hosted their seating inventory on databases of Global Distribution Services (GDS) like Galileo, Worldspan, Sabre and Amadeus. Travel agents accessed this database to allocate tickets and GDS billed the airline a fixed sum, varying between 3 and 4% of the ticket price [5]. Air Deccan wanted to reduce the expenditure incurred on the GDS system and it considered the possibility of hosting ticket inventory on its own server. It developed an internet based Centralized Reservation System (CRS), which allowed centralization of customers' reservations through all channels - including the internet, call centres and travel agents. It added a payment gateway to its online reservation system to allow customers to pay via credit cards. For customers who did not have access to the internet or a credit card, 42
it set up a 24X7 multilingual call centre to book tickets online. The company received a phenomenal response from its customers for its new distribution channels. In a six month period, it generated 28% of its ticket bookings from the internet and close to 10% of its bookings from call centres [5]. In order not to alienate travel agents, who still sold close to 50% of its tickets during this period, the company made them an important part of the new business model. Travel agents were now supposed to book tickets through Deccan's CRS, unlike the previous system where they booked tickets through GDS. The airline was a breakthrough innovator in adopting other methods and practices as well. For instance, its practice of rolling out bar-coded paper tickets, a significant cost saving method, was eventually adopted by international carriers like Southwest Airlines [5]. (For a detailed overview of the company's CRS system, please see Exhibit 4). Adoption of IT played a significant role in bringing about a transformation in Air Deccan's fortunes. IT adoption brought about the following advantages.
Significant cost savings: It allowed savings of about 20% in distributions costs [See Exhibit 5], which proved to be a critical aspect of the low cost model. â&#x20AC;&#x153;Distribution cost is seen as one of the key 'controllable' expenditures in an air carrier's cost structure; thus an effective and efficient distribution mechanism goes a long way in making an airline successful,â&#x20AC;? Air Deccan's Chief Revenue Officer John Kuruvilla had pointed out in late 2005 [4]. Printing bar coded paper tickets with thermal printers allowed savings of INR 4/ticket. Growth in E-Commerce: Once Air Deccan started selling its tickets online, it went on to become India's biggest e-commerce website, surpassing IRCTC and generating daily online revenues of INR 25-30 million.
Improved cash flow position and reduced cash collection cycle: Using a CRS model allowed Deccan to receive payments in advance via pre paid deposits or credit cards, allowing it to reduce its cash collection cycle.
Outsourcing and Vendor Selection: For Air Deccan, outsourcing of some of its functions was an obvious decision as it believed that an outside vendor could provide the same service at higher levels of accountability. Outsourcing of functions becomes a
smooth process once it gets the backing of the top management. Because the company was banking on a web-based model as a driver of its future performance, vendor selection was critical. It evaluated different vendors by looking at their delivery models and by contacting their clients. “Basically I look for stability and reliability in a vendor. What are their processes for support and problem resolution like, and what is the order volume they can absorb?” said Col Saksena [5]. Deccan approached Accenture for developing its online ADS model but did not get a very encouraging response. It eventually chose Gurgaon based InterGlobe Technology Quotient (ITQ) as its vendor, a relatively small player then. ITQ developed a comprehensive solution to host a range of enabling services: from reservations to schedules and fares to payment gateway integration to a departure control system.
VENDOR PERFORMANCE AND RESULTS It might seem a little surprising that Deccan selected ITQ, a small player, as a vendor, given the fact that the firm had initially looked at players like Accenture to develop the system. Col. Arvind had earlier remarked that “there are critical factors (to be outsourced), and smaller players tend to become 'unstable' by taking on too much.” According to Mr. Deepak Choupadi, the then Operations officer in Air Deccan, the vendor selection was dictated by ''cost advantages'' and because the airline “had faith in the capabilities of ITQ”. ITQ did a remarkable job with Air Deccan, rolling out the ADS in 40 days. Air Deccan also chalked out an unconventional fee structure with ITQ. Instead of a flat fee upfront to avoid making a heavy initial investment, it worked out a payment schedule that was based on the number of passengers booked every month. “We look to convince vendors to grow along with us. Believe me, this not only works out to be more cost effective without any extra investment on our part, but the vendor also gets an incentive to constantly improve the application”, said Col. Saksena [5], justifying his decision to opt for this model of fee structure. The model was also well taken by ITQ, which was ramping up its team dedicated to Air Deccan simultaneously.
model and leveraged outsourcing as a business opportunity. Outlining the role of IT, Captain Gopinath said, “I'm not in favor of technology for technology's sake. Solutions that our IT team delivers must be hightech, but low-cost.” Later, in an interview in 2007, he went on to stress the importance of IT in his organization, “IT is an integral part of our operations and growth strategies”, adding that he interacts with the CIO “on a daily basis” [6].
Path Ahead: Strains on the IT system The company wanted to go slow in scaling up its IT system to deal with the anticipated rise in passenger traffic. “We don't ramp up the system in a knee-jerk fashion. We periodically review the system's capacity and keep in mind special launches and our expanding fleet of aircraft”, is how Col. Saksena put it [5] when asked about scaling up the system capacity. It all changed a couple of months later in Feb 26, 2006, when Air Deccan launched a promotional campaign, offering a hundred thousand tickets at INR 9991 for travel to any destination. Its server crashed due to increased customer traffic, which left travel agents as well as customers disgruntled. “It takes only one-and-a-half hour to reach Bangalore from Mumbai. But to book a ticket for the journey, I have been waiting for the past four hours,” complained one customer. Col. Saksena tried to pacify customers by promising better technology and efficiency, without much success. Deccan had left customers and travel agents dissatisfied, a potentially deadly situation in the highly competitive airline industry. Had the company been too slow to react in scaling up its system and offering better technology to customers? Was ITQ a good long term bet? Was choosing ITQ as the vendor a correct decision, considering Col. Saksena had not long ago cast doubts on the ability of smaller players to deliver? All these uncomfortable questions were confronting Capt. Gopinath and Col. Saksena, as other Indian Airlines braced themselves to move towards eticketing to meet global norms set by International Air Transport Association (IATA). The domestic aviation sector meanwhile also looked set to become highly competitive as incumbent players entered into price wars with Deccan and new carriers looked set to enter the Indian aviation sector.
Leveraging IT for achieving strategic goals: Deccan leading the way Deccan offers great insights on how IT can be used as a strategic lever within a firm, illustrated by the manner in which it integrated technology into its business 43
Exhibit 1 Fleet Size Of Air Deccan
Source: Company Website and Reports
Exhibit 2
Exhibit 3 Growth in Passenger Volume in Domestic Air Travel
44
Exhibit 4 Overview of Company's CRS system “InterGlobe developed the CRS, a system that was based on a combination of .Net and J2EE technologies. The new solution handled a variety of activities ranging from reservations, schedules, fares, payment gateway integration, and departure control system and document production. The IT solution comprised three significant parts- the reservation engine, the inventory engine and the departure control system. The reservation engine facilitated transactions with online customers, corporate customers, call centers, travel agents, and city and airport offices, on a real time basis. The inventory engine managed inventory flights schedules, fares, sales and flight departures. Through the departure control system, passengers were issued boarding passes with ticket printouts that indicated PNR numbers. The departure control system interfaced with the reservation engine to track passengers who boarded an aircraft.” (Source: “Air Deccan”, Research Article by Jeffrey L Sampler, MITSloan, Nov 2006)
Exhibit 5
REFERENCES 1. Kerur, B., “Air Deccan gets caught in the Web”, DNA, Feb 25, 2006, available online at http://www.dnaindia.com/mumbai/report_air-deccan-gets-caught-in-the-web_1014909. 2. Riti, M.D., “Air Deccan plans 'very low-cost' flights”, Rediff News, June 2, 2003, available online at http://www.rediff.com/money/2003/jul/02spec1.htm. 3. Sampler, J.L., “Air Deccan”, Centre for Information Systems Research Working Paper No. 365 and MIT Sloan Working Paper No. 4657-07, Sloan School of Management, MIT, Nov 2006 . 4.“A Report on the Aviation Industry in India”, ICMR India. 5. Ramachandran, V., “Low Cost Takes Off”, Real CIO World, Dec 2005. 6. Prasad, S., “Technology is the key to innovation, which is our mantra for growth” (Captain Gopinath's Interview), DataQuest, Feb 2007, available online at http://dqindia.ciol.com/content/cio_handbook07/CEO/2007/107022802.asp. 7. Interview with Mr. Deepak Chopadi, Operations Officer of Air Deccan at the time in which the case is set. 45
CASES
Ethics in Action Pooja Shirwaikar (PGDM 2011-13 Information Management) The case aims to highlight the importance of ethics in workplaces with increasing competition and the need to define a code of conduct for employees. It outlines the ethical dilemma faced by employees in their dayto-day work of various practices adopted at Deloitte to ensure ethical practices are described. It talks of a measure of the ethical performance of an organization, namely â&#x20AC;&#x153;Return On Ethicsâ&#x20AC;?. There is emphasis on a new perspective of looking at trust as an important offering by an organization to its clients. The author wants to bring to light the importance of the sustainability of ethical frameworks and policies in corporations.
INTRODUCTION Richard Jones, a 27 year old consultant was in his cubicle skimming through his e-mails over a cup of coffee, preoccupied with a troubling thought. He was facing a dilemma. He had recently married his longtime girlfriend, Susan Roberts, who had been working for AKB, Inc. as an auditor for 4 years.
organisation. During his stint at Deloitte he had handled many positions of responsibility which involved managing teams and balancing the interests of team members without compromising on ethical grounds.
ETHICS AT THE WORKPLACE In today's competitive market, employee retention and alignment with organisational policies is a major challenge. Though efforts are being taken by organizations across the globe to train employees towards achieving organizational goals, there is the added challenge of ensuring adherence to ethical standards. A company's failure to adhere to ethical standards may have drastic economic, financial and social repercussions. The fate of the formerly powerful Enron is a reminder of how ethical violations can bring about a company's downfall. With all the media attention companies such as Enron have received, customers expect higher standards of behaviour. Consumers and clients tend to focus closely on whether companies' policies are socially and environmentally responsible.
Richard received his project allocation e-mail the previous week, and to his surprise, his new client was AKB, Inc. This came to him as a challenge, since he would be working on tax and audit software and report generation for the client. This would require him to understand client requirements and work on the audit records very closely. But this also meant that he would be working with the audit team of AKB, Inc. When he mentioned to his senior manager that his spouse was a part of the client audit team, his senior manager called the Deloitte Independence helpline and the executive on call informed Richard that he was not compliant as per Deloitte norms - which ensure that practitioners are able to serve clients with integrity, professional scepticism, intellectual honesty, objectivity, and are free of conflicts of interest, both in fact and appearance. Richard was looking forward to this client assignment. His dilemma was whether to forego it, which would set his career back or speak to his wife regarding a job switch, which was not feasible considering that his wife's career was equally important to him.
a. Support ethical decision-making by officers and employees
BACKGROUND
b. Protect the company's public profile
It had been 4 years since Richard joined Deloitte Consulting, LLP. He had been promoted to manager in his scheduled milestone year. His experience with Deloitte as an organization had been fairly satisfying. He had been recognised and rewarded promptly for his work and had been offered a highly client-centric responsibility, which was a coveted position in the
c. Prevent ethical misconduct
46
It is in the interest of the company to follow a business code of ethics, the benefits of which are enlisted below:
d. Attract employees with high ethical standards e. Avoid criminal persecution
ETHICS IN ACTION AT DELOITTE
Sharon Allen, Chairman of the Board of Deloitte & Touche USA LLP, explains the term ROE: “With everyone's current focus on the economy, you might assume I'm talking about that traditional financial metric, return on equity. But the ROE I advocate is different. It's return on ethics. This ROE is really more mind-set than measure, an approach to encouraging the highest standard of business behaviour. It's based on the premise that ethical decision-making can lead to strong performance and competitive advantage, while unethical decision-making leads to very different outcomes.” [1]. In one of her client meetings she experienced that the client had complete trust in the Company's technical capability. However, he wanted to discuss the values of the firm and understand Deloitte's most important offering-trust. Sharon Allen says, “When your most important offering is trust, it's crucial that you have structures and mechanisms in place to safeguard that trust. The formal elements of our ethics program include: · A leader to guide it--our chief ethics and compliance officer ·
Policies and procedures, including our Code of Ethics & Professional Conduct.
·
Ethics and compliance training programs, including an extensive orientation in which we introduce new hires to our ethical culture and define what acceptable ethical behaviour is.
·
An Integrity Helpline that's available to assist our people with any inquiries and reports they may have, 24 hours a day, 365 days a year.”
Deloitte and many other organisations have made provisions in their systems to ensure ethical practices. However, are they fool proof? Just eliminating the instances of unethical behaviour is not enough. There needs to be a thorough understanding of the causes and impact of any kind of unethical behaviour at workplaces. Deloitte has been undertaking the “Ethics at Workplace” Surveys since 2007. It has surveyed its employees across the organisation to understand the key issues which lead to unethical practices at workplace. (Exhibit 1) Through these surveys, it has identified the key areas affecting ethical behaviour:
a. Organizational culture b. Rewards for unethical behaviour: bonuses after winning a client order by bribery, gift-giving c. Managerial values that undermine integrity: focusing on the bottom line to the exclusion of everything else, exploiting others, rationalizing Some of the key findings of the survey were as follows: a. The top factors affecting the promotion of an ethical workplace environment are: behaviour of management and direct supervisors, and positive reinforcement for ethical behaviour. b. The factors causing conflict between work responsibilities and personal priorities are: high levels of stress, long hours, fast-paced environment, inflexible schedule, highly competitive environment. c. Reasons for unethical behaviour of employees were identified as: lack of personal integrity, job dissatisfaction, pressures to meet goals, ignorance of code of conduct. d. There is sometimes a perceived disconnect between overall ethics and ethical behaviour of business leaders. Most often these two are not aligned. e. Business ethics are frequently treated as a separate category from everyday ethical behaviour. f. 77% believe Management behaviour is one of the top factors promoting an ethical workplace [2]. g. 91% of respondents cited that workers are likely to behave ethically at work when they have good worklife balance [2].
INDEPENDENCE Professionals working in a service oriented company are expected to maintain high standards of independence and compliance. Deloitte defines and publishes a list of its clientele/companies and sends an independence mailer to each employee informing them about the client companies Deloitte is working for. These clients are called Restricted Entities and the professionals working for them need to be independence compliant in order to serve them with 47
integrity. There is a clear guideline on who could be treated as a Restricted Entity and what the independence compliance norms are. (Exhibit 2) How independent are you? Jennifer Orlando joined Deloitte in 2008. Jennifer lived at home with her parents. Her father previously worked for a restricted entity named Rez Inc., and he, though retired, owned stock options of the Restricted Entity that accounted for more than 5% of his net worth. Hence, Jennifer had to consult the 'Independence Advisor' at Deloitte via the helpline to get to know the future plan of action. Richard has to ensure compliance on the same lines as Jennifer â&#x20AC;&#x201C; he is compliant/independent if he or his wife sell any of the AKB Inc.'s stock options, received as bonus, immediately.
Exhibit 1
48
COMPLIANCE AT DELOITTE Richard had just received a briefing from his manager regarding the ethical practices at Deloitte and the mechanisms in place to ensure that practitioners remain ethical at all times while working on client engagements. The meeting left him wondering whether this could be true in other organisations as well. Richard was deliberating over the compliance issue. He had been advised to either opt for a change of project (if his spouse disagreed to sell the stock options and discontinue working at the Restricted entity firm) or adhere to the compliance norms and do the needful. Opting out of the project meant losing a great career opportunity and foregoing a role well deserved. Richard sat at his desk, weighing his options.
Exhibit 1 (contd.)
About 87% of workers responded that their company's values promote an ethical workplace environment and almost the same number mentioned that they agree with their company's values. About 85% said they know their company's values and that their company makes their values clear to them. While a majority of respondents say their company promotes an ethical workplace, only 10% cite criminal penalties for violation of Code of Conduct as a factor that helps foster an ethical workplace.
49
Exhibit 2 Based on this, to ensure that a professional does not face an ethical dilemma while working on client projects, Deloitte Consulting LLP has defined the following “Independence Requirements” pertaining to five areas: 1. Financial Interests: Prohibition on employees owning Stocks, Bonds, Stock Options, Insurance Policies of 'Restricted Entities'. 2. Business Relationships: We cannot have Business Relationships, like a Consulting Agreement, with a Restricted Entities' officers, directors or major shareholders. 3. Employment Relationships: There could be an Independence issue if a close relative works for a Restricted Entity in an accounting role, or other financial decision-making capacity. 4. Scope of Service Restrictions: Deloitte cannot offer certain non-audit services to a Restricted Entity. 5. Fee Restrictions:Deloitte cannot have certain type of fee agreements, like a contingent fee, with Restricted Entities. Deloitte provides its employees with tools to help maintain 'Independence' 1. Independence helpline: Deloitte employees can call the helpline if they face any Independence dilemma to ensure that they are compliant with Deloitte's Independence policies. The Independence Advisors are qualified to provide sound judgment and advice on possible 'Independence Issue', such as getting tickets or discounted products from clients companies which may or may not be Restricted Entities, or financial holding of spouse or spousal equivalent. Confidentiality is maintained during such consultations. 2. Tracking and Trading System: The system is a kind of an 'account' where the Deloitte employee can enter all his and spouse/spousal equivalent/dependent's financial holdings. The system alerts the employee if the holdings are of a Restricted Entity. Also, if the invested company becomes a Restricted Entity at some point of time, the employee is alerted of the same. The employee is support to sell/reallocate the holdings within 10 days and become 'Independent' 3. Deloitte Entity Search and Compliance System (DESC): This system can be used by employees to look up if prospective investment options (Stocks, Bonds and Mutual Funds) are Restricted Entities. 4. Ethics and Independence resources on Deloitte net: Deloitte has provided its employees with access to a lot of Independence resources and tools on its internal portal for employees.
REFERENCES 1. Allen, Sharon, “The New ROE: Return On Ethics”, Forbes.com, July 21st 2009, available online at http://www.forbes.com/2009/07/21/business-culture-corporate-citizenship-leadership-ethics.html 2. Leadership Counts – “Deloitte & Touche USA 2007 Ethics & Workplace” Survey Results, available online at http://www.deloitte.com/assets/DcomUnitedStates/Local%20Assets/Documents/us_2007_ethics_workplace_survey_011009.pdf
50
Abhishek Goud (PGDM 2011-2013 Marketing) An extract from a speech at SPJIMR By Dr. T.V. Rao, Founder President, National HRD Network
Dr. Rao is the founder president of the National HRD Network and the Indian Society for Applied Behavioural Sciences (ISABS). He was a professor at IIM, Ahmedabad from 1973 to 1994. After IIMA, he worked at the Academy of Human Resources Development, set up with the support of RMCEI of IIMA, as honorary director. As the importance of Human Resources as a function in the Indian corporate world grew, Larsen & Toubro set up an HRD Chair Professorship at XLRI, Jamshedpur. They called on Dr. T.V. Rao to head it. Dr. Rao's interests are primarily in the field of competency mapping and he believes it is an importance measure of success. Dr. Rao has served as Advisor, HRD to the Reserve Bank of India, BEML (Bangalore) and State Bank of India. The following extract is from his keynote speech at S.P. Jain Institute of Management, during the annual academic conclave in January, 2012.
UNDERSTANDING THE NEED FOR TRANSFORMATION Social transformation in the country is not of the type that is required. Whatever transformation is taking place, it's due to technology and internet while the transformation in the mindset isn't taking place. As Sam Pitroda said at the National HRD Convention in November 2011, “We are living with a 19th Century mindset, 20th Century processes and 21st Century needs.” All my attempts at making transformations in the country have been disastrous. I was asked to suggest transformations that are required in the Civil Services. After visiting various academies and places, I came up with some of the most innovative transformations that could be applied, like “Competency Mapping.” It is very difficult to measure the output quality of officers in the civil services. A 500-odd page document of recommendations was given and it was accepted, but in the final report, not one point was present.
REASON FOR LACK OF PROGRESS Dr. Govindarajan from the Tuck School of Business in the USA very famously quoted his 3 box theory,
swearing by the need for innovation. He says, if you want to progress, you need to be aware as to where you're putting your time and effort. The time and effort may be in managing the present (box no.1), then selectively forgetting the past processes (box no.2), and finally focusing on the future (box no.3). Most successfully transforming organizations balance the three boxes. The policies of our country, as with most organizations fighting to transform, have forced us to get stuck only in box no.1. Many banks have a notorious way of pleasing the government with wonderful statistics while in reality not implementing anything.
WHAT ABOUT SOCIAL TRANSFORMATION? While organizational transformation is going up, social transformation is actually going on the negative side. What's the evidence? YouTube showcases a scandal of someone and hits run into hundreds of thousands whilst a video of a “new role of a manager” hardly gets a hundred hits. We need to demarcate the role of the academic institutions. Unfortunately, management education has caused damage to the public services like introducing KRAs and KPAs into this sector. If not explained properly and quantification is over stressed, then performance metrics can be manipulated. For example, “releasing” grants for the construction of schools are enough to quantify the duty without bothering about the completion of the project.
POLICY PARALYSIS Basic facilities are lacking. There is no planned, systematic or committed way in which we are heading towards transformation. And speaking about our policy makers, I am only going to echo what industry leaders like Sunil Mittal and Ratan Tata have said that people are preventing transformation rather than promoting it. By nature, India is a divisive nation. For example, one is always worried about his/her department without regard to what is happening to the organization. We haven't been able to learn to trust each other. Businesses have taught us to look at each other with suspicion. We 51
LEADERS SPEAK
The Need for Social Transformation in Corporate India
are used to looking at our neighbors with envy, with a feeling that “let them do it first then I will follow.”
Ÿ They demonstrated that they are changing and
IS THERE LIGHT AT THE END OF THE TUNNEL?
Ÿ They used Personnel and HR Departments to
There are people who have done unusual things. People who have gone into the social services sectors, who've made a difference - and this number is growing. Business school graduates are now moving towards this sector. Even in organizations, leaders are now building on the successes of predecessors. Rather than breaking down structure and imposing personal views, leaders are making their own contributions. Top management needs to be highly involved in Human Resources and in social and organizational transformation process.
Ÿ They invested heavily on training
learning organizations
initiate and manage changes
SUCCESSFUL PRACTICES After studying and auditing the practices of the companies that were awarded by the National HRD Network, we came to 7 conclusions: Ÿ They managed leadership transitions well
Ÿ They integrated personnel with HRD
Most of the successful Business Today Top 500 companies are looking at succession planning as an important spoke in the strategy wheel. They are all using 360 Degree Feedback as a management tool. In most of these companies, the CEO plays the role of the HR and the strategy department works in synergy with the HRD to generate transformation within the organization. So what do successful enterprises need? I feel that they should all have: Ÿ Ÿ Ÿ Ÿ Ÿ
Competency Mapping Systems Performance Management Systems New incentive mechanisms Assessment and Development Centers Succession Planning
Ÿ They managed transition challenges through
liberalization
CEOs should personify the HR practices of the organizations.
Ÿ They focused on customers and quality as a strategy
to cope with challenges through liberalization
52
Abhineet Rawat (PGDM 2010-12 Marketing) An extract from a speech at SPJIMR By Mr. C. Devdas Nair, Customer Care Associate and Head, Supply Chain & Mission Control, Shoppersâ&#x20AC;&#x2122; Stop Ltd.
Shoppers Stop is a Raheja Group company promoted by C. L. Raheja and is a leading retail store in India. It has won numerous awards for its achievements including those for excellence in supply chain management. Mr. C. Devdas Nair, Customer Care Associate and Head, Supply Chain & Mission Control, Shoppers Stop Ltd., was here at S P Jain to share the ideas and practices that make Shoppers Stop a leading light in the retail sector.
DIFFERENT SEASONS AT SHOPPERâ&#x20AC;&#x2122;S STOP Retailing is detailing. We currently manage with 3 major seasons. We start with autumn-winter which runs from October to March and then spring-summer which runs from April to September. Then we have a flow. Today 60% of the products we sell are in flow and you will find them in the shop floors for 365 days in the year. The style would keep changing, but it would be under the flow season. Autumn-winter style products have to be removed from the floor before springsummer starts. Same thing continues for springsummer also.
BUSINESS MODELS In the Shoppers Stop supply chain, we work on 3 business models, one is 'Outright' where we buy stocks from suppliers - which is currently 60% of our business. The second business model we call 'SOR' (Sale or Return) . Whatever stocks are not sold for 2 or 3 months, we can return them to the vendor and they will be paid only for the stocks which are sold. The third business model is the concessional business model where we will be giving space in our store to some of the suppliers and they will come and sell, for example, sarees.
IMPORTANCE OF SUPPLY CHAIN MANAGEMENT In a retail operation we always ask 5 questions. What is selling? What is not selling? Why is it selling? Why is it
not selling; and the fifth question, how do we improve the sales? As a company we strongly believe that to answer the fifth question supply chain can play a leading role. Supply chain has to get very close to the customer by understanding what the customer wants, when he wants it and at what place he wants it. Supply chain is always a top management priority. We have taken a lot of initiatives to ensure the right availability of merchandise for our customer. One of the key initiatives that we have taken is that we have concentrated on the triangle model from the very beginning - a triangle which talks about suppliers, IT and logistics. In all these three fields Shoppers Stop has taken a lot of initiatives.
SUPPLIER RELATED INITIATIVES When it comes to suppliers we have a very powerful Business to Business platform connected with nearly 800 suppliers. We have a two way communication with our B2B partners. We send them sales information, stock information, payment information and reverse logistics information. Internally, we also get an advance shipping note and automatic style set up through suppliers. As far as the suppliers are concerned, from a 3000 supplier base we have reduced to 800. We also have a delivery authorization system with our suppliers to manage inventory. Vendors will not supply anything without us approving the delivery. Of the few key supply initiatives we have taken in the past, one is that we have made all our suppliers use our barcode. It is source tagging by the suppliers. This is a win-win situation for Shoppers Stop and the suppliers so that we don't have to retag it at our distribution centers. The stocks can go to the stores within 24 hours of receipt. We also have an intake consolidation happening with our exclusive label vendors where our other transport is going and picking up the stock from all the exclusive label vendors and delivering to our distribution centers. We call it a milk run. We also have a strong B2B platform with our suppliers to be very transparent with them. We provide them all the 53
LEADERS SPEAK
Supply Chain Initiatives at Shoppers Stop
information so that they are aware about what we are doing. We also meet our suppliers once a year. We have a partnership for progress summit where we discuss our future plans and we share all the plans with the suppliers so that they are adequately informed. We are also into GS1 implementation, the global study of barcode, which we are implementing with all our suppliers. We have recently started this initiative. With this initiative, we don't have to put our barcode in the future. We will be in a position to read the suppliers barcode.
USAGE OF IT As far as IT is concerned, Shoppers Stop currently has one major IT platform developed. We have a very powerful retail ERP package. We have implemented a merchandise management system, a warehouse management system and an order replenishment module which runs from the distribution center store. We have a perpetual inventory account system to manage the stock take module. We have Oracle finance for the financial part. We also have one of the most powerful warehouse management systems that take care of automatic picking. The picker would be informed which racks and shelf he has to go to and pick stocks from. Even the put away happens in the same way. So we are in a position to replenish our stocks within 24 hours to all our outlets. We have a very strong IT platform with us.
LOGISTICS SET UP We also have a good logistics set up. We have regionalized the distribution centers. We have 4 distribution centers in the country, one each in Mumbai, Delhi, Kolkata and Bengaluru. When we started we had a distribution center attached to the store. Now we are regionalized and we have decided we will not be opening any more logistics centers. We might open another 30 or 40 stores but we would manage the replenishment from the same distribution centers. We have outsourced 100% of our logistics set up. Not even a single person of Shoppers Stop sits at any of the distribution centers. It is independently managed by the logistics partners. We have mainly outsourced the logistics set up as we wanted to concentrate on our core competency which is retailing. The vision of Shoppers’ Stop supply chain was to build a collaborative supply chain, seamlessly integrating with all partners like vendors and service providers and perfectly aligned to the operational service requirements of the customers. 54
INVENTORY MANAGEMENT The way we manage our inventory is that we release a purchase order with all our suppliers. A purchase order is an agreement between Shoppers Stop and the suppliers that they will manufacture and keep the stocks ready for Shoppers Stop, but they are not authorized to deliver the stocks. Delivery will happen only when Shoppers Stop releases delivery authorizations and the supplier will only supply stock based on the delivery authorizations. If we book a purchase order for 5000 pieces and we want to pick up only 500 pieces we will issue delivery authorization for 500 pieces and the supplier will deliver only 500 pieces. This is one of the best ways in which we have managed inventory. Currently, we keep 2 weeks’ cover at the distribution centre and roughly 10 to 12 weeks’ cover at the store. This 2 weeks’ cover which we keep at the distribution center will manage replenishment and whatever quantity we are ordering will come and sit at the distribution center. When we order a quantity from the vendor we are not ordering for a particular store, we are ordering for a region. The stocks will come and sit at the distribution center and from there we will replenish the stocks.
GS1 AT SHOPPERS STOP Another initiative we have taken is GS1. We are planning to implement GS1 with all our suppliers and Shoppers Stop will be reading the GS1 barcode in the future. Currently we have two barcodes. One is the supplier barcode and the other is the Shoppers Stop barcode which are not linked today. Tomorrow, when we start reading the GS1 barcode, both the supplier and Shoppers Stop will be speaking the same language. This would lead to a better collaboration with the suppliers in the future.
Published by Allen Lane, Year 2008 Hari Iyer (PGDM 2011-13 Operations) “Financial innovation”, Niall Fergusson breathlessly proclaims, “has been an indispensible factor in man's advance from wretched subsistence to the giddy heights of material prosperity that so many people know today.” In similar rushed tones, he traces nearly every major event in history – from the emergence of Renaissance art to industrialization in continental Europe, from Napoleon Bonaparte's final defeat to the American Civil War –to financial causes; possibly opening himself to allegations of misattribution. A professor of history at Harvard University and an author of a number of books such as 'The Pity of War', 'Empire: How Britain Made the Modern World', 'The Cash Nexus', and 'Colossus' over the past decade, Mr. Ferguson is no stranger to controversy. In 'The Pity of War', for instance, he argues that Britain's role in the First World War was unnecessary and avoidable, and that the German victory that would have resulted from British non-participation would have been a favourable outcome for both Britain and for Europe. The rise of both Nazism and Bolshevism would have prevented, he says, and “Adolf Hitler could have eked out his life as a mediocre postcard painter”. While the economic underpinnings of history have always been an important part of his work, the run up to the 2008 crisis and its aftermath have brought a renewed focus on this aspect. For instance, in a 2009 article in the Harvard Business Review, he outlines the history of recessions in the US, ascribes causes to the financial crisis and tries to predict the future of the dollar and the American economy. It is in this light that the “The Ascent of Money” has to be interpreted. A casual glance through the book reveals that it is not entirely written for the layman – it demands a certain degree of financial literacy from the reader. Despite the author's protestations, it is hard to imagine how the financially challenged man on the street (indeed, by the author's own statistics, two-thirds of Americans surveyed in 2008 did not understand how compound interest works; and a majority of respondents in another survey claimed to have learned “'not too much' or 'nothing at all' about financial issues at school”) can comprehend concepts like the Black-Scholes options pricing model, monetary base (M0) or narrow money (M1) in monetary theory, or for that matter, the relation between market interest rates and prices in a bond
market. In trying to address both the general public and the financially adept reader, Mr. Ferguson may have done the book some injustice. In any case, these are minor distractions in a historical tour-de-force that, in one overarching swoop, traces the rise and fall of human civilization through the lens of its financial actions. In the first chapter, the author describes the history of monetary systems from the precious metal coins of the Romans (which, interestingly, “outlived the Roman Empire itself”) to the moneyless system of the Incas and the gold standard of modern Europe, covering along the way the emergence of lending and banking. The second chapter talks of what is arguably the most important invention of modern finance – the issuance of bonds to finance government spending; and a closely related concept – the rise of debt fuelled wars. With remarkable insight, the author describes how easy access to bond markets proved to be a major cause of inter-city wars in medieval Italy, and also helped Britain finally hand defeat to Napoleon. Closely tied to the emergence of bond markets is the stock market and the bubbles therein, which are the covered in the third chapter. The first shares issue was done by the United Dutch Chartered East India Company (or VOC, in Dutch), and it met with great success. About a century later came the first bubble, when John Law issued large amounts of stock in France to finance the expansion of his 'Company of the West' and to create non-existent assets in Louisiana. The fourth chapter explores the history of insurance and its close ties to the development of mathematics and the actuarial sciences. The author describes how, from humble beginnings as a collective fund for Scottish ministers' wives, the concept of insurance spread all over the world in a mere couple of decades, ultimately culminating in the welfare state. Property and land have been considered among the most important assets historically, and these form the subject of the next chapter. It talks of the democratization of these immovable assets – while in medieval times only the aristocratic elite could own property, the rise of easily accessible mortgages in the US after the Great Depression led to near-universal property ownership. Unfortunately, it also leads to asset bubbles like the Savings and Loan crisis of the 1980's and the more 55
BOOK REVIEWS
The Ascent of Money – A Review
recent subprime crisis of 2008. The book closes with 'From Empire to Chimerica', which talks of the power shift happening from America to Asia' emerging economies, of neo-imperialism and its consequences for developing economies, and an economic future that would be dominated by the duopoly of China and America, or 'Chimerica'. If there is one headline lesson from the book, it is that history repeats itself. Mr. Ferguson vividly describes the Argentine hyperinflation of the early 1990's: â&#x20AC;&#x153;.. Already in April customers in one Buenos Aires supermarket had overturned trolleys full of goods after the management announced over a loudspeaker that all prices would immediately be raised by 30 percent. For two days in June crowds in Argentina's second largest city, Rosario, ran amok in an eruption of rioting and looting that left at least fourteen people dead.â&#x20AC;? As the world today stares at the possibility of a Greek exit from the Euro zone, in all probability leading to sovereign default and inflation, with European leaders
56
mutely wringing their hands, one wonders if a similar situation would repeat. The lessons of history are won hard, but are easily forgotten. In the final analysis, then, the book provides a fascinating and lucid insight into the complex machinations of the financial world. A serious reader would glean perspective on the historical successes and blunders of finance, and pointers on how to avoid past mistakes in the future. On a negative note, however, perhaps the most remarkable feature of the book is its lack of prescience. Reading it four years later, after the recession of 2008 has played out and the euro crisis has taken its place, one wonders whether the author's assessment of the 2008 crisis as primarily an asset bubble was too simplistic. Had the book hinted at prolonged economic depressions in the future and attempted to unearth the complex web of historical, cultural and political reasons behind it, it would well and truly have been a masterpiece.
Written by Dheeraj Sinha, Published by John Wiley & Sons (Asia) Pte. Ltd.
Abhishek Goud (PGDM 2010-12 Marketing) To capture the changing mindset of the Indian consumers, to understand how they have undergone the transformation from the “saving” phenomenon to the “consumption” phenomenon, Dheeraj Sinha has scripted the book, “Consumer India”. In his effort to encapsulate the change, he has chronicled the most definitive changes that have occurred in the minds and wallets of consumer India, mainly citing reasons arising from the economic liberalization of the country. Beginning in the early 1990s, this has helped shape the thinking of the Indian consumer. Liberalization of the economy has contributed to the maturing of the Indian consumer. Today's marketer must understand the phenomenon of change in the consumer's thinking, and suitable alter the product offering. Going beyond the clichéd “India is a different country with many complex cultures and people” notion, Dheeraj Sinha etches out the uniqueness of the Indian consumer and the market he dwells in along with the intricacies of the “place” in its own right. He has contrasted this against the traditional way of shopping and thinking, while wittily using stories and anecdotes to elucidate his point, peppering in some Bollywood, category data, marketing cases and macroeconomics along the way. Through this book, Sinha brings forth the changing shopping landscape in India, thereby providing us the intricacies of the bonding that exists between the Indian consumer and his money. India being a land of opportunity is probably a misnomer. Rather, India can be portrayed as a land of numerous small pockets of opportunity. This book helps in knowing the evolving relationship between the consumer and his environment and understanding the 5 categories and 3 segments that consumers exist in.
their challenge is to find out how their brands can play a meaningful role in the lives of the people based on the new cultural codes.” It is understood that marketing is neither completely theory nor fully practice but an amalgamation of both. From his personal experience, Sinha gives a clear picture of the needs of the Indian consumer from the actual battlefield. The author has classified the Indian Consumer into three categories. The first: the “Partition Generation”, a very cautious group, slowly opening up. This group has high regard for functionality in its consumption patterns and is highly traditional. “Food, shelter and clothing” are the three critical slices of life they seek. The second category is the “The Transition Generation” which carries their yesterday while heading into tomorrow. While they are privy to a plethora of enticing choices in lifestyles, goods, entertainment and services, they want to “nourish the practices of yesterday with the resources of today”. The third category is the most intriguing one, “No Strings Attached Generation – Life Unbound” and this generation, according to Dheeraj Sinha, is one which lives on a linear scale and measures everything on itfrom what interests them the most to the least. Driven completely by technology, they adapt to changing lifestyles based on changing technology. The book could perhaps have been enhanced by including cases of major FMCG companies and their strategies to lure consumers, and how they have changed over the years. But in the end, to credit the author, he has made an honest effort in showing the transformation of the mindset of the Indian consumer.
“It is imperative for brands and businesses seeking success with Indians to understand this larger cultural transformation,” says Dheeraj Sinha. “As marketers take in how Indians are thinking and behaving today, 57
BOOK REVIEWS
Consumer India Inside the Indian Mind and Wallet
MOVIE REVIEWS
‘Moneyball’ & Management Rahul Unnikrishnan (PGDM 2010-12 Finance) You get on base, we win. You don't, we lose. And I hate losing, Chavy. I hate it. I hate losing more than I even wanna win. – Billy Beane
which was different from the traditional method of using batting averages, etc., Billy was quick to realize its importance. He was ready to go ahead with it despite very vocal opposition. He dug out the right set of metrics to evaluate performance.
THE MOVIE The movie is based on the book Moneyball by Michael Lewis. The story is about Billy Beane, coach of Oakland Athletics who, along with his assistant Peter Brand, assembles a team which sets a record breaking spree of 20 consecutive wins despite financial woes. The team utilized a branch of statistics known as Sabremetrics, which is radically different from the traditional measures used to analyze players.
WHAT A MANAGER CAN TAKE AWAY FROM THE MOVIE The first aspect of Billy Beane which would strike the viewer is his ability to make decisions under constraints. He was faced with a situation where his top players were on their way out, and with an inadequate budget, he had to make a competitive team for the next season. This required him to make some tough calls. When things weren't going right with his team of scouts he had to fire one of them who questioned about his decision to go with Peter Brand's techniques. The concept of blue ocean strategies has taken the world by storm since the time it was first propounded. What Billy decided to do more or less falls within the ambit of a strategic blue ocean. His decision to rely on Peter Brand's nontraditional statistics was a chance he took. It was unprecedented in the world of baseball. There was huge risk involved as well. But in the end, the rewards were commensurate. In management parlance, he was able to discover a competitive advantage which set his team apart from the rest. Analytics is an important backbone of most knowledge-based businesses. It can be defined as use of data to aid decision making process. In this context, it is important to understand the right data to be used since vast amounts of it are available. When Peter Brand came out with a set of statistics 58
We often see in businesses that the parameters used to evaluate peformance don't really measure what is required. Here comes the necessity of using the right numbers for evaluating. This is not a set of numbers which will eternally point how well your business is doing. There is a need to delve deep and understand if these numbers are really giving us what we need. In the movie, Peter Brand was able to do that and convince Billy Beane too. Asking the right questions is a key skill for continuous learning and improvement. At many points in the movie Billy is seen asking questions to his team of scouts, and he repeatedly talks of understanding the problem. This is a very important aspectunderstanding a business problem. Digressing slightly, let us take the example of Kodak to see the importance of asking the right question. They invented the digital camera back in 1975. But they did not try to make a business out of it fearing they wouldn't be able to sell their films. Kodak was asking itself “How do we sell more of our product” instead of asking “What business are we in.” If businesses do not ask the right question, they might well find themselves in the situation that Kodak is in today. Human resource management is another learning from the movie. Billy has to deal with a number of people in different capacities. He is answerable to the owner for the team's performance. Despite wanting an increase in the salary cap he is not able to get the owner to agree. His coach is worried about his future and asks for a fresh contract. Billy has to deal with him the hard way since things are not going well. This creates a rift between them and affects the team's performance an extent. He had to act against his experienced team of scouts for going ahead with the new idea. He had to motivate his motley collection of players to perform well. He had to manage the ego of
players like David Justice who was a big name in an otherwise unheard of team. This can be compared with a modern day company where a manager would have to deal with many people every day. The higher the manager is in the corporate ladder, the more the number of people he would have to talk to. For instance, a CEO will have to talk to the board members for important decisions, to his employees to keep them motivated, and so on. In the company he will have many managers reporting to him with various problems. Finally, it boils down to talking to the people in the right manner and making them realize that it's a team effort which is required to achieve success. When Billy decided to go against the vast experience of the scouts who had seen thousands of games and analyzed even more players, and finally reaped success, it showed that something was wrong in the way scouts were thinking. What probably happened was that over time, the scouts had become tuned to a particular way of thinking which had so far proven successful. The decision making used by these scouts involved judgment. But in the face of the right statistics, the scouts who were skeptical about Billy's choices were proven wrong
is a result of continuous and persistent effort. The need to change with the times is an essential component of staying ahead in business and this might require going against set patterns at times. Billy was able to do it. Billy's decision to trust Peter Brand also shows his risk appetite. He knew that he had to do something radically different to stay competitive in the league given his salary cap. His solution to the problem was risky, but risks can be managed if backed up by proper analysis of data and smart decision making. In fact, in this situation, all the data was showing was what exactly a player was good at. So his decision which looked risky initially was actually just looking at data which was available to everyone in a different way. Businesses too need to realize the importance of managing risk. There will be situations where certain components of risk cannot be managed. But with proper analysis, risk can be diversified to achieve success. It might just require some out of the box thinking. Thus, watching Moneyball helps one learn some very important management skills through Brad Pitt and Philip Seymour Hoffman with a baseball theme in the background.
Once businesses start tasting success they tend to get little complacent. This can be dangerous since success
59
This is a Research and Publications Committee 2011 initiative under the guidance of Dr. Debasis Malik, supported by members Priyansh Khanna, Rajas Abhyankar, Varun Madan and Viveka Jha.
A Research & Publications Committee 2011 Initiative under ADMAP Programme