Issue 12
CREST
Nov ‘10
Consulting Research Entrepreneurship Strategy
The E-Magazine of CRESCENT, XLRI
t n e gem
h c r sea
a n a m d an
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MOM
CHANNEL FINANCE
ENT O TRUT F DOING BUSINESS IN H EMERGING MARKET Campus Reporter
THIS ISSUE...
Cover Story Page 5
Crescent
Role of Research in Management
The Committee for Research, Strategy, Consulting and Entrepreneurship (CRESCENT) is the result of the endeavor of the student community of XLRI to promote an environ-
Features Understanding Moment Of Truth| Page 2 How Moment of Truth can be used to deliver better results
ment of creative solution building amongst the students of the institute, while
Role of Channel Finance in Business Strategy| Page 7 Managing working capital in the most effective way
reaffirming high ethical standards and values, and fostering personal development in the pursuit of excellence. It works with the two fold agenda of creating a brand presence of XLRI among the corporate and to help nurture ideas of budding entrepreneurs by providing a platform to them to showcase their Ideas.
Editorial Team Neeti Kumar Siddhartha Saran
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Doing Business in Emerging Markets| Page 9 Campus Reporter | Page 10 What CRESCENT’s been upto!
From the Editor’s Desk... After a successful Summer Internship Process (SIP) and a grand Ensemble 2010, the mood in the college is upbeat. As always we have brought interesting articles to you. Our cover story focuses on the increasing complexity of business scenario today as we are growing transnational. Management has extended its arms towards many disciplines. And to fathom depths and develop strategy research is required. The article also talks about the need to appreciate the interdependence of both. Apart from this, we bring articles on how companies can do business effectively in emerging markets along with articles on managing working capital effectively and on what moment of truth is all about. This November CRESCENT has stared with a unique initiative of nurturing entrepreneurship at XLRI in the form of Idea Factory. We share with you our experience and learning of this new beginning. The Editorial Team would love crest.xlri@gmail.com. Happy Reading!
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CREST Nov 2010
Understanding Moment of Truth! Whether it is about creating customer loyalty or employee engagement, understanding moment of truth will help in facilitating great results. In this article Neeti Kumar tries to understand what moment of truth is and how it can be used to deliver great results. Placements are the most crucial offering of a B School to most of the students. A lot of thought and energy goes towards getting a good placement. Jan Carlzon, the former CEO of SAS coined the term ―moment of truth‖ which rightly explains what Placements are for students. Moment of truth is a decisive time on which much depends. In this article we will look into how the moment of truth is created by different entities. Whether it is about creating customer loyalty or employee engagement, understanding moment of truth will help in facilitating great results.
“These moment of truth often occur when the customer has a problem.”
In today’s competitive and dynamic business ecosystem, creating loyal customers is very important. Look, feel and content of products and services are no longer value differentiators. Customer experience has become of paramount importance. The more convenient, comfortable, collaborative, transparent and omnipresent the experience, the more likely one is to create an "ambassador". The idea is to not just to make a great product but the right kind of experience for customers in myriad encounters with them. Companies which think from the customer’s perspective rightly focus on the value they have created for customers. McKinsey research on customer experience in various countries identified the critical moments for customers as well as prize awaiting banks that respond appropriately to them. These moments often occur when the customer has a problem (such as a hold on a check or a need for a quick answer on a loan) or receives financial advice; either good or bad. By contrast, humdrum transactions (such as buying traveler's checks) generally don't offer the same opportunity to create an emotional bond with the customer. Many companies make the mistake of overinvesting in humdrum transactions but fail to differentiate themselves in the customer experiences that really matter. The frontline employees need to have a high emotional intelligence to facilitate the process. Even managing a team involves understanding and revealing ―moments of truth‖. The purpose of good leadership is not just to increase shareholder’s value or the productivity of work teams but to stand for one’s values and make a positive difference to this world. It is not possible to live personal values till the team also understands and implements them. One way to accomplish this is to share how the values are real to us, where they came from and how we learned them, and the intimate and profound personal experiences—glorious or traumatic— that shaped our self-awareness. In a way this means making ourselves vulnerable but the results are worth taking the risk. The story we share does not need to be very dramatic, only real.
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CREST Nov 2010
ENTREPRENEURSHIP True epiphanies often come from a series of small moments—visible, for instance, only after reflecting on the decisions that first caused us to need our values or become aware of them.
“The world recession and financial crisis was a moment of truth for the world”
The world recession and financial crisis was a moment of truth for the world. Bankers played on other people’s money to generate wealth for themselves. The insatiable greed of few created a global problem. All these examples have a connection. They tell us that creating and understanding moment of truth are linked to addressing problems. If we want to win over our team then we should share our source of values and our real experiences with them. If we want to create ambassadors from our customers we need to understand and solve their problems and create a delightful experience for them. Even the moment of truth for the world was exposed during subprime crisis only. Inputs from: - mckinseyquarterly.com; returnonbehaviormagazine.com References https://www.mckinseyquarterly.com/The_moment_of_truth_in_customer_service_1728 http://www.returnonbehaviormagazine.com/articles-of-interest/the-moment-of-truth-customerexperience-management.html https://www.mckinseyquarterly.com/Revealing_your_moment_of_truth_2680
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CREST Nov 2010
COVER STORY—RESEARCH
Role of Research in Management Asif Nazir from IMI explores the increasing complexity of business scenario today as we are growing transnational. Management has extended its arms towards many disciplines. And to fathom depths and develop strategy research is required. The article also talks about the need to appreciate the interdependence of both. Research decides the continuity of any discipline. It is an important link in the life-cycle of any discipline. Take it out of any discipline, and that discipline heads toward extinction. If not extinction, it will be put under the category of endangered species. Research supplies fresh blood to the subject, and pumps energy, vigour and vitality to the discipline. Vibrancy of a discipline is the measure of the quality of research in that discipline. Research resurrects the dead discipline, and pumps fresh blood in it. In fact research is the lifeline of any discipline.
“Only continuous research can bind and act as a true glue and adhesive to the various disciplines that management has.”
Management by its nature is the amalgamation of various disciplines. It incorporates and blends concepts and theories in itself harmoniously. This is the beauty of management. Its contributing sources are vibrant and live, providing nourishment to its body and soul. Research unearths a fact that was already there but either beyond obvious or blurred from view. The popularity of the Management as the most promising discipline is due to the research work that is continuously refreshing it. It is the ongoing research work that puts this discipline in shape and size. Management has extended its arms towards many disciplines so as to measure objects that are obvious and fathom depths that are beyond obvious. Application of knowledge of other disciplines in the management is very challenging. To apply abstract concept, theory and application of other disciplines in the vibrant, practical and ever changing discipline of the management is a challenging one. Only continuous research can bind and act as a true glue and adhesive. Business has crossed national boundaries. Multinationals have transformed into Transnationals. Business entities are now in the zone of interdependence, an improved state of independence. A lot is needed to conduct business in culturally different setup and exotic lands. Here research comes handy, and at least helps in absorbing cultural awe and shock. Relevant research melts the ice and gives new orientation to the relationship of diverse workforce.
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CREST Nov 2010
COVER STORY—RESEARCH Every nation has its past and hence its history, and the binding force between the history and the present is the culture -- the continuation of values, beliefs, ethics and mannerism. The culture, closely guarded inheritance of any civilization, is defended, presented and manifested in every possible way. Once a business entity misses on this platform, it may slip in oblivion. Such is the sensitivity of the issue; and the role of the research so crucial here. Business needs strategy and the research provides that. In the absence of well researched strategy business is bound to lock itself in the suffocating cocoon, only to find itself fossilized. A researcher either feels the need of the research or need inspires him to research. Organization being dynamic and ever changing its form needs terra firma to stand upon. This firm platform is the findings of the research. An organization dips into the ever refreshing new findings and emerges fresh. Dynamism is sustainable as long as the research is progressing. The main challenge to the researcher and the organization is the need to understand interdependence of each other. Each should open arms and embrace each other. This will open ever expanding realm of the research, and the business will get fresh impetus. It is the research that gives different exposure to the business. It shows the path, and helps in decision making. Various instruments developed in the past to measure Organizational behaviour have helped Organization in selecting team, understanding its work force, its utilization, defining the role of managers and understanding the style of leadership and its appropriateness. These are the results of continuous endeavour of researchers. The organizations take maximum advantages of these findings. The beauty of the research is its practical application.
Some research is specific and restricted to particular circumstances, and some are generalized and having more breadth. Both types of research are important and relevant. In today’s business environment, challenges are diverse. Challenges bring opportunity, and stretch our ability to see the realms beyond obvious. This is the area and arena that will boost the research and findings. Every day is a new challenge for business houses, and researchers have to come forward to provide tools and instruments that may help the management in taking decisions. Continued on Page 6 5
CREST Nov 2010
COVER STORY—RESEARCH Never before was such a need felt. The survival is at stake. Organizations are expanding and shrinking, rising and falling. What are the facts behind rise and fall of Business Empire? Of course, it is an interesting addition in the genre of the history. There may be traces of causes that helped in building of the business empire, and there may be possible pitfalls that resulted in their demise. Seeking the meaning is not an easy task. But the role of the researcher is to unearth the past for the betterment of the present. Organizations are in the constant pursuit of the betterment in every aspect of the business. So they are encouraging research for the solution of their specific needs. Here lies the opportunity as well as pitfall -- curtailed freedom of the choice of the area and interest of research, but opportunity to taste different flavours of research activities. A lot in terms of ethics and values are at stake while researching, and
“If the trend of the research continues and the business entities sees it as a meaningful tool, the future for both is bright ”
the researcher has to prove his ability to walk on this razor sharp less trodden path. There is the need of fine balance between abstract and applied research work. Original contribution with insight to influence the research in the realm of the management is lacking. This may possibly be due to encouragement in finding quick-fix solutions. Research is a serious business, and the researcher has a responsible role to play. Management as a discipline has to give insight to the business and organization. Complexity of business due to its dynamic nature needs to be understood. Visionaries are not always in the Organization all the time. But the organization has to deliver. Managers have to take decision, and the company has to earn profit. In this scenario there must be tested instruments and workable tools to carry out the business effectively and efficiently. The researcher and the business enterprises will have to understand each other’s role. The best conceivable relationship between the two will be that of interdependence. Here lies their present and future. Both can meaningfully aid in the growth of knowledge – knowledge helpful in sustaining business and sustenance for the discipline called management. Management has borrowed ideas from many disciplines but treated well those ideas while modifying and applying. It is the power of research that has kept all these disciplines so closely knit. If the trend of the research continues, and the business entity sees it as meaningful tool, the future for both is bright.
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CREST Nov 2010
STRATEGY
“Role of Channel Finance in Business Strategy” To achieve competitive advantage Organizations today focus on building efficiency not just inside but also in their partners. Vishal Agarwal, Ex Secretary CRESCENT writes exclusively for CREST on how Channel Finance is a tool to achieve this. Forward and backward linkages in a business organization play a significant role in the success or failure of the business entity. For a manufacturing or trading firm, while the suppliers of raw material are important as they provide input for production, equally important is the role of its distributors which sell products manufactured by the firm through retailers to the ultimate consumer. A corporate which is looking to grow aggressively in order to thwart competition or to con-
“Channel Finance is a supply chain finance where a Bank provides flexible financing arrangements at competitive rates to both suppliers and distributions.”
solidate, invariably finds itself constrained by the financial (in)ability of its channel partners. Also, many a times, companies, especially those in the FMCG industry, struggle to manage their working capital in the most efficient way. An often recommended solution for such problems is Channel Finance. Channel Finance is supply chain finance where a Bank provides flexible financing arrangements at competitive rates to both suppliers and distributors. Channel financing is different from the conventional lending since, in conventional lending, the financing banks are generally not concerned as to how the suppliers of the firm and dealers of the products of firm, are financing their activity. Lending is backed by collaterals. However, in Channel Financing, Banks play the role of an intermediary. The typically diverse interests of buyer & seller on the payment date, where the buyer wants to increase his days payable and the seller wants to reduce his days receivables & collect as early as possible, are reconciled by the bank. The bank can allow the buyer & the seller to select an appropriate funding option through a mix of payment-credit structure so that both can manage their working capital most efficiently. How does it work? The manufacturing firm (Company) functions as the principal customer and sug-
gests the names of its suppliers and dealers to the bank. Thereafter, the bank makes a due diligence assessment of the suppliers’/dealers’ standing and credit worthiness and decides to provide finance on merit. The actual financing can happen in various ways, depending on the agreement between the Company and the bank. 7
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CREST Nov 2010
STRATEGY
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One of the ways of implementing dealer financing is through discounting of trade bills drawn by the Company and accepted by its dealers. The Company can submit the accepted bills with a post dated cheque. On the due date, bank can credit the Company’s account by debiting dealer’s account. An alternative and improved way is to open a current account, in the nature of Overdraft account, for each dealer (With the advent of core banking, the dealer can choose to open the account in any branch of the bank within the country). A limit is fixed for individual dealer based on the recommendation of the Company and credit his-
“With almost all scheduled commercial banks and a few NBFCs are now offering this facility, Channel Finance is finding a prominent place in the strategy formulation of many Indian companies ”
tory of the dealer. Whenever, the Company makes a sale to the dealer, the Bank pays the company within the credit limits of the dealer and in turn follows up with the dealer for recovery of dues. The dealer can repay as and when it has funds within the due date and interest gets calculated on a daily reducing balance, thus reducing the net interest outgo of the dealer. In case of default, the Company is duty bound to stop supplies and assist the bank in recovery. Benefits to the financed concern, the supplier and the dealers The pre and post sale working capital requirement of the manufacturing firm
would be scaled down. Such firms can concentrate more on their core competence area of production and marketing their products besides saving time and costs involved in arranging creditors and monitoring recovery. As regards the suppliers and dealers, the major benefit is that they get payments promptly, which improve their liquidity position and cost. This also helps them as well as the bank to cut level of counter party risks. Gains to Banks The banks also gain substantially from the process of channel financing which
include increased customer base, effective due diligence and smoothness of lending activity and loan origination process. Besides, the banks will be able to ensure better credit discipline. Since the risk is diversified through finance to supplier, manufacturer and the dealers, the credit exposure norms are better observed. Thus, channel financing becomes a very convenient tool in managing their assets portfolio. With almost all the scheduled commercial banks and a few NBFCs now offering this facility, Channel Finance is finding a prominent place in the strategy formulation of many Indian companies. 8
CREST Nov 2010
STRATEGY
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Doing business in Emerging Markets Companies all over the world are increasingly looking to emerging markets like India, China and other countries like Eastern Europe as a vital source of growth. The problem is these companies often lack an effective strategy for identifying which countries to do business with. In this article Siddhartha Saran explains a "five contexts framework"—issues to consider, in essence—to understand institutional variations between countries. Basic Managerial Economics tells us that companies buy inputs in the product, labour, and capital markets and sell their outputs in the products (raw materials and finished goods) or services market. When choosing strategies, therefore, executives need to figure out how the product, labour, and capital markets work in their target countries. This will help them understand the differences between home markets and those in developing countries. In addition, each country's social and political milieu—as well as the manner in which it has opened up to the outside world—shapes those markets and companies must consider those factors, too.
“The concept of open is deceptive”
Political & Social Systems: The governments across the world play a major role in facilitating the business environment. In fact many people would not know that the Silicon Valley was hugely funded by the U.S. Department of Defense in its early years. Other local governments elsewhere have also played similar catalytic roles in creating hubs of innovation especially in places such as Tel Aviv and Singapore. Such success stories often get lost against the common perception that government just bungles things when it wades into the private sector. Policies that governments employ to encourage venture capital and entrepreneurial activity take two broad forms: those that ensure that the economic environment is conducive to entrepreneurial activity and venture capital investments, and those that directly invest in companies and funds. Apart from this companies should also be able to gauge the level of actual trust among the populace for their ventures. For instance, if people believe companies won't vanish with their savings, firms may be able to raise money locally sooner rather than later. Openness: CEOs often talk about the need for economies to be open because they believe it's best to enter countries that welcome direct investment by multinational corporations—although companies can get into countries that don't allow foreign investment by entering into joint ventures or by licensing local partners. Still, they must remember that the concept of "open" can be deceptive. For example, executives believe that China is an open economy because the government welcomes foreign investment but that India is a relatively closed economy because of the lukewarm reception the Indian government gives multinationals. However, India has been open to ideas from the West, and people have always been able to travel freely in and out of the country, whereas for decades, the Chinese government didn't allow its citizens to travel abroad freely, and it still doesn't allow many ideas to cross its borders. Consequently, while it may be true that multinational companies can invest in China more easily than they can in India, managers in India are more inclined to be market oriented and globally aware than managers are in China.
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CREST Nov 2010
STRATEGY
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Product Markets: Developing countries have opened up their markets and grown rapidly during the past decade, but companies still struggle to get reliable information about consumers, especially those with low incomes. Market research and advertising are in their infancy in developing countries, and it's difficult to find the databases on consumption patterns that allow companies to segment consumers in more-developed markets. There are few government bodies or independent publications that provide expert advice on the features and quality of products. The countries where rudimentary marketing support systems are available or where marketing research and advertising options are beginning to look up emerge as better bets for investment.
“Companies should analyze industry factors but only after they understand a country’s institutional context”
Labour Markets: In spite of emerging markets' large populations, multinationals have trouble recruiting managers and other skilled workers because the quality of talent is hard to ascertain. There are relatively few search firms and recruiting agencies in low-income countries. The high-quality firms that do exist focus on top-level searches, so companies must scramble to identify middle-level managers, engineers, or floor supervisors. Engineering colleges, business schools, and training institutions have proliferated, but apart from an elite few, there's no way for companies to tell which schools produce skilled managers. There still exists a void in many countries in the kind of talent these companies are seeking and the talent being produced by the countries educational institutions. Capital Markets: The capital and financial markets in developing countries are remarkable for their lack of sophistication. Apart from a few stock exchanges and government-appointed regulators, there aren't many reliable intermediaries like credit-rating agencies, investment analysts, merchant bankers, or venture capital firms. Multinationals can't count on raising debt or equity capital locally to finance their operations. Like investors, creditors don't have access to accurate information on companies. Corporate governance is also notoriously poor in emerging markets. Multinational companies, therefore, can't trust their partners to adhere to local laws and joint venture agreements. We can conclude that although industry factors like scale economies, entry barriers, and the ability to differentiate products matter in every industry, the weight of their importance varies from place to place. An attractive industry in your home market may turn out to be unattractive in another country. Companies should analyse industry factors—always a useful exercise—but only after they understand a country's institutional context. Source: HBS Working Knowledge
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CAMPUS BUZZ
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S T R AT E G I KO N Strategikon is the annual flagship event of CRESCENT in ENSEMBLE at XLRI. The final round of Strategikon 2010, sponsored by Cognizant, was held on 14th November, 2010. It was an attempt to make B-school students put on their thinking caps and come up with strategies to deal with a few grappling challenges in today’s business domain, ranging from green technology to cloud computing. The event was held in two stages- the first round saw participation from teams across the country, and finally, six teams were shortlisted by industry experts on the basis of the solutions suggested by them for a green consulting division. The shortlisted teams were then asked to come up with a case brief and a plan of action for a consulting firm that was looking to enter the cloud computing space in the Indian context. The participants were required to explore the opportunities for the firm to benefit from possible mergers and also to devise a marketing strategy for the firm. They had to take into account current bottlenecks faced by the Indian IT industry. The participants were judged based on the logical flow of thinking, their approach, creativity, and presentation. A panel of industry experts from Cognizant was present to evaluate the teams. Besides, the teams were also invited to play impromptu strategy-based games that tested their ability to adapt to changing business environments and emerge victorious.
IDEA FACTORY The first phase of Idea Factory, the platform for young entrepreneurial minds at XLRI, was successfully organised by CRESCENT (the Committee for Research, Strategy, Consultancy and Entrepreneurship) on November 07, 2010 at XLRI. The event is first of its kind in XLRI and is promoted by Venture Capitalists. The students were guided by Dr T. Prasad, popularly known as Dr Mandi- Faculty Advisor at NITIE, on starting up small ventures while being at the institute. The Experts’ Panel consisted of Prof. Uday Damodaran, Prof. Prabal Sen, Dr Madhukar Shukla and Dr T. Prasad, which helped the students understand the nuances of entrepreneurship.
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This initiative has been widely applauded by the students who desired for a platform to demonstrate their entrepreneurial streak. The students are looking forward positively to gaining from this initiative. With this platform, we are bound to see multiple entrepreneurial ventures from the XLRI’s den. The committee is planning to promote the event further in premier engineering institutes across the nation, so as to foster the spirit of entrepreneurship amongst not only would be managers; but also the torch-bearers of technology.
CREST Nov 2010
CRESCENT MEMBERS Faculty Advisor Prof. Munish Thakur Secretary Mohammed Sadique Quraishi Senior Executive Members Aalok Sanghvi Miti Vaidya Nitin Agarwal Siddhesh Ajgaonkar Vikas Kedia Vikram Singh Rathore Junior Executive Members Namrata Singh Neeti Kumar Rama Krishna Chava Rohnak Shah Shashwat Sahai Siddhartha Saran Urshila Ghag
CRESCENT e-mail id crescent@xlri.ac.in
Cover Photo Courtesy Karthik Srinivasan
The Editorial Team of Crest invites articles from readers for publication in forthcoming issues. If you have articles/ experiences/ studies to share in the areas of consulting, entrepreneurship, research or strategy, please do send them in to crest.xlri@gmail.com mentioning your name and institute name.
CREST
Nov 2010