Archive for November, 2009

Book Review: Munshi, Abraham (Editors): “Good Governance, Democratic Societies and Globalization”

It has been a source of unending mystery to me why “corporate governance reform” in India has always meant moving towards the Anglo-American  Model in which shareholders’ interests are paramount (that is to say, the interests of employees, customers, suppliers or even society at large have no place) , financial markets are a source of not just capital but also discipline and there is no role for government-set industrial policy.

Darryl Reed’s contribution in this collection supplies some answers: India has a legacy of a British-inspired governance process which is embedded in our Companies Act, there is a perception among the Indian elite that we tried energetic state intervention in the 50’s and 60’s and it did not work, we believe that an activist capital market enforces domestic competition and this helps build internationally competitive domestic industries are some of the reasons.

At a more macro level, the Anglo-American model is and is embedded in the ideology of the IMF/World Bank ( dubbed the “Washington Consensus”) and is part of  terms for their  financial aid to countries. India’s turn for this came in 1991 when the country ran out of foreign exchange and had to go to the IMF for a structural adjustment program funding. A series of ‘reforms’ were set in motion from the top down.

The Editors of this volume calls this approach one of the “Errors of Simplification” and their view is that national differences matter and that there are many different routes to a liberal democratic regime of governance and not just the one route prescribed by the Washington Consensus.

Who supports such reforms and who opposes them and why has been another source of wonder for me. Darryl Reed has an answer to this. “Such reforms,” he says, reflects the interests of the international ( and some domestic) business and political elites”.  Who exactly these domestic elites are and what specific interests of theirs are served in this support for reform is an intriguing question.

This book is the outcome of an international conference held at  IIM Calcutta in 2002 as part of the European Union-India Economic Cross-cultural Programme.

At the time of this conference, 2002, the globalization and its attendant neo-liberal  ideology tsunami was at its peak and appeared  unstoppable. Many papers in this book assume that and thus many prescriptions  are aimed at mitigating its  ill-effects by  putting a supra-national regulatory system in place.

The Wall Street financial crisis of 2008 and the return of an activist State in the United States turns that assumption on its head.  Globalization no longer looks inevitable and the shine has been taken off from blind faith in the power of markets. Other than this perspective , this book is a must-read for anyone thinking  about the issue of corporate and country governance. Its available to buy online at


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Thought Leadership at the 7 IIMs

The question of whether the IIMs contribute enough to thought leadership is often debated in Indian policy circles. To put this debate on an empirical footing, I waded through some 300 papers and used that as a basis of a keynote I was invited to make at the Dubai Pan IIM Alumni Meet May 23rd 2009: “Dealing with the Downturn”

    If you have been through seven recessions like I have been you know some things for certain. One is that recession come every five years or so; somewhat as predictably as the Bombay famous monsoon which comes every year and flood our roads. The next thing you know about recessions is that they always go away too, often after a year or two. The third thing you know is that everyone at the start of a recession swears that this is the worst ever and that they see no end in sight.

All this we  know. But what is not as often discussed is that recessions are often times of paradigm change. For example, at the start of the 2000 recession, Google was a small company with a annual revenue of about $85m and a profit of $10m. Then they executed the pay-for-performance model in advertising where advertisers need pay only if they got results, a paradigm change, and this took them in the next seven years to their present position as one of the largest companies in the world.

Its my belief that the current recession will also introduce new paradigms in many different industries, even though it is hard  to tell, at this point in time, what these paradigm changes are going to be.

Lets conjecture what some of these could be using insights from the research work of many different IIM professors.

One I can think of is the role of derivatives in the next decade; derivatives have been vilified of late, Warren Buffet the legendary American investor, even called them Weapons of Mass Destruction and many media reports blame derivatives and other forms of mathematical modeling in finance for the financial destruction that is going on now.

Yet, why is it, ask Prof Jayant Varma, of IIM Ahmedabad, that while banks who traded in derivatives have been driven to distress, that no major derivatives exchange has faced a similar difficulty? The question is even more intriguing when you consider that while banks faced trouble with real-estate derivatives, the exchanges themselves have been trading in all that plus equity derivatives  which are twice as volatile as real estate and natural gas derivatives that are ten times more volatile.  Could it be, he asks that the methodology used by exchanges to set margins were “crude” but robust while that used by investment banks were very sophisticated but calibrated to markets? He goes on to suggest that growing computational  power makes it feasible to use previously infeasible explicit models of risk based on coherent risk measures like expected shortfall, fat tailed distributions and non linear dependence structures (copulas). His paper, Risk Management Lessons from the Global Financial Crisis for Derivative Exchanges is currently a working paper and available on the IIM Ahmedabad website, and is worthwhile reading for all who are trying to guess at the paradigm change that is taking place in financial service today.

No other topic is heard more frequently these days  than the word ‘corporate governance’.   “The Intelligent Person’s Guide to Good Governance” is a very timely book by Prof Munshi, Prof  Biju Paul Abraham and others at IIM Calcutta. The central argument of the book is that the paradigm of the last decade, an exclusive reliance on markets, or the paradigm of the 1960’s, an excessive reliance on the State, may stand in the way of good governance; any serious engagement with good governance, they say, must go beyond an exclusive reliance on the state or the market and must explore different modes of partnerships, including public participation.

Or take the way we currently look at employees.  Prof Pankaj Kumar and others from IIM Indore did a fascinating study of Employee Engagement, a concept that reaches beyond traditional concepts like employee motivation and employee commitment. The instrument and methodology they used will be of use for many different types of organization. Their work is published in the IIM Indore’s own journal, The International Journal of Management Practices and Contemporary Thought.

Those of us who operate eCommerce businesses know the challenge of assessing an online buyers intent; the problem being that in the absence of a human sales rep to judge the nuances of a customer’s intent: what is the degree to which price is important, which among the features of a product matter and to what degree? Or, take for instance, the way we model consumer behavior. Prof Mohanty at IIM Lucknow has been studying this uzzy set theory, which if you recall your Stats 101 courses at IIM is a form of reasoning where a truth value need not be exactly one or zero but can be either zero or one or any value between. Prof Mohanty has been applying this ‘fuzzy’ approach in a series of papers published over the last few years starting with the International Multiple Criteria Decision Making Conference in 2004 in Canada; in the International Journal of Electronic Business in 2006 (where he added a game theoretic approach as well); at the 2008 International Conference in Advanced Computer Theory and Engineering (where he found a way to mathematically model the ‘tranquility’ and ‘anxiety’ that a customer experiences during the buying decision-making process).

During the current financial crisis, many people have asked, how did so many bright people in the financial services industry  educated at stellar institutions like Harvard or Yale or the IIMs , make decisions that have destroyed whole cities and industries and left many millions of middle class people jobless and fearful of their future?  These talented executives are supposed to be masters of rational decision-making, expert in the usage of formal models, operations research techniques and so on.  How could they get it so wrong?  In reality,  says Prof Mathew Manimala of IIM Bangalore,  most managers rely on a set of  “heuristics,” , or rules of thumb such as “Do not put all your eggs in the same basket”, which  helps make decisions in situations where many alternative courses of action exist and information is unclear or conflicting.  . For these original insights, Prof Manimala was awarded Certificate of Distinction for Outstanding Research by the prestigious Academy of Management of the United States and his work has been widely cited. It may lead to a paradigm change in the way we look at decision making.

One of the tenets of the new era unfolding before us  embodied in concepts such as Prahlad’s ( incidentally a product of IIM Ahmadabad) “The Fortune at the Bottom of the Pyramid”, Clay Christensen’s, “The Innovator’s Dilemma” and the emergence of products such as the Tata Nano. Cutting across all of this is the notion that vast new markets are created by products which are  “nearly as good” products as opposed to the earlier notion that successful product need to be “top quality”. The vexing questionabout this line of thinking has been, how does one  decide the optimum level of quality that will qualify as “nearly as good” and not either sink on the one hand into “not good enough” or on the other “too good”?

Prof Rameshan of IIM Kozhikode presents a framework for doing this kind of analysis in his paper, “Optimum Quality as Strategy: a Conceptual Framework”. This paper was presented last July at the 9th World Congress of IFSAM, held at the Fudan University, Shanghai, China.

Then there is an equally extraordinary phenomenon, the acquisition activity by Indian companies in international markets. Sathyajit Gubbi, Preet Aulakh, Sougata Ray, M.B. Sarkar, and Raveendra Chittoor, from IIM Calcutta, took a look at this and their paper, “Do International Acquisitions by Emerging Economy Firms Create Shareholder Value? The Case of Indian Firms” has been accepted for publication by Journal of International Business Studies, one of the highest rated journals across all management disciplines.

A hallmark of the last decade, leading up to the current recession, has been the blind faith with which countries have had in “good infrastructure” as a pre-requisite to economic growth. . You can see this in the mega shopping malls and flyovers being built in Dubai, in the massive SEZ projects in China and India.

Prof Nandkumar of IIM Kozhikode and his partners looked closely at data from Europe Union and concluded that what matters is not any of these, not even policy initiatives such as  trade liberalization  nor even the use of information technology but the presence of a skilled and scientific workforce.  So you can see, all the efforts in building grand Export Zones and glitzy airports matters much less than investment in high quality scientifically oriented workforce.Their paper, Economic Convergence in the Old and the New Economies of the OECD, was accepted for publication in the Journal of the American Academy of Management.

 In using technologies such as derivatives, should we look at the institutional context in which they are used?  I can think of no better articulation of how technology and society interact than the evocative articulation t of Prof Anil Gupta of IIM Ahmedabad, who says  “If Technology is like a Word, Institutions are like Grammar.” In one simple sentence he has presented to the world a snapshot view of how technology and institutions interact and influence each other.

Our latest and youngest sibling IIM Shillong has also started contributing to the IIM thought leadership effort. Prof Subhrangshu Sarkar has an interesting paper on a subject that all of us , whether we are business executives or financial services executives or scholars have long been intrigued by: is there any connection between the intrinsic value, that is, the book value of a firm and its market quoted value.  His paper, Intrinsic Value vs. Market Price, a Sectoral Analysis should be of interest to all of us who are intrigued by this relationship.

It is only appropriate that in these troubling times that we look deeply not merely at the technocratic areas of management but also at cultural and value issues.  We have a slew of research papers from IIM Calcutta on these topics. Rohit Varman of our Marketing Group  takes a long , hard look at the phenomena of  Consumer culture  where people  portion pursue, acquire and display goods and services that are valued for non-utilitarian reasons, such as status seeking, envy provocation, and novelty seeking. In one paper, Weaving a web: subaltern consumers, rising consumer culture, and television, published in the international journal, Marketing Theory, he points out, among other things the troubling connection marketers make between a consumer culture and other “western values” such as ‘democracy’ and ‘modernization’, as if consuming more is essential to being modern. In another article, due for publication in the prestigious international Journal of Consumer Research, Rohit looks at the emerging anti-consumption movement. There was a time such work might have been viewed as  “socialist”, but many of you must have noticed President Obama’s remark at the G20 Summit recently  about the need to dampen the  “voracious consumer market” that has characterized  the United States.

The research ideas I have recounted today need two qualifications. First, they represent perhaps 5% of the valuable ideas that have emanated from the seven IIMs in the recent past. There are many , many more that deserve mention but the limit of time prevents me from mentioning. Second they ones I have presented today represent my idiosyncratic choice. When I look at all the research papers available across the seven IIMs I often feel like a kid in a candy shop- there are so many good choices, why cant I have it all! But you can make your own choices by going to the websites of the IIMs.

In alumni gatherings such as this, we often ask ourselves what can alumni do for these institutions who have done so much for us.Here are some suggestions. Try and engage our faculty in strategy-level consulting assignments. They need the exposure to real-life problems of the business world, they need the access to empirical stuff which is the bedrock of all theory building. Once assignments are crystallized, assume a leadership role in the dialogue between faculy-consultants and your business. As an alumnus you understand the language of both worlds. Be the interpreter.

Try and get faculty members onto Boards of companies you are involved in. Board are great vantage points where faculty members can observe the real world. The world of business is badly in need of more independent Board members and I can think of no better qualified independent Board members than IIM Faculty.


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Business School Experience

Interview I did with Bhakti Chuganee of Business India , September 2009

Question: What made you decided to go to business school in the first place?

Answer:  I had run into an IIM student (by accident) while I was in final year of undergrad and still figuring out what to do next; his glowing report of the multi-disciplinary  curriculum sounded exciting to me

Question: Why did you choose IIM Cal?

Answer: At that time ( 1969) there were only two: Cal and Ahmedabad. Since IIM Cal was the first one and ( viewed from the Kerala small town that I was in), Calcutta was ‘big city’ and the capital of Indian football (which was what I lived for those days)

Question: In hindsight, what was your business school experience like?

Answer:  I was a Maths-Physics-Chem type and did not even know that there were ways of looking at the world like Sociology, Psychology, Economic History etc…so, discovering these was breath-taking and life changing. The main lesson you learn when you first enter these all-India meritocratic institutions ( IIMs, IITs, etc)  is that there are as many bright people in the world as you, that there are many different types of ‘brightness’ and that success comes from discovering what you like doing best and  from serving society

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The Old Economy and the New

Q&A I had with IIT Bombay’s Entrepreneurship Cell September ‘09

 Question: You have experienced both the worlds – the old economy (while at the agency Rediffusion) and the new economy ( do you think the Internet will become an integral part of the media and marketing plan of companies?

Answer: Internet media today is only 2% to 10% of media spend  while it is 10%-40% of reach across countries This kind of lag of Spend to Reach is normal in the evolution of a new medium and we have seen ithistorically when TV and Radio came about. This gap is usually bridged in a decade or so

Question: In the Indian internet space a few players are taking away a disproportionate share of the revenue. When do you think this will change and when will revenue convert into profit for the players in the net space?

Answer: Winners-takes-most is normal for ad revenue; the answer is to build a supporting subscription revenue by delivering a really useful service

Question: Today there are hundreds of newspapers and magazines in our country. But a large number of them are loss-making propositions. Do you think emergence of online media like Rediff is a key factor in this?

Answer: Those newspapers that are ‘vanity’ businesses, that is, those owners who run them for returns such as promoting a cause, social prestige in the community and so on will keep going even if there are losses. The ones which are real businesseshave a decision to make. I personally hope they will all survive and prosper because newspapers are key social actors.

Question: What is the future for e-commerce in India, considering the numerous players in the industry, and the apprehensions the Indian consumer still has about the industry?

Answer: ecommerce in India is held back by poor broadband and credit card penetration and not by consumer apprehension. Government has to act with policy initiatives to fix this

Question: Rediff has been a trailblazer and a leader in the Internet space in India. What were the major setbacks and the major highlights while you were building up Rediff? What has been impact of the US meltdown on your business? How are you coping with the current recessionary business climate? You came up with a ” No ads on the homepage” policy in your latest revamp. How did it affect ad revenue overall for Rediff? If revenues decreased, where did you cover up for it?

Answer: The business we are in goes through techtonic change every five years or so and true to pattern we are in the middle of one right now. The current change is characterized by a move from PC to Mobile ( mode of access), from text to video (form of presentation), from ads to subscription ( revenue), from passive media consumption to active ( user generated media) and from personal to social. And all this is going on while there is a recession. But I think these are the challenges that makes for an interesting life, don’t you think?


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