Thursday, October 25, 2007

Blog Now Outdated Go to http://blahla.wordpress.com

This is just an outdated blog now. I have been seduced by the wordpress agents and am now found here

Wednesday, August 08, 2007

Rural Marketing Programmes: Growing the Pie, or Pie in the sky?

First, acknowledgments. This topic was given by Ms. Deepti Potnis, budding consultant, as a sample of her spectacular skills at delivering customised solutions to undeserving petitioners. No, seriously, she gives good solutions. And her blog is not too bad either. Visit it here. Now that my mandatory commercial is done, back to the topic!
Rural Marketing and products for rural markets are wonderful things for companies. For one thing, everyone insists that you just cannot ignore a market of close to 600 million people. It has to be profitable surely!
Another reason is the wonderful idea that companies are socially responsible if they bring out products for the Indian rural chap. After all, by doing this favour, they manage to educate the rural masses about the world outside, which is a great thing after all!
It cannot be denied that 600 million people is one huge market opportunity. At the same time, if it was so easy to crack the market, it should have been cracked already. And strangely enough, it has been opened up, and for a long time too. Many people have ooohed and aaahed over Hindustan Lever's (Now Hindustan Unilever) amazing distribution network. But the fact of the matter is that if the largest FMCG player in India is actually ITC, with its cigarettes available across the length and breadth of the country (of course, cigarettes are not an FMCG product, don't ask me why).
Coca Cola and HUL have certainly done a fantastic job of opening up the rural markets. HUL's project Shakthi has been an unqualified success, as has the chota coke campaign of the soft drink maker. But these amazing successes have not come free. Coca Cola spent a decade in India before it could make the rural breakthrough. And HUL has been around for donkeys years. And something is interesting about both of these companies. Neither have really brought out separate products for the rural markets. In the case of Coca Cola, it was a case of reducing the unit quantity and thereby the price, while for HUL, it was more of a distribution chain improvement.
Kotler has 4 P's, which are Product, Price, Place and Promotion. This brings me to my point. Rural marketing seems to essentially be a problem of price and Place(distribution). Promotion in the cable connected and aware rural markets does not really seem a huge problem. And products designed for the Urban market seem to do decently in rural India as well. Perhaps the Urban rural divide is not as large as most people believe it to be. The problem for most companies is that Product and Promotion is strangely enough, the easiest to redo or remake. Cost competencies which affect Price, and Distribution and supply chains, which make Place irrelevant are far more difficult to obtain. They take experience, and initial investment.
So simply put, I think it is fair to say that unless companies get their cost and distribution act together, that beautiful rural market is going to remain a mirage, or a pie in the sky. The companies that have successful products will have to find that most difficult of things; an efficient distribution system, in order to ensure that they grow the pie! Or else, they will just end up eating Humble pie.
Well, that is it for this post. More management topics are invited, cause I am running out of too many cool new ideas. I promise credits for all topic submitters!

Thursday, August 02, 2007

Japanese Money Back Policies

Well, this is not a strictly economic post, but this was so weird that I just had to put it out. Apparently, people in Japan are scrupulously honest when it comes down to cash...and they have lots of rich people with too much of it too.
Some people have been busy putting envelopes of 10000 Yen in public toilets for people to take away. And the dumb jocks have been returning it!
Ditto with money raining down from the sky. Someone rained a 100 banknotes down near a mall....all 100 were returned.
So what does this say about Japan? That they are scrupulously honest? Give me a break...They are only as honest as the next guy is. But they do live in a society with far more surveillance than most others. After all, its a small place, and when every other Tom, Dick, Harry, or Nakamura has a mobile camera along, you really don't want to look like a fool. Even if the cost of it is money going waste. Besides, they could then be parodied on YouTube, and maybe a manga would be made of them!
You know the worst thing about the money though. If no one claims it (and it is not likely they will), it will go into the public funds. That is why it prompted some Jap Wiseguy to say, "It must have been a foreigner wot threw all that cash away. Which Japanese person would give his money to the government voluntarily. Cause every Japanese person knows about Japanese and money found on the street!"
Find the full story here

50th Post....And hiring Teams

Blogger tells me that this is my 50th post on the blog....by Jove...it looks like this has lasted a lot longer than most! So, here is to many more posts to come!
Now back to management stuff! I was talking to a friend on GTalk, who was cribbing about the lack of personal interaction and friends at work. I was of course, doing much of the same as well, when she came up with quite a great idea.
She asked why companies don't hire in teams of 3-6 people, all of whom are friends and have experience working in a team with each other. I thought of half a dozen reasons why not, but they all fundamentally boiled down to, "well, we have not done it before!"
Consider this. Companies make a huge hue and cry about how its teams that are important today rather than individuals. And yet, they go around busily hiring individuals, and then mashing them up into teams willy-nilly as and when needed. It makes little sense. Instead, why not try hiring a group of 4-6 people, say those who have done a project together and who get along with each other, and then see how the team goes.
I am certain that such a team would clearly outperform a team of strangers. Your strengths and weaknesses are all known, and every person in the team would be having far more effective for that knowledge. And as a handy advantage, they can play together, as well as work together. All in all, a company would be pretty well off with that.
So, I guess I should jot this off to a nearby HR head of a large IT company and see what they think of it. I am sure they will think up a million objections. But it would be worth a shot, would it not?

Monday, July 30, 2007

Transaction Cost Economics and IT Infrastructure

I was handed an interesting link by bloggerazzi about a part of economics that I had never heard about till date, called Transaction Cost Economics.
previously, the inefficiencies of a manufacturing system were found on the assembly line. So, if a production line slows down, or if extra material is machined, then you know where to pin the blame on! Catch the worker on the line, and improve the process!
But that only worked to an extent, and todays economies are now somewhat different. How, you might ask?
Firstly, todays production lines are not solely dependent upon the worker. They also depend on the supervisor, the inventory scheduler, the middle manager, the stores guy, the accounts man, and half a dozen lawyers to boot.
Basically, a transaction where the only trade is in intellect and services is subject to several unique features. First, is of course, how do you bill the transaction. Second, and linked to one, is measuring the effectiveness of the transaction.
For example, if you were performing a machining operation on a lathe, you could work out to the nearest penny how much it costs to produce a component. Right from the power consumed, and the cost of the interest on the loan for the lathe, to the wages the underpaid lathe man gets paid, everything is accountable.
But how do you rate the effectiveness of a manager? Or judge the utility of a lawyer? Most of the time, they seem useless...but trust me, when you are hit with a lawsuit, you will wish you had a good lawyer (And good accountants too).
Transaction Cost economics tries to quantify these things and come up with numbers that denote their worth. But at the same time, some interesting points come up! Firstly, we see that as an operation becomes more complex, there are more transactions needed to complete the job perfectly.
From this we come to the old one about the factors of production. We all know 3 factors of production. They are
1. Land
2. Labour
3. Capital
But there is a fourth factor which comes up, and transaction costs best defines the fourth factor of production, which is, Management.
In short, Management can be defined as the factor by which the transaction costs that determine the other three factors can be reduced. I do hope that last sentence made sense, because it is the crux of the next point.
Management is also about handling information efficiently. And today one of the points that has been made is that management requires information instantaneously. This has been the reason why IT investments have frequently been justified. They are supposed to reduce the transaction costs made due to lack of information. But IT investment adds another transaction layer to the entire system, and must justify itself. Also, it is seen that the amount of information gathered creates yet more transactions in information processing. This is one of the reasons why IT implementation frequently is seen as a failure. The initial gains that are promised are all used up in the implementation of the IT system itself.
So, one of the things that anyone interested in designing IT solutions should be doing is to map the transactions that take place in any process. Then, identify the transactions that can be reduced or eliminated. Third, quantify the costs that will be saved by reducing these steps. The last process is the one that is truly difficult. And that is to anticipate the additional transactions that will ensue from bringing your IT system into place.
One of the reasons why designing an IT system is not the same as simply automating the process. And why IT consultants earn their fat pay packets too!

Monday, July 23, 2007

Privacy and security

There are literally thousands of emails and articles written which talk about email security, and how you should not reveal data about yourself online, such as your birthday, or the colour of your eyes. Why? Because, if you do, people can steal your identity, and then steal all your money from some bank.
The first time I saw these emails/articles, I agreed wholeheartedly. Of course it is right that we should protect these details from malicious hackers. And then I realized exactly what it was that I was protecting. After all, I like presents, so I widely publicize my birthday to one and all anyway. And anyone who wants to steal my identity is surely going to have enough initiative to see my photo to check the colour of my eyes. There are enough of those lying around in the world!
What it seems to me is that the companies which are being affected by identity theft are trying to pass the buck here. Why on earth do they not have better security systems. After all, its easier for them to blame the poor customer than it is to make sure that problems don't crop up in the future.
So, I am going to be a lot more suspicious when someone asks me to hide my birthday on my orkut profile.

Thursday, July 19, 2007

Of overcharging Taxi Drivers, and all of their ilk -- Sub optimal Economic Equilibrium

Yesternight, a friend of mine was attempting to hail a taxi at Salt Lake in Kolkata. Of course, no taxi guy seemed to be willing to take him for anything under 10 times the actual price, so he had to walk in the end.
But this got me thinking. According to definitions, perfect competition would exist when it is very easy for people to enter and exit the market. By that definition, taxi drivers in Salt lake should exist in perfect competition. But clearly, because prices have not fallen, it seems as if there is no perfect competition here. Why is that so?
Now, at first I thought it could be cabals or unions that distort the free market...but that did not make enough sense. So here is an alternative explanation for why taxi and auto guys charge so much...even though due to competition they ought to offer cut rate prices.
Let us take a hypothetical case where there are 1o taxi drivers. In most places, such as Bangalore, or bombay, there would be a plethora of customers, and the taxi driver would have choices, as does the customer. Also, because most of the customers are locals, knowledge of the locale is also assumed. In this case, it seems to me that the perfect competition model ensures that the lowest prices will be guaranteed.
However, in a place like Salt Lake and Gurgaon, the case would be slightly different. Firstly, the local populance is unlikely to travel by taxi. In salt lake, this is probably due to familiarity, and lack of places to go to. In the case of gurgaon, it is because those who live there are likely to have their own private means of transport like a car or a bike. Therefore, the only people who are likely to hail a taxi-cab are going to be people who are not locals. Also this subset is definitely smaller than the superset of all the people living in the area.
So to summarise, problem is
1. Information Asymnetry
2. Finite customer base.

So, let us take a hypothetical case of 10 taxi drivers, and only 2 customers. While it seems counterintuitive that the prices should go up, here is why they will. In order for the taxi driver to make ends meet, he will have to get revenues of say Rs. 200 a week. Whether he gets it by taking 1 fellow 5 times or taking him once is immaterial to him. Therefore, now these 2 customers will now pay 400 between them. Now, while only 2 taxi drivers benefit, averages say that the next day, another 2 taxi drivers will get 200 and the first 2 will go without clients at all. So, all in all, in a 5 day week, all the taxi drivers will get paid, and the total income would be Rs. 2000. (200 a week per taxi driver)
What would happen now if 1 guy undercuts to a more realistic fare...say Rs. 30. Remember, this is a price inelastic market, so the number of customers won't really go up. So he might get 2 more passengers added to the market. Now, by perfect competition laws, every other taxi driver should also lower his prices down to 30. So now, the total revenue made by all the taxi drivers now is 4x30x5= Rs. 600. This means that every taxi driver now gets only Rs. 60 in a 5 day week.
So we have a perfectly logical explanation for why taxi guys overcharge in certain places. Its market demand a and supply based, after all!
But there is a neat little corollary here. This is in reality a vicious cycle, because the assumption that is made for this to work is that the demand is inelastic with respect to price. This assumption was made with respect to mobile phones when they first came to India. The rates were incredible, with prices going as high as Rs. 27 per minute. Obviously there were not many takers for that sort of price. But once TRAI mandated changes to pricing, companies were busy complaining that they were going to make huge losses. But to their surprise...they did not...the market got them new customers....and that began the price war that led to perfect competition (practically).
The analogy of course with autos and taxis is this....someday, someone will cut the price and address a market of locals as well...then the traditional elastic demand and supply economics will triumph!
But till then, if you live in Salt Lake or Chennai...prepare to get fleeced by the local private transport providers!

Tuesday, July 10, 2007

Biofuels-- Agrofuels. Whats in a name?

Today, I thought I would enter the biofuels debate. After all, every Tom, Dick and Harry wants to enter the debate. So why not Balasubramanian?
Biofuels are the common name given to anything that provides energy that comes from agricultural sources. This could be ethanol, power produced from bagasse, jatropha seed juice, even methane from cowdung.
So why is everyone interested in it now though? After all, these things have been around since the dawn of time, practically. Heck, I remember watching programs on biogas when I was a kid, and Doordarshan was the only Channel available!
Well, the answer is simple. 10 years ago, a barrel of crude oil used to cost $12-14. Today, it is about $76. Economics says that if prices go up, demand for the product goes down. But Oil is a strange commodity. Like food, the modern world cant seem to live without it. Thus, a situation in economics called inelastic demand sets in, where demand is somewhat independent of price. But even though the demand stays constant, now there is a desire for substitute sources. And this is where biofuels comes in.
Burning Ethanol in the car engine has been around since Gerald Ford made the first Model T. After all, it was a car designed to run on alcohol. But who would like to go through the lengthy process of growing a crop, and then waiting for it to grow, and finally produce alcohol fuel, when you get high grade petroleum oil practically coming out of the ground for free! So alcohol was abandoned. But when oil hit $50 a barrel, the interest was rekindled. After all, the cost of sugarcane is not too much, and alcohol could now be substituted. And besides, after all the hoopla about green energy and global warming, producers can get labelled as good guys even while they rake in the money!
But can there ever be a perfect deal? Unfortunately no! What you gain on the swings, you lose on the roundabouts. Ethanol is produced from three major crops; sugarcane, corn and sugar beet. But sugarcane requires fertile and irrigated land. And even if we take the entire cropland in the world and grow sugarcane on it, we probably would not be making enough ethanol to supply our needs. At best, ethanol is a partial substitute. Also, the diversion of land from food crops to sugarcane leads to a situation where food prices will become a serious problem. This is especially because the crop is grown in countries which are not precisely rich; Brazil, India, Africa, and the likes.
So the lobby against biofuels is slowly building itself up. But this is a debate that will probably be decided by the Financial officers and the bean counters at an office rather than in the streets and farms. But the end result may well be seen in the economics classrooms when people discuss case studies on substitute products!

Friday, July 06, 2007

Strategic HR--That elusive creature

Human Resource in every company is much vilified. It is claimed (sometimes justifiably) that they are useful only for 3 things, recruitment, payroll, and vilification.
But todays HR professionals feel that they are being short changed. In the party where the marketing guys ruled, and the finance guys were feted, the poor HR fellows looked a little bit out of place, standing at one corner, dipping into the drinks cabinet now and then.
Times had to change, and suddenly a divine light dawned....and the enlightened HR professional came up with the golden words, and it was called "Strategic HR".
HR guys suffered from quite an inferiority complex. Whenever a fin guy was asked to deliver his results, he could say, hey i lowered your debts by 90%, and saved you a tonne of cash. And marketing, "Heck, where would you be without your star who got you 50 new clients?". But poor HR..."Sir, I hired 2500 new employees who are going to cost you Rs100 crores....and most of them will leave by next week." Not guaranteed to bring a smile to that CEO's face.
Strategic HR tried to turn things on its head. It said, "Phsaw...these balance sheets are all past data. and all those sales happened yesterday. Our stock prices depend on tomorrow...and for that, we need future growth."
And of course, future growth was measured by whether you had the right people doing the right job, at the right time, at the right place. This was strategic HR's idea. To pick the best people for the best job at the right time. And all this would be based upon a company's nebulous vision and mission statement.
Today's HR profs and executives are big believers in Strategic HR. Whether it works is still a matter of conjecture.
Mind you, I do not denigrate HR. Any company with Bad HR is doomed to devastation and ruin. But I am just a little bit suspicious about Strategic HR. Its fine in theory. But in practice, it frequently means work...which no one likes doing.

Wednesday, July 04, 2007

Exchange Rate, the value of money, and China's reserves

The previous post, which i flagrantly copied and pasted was so good that I thought I would expand on it a bit.
From that article, the conclusion was drawn that money of one country is of no real use in another country...somehow it must come back to its parent country in order to regain its value.
That is, if you took an Indian rupee and tried spending it in china, they would laugh at you. and if some dratted chinese guy came to my shop and tried waving remnebi in front of me, I would probably kick him out of my store. (obviously chivalry dictates that I would not kick a Her out of the store).
The article also did a spectacular job of explaining what exports actually mean. It means that you get hold of foreign currancy....but cant really use it, unless you spend it in that persons currency. Now, spending is of two kinds. One is usual, that is consumption spending. This is not valued too much by economists (can't imagine why). The other is investment spending, when you invest in another country.
But what happens if you do not really want to do either? Let us take China as the example. They get a lot of American dollars from the US for their goods. Do they buy American cars in return? Not a chance! They would much rather buy better quality Japanese stuff. How about investing in American companies then? I can almost hear a hypothetical Chinese investor snickering away here! Why invest in Fords and Enrons, when you have a Chinese stock market that is barreling its way upward like a bull that just saw true love?
So the Chinese government has to hold on to American dollars, because nobody wants to really spend it. What does that do to the value of the Chinese currency though. Now you have a situation where people are paying good American Dollars for Chinese goods, and the dollars are not really getting back to America. I am not quite certain how the next logical step works, but one of the things that happens is that the Chinese Currency now starts to become more valuable. After all, you might buy your chinese toys in walmart in american dollars, but the chap who owns it now needs remnebi, which nobody can give him, because nobody is willing to buy American dollars and sell remnebi. Thus the Remnebi becomes a stronger currency. At least that is the theory.
However, because the Chinese Government does not want to make their currency stronger, they decided to keep it at a fixed rate....and what does that mean. It means that the laws of demand and supply are being distorted....and there is always a cost to it. In order to keep the Remnebi weak, the Chinese government now has to keep buying dollars and selling remnebi, even though the value of the dollar is not so good anymore.
So there you have it: Why China has foreign currency reserves of $1 trillion dollars.

Tuesday, July 03, 2007

Alan Johnston is Free

Freed at last....and I wonder if he will ever go back to report on Palestine again. But at least he came out alive!
The following is from a blogger named Ronald Brak. If you wish to read his actual post, please go to his webpage....I have taken this verbatim from there, so do read him here. He is quite simply great!


When I was in Melbourne last week and riding in one of those electric conveyances they call a train, I saw a sign painted on the side of a factory building that said, “Buy your kids a job: Buy Australian.”

I wonder how this would work? If everybody in Australia only bought Australian products then everyone who produces exports would be out of a job. This is because you can’t export without importing and if everyone only buys Australian no one will buy imported goods. Unless of course the people who want us to buy Australian expect the export industries to just give away their production to other countries for free? My, if that’s the case, how generous they are with other people’s money. But it might be a bit hard to convince those workers it’s a good idea. “I’m sorry, but as Australia no longer imports anything and this mine only produces coal for export it’s not possible to actually receive payment for it anymore, so the wages of all you miners will have to be reduced to zero. In addition, since there is no income to purchase fuel we will soon be reduced to digging coal by hand. On the bright side, the Japanese will be very grateful. Now stop standing around and get to work!” No wonder so many people support weaker unions.

If buying overseas products is so bad it’s a wonder we didn’t ban it ages ago. In fact Australia made strong moves in that direction during the great depression. This was so successful that Australia soon became an economic powerhouse and entered the period known as the roaring thirties. Any stories you’ve heard about hardship at this time, or indeed swagmen, are lies spread by the black armband type of historian.

I have heard people say, “It’s better for the money to stay in Australia!” But I wonder why that is? Does the money get scared when it leaves its home country? If it were better for the money to stay in Australia, wouldn’t it be even better if the money stayed in its own state? Or perhaps even its own town? Wouldn’t it be best of all if the money never left the pocket of the person who owned it? Just think how rich we’d all be if no one ever bought anything!

But Australian money always comes back to Australia. It has to. It’s like magic. Let’s say some filthy foreigners, in an attempt to hurt Australia’s economy, take a heap of Australian notes and burn them while dancing and gloating around the rather stinky bonfire. Well, all that money value would return to Australia, as the treasury would print up a new batch of notes as soon as it noticed there weren’t enough in circulation, magically creating money out of nothing!

Okay, you say, so filthy foreigners burning or eating Australian notes won’t result in money not coming back to Australia, but surely buying filthy foreign products made by filthy foreigners, or even clean ones, must be bad?

No. Not at all. To explain, let’s say you want to buy a toilet brush. To keep things simple will assume that all transactions are in cash and that there are no banks or other institutions that exchange money.

Let’s say that down at the shop you have a choice between two toilet brushes of equal quality. An expensive one made in Australia and a cheap one made in China. Now you might think that if you bought the more expensive Australian one, you’d be helping an Australian company. Well you’d be right, but you’d also be hurting an Australian, yourself. It costs you money to buy the more expensive product. If that’s what you want to do, fine, go for it. But it might be more efficient to buy cheaper foreign goods and then just give the money you save to Australian companies as a gift.

But what happens if you buy the cheaper Chinese toilet brush? Won’t the money go out of the country? Well, yeah, it’ll go to China. But it won’t stay there. Somewhere in China there will be some toilet brush factory owner with a stack of Australian money. What’s he going to do with it? Australian dollars aren’t much use to him. He can’t go down to the corner store and buy a bowl of noodles with them. He needs Chinese currency for that. All his employees expect to be paid in Chinese money too and so do the suppliers he buys plastic stock and bristles from. Unless he wants to go on vacation in Australia and spend it himself he’ll have to swap it for Chinese money.

But who in China would want Australian money? What good is it in China? Well it is useful for buying things from Australia. For example, the local meat distributor might be interested in buying some Australian beef. The power company might want some Australian coal. The noodle factory might want Australian wheat. All our toilet brush businessman has to do is call up these companies and find out which one will give him the best deal on Chinese currency in return for his Australian dollars and then the Australian dollars will return to their home country as they are used to pay for Australian products. Hey presto, no money leaves the country for long.

Using checks or electronic money transfers don’t change this situation at all. Nor do the existence of banks that act as middlemen for exchanging money. So buying goods from overseas isn’t somehow bad for the economy.

But wait a minute! What about Australian companies that are going to the wall because of overseas competition? If the Australian toilet brush company goes out of business won’t Australian workers lose their jobs? Shouldn’t we help the owners of these companies? Well no, we shouldn’t. We should help the workers, not the owners. If the owners want they can receive the same training/relocation/government work program that their former employees get. You see, business owners have a very important job and that is to make good business decisions. If we protect them from the results of bad business decisions, such as producing toilet brushes in Australia, then they haven’t got such a strong incentive to do their job well.

To repeat, this is not my post. All intellectual rights to it belong to Ronald Brak, found here!

Wednesday, June 20, 2007

More than just paper money?

This is necessarily short because this is still work in progress. In economics, we learnt that people hold money for 3 reasons.

1) 1. To buy things with it (transaction motive)

2) 2. As a safety net (precautionary motive)

3) 3. To invest or speculate, so as to make more money (speculative motive)

Now, what if something else is used for any of these purposes? I am not talking of the barter economy in failed economies. Instead, look at today’s world of commodities trading. Here, people are supposed to buy steel or cement or sugar for the purpose of using it. Instead, today, the market for commodities is clearly dominated by speculators. These are people who try to make money by speculating that the price will move up or down...buy the commodity contract, only to sell it later. Thus, they never usually accept delivery of the commodity itself...just buy and sell contracts.

I think a case can be made that these commodity contracts are a new form of money. They can be freely traded, they have a fixed value that does not change with time, and are convenient. However, most people recognize that paper money is worthless unless you can trade with it (exchange or buy things with it). This is not the case with commodity contracts, where there is a value attached to them, which is equivalent to the value of the commodity.

But this does not detract from the essential case. Today’s commodity markets are just another form of money being traded around. But we all know about inflation and money. How does that work in the commodity markets? And does it work at all? Its something I have not got an answer to yet...but it makes for an interesting case.

Friday, June 15, 2007

Back To Management--Bottlenecks and Customers

Well, today I was thinking of touching upon a topic that has been done to death by the book "The Goal". Written by Eliyahu M. Goldratt, who is known for his work on the Theory of Constraints, a cool management idea.
Of course, like most cool management ideas, this one is rather simple, and would be called common sense...but strangely enough, common sense is not really that common. Ok...enough digression, back to the topic itself.

How is a product made?
A product is made by subjecting it to a series of processes, from raw material to finished goods. For example, You take some mud from a mine in Jharkhand, subject it to a series of processes, and a few hours/days/years later, out comes a sheet of rolled stainless steel.
The example that I gave was very limited indeed, where there was only one raw material, and one finished product. But a more realistic example would be a car industry, where the inputs would be numerous, from steel and plastic to rubber for the tyres. And there would be several types of cars being produced, from small cars right up to 18 wheeler trucks. Now then it becomes a bit tougher to document the processes.
In essence however, a product can be thought of as a series of inputs, which go through a process, which hopefully adds value at each step, so that you have a final product that can be sold.

What is a bottleneck?
A bottleneck is a process whose speed determines the rate at which your final product can be manufactured. hmm...now this is not as clear as I wanted it to be. So lets try that again with a simple example. I think we have talked about our potato farm. Now the farm sells its produce to the local factory which makes crackling chips out of it (with cheese and lime flavouring). Now, my potatoes now go through a process. First they are cleaned and peeled(by hand) and then there is this awesome set of machines that cut it, then an automatic weigher, then a drier, followed by a brief quality check instrument, the flavour mixer, and finally, the frier. Once the chips are fried, there is a secondary weigher, followed by a packager.
Now you can see how the process goes...raw potatoes go in one end, and chips that I can eat come out at the other.
So let us take a situation where I want to increase my plants capacity...so I buy a whole new set of funky machines expecting to double output. Two months later, nothing of that sort has happened. I wander down to the factory, and all is clear. The machines are idle, because there are only 2 people peeling the potatoes. Only if I increase the number of peelers, can I increase my output. Now, this shows that my peelers are my bottleneck process.


So, what should I do?
The answer is surprisingly easy, is it not? All you have to do is eliminate that bottleneck, and hire more peelers. This is all the theory of constraints advices, and has what made Mr. Goldratt so famous. Of course, an observant reader will ask, so then what, "Are all my problems solved?" Not really, because once you clear one bootleneck, another will appear, and you will then have to sort the new bottleneck out. And so on and so forth, ad infinitum.

So where does the customer come in all this?
After all, that was in the title of my blog, was it not? Well, I think Mr. Goldratt, or someone else has already thought of this, but in case they have not, here is my take on this. Even if you can solve all your bottlenecks, its really easy to see that it does not mean you can produce all that you want. At the end of the day, you can only produce as many chips as can be eaten. So the final bottleneck in this whole process is your customer. And this is the part that is most uncertain. We have all seen companies with good processes fail. They have finally failed because in spite of all their optimization, they never optimized for their bottleneck constraint, which was customer demand. Thus, any production guy should be given a clear picture of what his product mix demand is likely to be, or he/she is going to be making the wrong moves.

Well, that is it for now...any ideas, as always, comment away.

Tuesday, June 12, 2007

Book Review-- The Reluctant Sorceror

Well, a relief from the barrage of management topics. Today, I would like to review my latest fantasy novel. Its the first in a continuing series by the author Simon Hawke, who is known for his novelizations of such classics as the Jason series....
This is a very light fantasy novel, with the scientist dumped in a magical world as the context. I rather like those, primarily because I like the funky problem solving descriptions that are made. The narrator is a rather verbose chap, who keeps butting in, and this makes the entire thing a lot more interesting.
Overall, worth reading once....but then, I am a diehard fantasy fan, and have recommended practically every fantasy book in the world!

Sunday, June 10, 2007

On Positioning...Branding I could understand!

Branding is a key part of marketing...a subject that sort of dimmed for me when I was told about customer delight rather than customer satisfaction!

However, branding has begun to grow on me, especially after a couple of talks I had with various people about products and value. And today, I notice that I almost exclusively buy branded goods. What makes me trust a Nike Shoe over a shoe that was stitched by me (probably equally skilled) cobbler down the road? Why do I brush with Colgate Toothpaste rather than any other?

Branding attempts to answer these questions. So first question....what is a brand?

Walter Landor, one of the greats of the advertising industry, said:


"Simply put, a brand is a promise. By identifying and authenticating a product or service it delivers a pledge of satisfaction and quality."


Another good definition is given by
www.buildingbrands.com
"A brand is a collection of perceptions in the mind of the consumer."

Now, the key thing that must be pointed out is that a brand need not always mean something positive, or provide any extra value for a product. For example, I could dislike Microsoft, as a result of which, I might refuse to buy their perfectly acceptable software. **

So, now fundamentally, we can say that a brand is a mental thing. It is the perception my product or service has in the mind of my customer and the general public. Again, an important point to note is that it is about perception....not necessarily reality.
So, a brand is more than just a logo, or a catchy tag line. It begins in the mind, passes through your pocketbook, and hopefully never ends! As some chap said, its about the entire experience...not just the product.


Traditional thinking has it, that if you slap a brand on something, you can charge a bit more for it. For example, potatoes sold loose would cost you Rs. 10 a kilo, but once it has been packed in a Spencer's Fresh wrapper, it can cost you Rs. 12. Why is this thinking prevalent?
A brand traditionally provides a degree of trust. And this trust has a cost to it, which is reflected in the higher cost of the branded item. Whether this thinking holds good today when every product is branded is debatable....now a brand has to add value...by enriching your experience rather than merely providing trust! (That previous sentence is an example of manageititis, a debilitating disease that is well nigh incurable).
So, what is the main thing that a brand has to do to succeed? Now, experts have it that a brand must position itself. Now, I found a nice piece on positioning here. But let me try to summarise it.
First, what is positioning?


Positioning is the art of occupying a specific portion of your customers mind, so that he associates you with a particular mood, thought, word, phrase...anything at all that he/she can remember. For example, when I see Kapil Dev, I still think "Palmolive da Jawab nahin!" Or when I hear "Venkatesha Suprabatham, I remember MSS and All India Radio".
Well, that is one question done...next, how is positioning done?
Now that is a much more difficult question to answer...and there is no perfect answer as well.
We can think of a few steps that can be followed to try and position a brand.

Step 1: Be Consistent!


There is a reason this is step 1. Its VERY important. After all, a person cannot remember you if you keep changing your message or your logo. Or if you jump in and out of products...release them, and then forget them. If you are inconsistent about your brand, you will be forgotten


Step 2: Focus and Sacrifice


Positioning means that you will have to focus on one set of customers or public that you want. Of course, human nature being what it is, it means that you will necessarily cause another section of society to hate your guts. Sorry, that is life. As Ries and Trout note: "Sacrifice is the essence of positioning." You can't be all things to all people. That route only leads to failure. An example is the iconic brand, "Harley Davidson". Yup...I love it! But strangely enough, I also know 2-3 people who absolutely despise it!

Step 3: Be the 900 pound gorilla


One of the rules of positioning is that there can only be 1 winner in the battle for a customers mind space. A given segment has only one brand in it. So, its important that you should be a market leader in the segment where you are branding yourself. Only that way, can you grow as the market grows.

Step 4: Innovate, only when you must


This is actually a corollary of Step 1, which is consistency. However, its no fun to be seen as boring, or unchanging. So your branding must keep its differences and still surprise the customer, even though its message must be consistent. Any examples? One that leaps to my mind is the awesome Amul ad campaign, where they have topical cartoons that still deliver the same message, "Utterly Butterly Delicious, Amul". This is a series that has run for almost half a century, but has still not lost its flavour or capacity to surprise.

Step 5: Listen to your customer


This has been said many many times, but is the hardest thing to do....we are all in love with the sound of our own voices. If your customer thinks your product is worthless, the best branding and positioning in the world is not going to save you. Assuming that your customer is a sucker is the fastest way to lose brand equity. It is worth remembering that brands which take their customers for granted tend to overprice the brands to reflect the price that they believe the customer should pay, rather than the brands own intrinsic value. While branding can affect a customers perceptions, consistently shoddy performance cannot be hidden behind a great brand. Strangely enough, the example for that comes from the brand with one of the highest equities. Mercedes-Benz. In the US, it was seen as a top end model, with spectacular reliability. But when a few years later, new management decided to reduce the quality; "the parts are just too good...they don't wear out even after the body of the car itself wears out"***; Mercedes-Benz plummeted to second from last on reliability.
So, a summary:


1. Branding is a mental thing. Its about perception

2. Positioning is about Consistency and sacrifice

3. The customer is not an idiot. Treat him like one at your peril


**I do not dislike Microsoft. I think they make good products!
***That part in quotes was a quote by me....not by a Mercedes-Benz...oops, Daimler-Chrysler person.

Tuesday, June 05, 2007

Why Infosys does not borrow...and Microsoft did not issue Dividends!

Yet another MBA post...inspired by a heated discussion with a colleague (it was friendly though). Now, frequently it has been pointed out in my finance classes that firms try to maximise stakeholder value. This usually means shareholder value, which means stock price!
And the thing that people say is this: if you can manage it, and its not too risky, use debt to raise capital rather than equity.
What does that above statement mean? Stripped of the jargon simply put, it means, "take a loan to expand rather than raising money from shareholders."
Now comes the point...Why is it better to take a loan...after all, you have to pay interest on it.
Let me explain it in this way. Lets say I have a potato farm, which has 10 investors. I make profits of 10 lakhs per year. This means that my shareholders get 1 lakh each. Now, lets say I want to expand, and buy my neighbours farm for 10 lakhs more, which will earn me another 5 lakhs a year. I could do this in 2 ways. Firstly, I can invite 10 new investors to invest 1 lakh each, or I can go to a bank, and at an interest of 10% pa, I could take the loan of 10 lakhs. Let us follow these two scenarios.
In the first scenario, my new profit would be simple. 10 lakhs from my original farm + 5 lakhs from my new farm. Total =15 lakhs. All good. But this 15 lakhs now has to be distributed to 20 people, which means that each shareholder gets only 0.75 lakhs each.
In the second scenario, my profit would be 10 lakhs from my original farm + 5 lakhs from my new farm - 1 lakh in interest payments=14 lakhs. So my profit is lower, but I share this money with only 10 investors, which means that they get 1.4 lakhs rather than 1 lakh they got last year. Of course, my total profits fell, but I don't really care about that...after all, my aim is to get my shareholders rich, and I have achieved that!
Of course, there is a downside, else every company would only borrow money....if there was a drought, and I made only Rs. 50,000, I would still have some money to distribute if I had not borrowed money, and if I had borrowed that 10 Lakhs, I would have been bankrupt, because of the interest costs. So, borrowing money is risky.
Companies which use borrowed money to expand are called Leveraged companies. And conventional wisdom states that if your risks are low (ie: There is not much likelihood of a drought), you should go ahead and borrow money. This would be true especially if your growth return on capital employed (or your profit divided by money invested) is higher than the interest rate prevailing.
The IT industry ought to be a place where leveraging should work then...after all, while bank rates are hardly 12-14%, an industry that grows at 35% should go for loans to grab as much profits as it can to expand. But Infosys has said for a very long time that they do not plan to expand with debt, and they only grow internally rather than taking loans. In fact, they have no debt at all, which seems that they don't reward their shareholders as much as they could.

But here is where I believe that the IT industry is essentially different from manufacturing or agriculture. For my farm which gives me paltry returns, I needed to invest a sizeable amount of money. Typically, a manufacturing plant would invest hundreds of crores, and after a couple of years, profits would be made. But in an IT firm, the investment required is minimal. They really do not need to take loans, because this can be funded out of profits which do not require new shareholders or payment of interest. Here of course, the disadvantage will be lower dividends paid to the shareholders, but this is really the cheapest option, because the shareholders would only get the bank deposit rate from their dividend income, while the company would be growing much faster.
This is the reason for the famous no dividends being issued by Microsoft...they could plow it back into the company and earn far more by growing. And this is why very few IT companies rely on debt and leverage to increase shareholder value. It is no longer very cost effective

Monday, June 04, 2007

Economic Theory for crazies – Part I, Government as a Monopoly

One of the things that I find wonderful about economics is its applicability for the most amazing things. While on the train, I had little to do, except stare at the roof, or listen to the opinionated chap behind me pontificate. So I thought about government.

There are striking parallels between Microsoft and the government. Both of them cannot be challenged (At the moment). And almost everyone agrees that both of them are abusing their powers. Microsoft abuses its powers to make super profits, (while providing great products) and the government abuses its powers by giving us shoddy services (check the state of your roads for verification). Now, I merely use Microsoft because it is a convenient example, and everyone loves bashing Microsoft. But any monopoly could do. Now why is that?

Economics says that when a transaction takes place between a buyer and a seller, in the best case, both the buyer and the seller gain. For example, let us say I go out to buy potatoes (I like them...what can I say?). I would like to pay Rs. 10 for a kilo. At the same time, the friendly neighbourhood grocery store has got potatoes which he is willing to sell at a minimum price of Rs. 6. Now, the two of us meet, and then we bargain, and finally, I will walk away paying Rs. 8 for a kilo. Now I am happy, for I figure that I have saved Rs. 2. And my grocery guy is also happy, because he figures that he has gained Rs. 2 as well.

This 2 Rs gain that I as a consumer make is called the consumer surplus, and the Rs. 2 that the grocery guy got is called the producer surplus. And this works only because I could bargain with the man. Now, let us say that instead of having competition, there was only a single grocery owner in the city...and let us also say that he is a very intelligent shopowner, who is likely to know exactly how much I am willing to pay for my potatoes.

Now, I do not have a choice...if I need to buy potatoes, I will have to buy them from this man...And my shop owner is only interested in maximising his profit, which will be when he charges Rs. 10 for a kilo of potatoes. More than this, and I will go buy beans or something else. Less than this, and he could have made more from me! So, as can be seen, now the consumer surplus drops to Zero, and the producer surplus rises to Rs. 4. So, I am left unsatisfied, and my shop owner can earn super large profits.

Now, how does this relate to government? Government after all can be though of as a provider of services. And since there is only one government at any given place, what happens is that it is a classic case of monopoly. Let us take the example of policing. Since there is only one police force that is possible, and this police force is not really economically penalised for providing sub standard service, they will provide the poorest quality service that they can profitably get away with. If the law and order completely breaks down, then the police will probably be thrown out, so they ensure that that unfortunate situation does not arise. But they will not get more profits or better revenues if their service is better...after all we are a captive customer base. So they will not provide a quality of service that we would like. Instead, they will provide the minimum services that they can get away with.

So, an economic solution (to me) seems to be to bring in competition in the services that government operates. This ranges from basic services such as law and order, right up to the point of framing of laws. What does this mean? It means that the citizen should be allowed to choose the cocktail of laws that he/she will follow. These laws should be enforced by separate forces. Since each person will have different expectations of government, and how much he/she wishes to pay for it, several alternatives are likely to emerge. It would also mean that privacy campaigners can also be satisfied...just choose a set of laws that do not invade your privacy. Of course, certain services therefore will become unavailable to you, but that is market forces for you! What you gain on the swings, you lose on the roundabouts, but as it has already been proved above, our consumer surplus is zero at this current moment, so anything ought to be better!

So economic theory states that a functioning anarchy is possibly the most efficient form of government. Conversely, it now seems obvious that a completely despotic dictatorship is the most inefficient government for the citizens, although it is the best option for the people in power, as they can maximise their gains.

Sounds perfectly fine, neh?

Opinionated B******* --> A lesson for yours truly?

Today, I was traveling back to Chennai...and I was treated (at second hand) to character who unfortunately reminded me...of me!
Now, this chap kept talking....throughout the 5 hours or so that the journey took. His poor co-passenger, was treated to his opinion on everything, from Engineering subjects, to how Unhip and Unhappening Bangalore was. And since he could not seem to have a volume control, the rest of the train was also kept informed about his opinions! For the first 10 minutes or so, it was entertaining, but by the time the 2nd hour had started I was getting a bit weary!
So, a note to self...Shut up when on a train...or at least, speak slightly softer!

Saturday, June 02, 2007

Laziness...at home only.

I just realised how pampered my existence at home is! I do nothing at all, get food, sleep all day, read...and basically laze around. Even at the Hostel, I used to do more, and living alone, I even used to wash all my clothes myself! :)
But at home...zero contribution. I must admit, I almost feel guilty at being such a lazy cretin. But its still only almost!

Thursday, May 31, 2007

Traffic Snarls and Good Books!

Well, last evening, I managed to experience the less nice side of Chennai. I was stuck in one of the most dreadful jams I have ever been in. The worst part was that everyone used to tell me that there are no jams in Chennai. And Bangalore is truly bad, so I expected things would be better in Chennai...And the problem with heightened expectations is that when they are not met, you feel a lot worse!
And yesterday it appeared like the whole of Chennai was keen on experiencing gridlock...every street I went on was jammed solid, and this at 10:30 pm! Though I was treated to an awesome display of fireworks at one of the many places where my bus was slowed to the speed of a rather elderly snail.
Now for the second part of my post...now previously, during my travels in traffic jams, I always used to carry a book or two to keep myself entertained. And for some reason, the books always used to be these typical thrillers that are churned out by the Robert Ludlums of the world. I remember reading Dan Brown's books, quite a few Ludlum's, and others of his ilk. They provided a great respite from boredom, and you could always mark the page and resume when you made your next bus journey!
So, every day, during my daily commute in Chennai, I have now resolved to carry appropriately brain-dead reading matter for entertainment...that way, during the next 2.5 hour traffic jam, I have something other than the traffic to curse!

Sunday, May 27, 2007

More on chennai! Economics of food prices?

This weekend, I decided to sample some Food options available in Chennai. This involved visiting 3 places....all of which served South Indian food primarily.

Place 1. Saravana Bhavan --> Standing Room only. Well, without even a place for seating, the prices that were charged were on par with a standard full service resteraunt. Rs. 25 for a Masala Dosa might seem reasonable if one were in a joint in Delhi or Kolkata...but in the heart of Chennai...with you supposed to eat the thing standing. Its Highway robbery!

Place 2. The Idli Place, T Nagar: This was an air conditioned joint (very useful in chennai), situated in the heart of the city's shopping area. Here, I did get a table to sit at, and the quality of food was rather good. Ate rather well, with Pongal, masala dosas, and few vadas, all for the grand price of Rs. 50. Practically the same price as a Saravana Bhavan, where you had to stand and eat, without an AC...with much cheaper real estate prices.

Place 3: Sri Krishna Sweets --> These chaps are known more for their fine sweets rather than their food, but I decided to sample their restaurant. Here, they had this thing called ambiance, with waiters hovering around, and chaps even handing you menus (rare in chennai! :)). They also had north indian dishes, which meant that I had to try it out...and I was pleasantly surprised to find it good as well. Out here, the bill came up to a bit above Rs. 60.

From this (Admittedly small) sample, I have realised that Chennai attaches value only to food...and not to the paraphernalia attached to it. This seems pretty strange, esp. for a chap used to Bangalore, where the rates range from cheap (Great Masala Dosas for Rs. 10) to Uber Expensive (Masala Dosas for Rs. 100). Of course, the Rs. 10 Masala Dosas were eaten standing up, with another chap elbowing you as he had his Vada-Sambar, while the Rs. 100 dosas were accompanied with an array of side dishes and air conditioning, and badly piped music.

So, Chennai is not really that cheap. Sure, at the medium end of the spectrum, it seems cheaper than most cities, but at the value end, where good food is served cheap, Bangalore beats it hands down. If you trip over a stone in Bangalore, you are likely to fall into a roadside eatery that gives you quality food cheap. If you trip over a stone in Chennai, you will just fall on your face!

Thursday, May 24, 2007

चेन्नई! ऎंड व्ह्य इस मय ब्लॉगर मकिंग एवेर्य्थिंग इन हिंदी?

Lets start with a description of Chennai:
To those of you who have never visited chennai (such as me), it has been described as the worlds largest village. It has a population in excess of 7 million, and wikipedia claims that it is 70 sq miles large. Of course, a search on bangalore claims that Bangalore is 209 sq miles, which is clearly nonsense!
Anyway, back to Chennai. Chennai is a BIG CITY. Those of you who are used to big cities might say...yeah so what? But to a small town chap like me, travelling 20 kilometres every day to work is pretty insane...if you did that in Bangalore, you would be outside the city very quickly!
While a city like Bombay frequently compares itself to New York and lately, aspires to be Shanghai , it would be difficult to imagine Chennai comparing itself with, or wanting to be anything else. A visitor might justifiably think that inside this metropolis is the heart of a small town struggling to get out, but he would be wrong. It is not parochialism that characterizes Chennai; it is self-assurance (source...Wikitravel)
The above statement is actually amazingly true. The first thing you notice about the city is its lack of pretentiousness. Perhaps this self assurance is why the city does not learn other languages! :)
Now, Chennai is also a place where value is truly appreciated. From bus fares to Car prices in a showroom...here, people don't care that much about absolute price, as much as about whether whatever they are buying is worth the cash they shell out. It makes for an interesting viewpoint, especially as a marketing guy

Next, public transport in chennai:
Transport in Chennai is a cinch. Get into bus, pay the ridiculously low fare that they charge, and get off at where you want to go. Almost every area is covered, and the bus and trains systems work brilliantly. Very good indeed!

Movie Mad?
Channai is described as movie mad...and from first sight...guilty as charged. The sheer number of movie advertisements and hoardings is incredible. You cant move ten steps without hitting a cinema hoarding. And each hoarding claims that the movie concerned has broken dozens of box office records.

T-Nagar and Pondy Bazaar: A note on Sarees
This is a shopping district in Chennai which seems to mainly sell sarees. Huge fantastic buildings, each one more garish than the next, all promising to sell you sarees that are special, unique, bridal, and several words which you would not usually associate with clothing. Its the only area in Chennai which has traffic jams. And the sheer number of people buying sarees makes me believe that we must be wearing out sarees at a spectacular rate in order to justify this intake!

Last but not least: The weather.
In three words, "Hot and Humid". But from all those chaps who kept telling me horror stories, I was expecting a lot worse. Its not as bad as people say. There is a sea breeze in the evening, and while the weather is horrible, it is not unlivable! :D

So all in all, a fine and entertaining city. I am sure I have missed out a lot of things, which I will try covering in future editions, but for now, sionara!

Thursday, April 05, 2007

Bureaucracy...Can it make you feel good?

Long time no post...but as always, no excuses. Today my post is in response to what I have experienced with IIT Kharagpurs beurocratic machine.

Now, I am not a huge fan of Bureaucracy. My exposures to it have not entirely made me a fan; whether it is for a driving licence, or for filing a police complaint, the complete lack of interest of the average government employee is not something I enjoy.

Over the last few weeks, I have had the opportunity to interact closely with the administration part of IIT Kharagpur, and see for myself how it works. The reason--I need to get some money refunded from an organization that is legendary in its desire to keep its loot!

Now, the problem was, I had no bill that showed that I had paid, and all that I actually had was a letter signed by a prof, requesting for the refund. Nothing else. The  following is an example of the travails I went through....and yes....why IIT Kharagpurs Bureaucracy makes me feel good. (Though I am yet to get the money!)

It all began more than a month ago, when I went with the letter to this chap in the office. Now he warned me...without a bill, this would be extremely tough to do...but seeing my stricken look, he told me to go meet another chap, who he was kind enough to introduce...an Asst. Registrar of Accounts...who in turn directed me to yet another Assistant registrar. This chap was amazingly friendly. He told me that as long as I could produce some kind of proof, I could manage the refund...so it was back to my original office contact for any sort of proof, which turned out to be an order from the IIT kgp administrative office authorizing the use of a hall(for Which I had paid).

All this took a couple of weeks, mainly because I only did this when I was free, and I have not found too much free time in the meantime. Then there was a break of another week or two, when I disappeared to Bangalore (for Admissions, which is another story in itself).

So when I returned, I found a whole new Assistant registrar...who told me...no...just any proof is not quite enough...he needs a waiver form. But I guess he saw my look, for he continued by introducing me to the chap who could get me the waiver...and said chap said...I need the bill!

Now, I was ready to go murder someone...but it was my fault (I had lost the dashed bill!). And this man was amaing. Once I told him that I had no bill, he just asked a simple question. "Have you paid?"

I answered"Yes, I think I even remember the date."

"Then its easy. I know this chap in accounts who can help you get a duplicate bill." And he did too, and introduced me to another man, who was most happy to help out. And considering that the date I gave him was wrong...it was a miracle that he could actually find it...all he had to work with was the amount. Rs. 4000.

Now the next problem...he could not print the bill...because it was now the new financial year, and the system could only print bills of this financial year. But this man was quite amazing...an instant later, he runs off to meet another friend of his, who just happens to work with MIS there, who then proceeds to try to print the bill.

This is where things became surreal. The bill number entered (manually) was wrong! So now, I was faced with no proof whatsoever that I had paid. But my man in accounts was quite a man. The next day, when I came to meet him, he said that he spent an hour or two (so what if he lied...it was the thought that counted!) finding out where that payment disappeared...and finally found the right bill number in the computer system. So now, with the right number, we can take a printout. Of course, the only problem is his friend is on leave, so I can only collect it after 3 days.

So this is the situation as of now. While this seems like a rather frustrating exercise, I can tell you that it was quite amazing. Each of the people I met, from the chief Assistant Registrar (which is quite a high position), right down to the lowest level clerk was friendly, and genuinely wanted to help. The bureaucracy is there, with all its rules and regulations, but it is people who make or break a system. And the people in the administrative section are quite a great bunch. I might not have got the money back yet, but I am sure I will, because these chaps are trying their best to ensure that I do get it...they don't just follow the procedures slavishly.



P.S: All right...it was not really my money, so I don't really mind whether I get it today, or next month. So I guess that is one reason why I really enjoyed my encounter with IIT's bureaucracy. I had time to socialize and meet people over time. It might have been a different story if I had only a day or two to do the same thing. But I still think the people manning the system are great people, who really want to do their job well...and that I like!





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Tuesday, March 06, 2007

Finally a management topic-- Ambush Marketing

Well, its time I prove that I actually am doing an MBA rather than as a general purveyor of random information. So today, lets have a short little piece on Ambush Marketing....now that the world cup of cricket is around the corner.

Ambush marketing is a term that has been bandied around before, usually just before any big sporting event. So what exactly is Ambush marketing, and how does it work? And is it really quite as bad as everyone makes it out? I will try to answer these questions, and pose a few more as well in the coming paragraphs.

First, what is Ambush Marketing?

"A deliberate attempt by a business or brand to associate itself with an event (often a sporting event) in order to gain some of the benefits associated with being an official sponsor without incurring the costs of sponsorship. For example by advertising during television coverage of the event."

This wonderful definition was given by www.tutor2u.net/. But I can't resist adding my 2 cents worth, so here goes.

Ambush Marketing is an attempt to give the customer the impression that an event is to be associated with a competitor firm, rather than a firm that has paid for the sponsorship.

Now, there are several examples that can be quoted. But there are precious few examples that can be found in India. But the one that I do have, sure was a perfect example. Those of you who remember the 1996 world cup (the one held in India), had the mother of all cola wars. Coke was the Official Sponsor of the world cup. But Pepsi completely took over the world cup with its "Nothing Official About it it" Advertising campaign.

The advertising campaign had everyone from Sachin Tendulkar, to Dominik Cork plugging for Pepsi. Heck, even Dickie Bird (for the uninitiated, the most capped umpire at one time) was doing a Pepsi ad. And that wasn't enough. There was a huge amount of airtime on the TV. A massive hoarding campaign. Even Balloons, with Giant Pepsi signs over the grounds! Everywhere you looked, Pepsi was screaming its message at you.

Now, I can feel sorry for Coke...but back then...it was awesome. Nobody remembered the Coke Campaign at all. And the Pepsi adverts were funny, and were great fun! (Now I would gag if I was forced to watch them all!)

So that is how ambush marketing is done. Now, I love to relate marketing to military strategy, so here is another attempt. An ambush marketing strategy is to be attempted when you have lost the advantage of control of territory. Your only advantage is the knowledge of the local terrain, and mobility. Only if you have these two strengths can you attempt an Ambush. I am stealing this from somewhere (I think Wheel of Time, but am not sure), but here goes.

"In war, you must be where your enemy thinks you are not. Fight where he thinks you will flee. Retreat where he expects you to fight, and be where he cannot imagine you to be. Speed is life. An army that moves quickly can surprise the enemy. A surprised enemy makes mistakes that you use to gain victory. Speed is the key to a successful strategy"


Pepsi did a great job of it because, all said and done, it seemed to be more aware of the Indian mind at that time. In time, it lost this advantage, as Coke became more aware of the Indian Customer. I think things came full circle, when in the last world cup, Pepsi was the official sponsor, and Coke was using Aamir Khan to counter Pepsi!

Well, next question. Is Ambush Marketing Ethical?

Companies that sponsor events spend a huge amount of money in acquiring these rights. Surely they expect some return on this huge investment. And some competitor stealing their valuable brand equity is surely not going to have corporate heads amused. There have been complaints galore about how ambush marketers are ruining the image of the marketing industry as a whole, and are acting unethically.

Here, I would beg to disagree. Companies have bought the rights to the words that an event is using. They certainly have not bought the right to the mind of the customer (ie: ME!). If their ad campaign cannot use their own sponsorship, and some chap is able to associate himself with the event without even using words like ICC Cricket World cup...surely I should applaud his creativity, and reward him with my valuable attention. (After all, my attention span is severely limited). It is sheer incompetence on the part of the official sponsor to allow itself to be ambushed. After all, there are significant protections already built into the contract which restrict any ambush marketer.

So in conclusion, the ethical argument does not hold water (in my opinion). You have every advantage as an official sponsor. Its up to you to exercise that, and take advantage of it.

I promised a question or two in conclusion. And I do like economics. Its known that the sponsorship is mostly handled in an auction manner. And one of the things that we learn in economics is that in a bidding process, its almost inevitable that only the optimistic bid succeeds. So the losing company actually would be using its ad spend more efficiently by building a good alternative (or ambush marketing) campaign. And considering the exorbitant current rates of sponsorship, surely it makes business sense to run a good alternate campaign! So, why do we have official sponsors, and companies queuing up for them?

Interesting one, neh?

Tuesday, February 27, 2007

Sound bytes!

I was thinking...how do these famous quotes get made. So I decided I would have a shot at it. Sound bytes for the internet age.



"There is no reality. Just an illusion that pretends really well"



"Economics is about people assuming rationality in the face of overwhelming evidence to the contrary."



"Love is blind, deaf, and quite frequently...dumb" (I am not sure if this is mine...surely this has been used before?).



"Fear makes you do things you would have done better without!"



"Every day starts off with the hope that things are getting better."



"You are fat enough to actually disturb the gravitational balance of the earth" (That was from when I used to be compared to satellites rather than elephants!)



"Watch that step!"



Well, that's all folks...till my next post!





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Sunday, February 25, 2007

Politically Incorrect Economics

I have been studying some Economics, and while everyone has been praising India and China to the skies, and hailing them as economic superpowers, it is interesting to note that the total production of a company depends (finally) on basically 2 factors. One is Labour, the other is raw materials. (Lets take out Capital for the sake of this argument).

India and China have a huge amount of free labour sitting around, what with our populations. But in terms of raw materials, our land area is not exactly proportional to our population. Especially India.

Now lets consider the United States. Its two and a half times the size of India in area, and has just hit 300 million people. So its area/population is almost 9 times that of India. Just that difference would account for a huge proportion of the per capita income difference. Of course, Indian productivity of land is probably higher, but how much higher can you get? 2 times, 3 times higher? Not Ruddy likely!

Now for the really funky part. If you wanted the economy of the United States to grow like how the Indian and Chinese economies are, what do you do? You can try to raise productivity, but that is not really going to increase your growth rate from 3% to 10%. You could try exporting your goods, but that is definitely not a practical option, considering the American propensity to import Chinese made iPods!

No...how about allowing unrestricted immigration? You increase the number of people, and then have them do the jobs that are currently being outsourced. At first sight, that seems pretty odd...after all, the jobs that were previously being performed by Americans are now going to be performed by (probably) illegal migrants from Mexico. But free markets would mean that these workers would do the job for wages that no American would accept. And considering that you are now getting the same job done for less money, your productivity would probably go up!

But outsourced jobs being taken over by Mexicans won't really grow the American economy. But what if you could get labour at Indian prices for an iron ore mine in the United states. And if cheap ore is obtained, how about that for viability of the American Steel Industry. Especially if they can also employ labour at far less than minimum wage.

Of course, America is an expensive country to live in. So this labour would probably starve to death without social security. But what if an alternative economy could be set up only to target these low paid workers. We could have differential citizenship. One would be the "True citizens", and the other would be the "Labour Citizens", who would be allowed "Special privileges" such as the right to shop at exclusive stores for food. And of course, this food would be super cheap, because...you guessed it, the food has been grown by cheap labour. (or is of lower quality...but we won't walk that road, will we?).

The amazing thing is...this is probably very possible to do. With the first RFID's capable of being implanted in the skin available in the market, there is no technical problem in this sort of segregation. A "Labour Citizen" would be tagged, and only tagged citizens could enter the "Second Class Stores". And technology could be used to target every single product, to ensure that no "True Citizen" is able to use it.

Of course, "Labour Citizens" would not be allowed to buy certain items that are the prerogative of the "True Citizens". Eg: Cars, or Designer Watches. This would be one way of also ensuring that car theft is lowered!

And this would be a market economy. The instant you lose your high paying (above minimum wage) job, you would, along with your last social security check, also get a free RFID implant that would send you to the "Labour Citizen" Category.

And someone who graduates out of "Labour Citizen" gets his RFID software changed so that he can become a "True Citizen". Of course, encryption software to prevent this from being hacked must be developed. But even this is only going to add to the economy....and this can be outsourced to India to achieve cost savings!



Any thoughts?





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