Regressive Tax Regimen

Is it not strange that out of all the tax revenue that the government gets almost 80% comes from indirect taxes?From the govt's point of view indirect taxes are better as they are supposedly not painful to the tax giver.Do you know that when you buy one litre of petrol, 17  Rs goes in the kitty of the govt as tax, or when you buy a matchbox,25% of its value is tax.What a regressive tax regimen indeed ! The poor for whom the marginal utility of additional money is much more than for the rich pay the same taxes as the well to do.Given that the PDS system is dysfunctional , they buy the rice and sugar at the same price as you and I .And the govt has  the gall to say that it is pro poor.

360 degree

The case discussed in the class today was about the star producer of Capital market division of Morgan Stanley not being promoted to the higher level because of being rated poorly on team skills by his peers in the 360 degree feedback. Although the protagonist had  shown a steller performance and single handedly increased the market share from 2% to 12%, the decision to not promote him was taken.The case learnings are as given

• Being  a star performer is not enough. With growing seniority, team building skills are more important.
• 360 degree feedback is a tool that can help in taking better decisions and thus save the organisation from future troubles.
• The superior who was responsible to give continuos feedback to the protagonist was held equally guilty and was punished by no longer being in charge of the protagonist.Poor performance by juniors is as much a fault on the part of the seniors as on the part of the juniors.
• Many a time, we hesitate in giving a negative feedback to our subordinates fearing retaliation in the form of future disinterest in the work or we are just intent on being goody-goody.Remember that performance management system is different from performance appraisal system. While the latter appraises at the end of the year and is out  of vogue with good organisations, performance management system is a continuous process and aims at improving the performance of the subordinate during the year.
• In hindsight I feel that many a times I too have been guilty of this flaw.The quarterly feedback form that I used to submit for my subordinates usually was a hurried affair.

Chinese threat

Out of ~ 3 trillion dollar reserves that China holds , 70 % are in the form of dollar denominted US Govt bonds. What it essentially means is that the Chinese govt has loaned out this amount to the US on an interest rate of about 2 %, which happens to be the bond coupon rate.With the value of dollar dwindling day by day and the Chinese currency overvalued significantly, China is indeed in a difficult spot.What more than the fact that its economy is export dependent with most of the consumption outside the country.Further the country is in the midst of a domestic crisis which is likely to increase in the times to come with the populace seeking more right to property and free speech. The best that can happen from our perspective is that the country will implode in the medium term and wouldn't be a threat to us.Let us do something to launch an economic warfare on this country.

Another thought that comes to my mind is that we must increase cooperation with this country à la Europe, with more of their business coming to India and ours going there, so that the stakes for each other are high against  fighting a war. Both the countries can then prosper and provide  a better quality of life to their people. In the mean time it makes sense to prepare and strengthen the fences because 'Good fences make good neighbours'.Any opinions.............. 

Power Distance

India is a country with a high power distance index of 7-8.Power distance is  a factor that determines the culture of a country and means the readiness with which the junior members of the society accept the domination of the senior members.It is the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It is because of this that we do not speak up in meetings ,but when out of the door we end up  indulging in criticizing the proposal threadbare.Also as  a society we are more interested in the other person's affairs and are not happy minding our own.Our own promotions/rewards become less valuable to us if someone else gets the same reward/promotion, since we perceive that she doesn't deserve it. More often than not these are just perceptions since they are not based on hard facts/data.

Lovable Fools

Our professor of 'Recruitment and Selection' came up with a marvel yesterday .He said that in an organisation it is better to have lovable fools rather than competent jerks.An organisation is composed of people and a competent jerk can offend a lot of workers by his attitude and thus vitiate the atmosphere. On the other hand a lovable fool is more compatible and understands the people issues. All of us want competent people around us, but we should work out the cost benefit ratio of having them. Also we must know that it is easier to teach  a skill and turn  a lovable fool into  an intelligent contributor, while changing an attitude is almost next to impossible.

Ageing

Today afternoon when Shalini and I were at Hazratganj in Lucknow, a beggar woman came to us and had this to say,"खुदा आपकी जोड़ी सलामत रखे और आपको एक बेटा दे ". That was some compliment after almost 13 years of marriage.Shalini obviously was over the moon,with I too swooning with pride.Either the beggars are learning the power of appreciation, or we still look very young.What do you say Guys!!!! 

Mehdi Hassan

Rafta rafta woh meri hasti ka saamaan ho gayey,
Pehlay jaan, phir jaan-e-jaan, phir jaan-e-jaana ho gayey !


Din-b-din badti gehin us husn ki raaniyaan,
Pehlay Gul, phir gul-badan, phir gul-badamaan ho gayey !


Aap to nazdeek say nazdeek-tar aatay gahey,
Pehlay dil, phir dilruba, phir dil kay mehmaan ho gayey !


Rafta rafta woh meri hasti ka saamaan ho gayey,
Pehlay jaan, phir jaan-e-jaan, phir jaanayjaana ho gayey !


Pyar jab Hadd se badha saare Taqaloof mith gayey,
Aaap se phir tum huay phir tu ka Khunwaan hogayey!


Rafta rafta woh meri hasti ka saamaan ho gayey.....
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I am putting up this slide for the benefit of those of my friends who are not conversant with the different levels of leadership.Some good Samaritan had put it on the net.It captures all that is written in the book about the various levels  of leadership.

Good to Great-First 'Who'

The second common thread that unites great companies is that they first get the right people on the bus,and then figure out where to drive it. What it essentially means is that in a dynamic world, where things are changing every minute, and to stay stationary is to perish, you got to have people that can drive and accept  change.Vision and strategy can come later.First you should get the right people in your team, wrong people off your bus and put the right people in the right seats. Then and only then should you try to figure out where to drive the bus.With such people in your team, it is easier to change direction if the need so arises, and secondly great people are self driven and need no external motivation. They have an inner drive to excel and nothing which is not exceptional is acceptable to them.Good to great companies place more emphasis on character traits in their recruitment decisions as they feel that skills and competencies can always be taught,but what cannot be taught or changed is the inner fibre of a person.

It is but natural that great companies are tough places to work,and rightly so. They are not ruthless,but they are rigorous.Being ruthless is akin to cutting down on manower just because you have to.On the contrary, being rigorous means to have exacting standards, and to show the door to anyone who doesn't match up .If you continue to have laggards in your team, then in a way you are ruthless to your high performers, as they are forced to carry the load of these laggards.Three practical principles as advocated by Jim Collins for being rigorous in making people decision are:

• When in doubt, do not hire. Keep looking
• When you need to make a people change, act and do it fast.
• Put you best people on your biggest opportunities, rather than on the problems.

Have people in your team who debate vigorously in search of best answers,and talk without  fear or favour,but once a decision is taken,then they unify behind that decision ,regardless of their parochial interest or previous opinions. 

Low Cost carriers

As per the reports in the newspapers, the 'cost per seat km' for full service airline carriers has come very close to that for the low cost carriers,and the fact is being celebrated as a great acheivement of cost cutting initiatives.But I feel that the comparison is not right as the benchmark of performance comparison is flawed.The so called low cost carriers of India can hardly be called so , when compared to the leader in such an industry. Consider Southwest Airlines which is a model and is discussed extensively in B-schools worldwide. How does it control costs? Some of the strategies that it follows,and which come to my mind as of now are given below:

• A standard fleet of aircraft optimises maintenance and training aspects. Is there a lesson for IAF here that has so many type of aircraft in its fleet?
• Turnaround time is just about 15 minutes. This helps in aircraft being airborne for more number of hours leading to more productivity. How much time do we take in turn around and in loading and offloading.Those of you who are students of military history will remember as to how this was used successfully by the Israelis in 1967 war.
• Short haul flights obviate the need for in flight catering.Some of our LCCs continue to provide light refreshments onboard as a way of differentiating themselves from the other airlines. Remember that the cost incurred is not just that of the meal, but it involves the whole value chain that facilitates the meal for the customer. No wonder the airlines find themselves in the red.
• The LCCs continue to operate to the congested airports where the landing and other charges are high. On the contrary , Southwest operates to smaller regional airports.There is a lesson for the government here to open more airports to civil traffic. I see no reason why the infrastructure, including the airspace used by IAF should not be shared in the larger interest of the nation.
• Southwest does not allow baggage other than hand baggage. None of our carriers impose this restriction.Travelling light will not only lead to reduction of ac weight that will lead to lesser fuel consumption , but lesser time will be lost in luggage transfer and security checks.

The airlines in India could incentivise the use of the internet for booking or alternatively impose  a penalty for counter booking. This will reduce the requirement of having a counter at the airport , thereby saving costs. If all the above ideas are implemented in India for the LCCs, then and only then could they be really called low cost carriers. Only then should the full service carriers compare themselves to these operators. Till then there is a long way to go.

Strategy-Mankind Pharma

Mankind Pharma is a company that operates in pharmaceutical industry, which happens to be highly fragmented with the share of even the market leader being just about 5%.To make a mark in such an industry, this company did the following:

• It studied the market and found the Indian market to be extremely sensitive to prices. Therefore it concentrated on providing good quality medicines at  a low price.This helped the company make  a mark with the customers.
• Decided not to have any of its own manufacturing plants to save on capital investments and the fixed costs. It outsourced all manufacturing to the existing companies, as there was an overcapacity in the industry.It was thus able to keep its costs low.
• It followed the loose bricks strategy. Instead of fighting the established players head-on in metros and other tier 1 cities, it concentrated on selling its products in tier II and tier III cities.It was thus able to capture this market.
•  Besides paying a fixed salary to the salesmen, it paid a major amount as a variable performance incentive so that the salesmen would work their guts out to improve sales.

The company has done well till now as it was operating in anti- infective drugs, but going forward into lifestyle drugs, it may find itself on a sticky wicket, unless it decides to have its own manufacturing facilities.Those of you who are interested in reading the full article,may refer to BS dated 03 Nov 2009. 

Good to Great

I have been reading this book 'Good to Great' by Jim Collins,and find it an extremely interesting read. The book is basically trying to find out the factors that differentiate the good companies from the ones that are great. The methodology involves picking up those companies out of the fortune 500 list, that have shown a meteoric rise in performance beyond a transition point, and have sustained that performance for at least 15 years.A time of 15 years has been chosen to isolate those companies, whose great performance is a one-off case, possibly because of some single rejuevnating factor like good leadership or some other market/environmental variable.Normally companies that show good performance for so long  follow certain enduring principles of success, and would have seen at least two change of leaders. The performance of these companies has been compared with laggards in the same industry, and also with good performers who were unable to sustain the momentum after a meteoric rise.What emerged out of this research was a list of 11 companies, one of them being Gillete.There is a common theme that runs across these companies. For today, let us take the first common factor across these star performers.I will try to follow up with more in the days to come.

Level 5 Leadership: There are five levels of leadership-level 1 to level 5.I expect most of my friend to have crossed the four levels, and would not waste time by elucidiating the characteristics of those levels. It is more important to know as to what is level 5 leadership.This kind of leadership is a rare combination of extreme humility and a steely resolve. On the face of it , these people may seem to be weak, because of being too humble, but look deeper, and you will find a firm resolve. They are not the show off kind, like probably Patton,but are more like Abraham Lincoln. All the 11 companies that showed great performance had such leader at the helm at and beyond the point of transition.So what is the point that I am trying to make.One, A flamboyant guy at the helm is not necessarily good for the organisation. In fact the organisation can do without them.Second, Look around you at some great units/companies,and more often than not you will find  a level 5 leader,who is almost shy,awkardly mannered,away from media/attention hype, working quietly with a steely resolve to change thing for the better,rather than continuing with the status quo.