Strengthening Corporate Governance — A Proposal for the New Companies Act, 2013
avatar

By Mandar Kagade, Analyst, Bharti Institute of Public Policy

Principle 1 of the National Voluntary Guidelines states that businesses ought to conduct and govern themselves with Ethics, Transparency and Accountability.  One of the ways in which the law monitors that businesses actually conduct and govern themselves likewise, is through the institution of independent directors. Before the enactment of the new Companies Act in 2013, clause 49 of the listing agreement was the only law applicable to independent directors. The new Companies Act for the first time, imparts statutory recognition to the idea of independent directors and prescribes obligations for them. Notably, it significantly enlarges the scope of their obligations to include acting in good faith and for the benefit of members (shareholders) and employees of companies, the community and protection of the environment.[1] Moreover, contravention of the provisions of this section is punishable with fine that may extend up to INR 0.5 million.[2]

The obligation on directors to act in good faith and for the benefit of stakeholders other than shareholders in a sense embraces the spirit that defines Principle 1 discussed above. Directors are after all the alter ego of businesses, and imposing obligations to act in good faith and for the benefit of specified stakeholders makes them accountable to those groups. However, while well-intentioned, this approach of making businesses responsible can have undesirable and unintended consequences; for example, making independent directors personally liable by way of a monetary penalty can further deplete an already scarce talent pool of independent directors because of the financial and reputational risks involved. Moreover, as the interests of various stakeholders are divergent, satisfaction of one constituency’s interests may expose the directors to claims from other constituencies.  How is the Director to decide in good faith, in the face of these realities? Acquisition of a competitor may confer pricing power on the acquirer. While this move will benefit the shareholders, it may not necessarily benefit the community; navigation of such “zero-sum-game” issues could well nigh be impossible in face of a mandate to look after the interests of all stakeholders.

At present, India’s corporate law ethos is rooted in the Anglo-saxon model where shareholder as the last bearer of risk, ought to be protected through voting rights and legal rules. Directors, including independent directors, are elected by shareholders and may be removed by them too. Moreover, Independent directors are outside directors and as such their ability to account for the interests of various stakeholders is severely restricted owing to information asymmetry they suffer from as also the limited time they have at their disposal.  Given these practical realities, enforcing a stakeholder approach in corporate law piece meal, to forcibly make them behave responsibly is a myopic regulation that will more likely harm than do good in the long run.

However, all is not lost for stakeholder approach to corporate regulation. Businesses could still behave responsibly if the structure of corporate law is made suitable for stakeholder approach. One prominent example that appears more suited to this approach is the German model of having dual boards instead of unitary boards prevalent in Anglo-saxon model of governance. The new Companies Act may provide for companies of a pre-defined size to have a dual board mechanism to account for the interests of other stakeholders like employees and the environment while retaining a board that will be an exclusive fiduciary to the shareholders. Companies may have the liberty to “opt-out” of this regime under a “comply-or-explain” model.

[1] Section 166 (2).

[2] Section 166 (7).

The article was first published in Responsible Business India on July 25, 2013

Posted in Economic policy, Law, Policymaking, Regulations | Tagged , , , , , , , , | Comments Off

Women in Management
avatar

In the past century, women around the world have made great strides in entering the business world and working toward the levels of pay and responsibility afforded by their male counterparts. However, although women comprise 48.5 percent of India’s population, they represent a mere 26.1 percent of rural workers and 13.8 percent of urban employees, according to Catalyst’s Knowledge Centre.

Moreover, Catalyst continues, women make up only 3 percent of legislative, management, and senior official positions, while only 5.2 percent of them hold positions as board directors. Fortunately, with the Indian market growing rapidly to become the world’s third largest economy by the year 2030, as quoted by the Economic Times, there are projected to be a plethora of opportunities abound for women to take on management and leadership positions in the coming years.

At the Indian School of Business, we hope to leverage these possibilities to their fullest effect, by admitting a good ratio of women into our programme: 231 students constituting 30 percent of our accepted applicants are female. That number has risen steadily, increasing by almost 120 percent in the past 7 years, to now the highest-ever number of women in the Class of 2015, as quoted in the Times of India.

Women get to learn from women, as well: Our faculty is almost 20 percent female. Our emphasis on diversity means students learn to appreciate gender-neutral leadership early in their career, helping to push equality into the next generation.

When enrolling in our flagship Post Graduate Programme in Management, women get the chance to learn in a heterogenous setting from leaders across a wide field of business specialisations. The one-year programme is structured holistically to allow access to several women-specific groups and organisations. Among these is ‘Women in Business’, a student-run professional club that gives women the tools they need to leverage the resources available at-hand, on campus, and achieve their personal and professional goals. Club members often enjoy curated discussions with distinguished professionals from across the industry. Notable discussions have included celebrated social activist Kiran Bedi on ‘Tenets of leadership’, Anusha Bhagat, COO of UBS Securities on ‘The glass ceiling: Exploding myths and crashing stereotypes’, and Women@Google on ”Support systems for women employees and the LGBT community at Google’ among others.

Our students also benefit from Axis Bank’s “Women Leadership Programme,” which has hired large numbers of female candidates in the past two years. Students therefore benefit both while in the programme and once they complete it.

We aim to make the Indian School of Business approachable for any high-performing individual who has demonstrated a desire to transform themselves, including married women as well as female students in need of financial aid. If you have questions, take a look at our Frequently Asked Questions page or get in touch. We hope to hear from you.

Posted in Uncategorized | Comments Off

How ‘diversity’ on campus helps our students to rise above.
avatar

The 21st century economy is defined by globalism. Shouldn’t our future business leaders be educated in global environments? At the Indian School of Business (ISB), we are committed to the ideal that the best business training runs parallel to what’s happening in the real world. This is why we view diversity not just as a catchy buzzword, but as a campus-wide imperative.

Untapped Resources

Some obvious things come to mind when we talk about resources: capital, facilities, land. It’s easy to overlook one of the most valuable resources of all: people. ISB believes in the power and potential of our students and faculty as individuals and as collaborators. To that end, we strive to create an environment which comprehensively fosters diversity.

But why is diversity so important? Because real innovation is not shaped by a single or narrow ideology, but by the powerful exchange of information between people with different viewpoints. The broader our perspectives and more holistic our approach, the more creatively we can solve challenges, make decisions and push forward. “I think that when you have a number of people pulling in different directions, the solution that comes out of that seemingly conflicted environment is often more efficient and universally applicable than if you had a bunch of people thinking the same thing.”, says Angad Sethi, an ISB student.

ISB students originate from near and far, and we are committed to seeing our international enrollment grow. We are also home to a multitude of ethnic and racial groups, as well as people in all phases of their careers and an increasing number of women applicants.

Our students come to us with a breadth and depth of personal and professional experiences. We count scuba divers, musicians, mountaineers, elite athletes and artists among our students and alumni, as well as surgeons, accountants, dentists, engineers, IT professionals, consultants, pharmacists, patent holders, military officers, government personnel and entrepreneurs. Together, they comprise a vibrant community of broad thinkers with an abiding respect for different points of view. “Every person around is a wealth of information about a new domain. There is something new to learn from every person, every day!”, quotes Abhidha Awadaat, another student pursuing ISB’s PGP in Management.

And it’s not just the students. Our diverse faculty members promote an environment in which a global viewpoint transcends traditional boundaries.

The Spirit of Collaboration

While some b-schools may bring to mind thoughts of cutthroat, every-man-for-himself academic competition, we strive for a different environment here at ISB: rather than pitting individual students against one another, we pit them collaboratively against real world business challenges.

Furthermore, our Inbound and Outbound Exchange Programmes offer students the opportunity to network with people around the globe.

In working together, ISB students learn about the dynamics of management in other countries as well as in India’s emerging economy. They also develop real world skills such as teamwork, conflict resolution and accountability. When they graduate, they take with them these valuable tools — along with an enhanced understanding of the value of open dialogue. PGP ’15 candidate, Gautam Malhotra says, ”Nowhere else would I have gained so much knowledge about different roles and industries in such a short duration. I truly feel enlightened!”

The global business landscape is in a constant state of evolution, and it is the enterprise of the forward-thinking business school to evolve along with it. At ISB, we do more than talk the talk: our commitment to internationalism and collaboration yields business innovators keenly prepared to learn and lead in equal measure.

Posted in Uncategorized | Comments Off

The sharing economy
avatar

I have been reading with interest the efforts made by several new players to use idle and spare resources to create new business models. I have borrowed the title from today’s NY Times. The idea is as old as B&B. One can rent rooms, cars, computers, labor, etc. Definitely, those in need of employment or additional money can use the business networks to contract safely. It also improves resource utilization. However, safety, reliability, service level guarantees remain a concern. What also characterizes these arrangements is that the contract between the business network operator and the service provider can vary greatly.

Posted in Uncategorized | Comments Off

Policy Workshop on Understanding Governance
avatar

The Bharti Institute and the office of Shri Baijayant ‘Jay’ Panda, Member of Parliament (MP), Kendrapara (Odisha), jointly organized a Policy Workshop in association with Young Indians (Yi), Chandigarh Chapter on February 15, 2014 at ISB’s Mohali campus. The workshop aimed to provide a platform for youngsters to develop an understanding of important policy issues, the role of MPs, the working of a political offices, approaches to public policy, opportunities in the field and ways for citizens to engage with elected representatives.

Mr. Rohit Kumar, Head of Policy and Research in Mr. Panda’s office, led the first session titled ‘Understanding governance better: Our Constitutional structure’, explored issues such as distribution of powers among the Executive, Legislature and Judiciary, checks and balances, and the three levels of government – centre, state and local (Panchayats and Municipalities).

Ms. Yashita Jhurani, of Mr. Panda’s office and Mr. Gaurav Goel, Co-Founder, Samagra Development Associates conducted the next session titled ‘The MP and his People’. The session focused on explaining the nature of an MP’s role in the constituency and the monitoring and reviewing of projects and schemes including the MP Local Area Development Scheme (MPLADS).

In the following session on “Public policy – Challenges and Opportunities” Prof. Matthew Hull, Associate Professor of Anthropology, University of Michigan and Dr. Kaushiki Sanyal, Senior Analyst, Bharti Institute of Public Policy spoke about issues such as policy making in the digital age, avenues of citizen engagement with policy making and career opportunities in the field of public policy. Dr. Sanyal also presented insights from some ongoing projects of the Bharti Institute.

The post-lunch session featured a talk on “Important Institutional and Systemic Reforms” by Mr. Panda. The discussion included specific references to federalism, electoral reforms, Parliamentary reforms and judicial reforms. The session stressed the need for parliamentary reforms in order to avoid legislative deadlocks on the floor of the House. The discussion also dwelt on the topic on relative merits of caps versus traceability in election funding.

The last session explored the “Dynamics of the Interaction between the Legislature and the Executive” through a conversation between Mr. Panda and Ms. Vini Mahajan IAS, Principal Secretary, Government of Punjab and moderated by Prof. Rajesh Chakrabarti, Executive Director of the Bharti Institute of Public Policy. Ms. Mahajan pointed out that the bureaucracy not only implemented policy but often initiated policy change as well. The discussion highlighted points of difference and areas of much needed collaboration between the two important institutions of governance in the country.

Over 100 participants from diverse backgrounds attended the workshop.

Posted in Executive, Institution, Judiciary, Legislature, Policymaking, Public Policy | Tagged , , , , , , , , , , | Comments Off

Why India needs a PBO
avatar

By Kaushiki Sanyal, Senior Analyst, Bharti Institute of Public Policy, ISB

This article was first published in Financial Express on April 11, 2014.

The requirement for legislative approval of financial measures is a democratic instrument enshrined in the Indian Constitution. This allows the legislature to keep a check on the government’s spending of public resources. However, there is a sharp disconnect between the formal power and the actual budgetary role of the legislature. A key reason for this disconnect may be because of the design of parliamentary democracies which limit the power of legislatures to either reverse or amend the budget. Other structural reasons for the disconnect may be the limited capacity of legislators to scrutinise fiscal matters, lack of access to in-depth budgetary information and limited time to scrutinise the budget. Over the years, this has adversely impacted the time spent by MPs on scrutinising the budget.

This indicates an abdication of responsibility by Parliament of one of its most crucial functions and does not bode well for the country’s future. While the issues related to the design of parliamentary democracies may be difficult to change, the structural issues can be addressed by putting in place certain measures to help parliamentarians scrutinise fiscal policies in a more robust manner. To that end, this article proposes that Parliament take the initiative in establishing a Parliamentary Budget Office (PBO), which would strengthen the former in carrying out its role of financial oversight.

The concept and the need for such an office in India is discussed here with some examples of PBOs in other countries.

What is a PBO?

PBOs are non-partisan research bodies that provide legislators with neutral and high-quality analysis of fiscal matters that is independent of the executive. Typically, they focus on analysing the full budget cycle, the broad fiscal challenges facing the government and the financial implications of legislative proposals.

A PBO may be established as a statutory body under the direct control of Parliament with a clear set of deliverables. The body could be run as an autonomous institution with an independent board of directors. The head of the PBO should testify before a parliamentary committee on all fiscal matters. PBO should also be subject to audit scrutiny to ensure accountability.

The key advantages of having such a body are: (a) it can raise the quality of debate and scrutiny in Parliament as well as enhance fiscal discipline; (b) it can address the information asymmetry by breaking the executive’s monopoly on information; (c) the information would be available to both majority and minority parties; and (d) a PBO can provide information in a more transparent and timely manner which can enhance citizen participation in the budget process.

At present, budget-related information remains a monopoly of the executive with little scope for independent, high-quality analysis. Also, debates on legislative proposals hardly ever go into their fiscal implications. For instance, the Right to Education Bill, 2008, which required the government to reimburse unaided schools for expenditure on every child, did not provide any estimate for this purpose. Financial Memoranda of Bills only provide the estimated expenditure at the Union level. In addition, MPs in India (unlike developed democracies) are not equipped with well-trained research staff who can provide them with timely and credible inputs. It is essential for MPs to build analytical capacity in budgetary matters in order to be able to hold the government accountable. A PBO can provide MPs with independent, non-partisan and quality research analysis.

A PBO should evaluate complex budget information and produce policy briefs so that MPs can more easily understand fiscal and policy issues. PBOs in different countries undertake a variety of tasks which include producing economic forecasts that are independent from the executive branch of the state, analysis of the budget, examination of fiscal implications of legislative proposals, production of baseline estimates of revenues and expenditures based on current laws and production of policy briefs on present schemes.

Who may use a PBO’s analysis?

PBOs primarily cater to research requests from MPs across party lines as well as requests from parliamentary committees. PBOs in countries such as Uganda and Kenya exclusively cater to requests from committees while Canada carries out service requests from individual MPs but ranks them below committee requests in terms of importance. The US services requests from committees as well as individual legislators.

Should a PBO’s work be available to the public?

A balance needs to be struck between the need for transparency and the need to maintain the confidentiality of requests made by individual clients (this is likely to increase use of the service). All reports of the PBO except those prepared on the request of individual MPs or parliamentary committees can be made public. The on-request reports may be made public with the express consent of the client or may be declassified after a certain time period has elapsed.

The international experience with PBOs

Over 13 countries have established specialised budget offices attached to the legislature including the US, UK, Canada, Australia, Korea, Hungary, Uganda, Kenya, Thailand and Bangladesh. The countries have adopted different models to suit their individual needs. For instance, PBOs fall within the jurisdiction of Parliament in the US, Korea, Uganda and Canada while it is under the executive in the UK and Sweden. The functions may differ too. The US Congressional Budget Office (CBO) provides information on economic outlook, cost estimates of specific legislative proposals, long-term budget outlook, etc. The Canadian PBO provides independent budget projections, fiscal sustainability report, and financial analysis of Bills.

The impact on fiscal oversight in countries with PBOs is difficult to measure though some of the results have been encouraging. The CBO in the US focuses on costing or scoring legislative proposals relative to the baseline. This has helped discourage Congress from making unaffordable proposals. In Australia, the PBO does a costing of different political parties’ electoral manifestos, which can discourage unaffordable election commitments.

An effective PBO can be a useful tool for strengthening the oversight capacity of legislators. However, in the last analysis, it is up to the legislator to take fiscally prudent policy decisions.

Posted in Budget, Economic policy, Public Policy | Tagged , , , , , , , , , , , , , , , | Comments Off

Give Performance Feedback Frequently
avatar

dartboard

When it comes to giving performance feedback, do not wait for the end-of-the-year appraisal session. If you reserve all the feedback for the end of the year, your team members can only work on them going forward. Moreover, they might resent the fact that you have waited far too long to let them know about your viewpoint. Giving feedback as and when an issue occurs helps people to take immediate action and make effective behavioral changes.

Many managers associate feedback with only pointing out the negatives. Your feedback might not only highlight areas of improvement. Appreciating good work and applauding positive behaviors goes a long way towards improving team morale, developing a positive work environment and creating a sense of healthy competition among team members. A balanced and frequent feedback approach will help you to lead your team more effectively and get the best out of it.

Posted in The Effective Leader | Tagged , , | Comments Off

How to make a strong EEO application
avatar

The applications for the Early Entry Option (EEO) for PGP are in progress and the last date for the same is just around the corner viz. on the 30th of April, 2014. Have you submitted your applications yet? If not, then here are a few pointers I would like to put across on how to make a strong EEO application. These will help you to increase your chances of securing an admission offer.

First of all, if you have made up your mind and are certain that you will be making a career in management someday, then congratulations! You are already showing some signs of leadership potential which we look for while assessing your application.

Parameters for evaluating an EEO application
When you apply for the PGP through EEO, your application is assessed on the following criteria:

Academic Capacity:
Your past academic performance plays a major role in EEO as it demonstrates that you can meet the academic rigor demanded by the PGP at ISB. This does not mean that you strictly need to ace in your academics. If you have a good GMAT score with a fairly balanced academics score, you stand a great chance too. By balanced academics, I mean consistency in your academic performance throughout and not just your 10th and 12th marks.

Balanced Personal Attributes
Your choice in extra-curricular activities and your involvement in them display your ability to lead and influence people, organize activities and your ambition to see a project to its end not just for the sake of it but with a flair that is typical of a person who is an aspiring leader. You should highlight these qualities in your essays. Your essays should clearly reflect what you are, your personality, your goals and expectations.

Mention your extra-curricular activities (achievements in sports, social service, college events etc.) and your past internships weaving them with your future goals. For example, if you want to make a career in FMCG marketing then link this with your college projects on rural marketing, internship in market research or advertising agency, etc. If you have any work experience, prioritize it in the flow of your essay and highlight the achievements associated with it. Remember that the key to composing a good essay is to be yourself while writing it. Make your essays so lucid that they differentiate you from the rest of the applicants.

Leadership potential
This attribute is evaluated mainly through the recommendations you submit. Recommendations from your college professor, department head, mentor at internship or at NGO/ sports academy etc. are very important when it comes to gauging your caliber as a leader. Be mindful about taking recommendations from people who know you well and can evaluate your abilities and potential thoroughly.If you ask a person who is not well acquainted with you, there is a possibility of them clicking on ‘Unable to evaluate’, an option given with every close ended question, which may go against you. So, when it comes to taking recommendations, the right people are the key than the people from top designations.

To cut this long story short, know that there is no separate weight-age assigned to any of the above parameters. Your application will be evaluated holistically and based on an overall evaluation an admit offer may be given. So, if you are an eager aspirant who wants to join ISB, then work on a strong EEO application right away and submit by 30th of April, 2014.

All the best!

Posted in Uncategorized | Tagged , , , , , | Comments Off

5 Ways to Make Your Meetings More Effective
avatar

“A Meeting is indispensable when you don’t want to get anything done.” - Thomas Kayser

Think about all the meetings that you had over the last week. How many of them were really worth it? Meetings that really energized you, made you take actions, opened doors to new opportunities. And how many of them were just time-wasters? Meetings in which you were having an out-of-the-body, I-don’t-belong-here experiences?

Chances are that most of your meetings were in the second category. And you are not alone; study after study shows that most meetings deliver little compared to the time we devote to them. In the UK, it has been estimated that workers waste a year of their lives in useless meetings. As per one study, the average cost per meeting for Fortune 500 companies is as high as $527.

But you can make your meetings more effective. Here are 5 strategies that will ensure that your meetings are both fun and productive.

1. Ask the question – do we really need this meeting?

This is the first step. Whenever we get a meeting request, most of us agree on auto-pilot. But what if we start by asking the question, do we really need this meeting? Can a quick call or email suffice? Do we need all the 10 people for the meeting or only 3 will be sufficient? Once you start asking these questions, very quickly you will realize that many of your meetings can are not absolutely essential.

2. Make organizing meetings costly

You might think that organizing meetings are cost-less – but all of us are paying with our valuable time. Unfortunately, that is not very visible. Hence, you can make organizing meetings costly by making the number of meetings fixed. For example, you can decide not to have more than 3 team meetings a week. You can declare a no-meeting day once a week. The idea is to set a culture where everyone understands that a meeting is to be called only when it is absolutely essential.

3. Insist on an agenda

A study shows that around 63% of meetings have no agenda. If there is one thing which contributes most to the failure of a meeting, is the absence of an agenda. Think for a moment, if you don’t know what is to be discussed in a meeting, how can it be successful? Even the so-called “brain-storming” meetings cannot start without an agenda. Also, the agenda should focus on the expected outcomes rather than the inputs. It should be crisp and to-the-point rather than vague and diffused. “To decide on the top 3 new features to be included in the next release” is much better than “to discuss the features that we can add in future releases of the software”.

4. Have stand-up review meetings

Since most of the meetings are review meetings, an effective way to get the maximum out of them is to make them stand-up meetings. By making all the meeting participants stand through-out the meeting, you ensure that the meetings are short and only the important issues are discussed.

5. End with clear action points

Many of the meetings don’t lead to clear action points, necessitating further follow-up meetings. Hence you have to ensure that the meeting ends with clear action points that are aligned to the initial agenda. It is important to decide on owners of action points during the meeting itself – postponing who will own what for later might lead to another meeting. Finally, any recurrent meeting should start with last meeting’s open action items before moving on to other discussions.

Economist John Kenneth Galbraith once said, “Meetings are indispensable when you don’t want to do anything.” If you follow the tips above, it might not be the case for your meetings.

Posted in Personal Effectiveness | Tagged , , | Comments Off

Enhancing stakeholder participation in the policy-making process
avatar

By Kaushiki Sanyal, Senior Analyst, Bharti Institute of Public Policy, ISB

This article was first published in Responsible Business India on April 4, 2013

Given the diversity of our country, how can we ensure that citizens have a say in the laws and policies that are made on their behalf? All citizens need to be treated as agents or stakeholders rather than passive recipients. Therefore, allowing them legitimate ways of engaging and participating in policy designing helps in promoting a strong conception of citizenship. This can be extended to include business entities in India. They are affected by the laws and policies of the land and their legitimate concerns merit due consideration of the policy-makers. Furthermore, by engaging with citizens and businesses, the government can benefit from expert knowledge beyond its immediate realm of information, expertise and advice, while at the same time creating opportunities to educate them about policy alternatives. The increasing complexity of policies coupled with pluralism in society makes this engagement no simple task since the policy-maker has to balance competing interests while formulating policies that serve the best interest of the country.

In this article, I describe the various ways of engaging with Parliamentarians that are available to the citizens, list the gaps and propose that allowing lobbying in a regulated manner would not only increase access for citizens and businesses but also bring in more transparency and accountability into the system.

Current opportunities for public engagement

Currently, stakeholders can participate in legislative process in different ways. First, citizens can launch campaigns to raise awareness about the need for a law in a particular sector or changes to an existing law. Landmark legislations such as the Right to Information Act, the National Food Security Act, the Lokpal and Lokayuktas Act and the amendments to the rape laws are the result of long running campaigns by various activist groups.

The government can also seek the help of expert groups such as the Law Commission or ad hoc committees to draft laws. These committees may seek feedback from all stakeholders including concerned businesses about the provisions of the law. Individual Members of Parliament (MP) can be petitioned, who can then introduce a private member’s bill in Parliament. Although these Bills generally do not get enacted, they act as signaling devices to the government about the need for legislation in a certain area.

The ministry may also seek public comments after it has drafted a law or policy or circulate it among select stakeholders. For example, the administrative ministries sought feedback on the Draft CSR rules in the Company Bill; the Draft Land Acquisition and Resettlement Bill and the Draft Water Policy 2012 within a specified time period (generally 20-30 days). In fact, recently the Committee of Secretaries chaired by the Cabinet Secretary has decided that each ministry should proactively publish proposed legislation on the internet and other media.

Once a Bill is introduced in Parliament, it is generally referred to one of the 24 Department-related Standing Committees (DRSCs), which were formed to scrutinize Bills and other policies of the government in 1993. These DRSCs may solicit feedback from the public by issuing notices in key newspapers and the Gazette of India. The public comments are also tabled in the form of a report. However, the level of public engagement varies with different Bills. For instance, the DRSC scrutinizing the National Food Security Bill, 2011 received about 1.5 lakh suggestions from individuals and organizations while only 16 submissions were received for the Agricultural Biosecurity, 2013. Regulators such as the Securities and Exchange Board of India (SEBI), Telecom Regulatory Authority of India (TRAI) and the Reserve Bank of India (RBI) also solicit public feedback on their draft regulations. For instance, in December 2013, SEBI invited public comments on the Justice Sodhi Committee Report on Insider Trading Regulations and RBI sought comments on the Draft Framework for Dealing with Domestic Systemically Important Banks.

After a Bill is enacted, ministries draft and notify Rules (also known as subordinate legislation) to enable its implementation. These Rules may be scrutinized by the Subordinate Legislation Committee, which is empowered to seek public feedback.

Post legislative scrutiny allows the Parliament to review and evaluate the effects and consequences of an Act following its implementation. However, it is not mandatory in India. It may however be undertaken by bodies such as the Law Commission of India, the DRSCs or a specific commission appointed for the purpose that may hold public consultations.

Addressing the gaps

There are primarily two types of gaps in the policy-making process that need to be addressed. One, the limited opportunities for public participation in the policy-making process and two, the lack of transparency about who has access to policy-makers to influence the decision-making process.

I propose a few ideas to address both types of problems.

Increasing public participation in policy making

The Indian policy-making process provides some opportunities of stakeholder participation but there is significant scope for making the system more inclusive, collaborative and deliberative. Currently, public participation is not statutorily mandated, it is done at the discretion of the ministry or committee. Furthermore, there is little attempt to inform the stakeholders of the process of engaging; it remains confined to a relatively small group which is actively involved in advocacy. Also, there is little transparency in the process itself which allows it to be open to manipulation by interest groups.

India could resolve these issues by adopting some of the best practices followed in other democracies. For instance, it could run civic awareness campaigns, devise political internships and fellowships for young people and increase access to MPs and the Parliament. It could also institutionalize feedback mechanisms in the legislative process. The decision on making pre-legislative scrutiny mandatory is a step in the right direction. Further, after a Bill is introduced in the Indian Parliament, India could make it compulsory to refer it to a DRSC (as is the case in the U.K. and the U.S.). There have been instances where important legislation such as the Special Economic Zone Bill and the National Investigation Agency Bill have not been referred to DRSCs. In order to increase transparency in the feedback process, the government could be required to publish a report demonstrating how the inputs from stakeholders have been considered while formulating the law.

Since post legislative scrutiny occurs rarely in India and is a matter of discretion of the government, there is hardly any avenue for citizens to express their views on the implementation of an Act or policy. India cantake cue from countries where post legislative scrutiny is carried out regularly. . In the U.K., it is compulsory to conduct post-legislative scrutiny within three to five years of the enactment. In the U.S., legislative oversight committees review laws on a continuous basis. In Australia, most laws have to be reviewed within three years. Stakeholders’ comments are also solicited as part of the post-legislative scrutiny process.

Increasing access to policy-makers

Currently, industry bodies, big businesses as well as advocacy groups attempt to influence policy-makers in various ways. However, in India, influencing policy-makers or lobbying is synonymous with bribing and any attempt to legitimise lobbying through regulation is viewed as an attempt to legitimise bribery. However, the simple truth is as follows. First, lobbying is not bribing which is an offence under the Prevention of Corruption Act, 1987. Lobbying simply means providing information and expertise to a policy-maker to further ones cause or interest. Second, it is simplistic to assume that if there is no law that regulates lobbying, the activity is not taking place. Third, in a democracy, lobbying should not be viewed as a necessary evil but a legitimate activity of citizens. However, if the activity is not transparent, public interest may be put at risk in favour of specific interests.

Therefore, India needs to enact a law that treats lobbying as a legitimate activity where the rules serve as a tool to enhance transparency in the policy-making process rather than restricting access to policy-makers. This would also ensure that competing groups have reasonably equal access to policy-makers. Many countries such as the US, Canada, Germany and Taiwan have laws regulating lobbying. Most countries require lobbyists to register with an authority and disclose information about their clients and the methods they employ to lobby.

India can adopt a model that suits its own socio-political needs. Requiring lobbyists to disclose expenses incurred is likely to force interest groups to engage in the legislative process through legitimate means. Universal access to information on expenses and details of communications with policymakers would give impetus to more debates in the public domain. Thus, removing the stigma attached to lobbying while at the same time regulating it would provide a means to citizens and business entities to participate in the legislative process transparently.

Posted in Law, Public Policy, Regulations | Tagged , , , , , , , , | Comments Off

It’s The Incentives, Stupid!
avatar

By Mandar Kagade, Analyst, Bharti Institute of Public Policy, ISB

This article was first published in Moneycontrol.com on March 25, 2014

In a recently held Board meeting, the Securities & Exchange Board of India (“SEBI”) has decided to amend the Listing Agreement and disallow public listed companies from remunerating their Independent Directors using stock options. This move is catalyzed by the intent “to make the provisions of the Listing Agreement aligned with the provisions of the newly enacted companies Act, 2013”.[1] In 2013, the country gave itself a new Companies’ Act, 2013 (“Act”) that brought in some very significant changes including in the regulation of Independent Directors. The Act prescribed their rights and obligations, the nature of remuneration they would receive and so forth. Most notably, the Act has proscribed companies from paying their Independent Directors in stock options.[2] This was a myopic and regressive step, as we will discuss in the following paragraphs; but one had hoped that the capital market regulator, SEBI at least would continue the status quo for listed companies and advocate the use of stock options for them, where they have been most effectively (and where their use is more justified as well); as things turned out, that was not to be.

The sum total of these two regulatory measures is that all companies will now remunerate their Independent Directors in fees, profit-linked commission (as approved by members) or in stock. But that misses out on appreciating the powerful role incentives play, in regulating human behavior. Directors (and managers) of companies have their human capital locked in their companies. These constituencies therefore have an incentive on the margin to be risk-averse. On the other hand, the shareholders are diversified and therefore care little about the unsystematic (company-specific) risk flowing from a company per se. Their incentives are therefore to see that individual companies pursue valuable though uncertain investment opportunities. Now, imagine an Independent Director remunerated in cash; she will be paid regardless of whether she is vigilant about monitoring the “insiders.” Accordingly, it is natural to visualize the Independent Director going through the motions of attending board meetings and then collecting her fees at the end of her routine. Since her actions in the board meetings are de-linked from her wealth and the stock holders, it is easy to infer that the Independent Director remunerated exclusively in cash would be a bad monitor of shareholder interests. Similarly, compensating management and the Independent Directors in stock will merely make more of their wealth tied up to the Company’s (unsystematic) risk and misalign their incentives from the outside shareholders by making them risk-averse as more of their personal wealth is tied up with that of the company.

Stock options provide the solution to precisely this dilemma because they have no downside and an unlimited upside potential. The asymmetric nature of their payoff structure essentially ensures that Independent Directors have incentives to see that the management of the Company invests the company’s assets in valuable but uncertain projects than they would otherwise, thus creating shareholder value.[3] Little wonder then, as Yermack notes, tying directors’ pay more closely to stock performance through use of options and other equity awards has been a frequent goal of shareholder initiatives in the United States of America.[4]

Other remunerative instruments that the Act permits are profit-linked commissions. Because they are linked to profits, commissions based on profits arguably align the incentives of Independent Directors and the shareholders. But they are an inefficient alignment device as commissions based merely on profits are likely to promote short-termism. This is in as much as profits fail to capture the value of future growth opportunities of the company thus disincentivizing the Independent Director to think for the long term. Furthermore, profit-linked commissions cannot be structured to payout in a staggered fashion without sacrificing the incentive alignment.[5] On the other hand, stock options are linked to stock price that impounds the value of future growth opportunities thus promoting the Independent Director to think long term. Also, stock option plans can be designed so as to vest in a staggered fashion thus incentivizing Independent Director to act in the interests of shareholders in the long term.

Unfortunately, the regulators in India have espoused the very instruments that increase incentive-incompatibility between Directors and their shareholders. It is high time regulators move away from their fixation of cash and permit alignment between shareholders and Independent Directors through market mechanisms.

[1] See Press Release PR 12/2014, SEBI Board Meeting.

[2] See Section 149 (6) of the Act.

[3] See David Yermack, Remuneration, Retention and Reputation Incentives for Outside Directors, p. 12, 36 (2003) (finding statistically significant association between the pay-performance sensitivity and growth opportunities of the firm measured in terms of Tobin’ Q and R & D/ assets) available at, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=329544&download=yes. See Michael Jensen & Kevin Murphy, Performance Pay and Top Management Incentives 98 (2) Journal of Political Economy p. 227 (defining pay-performance sensitivity as a dollar change in CEO wealth per dollar change in shareholder wealth).

[4] Supra note 3 at, p.3

[5] This is because, if the commission payout is deferred over a period of time, the opportunity cost incurred by the Independent Director on that payout will decrease the incentive effects linked to such commissions.

Posted in Economic policy, Law, Public Policy, Regulations | Tagged , , , | Comments Off

Young Leaders Programme
avatar

We completed the fourth and final Learning Weekend for the first batch of the Young Leaders Programme students at Mohali in mid February. We are ready to welcome these students to the regular PGP in April this year. Over the last two years we have mentored the students, given them inputs on critical thinking, team building, building consensus, value creation/value capture etc in addition to giving them inputs on various career choices they can make. We do hope they can use these inputs to chalk out a plan of action while they are at ISB for the next one year and make a flying start to their career thereon.

The key aspects of YLP are the Learning Weekends that include leadership & knowledge sessions with the renowned faculty of ISB and industry leaders. These sessions include structured learning that focus on the fundamentals of management education along with building hard and soft skills. All this, along with mentorship from senior ISB officials & alumni enhances the professional experience of the student in those two years. YLP also provides an opportunity to connect with high-end achievers, great minds, hence, building a network for life. To top it, there is a scholarship of INR 1 lakh for every YLP student. Finally, the YLP ends with the student joining the PGP at ISB with a head-start to his career, enhanced work experience and an edge over his/her peers.

As we have been doing in the past we visited India’s top colleges from various disciplines including the IITs, BITS, HR College, Lady Sriram College of Commerce, et al in order to interact with the prospective applicants. The response as usual has been very enthusiastic.

To be eligible for admission into YLP, the candidate must be in his pre-final year of graduation in any discipline. The selection process is a three-stage one which consists of profile evaluation, analysis of academic and analytical skills, GMAT score, written essays, video presentation and personal interviews. Excellence at every stage is a must to make the cut. The best of the best are the ones who get chosen for YLP.

So to sum it up, the youngsters who make it to this programme are, therefore, ideally positioned to transform into tomorrow’s exceptional business leaders. Because it really isn’t about where one comes from; it is about where one intends to go.

Applications are now open at http://ylpapp.isb.edu/user/Signup.aspx

Posted in Uncategorized | Tagged , , , | Comments Off

India’s Missing Women
avatar

India-missing-women_POST
Even though fair elections are held at regular intervals for State Assemblies and Parliament, they do not reflect the true consent of the people because a large number of women are missing from the electorate. Mudit Kapoor, Assistant Professor, Economics and Public Policy and Shamika Ravi, Assistant Professor, Economics and Public Policy of the Indian School of Business examine the persistence of gender inequality.  

On her arrival in India recently, the words of Gloria Steinem, American feminist and leader of the women’s liberation movement, sounded like bells tolling for all women in today’s modern Indian society. “I came [to India] and what was here a half-a-century ago is still here… and yet there is everything else.” Studying data on the sex ratio in India over 60 years supports her grim observation. In this essay we provide a political economy explanation for the persistence of gender inequality in Indian society over the long run.

The much debated Women’s Reservation Bill proposes to reserve a third of all legislature seats for women, at national and State levels in India. If passed, this Bill would uplift the general mood of the nation which has been engulfed by a heightened sense of gender inequality over the last year. Following the brutal rape and murder of a 23-year-old student of physiotherapy in Delhi last year, there was massive and prolonged outpouring of public anger across the nation. India has never looked more unsafe for women. The Bill is going to assuage a hurt population. It is, however, unlikely to solve the fundamental problem that Indian women suffer from.

Within a democratic system, policies are implemented by a government that is formed “by the consent of the governed.” In India, even though fair elections are held at regular intervals for State Assemblies and the National Parliament, they do not reflect the true consent of the people because a large number of women voters are “missing” from the electorate. We estimate that more than 65 million women (approximately 20 per cent of the female electorate) are missing and, therefore, these elections reveal the preferences (or the will) of a population that is artificially skewed against women.

Worsening sex ratio
The phrase “missing women” was coined by Amartya Sen when he showed that in parts of the developing world, the ratio of women to men in the population is suspiciously low. The worsening sex ratio (number of females per 1,000 males) in countries such as India and China reflected the gross neglect of women. He estimated that more than 100 million women were missing due to gender discrimination. It was commonly believed that “boy preference” at birth and the mistreatment of young girls were the main reasons. Some careful and subsequent data work by Anderson and Ray showed that excess female mortality is a more universal phenomenon which holds for all age groups in these countries. They provided detailed decomposition of the missing women by age and cause of death and a particularly sinister observation was that the number of excess female deaths from “intentional injuries” or reported violence was disturbingly high in India.

There is unanimous agreement among experts that this phenomenon is one of the most momentous problems faced by the developing world in modern times. The general sense is that it can be corrected by political action and public policy. It is in that regard that we explore the role of democracy in solving the missing women’s problem. We analyse Indian electorate data over 50 years and study whether solutions to this dangerous trend can emerge from within such a political system.

Using Dr. Sen’s methodology, we compute the sex ratio in the electorate across all the States in India over 50 years. The electorate includes all the people who are registered to vote in elections. In the next step, we use Kerala, the State with the best sex ratio in the electorate, as a reference for all the States to compute the number of missing women. This simple analysis throws up three shocking facts.

First, in the last 50 years of Indian democracy, the absolute number of missing women has increased fourfold from 15 million to 68 million. This is not merely a reflection of the growth in the overall population, but, rather, of the fact that this dangerous trend has worsened with time. As a percentage of the female electorate, missing women have gone up significantly — from 13 per cent to approximately 20 per cent.

Second, the adverse sex ratio of the electorate in India has not changed significantly over the last 50 years. In fact, when we look at different States, we see that it has become worse for most of the large backward States like Uttar Pradesh, Bihar, Madhya Pradesh, Maharashtra, and Rajasthan. This disappointing trend means that there are many more missing women voters in the population. Hence, fewer female voters will voice their opinions through elections. Political decisions which are based on election outcomes therefore underrepresent the female population. They are not a true reflection of the female policy preferences.

Third, with the exception of a very few States such as Andhra Pradesh and Kerala, the sex ratio in the electorate is far worse than the general sex ratio in the population. This means that not all the women who are eligible to vote in Indian elections are registered to vote and, therefore, they are missing from the electoral list. In backward States like Uttar Pradesh and Bihar, this difference is as high as 9.3 and 5.7 percentage points which translated into millions in absolute numbers.

The worsening sex ratio of the Indian electorate has deep and long lasting consequences given the democratic system of governance. Within a democracy, politicians compete to get elected and though it is well recognised that men and women differ in their policy preferences, the adverse sex ratio of the electorate will make it unlikely that the preferences of women get significant attention.

Competitive electoral politics
In fact, because of the missing women, the competitive electoral process will perpetuate gender-biased policies in India. The problem here is that the politicians respond to the preferences of the existing electorate in the population and not to the counterfactual.

If the 65 million missing women were present within the electorate, they would have an important influence in shaping government policies. What is troubling in a democratic system of governance is that even if a politician is not biased against women in his policy preferences, the electoral competition will ensure that he chooses policies in favour of his average electorate which is increasingly male-dominated in India. This is why gender-biased practices and policies will be perpetuated over the long run in a democratic system like India’s unless there is an exogenous shock to this system.

This problem is akin to a market failure for democracy. Indeed, this could potentially explain why the existing political framework is inadequately equipped to address this pressing concern and why gender bias has persisted in Indian society. It is also not surprising that even though India has had a very good track record of holding regular elections and a democratic form of government, it remains one of worst performers in the Gender Inequality Index (GII) of the World Bank. The GII captures the loss in achievement within a country due to gender inequality and is based on measures of health, labour force participation and empowerment. In the Human Development Report, 2012, India performs more poorly than neighbouring Pakistan in the GII despite having a higher per capita income and a democratic government. More strikingly, it is ranked 133rd out of 146 countries and even lags behind war-torn countries such as Iraq and Sudan.

Mixed results
To what extent, then, can women’s reservation in Parliament and the State Assemblies address the gender bias problem in India? In our opinion, this will have a very limited impact. The underlying assumption with the Women’s Reservation Bill is that women as policymakers are more sensitive to women-related issues. However, it is crucial to note that India has experimented with women’s reservation at the level of the panchayat or village councils since the mid-1990s. This has generated very interesting research on whether women’s reservation has had any impact on the allocation of resources towards women. So far, the evidence from this experiment is mixed — some find evidence in favour of a positive impact while others do not find any impact of this reservation.

The impact of the reservation, I believe, will depend on the exact nature of the reservation policy. For example, if seats are reserved on a quick rotation basis then there might be no long-term policies favouring women and thereby having minimal impact. On the other hand, if seats are reserved for a certain number of election rounds then the impact would depend on the basis of the reservation at the constituency level. Here, we are inclined to propose a reservation policy based on the gender ratio in the constituency — reserve those seats where the gender ratio of women to men is the worst. The fundamental reason for this is that an adverse gender ratio is a measure of neglect of women in that society. So, if the objective of women’s reservation is “compensatory justice” then it should start with those constituencies where the neglect is the highest.

The competitive electoral process, however, is likely to undo the impact of any women’s reservation policy. The logic of this is that if both men and women have equal rights to vote, then even in reserved constituencies where there are fewer women compared to men, women political candidates who compete with each other to get themselves elected might choose policies which favour men. Once again, the competitive electoral process even in the presence of women’s reservation, might perpetuate gender-biased policies.

In a nutshell, the competitive electoral process in Indian democracy with or without women’s reservation will fail to deliver policies that are not gender-biased. In the presence of missing women, whose consent cannot be taken into account in the electoral process, democracy will fail to deliver policies that promote women’s welfare (especially in those situations where there is a divergence in opinion between men and women). India can begin to address this disaster by first recognising that an adverse gender ratio is a human rights problem which is an outcome of the sustained, gross neglect of women. And the solution for this lies outside the competitive democratic system.

This post originally appeared as the Lead Opinion piece in The Hindu on February 10, 2014. 

 

Posted in Insight in the News | Tagged , , , | Comments Off

Underestimating liquidity risks: How investors can suffer
avatar

by

Nupur Pavan Bang[1] and Vikram Kuriyan[2]

 

This article was first published by Moneylife on January 27, 2014

http://www.moneylife.in/article/underestimating-liquidity-risks-how-investors-can-suffer/36141.html

 

Risk management models used by professional investors often assume that securities can be traded infinitely. When liquidity dries up, especially in a systemic way during periods of crisis, it becomes very expensive to trade.

“When there is rain, umbrellas become expensive. But when there is no rain, nobody cares about the umbrella and the prices are low. The case of Liquidity is similar”, says Professor Yakov Amihud, Ira Rennert Professor of Entrepreneurial Finance at the Stern School of Business, New York University. Prof Amihud has been actively researching the effects of liquidity of assets on their returns and values, and the design and evaluation of securities markets’ trading methods for over three decades.

In conversation with Dr Nupur Pavan Bang of the Insurance Information Bureau of India and Prof Vikram Kuriyan of the Indian School of Business, Prof Amihud explains that liquidity risk is often ignored by investors. Risk management models used by professional investors often assume that securities can be traded infinitely. When liquidity dries up, especially in a systemic way during periods of crisis, it becomes very expensive to trade. Firms like Morgan Stanley and Long Term Capital Management have suffered huge losses due to underestimating the cost of liquidity.

So when does liquidity dry up? “It is a chicken and egg story”, says Prof Amihud. When prices fall, traders with leveraged positions need to come up with additional funds. If funding is too costly, traders must liquidate part of their positions and this makes stocks less liquid. When stocks become illiquid, their prices fall further; this exacerbates the problem of illiquidity. In addition, information asymmetry is an important determinant of illiquidity. When there is overall panic and information gaps between traders widen, transaction costs go up and liquidity dries up.

The introduction of high frequency trading (HFT), algorithmic trading and technology improvements in terms of direct market access and co-location has not hurt the markets in terms of overall liquidity. Every generation, there are some people who are more technologically advanced than the others and consequently they have an advantage over the others. In earlier times, people who had telephones had an advantage over those who did not have telephones. Then came computers. Initially, only a few had computers. Now, everyone has it.

It’s not an arms race, which imposes a dead-weight cost with no benefit. For example, when both India and Pakistan did not have nuclear weapons, they were equal. Now both have it, and they are still equal, but after burning billions of dollars. Similarly, people argue that when there was no HFT every one was equal in terms of technology. And now with HFT, everyone might eventually reach there and then again everyone will be equal. So why have it? Well, by improving the speed of transactions, HFT helps improve stock liquidity. Limit orders are tighter (have narrower gap between the buying and selling price), which benefits all traders who can trade at lower cost. This applies particularly, to large and more liquid stocks, in which HFTs are more actively involved. The level of illiquidity and its price have declined over time. This is not an anomaly which will disappear once the market finds out about it. It will stay there and benefit all traders and the economy at large.

On being asked about liquidity in the Indian markets, Prof Amihud says that India is among the least liquid markets in the world. Ironically the corporate world would get upset if the Reserve Bank of India (RBI) would raise bank interest rates. Yet, they are not worried about the illiquidity in the securities markets, which raises their cost of capital. If the Securities Exchange Board of India (SEBI) comes out with a regulatory scheme that would make the market more liquid, it will reduce the corporate cost of capital, akin to the RBI lowering interest rates.

[1] Head- Analytics, Insurance Information Bureau, Hyderabad (npbang@gmail.com)
[2] Executive Director, Centre for Investment, Indian School of Business, Hyderabad

Posted in Investment, Risk Management | Tagged , , , , | Comments Off

Release of ISBInsight January-March 2014
avatar

header1We are pleased to announce the release of the latest issue of ISBInsight for January-March 2014. At the outset, we would like to thank our Guest Editor, Professor Sanjay Kallapur, for his involvement and invaluable inputs in shaping it.

In this issue, we aim to provide a truly 360 degree view on the changes sweeping the landscape of corporate governance in India. Our contributors raise and address some important questions about the new Companies Act of 2013 and the Securities and Exchange Board of India (SEBI) Clause 49 reforms. For example: how do regulators tread the fine line between enforcement and interference in the new regime? How is it that even as the new regulatory framework for corporate governance in India ranks among the best in Asia, governance practice still remains sub-par? And will the legislative call for balancing multiple stakeholder interests threaten the very identity and viability of the Indian corporation as we know it?

Our Features section picks up on these themes. We carry an analysis of the gender composition of Indian boards against the backdrop of Section 149(1) of the Companies Act, 2013, which mandates that corporate boards include at least one woman.  As usual, lest a single topical flavor dominate, ISBInsight offers a smorgasbord of themes. Our features include an analysis of a new model for microfinance and an account on social entrepreneurship through the revolutionary social start-up CGNet Swara. In addition, we also bring you a case summary that profiles the GMR group’s pioneering family constitution.

We are especially pleased to bring you an exclusive interview with Subroto Bagchi, Chairman and co-founder of Mindtree and author of the bestselling book, The Elephant Catchers: Key Lessons for Breakthrough Growth, who dwells on the challenges of scaling up. 

For fresh, interesting insights and much more, read ISBInsight. To order your personal copy online, please click here.

Posted in Announcement | Tagged , , , | Comments Off

Is information leading to better voter choice?
avatar

129305743In a recent research project based on election outcomes of four large states that went into polls recently, Professor M R Rao, Dean Emeritus, Indian School of Business and Prasanna Tantri, Associate Director, Centre for Analytical Finance at the Indian School of Business examine if the average voter’s perception about the known candidate characteristics such as criminal records, education, age.etc. has undergone a significant                                                                                  change in 2013 compared to that in the                                                                                              previous election held in 2008.

Leader of opposition in the Rajaya Sabha, Mr. Arun Jaitley recently remarked that the political parties will stop fielding criminal candidates if the voters stop electing them. In a recent research project based on election outcomes of four large states- Madhya Pradesh, Rajasthan, Delhi and Chhattisgarh- that went into polls recently, we examine if the average voter’s perception about the known candidate characteristics such as criminal records, education, age, etc. has undergone a significant change in 2013 compared to that in the previous election held in 2008. Our analysis of 1139 electoral contests involving 11425 candidates during 2008 as well as 2013 elections, finds evidence in support of the hypothesis that voters, on an average, have made qualitatively better choice in 2013. While having a criminal record, higher wealth and higher age reduce the chance of victory in 2013 as compared to 2008, higher level of education produces the opposite effect i.e. reduces the chance of victory.

We see this analysis as important because all four states saw a significant improvement in terms of voter turnout in 2013 as compared to 2008. Election commission’s efforts at encouraging voter participation by enhancing security arrangements have contributed significantly to an increase in the voter turnout. Media played a more active role in 2013 by constantly reporting candidate attributes such as criminality and wealth. Political parties on their part increased focus on the participation of educated young voters. Given our demographic profile the results of our study may be indicative of a likely trend in future.

Unfortunately, we cannot make causal claims based on observed correlations. Careful empirical analysis requires controlling for the effects of various other determinants of a candidate’s success. Factors peculiar to a particular state such as the emergence of Aam Aadmi Party in Delhi, an anti incumbency wave in Rajasthan or a pro incumbency wave in Madhya Pradesh could have influenced outcomes. A significant number of sitting MLAs were denied tickets in Madhya Pradesh. In arriving at our results, we control for such state-level and constituency level determinants. Supporters of some political parties may claim that the quality of the winners has improved because of a particular party’s influence. We rule that out by introducing party fixed effects. Thus we make sure that what we observe is a general trend in all states and not influenced by a few constituencies or a few parties.

Initially we create a single dataset combining the election outcomes in 2008 and 2013 and analyse the relationship between candidate characteristics and winning probability. In the combined sample, a candidate with a criminal record has 1.8% higher chance of winning compared to a candidate with no such record. While age and educational attainments of the candidate do not seem to matter, wealth of the candidate has a positive impact on winning chances. In fact, 1% increase in wealth is associated with .6% higher chance of victory. When we separately analyze the results for 2008 and 2013, we find a different picture altogether. In 2013, a candidate with a criminal record has only a slight edge over his rivals with no such criminal record. The relative advantage of a candidate with criminal record falls by more than 1.2% between 2008 and 2013. Educational attainments of the candidate, which had no impact in 2008, have a positive impact on winning chances in 2013. One level increase in educational attainment, say from 12th pass to graduate, is associated with .8% increase in probability of victory in 2013. Voters in 2013 seem to have chosen relatively younger candidates. One year increase in a candidate’s age reduces the probability of winning by about 1%. In 2008 it was the reverse. As opposed to 2008 where a candidate’s assets had a positive impact on winning probability, in 2013 a candidate’s wealth has no impact on winning chances. Thus our analysis finds a positive change in voters’ response to known candidate attributes.

As stated before, these results are not driven by any particular state or any particular political party. In order to clarify any lingering doubts, we analyze the outcomes in four states separately. Madhya Pradesh is the only state where criminal record reduces probability of winning in 2013. Criminal record reduces probability of winning by .1% in 2013 as compared to an increase of .3% in 2008. This is an encouraging sign given the economic backwardness of the state. Expectedly, Delhi has seen maximum change in terms of preference for younger candidates. One year increase in age of the candidate reduces the probability of winning by .2% in 2013. Delhi also scores high in terms of preference for educated candidates. In Delhi, an increase in education by one level increases the probability of winning by 2.5% in 2013 marking an increase from 2.3% seen in 2008. Chhattisgarh scores higher in terms of change in preference in favor of educated candidates between 2008 and 2013. The change from 2008 to 2013 is a significant 1.4%. Rajasthan has shown maximum revulsion towards higher wealth levels of the candidates. An increase of wealth by 1% is associated with a reduction of probability of winning by nearly 2% in 2013 as compared to probability of winning in 2008.

While our results are encouraging, they also indicate that there is a long way to go. Ideally, other things being constant, a candidate with criminal cases should have a lower chance of winning compared to a candidate with no criminal record. We are not there yet. A caveat: one needs to separate charges arising out of participating political agitations, petty offences, etc. from heinous crimes such as rape and murder. There is still a big question mark on the reliability of asset valuation declared in the affidavit. There have been disputes regarding declared education qualification as well. Therefore while voter seems have started making sensible judgment based on the available information, the quality of information itself needs serious improvement. We hope to see such improvements in the near future.

This post originally appeared as a research piece on moneycontrol.com on January 14, 2014.

 

Posted in Insight in the News | Tagged , , | Comments Off

Wind energy auctions in India
avatar

By Prof. Gireesh Shrimali, Energy Economics and Business, Monterey Institute of International Studies; and a Fellow at Climate Policy Initiative’s CPI-ISB Energy and Environment Program at ISB

Auctions for wind energy have the potential to bring down the costs of wind energy in India. However, these auctions have not happened due to opposition from wind developers. This commentary explores the reasons behind this opposition and suggests ways to ensure effective and efficient wind deployment in India.

The promise of reverse auctions for wind energy

Reverse auctions for renewable energy, where developers bid on the discount they are willing to offer on a fixed tariff, are gaining popularity around the world, including California, Brazil, and South Africa . Auctions are not only efficient – i.e., in delivering the lowest cost – but also fair – i.e., in allocating capacity to developers without bias.

India has had successful experience with solar energy auctions. In the Jawaharlal Nehru National Solar Mission (JNNSM), the lowest bids have come down by approximately 60% compared to the fixed tariffs published by the Central Electricity Regulatory Commission (CERC) less than three years ago). This success suggests that India should use these auctions for other renewable technologies – in particular, for the dominant and established technology, wind – as well.

India is one of the leaders – in fact, fifth – in the world in terms of installed wind energy capacity, totaling approximately 18GW by the end of 2012. This capacity has come online with the help of state-level fixed tariffs and complementary federal incentives, such as Accelerated Depreciation (AD) as well as Generation Based Incentives (GBI).

However, these fixed tariffs, also known as preferential or feed-in tariffs, are typically determined by the government, which raises the risk of either rent seeking – i.e., creating windfall profits for developers that eventually get the projects – when the tariffs are too high or adverse selection – i.e., only high risk projects participating – when the tariffs are too low. Further, it can be argued that the government does not have the best market information and, therefore, due to this issue of asymmetric information, should not be in the business of setting market prices.

So, appropriately designed auctions, which allow for price discovery, given bidding by developers that have the best market information, appear like a good solution for the wind power industry as well.

The absence of reverse auctions for wind energy 

However, all attempts to hold auctions for wind energy in India have failed so far.

In 2012, Karnataka was the first state to attempt a wind energy auction. This wind energy auction was stalled due to a lawsuit asserting that the auction was in violation of the Electricity Act of 2003 which, though it allows states to announce preferential tariffs based on CERC’s recommendation, does not allow them to hold auctions.

This issue could be fixed only at by the central government which would need to issue appropriate guidelines according to the Electricity Act of 2003. Since the Karnataka lawsuit, the Ministry of New and Renewable Energy (MNRE) has come up with these guidelines; however, they cover all renewable energy sources, except wind energy.

Another state, Rajasthan, has also tried twice to do a wind energy auction, and has been stalled both times. The proposed wind energy auction towards the end of 2012 was cancelled due to pushback during consultations, on grounds similar to Karnataka . Rajasthan got around this obstacle by the Rajasthan Renewable Energy Corporation (RREC), an independent and clearly unbiased entity, getting a trading license. However, the second proposed auction, to be helped by RREC in June 2013, has again been stalled due to a lawsuit, alleging that wind energy auctions would cause a 47% plunge in turbine installations.

What is happening, and why?

The stalling of auctions has primarily been due to opposition from wind energy developers, via the Indian Wind Energy Association (INWEA). Therefore, it is tempting to assert that the main obstacle for holding wind auctions is the INWEA. However, to understand why, it is pertinent to investigate this matter in more detail.

The auctions have been stalled by INWEA under the legal framework; however, the reasons quoted by INWEA are that, in absence of the preferential tariffs, the risks for the developers are too high – in particular, the wind resource risk as well as the transmission interconnection risk. Another common refrain is that auctions don’t work in the long-term, due to the winner’s curse issue, where non-serious players bid aggressively, only to default later.

But, careful examination reveals that these issues with auctions don’t hold to careful scrutiny. Aren’t the risks quoted by INWEA typical risks borne by wind farm developers word-wide? And, doesn’t carefully designed pre-qualification criteria – e.g., resource assessment and transmission interconnection studies, such as in California Reverse Auction Mechanism (RAM)  – combined with bid-bonds – e.g., in JNNSM, which penalize non-performance, take care of the winner’s curse issue? In fact, recent auctions in Brazil, which combine these elements, have created widespread participation, and have brought the price of wind power down to grid party.

What is the real issue?

This requires examining the history of the wind energy development in India. The wind energy sector in India was jump started by the federal incentive, AD, which was complementary to state-level preferential tariffs, and allowed equity investors to claim depreciation tax benefits equaling 80% of the capital expenditure in the first year of a wind farm operation. AD attracted a lot of equity investors that were not even remotely connected to the wind energy business. This also enabled vertical integration in the wind industry, where wind turbine manufacturers, such as Suzlon and Enercon India, also became wind farm developers. A side effect of this market structure is that, except for these vertically integrated players, no one really knows the breakdown of the cost components in the wind energy supply chain. Further, this equity-model appears to have promoted installation of capacity, not generation. These issues were perhaps partially mitigated by an alternative, and mutually exclusive, federal incentive GBI, which provided an INR 0.5 subsidy per unit of generation and was targeted towards a different kind of wind energy developer, the independent power producer (IPP). This “IPP-model”, based on project finance principles, was also considered to be more efficient compared to the equity-model in terms of generation. However, based on our discussions with developers, the IPP producers have not had an easy time in India, given the stronghold of the vertically integrated players on critical resources, such as land with good wind resource.

Therefore, one should expect opposition to auctions, which would move towards discovering the real cost structure in the wind energy industry, in particular, by the proponents of the equity-model, such as Suzlon.

To make matters worse, both AD and GBI expired in the beginning of 2012. This has resulted in the wind power development slowing down considerably in India – from approximately 3 GW of installed capacity in 2011 to nearly half that in 2012, indicating the crucial role of these incentives. Though GBI has been reinstated in the 2013 budget, it is not clear whether it will recover its previous budgetary allocation. This policy uncertainty has further made INWEA extremely opposed to any other policy changes, such as auctions. Further, given their complementary nature, AD and GBI were bringing in different kind of investors. In absence of AD, it is not clear whether GBI, by itself, is capable of achieving the 12th plan target.

What should the government of India (GoI) do?

First, in the light of the 12th plan goal – installation of an additional 15 GW of capacity by 2017,  which is predicated on the installation of 3GW of wind capacity per year, a number based on wind capacity installation in year 2011, a year when both AD and GBI were active – it should ensure that, in order to attract investment, adequate subsidies are provided and that policy uncertainty is alleviated, so that investors are ensured a normal rate of return on their investments.

Complete elimination of federal subsidies would not work. GoI needs to recognize that the federal incentives were working in tandem with state-level incentives and, the expiry of federal subsidies, in absence of corresponding adjustments to state-level subsidies, is bound to have a negative impact on deployment. Therefore, this measure would require updating of state-level subsidies which, in order to compensate for the expired federal incentives, would potentially be higher than current levels. This may be hard to implement, given the poor financial condition of SEBs.

Thus, a more effective solution would be to use one (or both) of GBI and AD with innovative, and cost-effective, ways to provide federal subsidies – e.g., interest-rate subsidies, as suggested in our upcoming paper in Energy Policy, “Renewable deployment in India: Financing costs and implications for policy”.  In any case, it is necessary that this federal policy is not only certain but is also reasonably long-lived, so as to provide confidence to investors; otherwise, India will follow the path of the U.S., where the un-predictability of the Production Tax Credit (PTC) has resulted in boom-and-bust cycles for wind energy deployment .

Second, in addition to the provision of complementary federal subsidies, GoI should ensure that states eventually move to an auction based approach to procuring power. This would not only allow for price discovery for wind energy but, more importantly, allow for SEBs to procure wind energy in a cost-effective manner and, therefore, b e welfare maximizing. This will, of course, require design of auctions with appropriate pre-qualification criteria, such as wind resource assessment and transmission interconnection studies, as well as the use of bid-bonds. Under this case, GoI can even provide necessary assistance by creating nation-wide resource assessment studies, such as ones provided by the National Renewable Energy Laboratory (NREL) in the US – e.g., via the Center for Wind Energy Technology (CWET).

Posted in Energy, Public Policy, Regulations | Tagged , , , , , , , , , , , | Comments Off

Who would have thought pencil making has secrets?
avatar

The short story in New York Times about Faber Castell makes one think. There are secrets to pencil making! And it takes a week to make one. This company in its 252nd year of existence across eight generations seems to trumpet the victory of manufacturing excellence over competition and changing tastes.

Posted in Uncategorized | Comments Off

Applying to ISB PGP 2014-15: Final Words
avatar

As Round 2 of the ISB PGP 2014-15 application season draws to a close on November 30, 2013, let me leave all our applicants with some final advice.

First of all, congratulations to those applicants from Round 1 who have received an offer of admission to ISB. I welcome you to the school and wish you the very best for the year ahead! From achieving your learning goals through classroom-based studies, interactions with faculty, applied learning and extracurricular activities, to campus life, international exposure, placement opportunities and finally joining the ISB alumni network, you are now boarding what we like to call the 51-week rollercoaster. So get ready, the year ahead is as challenging as it is exciting!

To those of you who did not receive an offer of admission this year, do not be disheartened. While many applicants do make it to ISB in their first attempt, a good number of admitted candidates every year are reapplicants from previous years who learnt from their application mistakes, worked on their weaknesses, showed great perseverance and built a strong case for why they should be part of the programme. So, if you believe that business education and ISB can help you build a stellar career, there’s nothing to stop you from going after what you want. Get back to the basics, figure out your next steps, work towards your goals and ensure that the coming year is going to be a phenomenal one for you. And when you’re ready, we’d like to meet you again.

Those of you who are applying in Round 2 and are just a few days away from the deadline, you know what you need to do. Give it your all, make no compromises and give yourself the best chance possible. If you missed last week’s post, do take a look at it for some useful tips on submitting your application. You are also advised to start preparing for interviews as early as possible.

To our international applicants: People say a year in B-school changes your life. People say a year in India changes your life. So are you ready to spend a year in a B-school in India? These are once-in-a-lifetime opportunities, so don’t be afraid to explore (you can take the first step here). Deadline to change your life through ISB is Jan 15, 2015.

Early Entry Option (EEO) candidates, the value proposition to you is similar – get a head start on building a great career by making use of a very good opportunity available to you right now. You can apply now, impress us with your track record as well as potential, and reserve your seat immediately. Later, when you have gotten sufficient work experience and are most receptive to learning, come join the rest of your class. Your deadline to apply to EEO is January 15, 2014. If you haven’t started your preparation already, now is the time to do so.

Dear readers, this concludes our conversations on this blog about the ISB PGP 2014-15 R1 and R2 application cycles, but you are always welcome to connect with my team and me through our traditional channels, as well as through social media. Whether you are joining the Indian School of Business family immediately, a little later in the future or not at all, I wish you great success in all your endeavours, and I encourage you to always keep learning.

All the best!

Posted in Uncategorized | Tagged , , , , , , , , , , , , | Comments Off

Rolling like a coin: the evolution of money down the ages
avatar

by

Nupur Pavan Bang1

This book review was first published in The Hindu on November 26, 2013

http://www.thehindu.com/todays-paper/tp-business/rolling-like-a-coin-the-evolution-of-money-down-the-ages/article5391773.ece

Easy money Easy Money: Vivek Kaul

Sage Publications India Pvt. Ltd.

B 1/I-1, Mohan Cooperative Industrial Area,

Mathura Road, New Delhi-110044

Rs 395

 

I wish somebody had told me these things when I was a student of Finance and while I was pursuing a PhD in finance. I would have had a much better perspective of how and why things work (or don’t) the way they do! That’s the first thought that came to my mind when I read the first book of the trilogy tracing the evolution of money.

The second thought was that this indigenous writer has written a book which is truly global in every sense. I would take the liberty of placing him in the same league as a Niall Ferguson or a Peter Bernstein, even though this is Vivek Kaul’s first book.

We have heard of many college dropouts who have gone on to become billionaires. Here is an example of a PhD dropout, who it seems, is on the path to becoming a best-seller and an authority on Money, its evolution, regulation and consequences.

‘Easy Money’ published by Sage Publications takes us through the era when anything and everything was treated as money in some or the other part of the world. From salt, to dried cod, cowry shells to cattles and even slaves! Going as long back as the 12th century BC, the book chalks the path for evolution of Gold as money by meticulously laying forth the problems with alternatives and with having too many different money types.

There are many interesting facts throughout the book. It is fascinating to know that it was the Chinese who first started using coins and that they “believed that money is meant to roll around the world, and so it should be round”. That the Chinese thought of this in the 12th century BC is fascinating.

The depreciation of the currency, or debasement, as it was known in the early centuries of the Christian era, and practised by reducing the metal content in the coins, eerily echoes the concept of printing more and more paper money to meet expenses, whereby ‘money’ systematically loses value.

From barter to commodities as money to paper money and then the evolution of the banking system, the journey has lessons, as highlighted by the author in the conclusion, that all regulators would do well to imbibe. Wildcat banking, free banking, bailing out institutions existed centuries ago as well. But we have not learnt from history and hence history repeats itself.

Kaul weaves together stories from Egypt, China, India, Rome, USA and UK effortlessly, as also he does with Marco Polo, Leonardo Fibonacci, Kublai Khan and the kings of the United Kingdom. He explains the evolution of concepts like ‘settlement’ and ‘bill of exchange’ through simple examples which make the book highly readable by even those who do not have a basic degree in Finance, Accounting or Economics. The research is thorough, language simple, stories fascinating. Everyone should read it.
 
[1] Senior Researcher, Centre for Investment, Indian School of Business, Hyderabad (Nupur_bang@isb.edu.)

Posted in Interview, Macro Economy | Tagged , , , , , | Comments Off

A parliamentary budget office for India
avatar

By Kaushiki Sanyal, Senior Analyst, Bharti Institute of Public Policy and Sruti Bandopadhyay, Independent Researcher based in Washington D.C.

This article was first published in the Mint on November 20, 2013

At a time when India is going through an economic slow down, it seems counter-intuitive to enact legislation such as the National Food Security Law or continue to dole out subsidies that end up benefiting rich farmers. One reason for these economically questionable actions is the political dividend that parties hope to reap. However, there may be other reasons at work—the lack of understanding among parliamentarians of far-reaching economic impact of government policies. This has grave consequences for a parliamentary democracy where financial oversight is one of the key functions of a legislator. It may also explain to some extent the relative lack of debate on fiscal matters in Parliament.

Data released by PRS Legislative Research since 2000 shows that Lok Sabha has not spent more than 45% of its time discussing the budget. In 2013, Parliament did not discuss the budgetary proposals of any ministry (demand for grants). All were “guillotined” i.e., put to vote without any discussion. In case of Bills, the debate hardly ever goes into their fiscal implications. Financial memoranda of Bills only provide the estimated expenditure at the Union level. For example, the Right to Education Bill, 2008, which required the government to reimburse unaided schools for expenditure on every child, did not provide any estimate for this purpose. The Food Safety and Standards Bill, 2005, only budgeted for setting up the Food Safety and Standards Authority of India. It did not specify whether the cost of implementing this law would be different from the existing system, nor did it account for the enforcement costs to be borne by state governments.

What is holding back members of Parliament (MP) from questioning the executive on fiscal matters? The problem may be lack of expertise among MPs and lack of access to objective and high-quality research that is independent of the executive. Unfortunately, MPs in India do not have a staff of high quality researchers (unlike in other developed democracies) to help them gain expertise in budgetary matters. The institutional research support within Parliament such as a library and reference service is limited due to resource constraints, nor are their research products available readily in the public domain.

A remedy for this may be the establishment of a parliamentary budget office (PBO) in India—a common feature across many countries ranging from developed democracies such as the US, the UK, Canada, Australia, Korea, to Hungary, Uganda, Kenya, Thailand and Bangladesh. PBOs provide legislators with high-quality analysis that is independent of the executive. They specialize in objective and policy neutral analysis on the full budget cycle, the broad fiscal challenges facing the government, budgetary trade-offs and the financial implications of legislative proposals. Such research can raise the quality of debate and scrutiny in Parliament as well as enhance fiscal discipline. Most importantly, it strengthens the role of Parliament in financial oversight.

The key challenges faced by any country that establishes a PBO are threefold—guaranteeing independence and viability of the office in the long-run; ability to carry out truly independent analysis; and demonstrating impact. Countries have adopted different models to suit their specific needs.

The degree of independence of the PBOs varies across countries—in the US, Korea, Uganda, Kenya, Canada and Australia, PBOs fall within the jurisdiction of the parliament, while in Sweden and the UK, it is under the executive. India will need to ensure the independence and non-partisanship of such a body for it to have credibility with legislators. This may best be done if it is established as a statutory body reporting directly to Parliament. A clear set of deliverables may be desirable.

The functions of the PBOs may differ too. For example, the US Congressional Budget Office (CBO) provides information on economic outlook, cost estimates of specific legislative proposals, long-term budget outlook etc. The Canadian PBO provides independent budget projections, fiscal sustainability report, and financial analysis of Bills. In Uganda and Kenya, PBOs exclusively cater to requests from committees while Canada carries out service requests from individual MPs but ranks them below committee requests in terms of importance. The US services requests from committees as well as individual legislators. The UK also caters to individual MPs. It may be worth it in terms of strengthening the legislature if the Indian Parliament were to invest in a well-funded, professionally-run PBO that would cater to both individual MPs and committees.

Has there been any discernable improvement in fiscal oversight in countries which have established PBOs? This is a difficult question to answer given the complexity of policy-making. However, there are some encouraging results. The Canadian PBO contested the true cost of the war in Afghanistan and most famously, exposed the real cost of the government’s proposed F-35 fighter jet procurement. In the US, the CBO focuses on costing or scoring legislative proposals relative to the baseline. This has helped discourage Congress from making unaffordable proposals. In Australia, the PBO does a costing of different political parties’ electoral manifestos, which can discourage unaffordable election commitments.

India will surely benefit from an institutional mechanism that strengthens the capacity of the legislature to hold the executive responsible in financial matters.

It is important to understand that a PBO can only provide independent research; it certainly cannot prevent executives from taking bad fiscal decisions.

Posted in Budget, Institution, Law, Political | Tagged , , , , , , , , | Comments Off

Applying to ISB PGP: Submitting your Application – Round 2
avatar

With just over a week to go for the Round 2 deadline in the ISB PGP 2014-15 application cycle, I’m sure the activity level among our applicants is at a peak. Those who were not ready to submit before the Round 1 application deadline could always opt to apply in Round 2, but those applying now have no such safety net; you need to be disciplined about preparing and submitting your final application within the stipulated time period. To ensure that you are on top of everything, I strongly suggest that you go through the application checklist and pointers shared during the Round 1 application cycle. This is important.

In addition to finalising your application, my suggestion is that you start working on additional tasks that have a shorter buffer this time around, as compared to Round 1:

  1. Documents Although we do not require documents like marks cards, degree certificates, offer letters, etc to be uploaded at the time of submitting the application, you will be required to upload them if you receive an interview call. So if you do not have them with you and need to collect them from different locations like your home, college, previous workplace, etc, please arrange for this to be done now. The full list of required documents is available in the application portal.
  2. Evaluators – If you have not identified who your evaluators are going to be, identify them now. Remember, they too have a busy schedule and need time to fill in the evaluation form. It is not necessary for the evaluation to come in before or on the deadline of the application. All that a candidate needs to do is identify the evaluators in the space provided in the application portal and submit the details. Once that is done, the candidate can complete the application in all other respects and submit it.
  3. Interview preparation – Ensure that your essays and application represent you accurately. We will be going through them in great detail and they are likely to play a central role in your interview, should you be shortlisted for it. It may also be a good idea to get started on your interview preparation at this time. Here are some tips on preparing for the interview.
  4. Transition preparation – In the event that you get an offer of admission to ISB in Round 2, you will have limited time to prepare for the transition. So it would be in your best interest to give some thought to the possible transition to a new life and lifestyle, and perhaps discuss the implications with those who are likely to be affected by such a move.

If you have already prepared a strong application and are confident about your profile, get ready for the next phase in the application cycle. If not, you still have time (albeit, limited) to put in the necessary effort to change the course of your life. The next 10 days are crucial and represent the home stretch. Now is the time to give it your all, leave no stone unturned, and make the most compelling statement you possibly can. And if you need any help along the way, do not hesitate to contact us.

All the best!

Posted in Uncategorized | Tagged , , , , , | Comments Off

Application Tips for Reapplicants to ISB PGP
avatar

In the ISB PGP application pool, we get a large number of re-applicants who have unsuccessfully applied to ISB once or more before. This is a key demographic for us and we value these candidates greatly, simply because they persevere when others in similar situations don’t.

There may be several reasons for not making it through ISB’s admissions process in the first attempt. Many may have applied in the previous year even though they had not spent enough time to build and present their most compelling argument. Or they may not have done sufficient homework to understand what the school looks for in prospective candidates. Perhaps they may not have been ready for business education at that time, and that came through in their application or interview. It is even possible (and is often the case) that they may have done everything right and submitted a great application, but may not have made the cut in a very competitive application pool. Whatever the reason, a candidate’s unsuccessful attempt can sometimes discourages him/her from reapplying to ISB next year, and may even lead to dropping the idea of going to B-school altogether. For those who do reapply, however, not getting an acceptance letter from ISB becomes a source of motivation to improve themselves, find out what needs to be done to make it next year, and then put in the necessary effort to get that letter. These are the candidates we seek.

So if you are keen on making it to ISB and have decided to reapply in spite of being unsuccessful previously, here are some of the things you can do to improve your chances this year:

  1. Identify what was lacking – Ideally, you did this exercise soon after learning that you did not get an offer of admission. While we may not provide point by point feedback, when you request for a feedback on your application, we do give detailed pointers on how to prepare a good application. For those who have been interviewed, it would be a good idea to work on presenting oneself better at interviews. We will try and provide inputs to everyone who seeks them, but sometimes it may not be possible to respond to all requests. Even then, share your application with friends, alumni, colleagues, mentors, admissions experts, etc. and figure out where you need to improve.
  2. Figure out your purpose – If your previous attempt failed to make a convincing argument, it could be because you yourself were not very clear about why you needed to go to B-school. Ask yourself, should you go to B-school? The answer might provide the clarity, direction and conviction you need.
  3. Showcase your strengths – By now, you must have realised that ISB focuses on applicants’ strengths rather than weaknesses. Strengths demonstrate to us that you are capable of becoming very good at things you take up (or at least, some of the things). So understand your strengths and differentiators, highlight them in your essays, and present your case better the next time.
  4. Be honest about your weaknesses – This is related to the previous point. While we focus on strengths, we also acknowledge that all our applicants have some areas where they need to improve. If not, why would they even need to come to B-school? In fact, you will notice from our online application portal that we do not ask about candidates’ weakness anywhere in the application. So do not be unnecessarily nervous about any weakness. Instead, understand it, figure out how ISB can help you address it, and communicate that to us clearly. If there are areas where you have proactively taken steps to overcome a weakness, we’d love to hear about them and also the results of such actions.
  5. Focus on improvement made since your last application – This is something that we do not compromise on. Once you have applied to ISB but not made it, you know that there is work to be done. You need to show us how much effort you have put in over the last year to improve yourself and what results you have achieved. In fact, there is one full essay dedicated only to this, and it is mandatory for reapplicants. You should also highlight any awards and achievements received. We will be looking at all this in the context of your previous application.
  6. Finally, prepare and present a strong case for why you should be part of the next PGP class. I have blogged in detail about several different aspects of the application procedure, so you have a great amount of information available at your fingertips. You can get started here.

In conclusion, my advice to you is this: If you have applied to ISB PGP before and not made it, do not lose heart. It is an opportunity to demonstrate perseverance and a never-say-die attitude. We value those candidates who can show tenacity and stay in the game long enough to succeed. So understand your strengths and weaknesses, put in the necessary effort to make critical changes, and be smart about putting your best foot forward. In fact, this is exactly what will be expected of you when doing business in the real world too.

All the best!

Posted in Uncategorized | Comments Off

Creating Value through Visuals
avatar

Visuals-BlurbVisual Web                                                       Just a picture? Think again. In this article, Professor Jonathan Schroeder who is currently at the Rochester Institute of Technology, and was formerly Visiting Faculty at ISB, unravels the complex webs of perception, history and meaning that go into helping images speak a thousand words.

Questions and Connections
Web design has brought visual issues into the mainstream of strategic thinking, and spurred research and thinking about perception and preference for visual information. Variously referred to as the attention economy, the aesthetic economy, and the experience economy, this visual turn in marketing may call for new perspectives and research approaches – how do images communicate? In what ways do images create value? How does the handling of images in the allied fields of visual studies, art history, and photography shed light on the relationships between visual culture, marketing and consumption?

Image saturation?
From a consumer’s perspective, visual experiences dominate the web, as they navigate through a computer-mediated environment, almost entirely dependent upon their sense of sight. Photography, including digital, film and video – which remains a key component of many information technologies, and digital incorporation of scanned photographic images – helped transform the Internet into the visually-rich environment of the World Wide Web. Today, we live in a photography saturated world.

Information Processing or Visual Culture?
Viewers make sense of visual images in numerous ways, some of which are automatic or without awareness. For example, cognitive, as well as physiological, processes govern eye-movement, attention, and awareness. Perceptual codes influence visual information-processing.

The visual culture approach reveals limitations in an information-processing model of consumer research, in which culture, history, and style are attenuated. For example, the “white space” of many advertising, promotional and website images – the blank background, neutral surround, or white studio backdrop – does not neatly fit into cognitive models. In contrast, critical visual analysis helps point out how white space imbues images with meaning and its use links images to a broader cultural world of aesthetics, luxury, and value.

History of Images
A key element of critical visual analysis often entails constructing a visual genealogy of contemporary images, to contextualise and historicise them, and point to the cultural domain of contemporary visual consumption. Historical conventions shape communication. This does not imply that all consumers read images in the same way, but, rather that each image carries with it a historical and cultural genealogy that helps us understand how it produces, reflects, and initiates meaning.

To fully understand brands, managers must appreciate the cultural, historical and representational conventions that shape brand communication. If brands exist as cultural, ideological, and rhetorical objects, then brand managers require tools to understand culture, rhetoric, and ideology in conjunction with more typical branding concepts, such as equity, strategy, and value.

Brand-making and Meaning-making
Understanding the role that visual culture plays in consumer preference, cultural production, and value creation, signals a step toward understanding how images inform and influence basic consumer issues of attention, branding, identity, and meaning-making.

This post is an extract from the original article which was published as “Creating Value through Visuals” by Jonathan Schroeder, ISBInsight, June 2007, pp 44-45. 

Click here to download the full articleCreating Value Through Visuals

Posted in From the archives | Tagged , , , | Comments Off

A Consultant’s Perspective
avatar

Consulting-blurbThe Indian School of Business (ISB) Leadership Summit (ILS) 2013, an annual two day conclave conducted by the Post Graduate Programme in Management, was held at the ISB’s Hyderabad campus on November 8th and 9th.

The conclave organized by the Consulting Club at ISB addressed the issue ‘Is Implementation the Real Deal’? The discussion was illustrated by insights from a distinguished panel of speakers including Vinay Raghunath, Managing Director, Accenture, Naresh Raisinghani, CEO and Executive Director, BMG India, Kamesh Mullapudi, Director (Strategy and Operations), Deloitte and Satyashri Mohanty, Founder and Managing Director, Vector Consulting.

Raghunath initiated the proceedings by pointing out the different roles a consulting firm dons in designing solutions for clients. In the first scenario, the consultant is confined to the design and development of solutions. A second scenario entails running a pilot to test the robustness of the solution concept. In this case, the consultant runs a test on a small representative sample, and suggests necessary changes only if the pilot is successful. In the third situation, the consultant is involved in all the aforementioned steps, and takes a lead in implementing the changes as well. Thus in forging a relationship, there is a greater commitment from the client in adopting the consultant’s recommendations and benefiting from the value added to the bottom line. In underscoring the importance of end results, Raghunath pointed out that implementation by a consulting firm should translate into a set of clear, trusted and proven deliverables.

The next panelist, Raisinghani dwelled on the importance of close collaboration with the client in delivering breakthrough results. Citing cases from BMG India’s own experiences, he detailed the evolution of their client results-based framework. The framework comprises three aspects: providing an efficient and executable solution, aiding change management in the face of opposition and finally effectively implementing the solution. Raisinghani ended his presentation by drawing the essential link between participative clients and designing integrated solutions for them in realizing the desired transformation.

The third speaker at the conclave focused on the issue of “delivering executable strategy”. In framing requirements within the mergers and acquisition space, Mullapudi drew upon multiple cases to illustrate the need to understand the nuances of different cultures, associations and intra-company networks shared by firms before devising strategies to synchronize their synergies. In explaining Deloitte’s approach to the execution of strategy, Mullapudi provided an army analogy. Depending on the problem, and in anticipation of the course of action, Deloitte has the capability to provide either a “sharp shooter” for a precise domain or department-level solution or a “battalion” for a firm-level transformation. Mullapudi also emphasized on the importance of building trust with the client.

The final speaker of the conclave, Mohanty, also a certified Theory of Constraints (ToC) expert, spoke about the necessity of clients staying the course with respect to their core business, despite the complexities of change. He explained that the client had to be assured of a strategy’s effectiveness in the post-implementation period and the importance of adopting and augmenting certain fundamental processes that would eventually bring about greater operational efficiencies. Mohanty pointed out that the ultimate responsibility for strengthening the client’s competitive advantage rested with the clients themselves.

The conclave wrapped up with a quick question and answer session. The panelists noted resistance to change but suggested that each little incremental step should demonstrate significant value addition to the original process.

The Consulting Club conclave was organised as part of the ISB Leadership Summit 2013 on November 8 and 9, 2013.

Uma Ganti of the PGP Class of 2014 compiled this post for ISBInsight.

Posted in Knowledge Session | Tagged , , , , | Comments Off

The Four Challenges of Leadership
avatar

LeadershipAccording to Ronald Heifetz and Marty Linsky, authors of “Leadership on the Line”, leadership is fundamentally about changing the way in which people think and act. In a study by Professor S Ramnarayan on how managers and organisations confront complexity and uncertainty, he corroborates that changing mindsets is indeed a challenging task. He identifies four roles that leaders need to play in today’s organisations- as cognitive tuner, people catalyser, efficacy builder and systems architect. In examining these four roles Ramnarayan proposes that leadership failures occur when one or more of the roles are not performed effectively. 

Peter Drucker, considered the father of modern management, once wrote that all the effective leaders he had encountered did not start out with the question, “What do I want?” They started out asking, “What needs to be done?” They then asked, “What can I do, and should I do to make a difference?” Drucker argued that leadership does not refer to rank, privileges, titles or money; it is responsibility. Ronald Heifetz and Marty Linsky, authors of “Leadership on the Line”, express a similar viewpoint. They note that leadership involves getting people to own and engage with difficult problems facing the organisation. Tackling major challenges requires bringing about changes in people’s values, beliefs, habits, ways of working, and ways of life.

We have studied how managers and organisations confront the complexity and uncertainty posed by these issues in the global context, and found that changing mindsets is indeed a challenging task. Our inquiry has shown that there are four main challenges that are crucial to the leader’s success as a navigator through the rocky process of altering mindsets. We identified four roles that leaders need to play in today’s organisations. Leadership failures occur when one or more of the above roles are not performed effectively. Let us examine each of these roles in detail.

Leader as Cognitive Tuner                                                                                                               A key leadership challenge is to ensure that all such factors are visualised, and considered, before the direction is concretised in terms of specific sub-goals and tasks. When people are able to visualize both the larger picture, and their assigned tasks, they become hopeful, optimistic and committed to the transformation process. This challenge has been termed as cognitive tuning because it is largely a process of reflection, analysis and thinking. Cognitive tuning occurs through the medium of dialogue and conversations. Leaders must, therefore be skilled in initiating dialogue to both understand prevailing mindsets, and to make people aware of their mindsets.

Leader as People Catalyser                                                                                                             Change involves a long and difficult journey, and managers need to listen to diverse views, keep making changes in a variety of settings, and keep up the momentum of the change campaign. An important set of leadership challenges pertain to: building supportive coalitions; evaluating the interests of people whose support is needed; altering people’s incentives for change; framing and crafting the message in a way that evokes support; instituting a process that is open, transparent and inclusive; consulting as widely as possible before making a decision; attending to the timing issue; and sustaining the momentum as mobilising is not a onetime activity. This requires a blend of logic, emotions and values.

Leader as Systems Architect                                                                                                           A key leadership challenge is to facilitate modification of mindsets by attending to four requirements: exposing people to alternative perspectives; enabling people from different functions to work together; identifying and removing roadblocks to modifying existing routines; and creating new routines to focus the organisation’s attention on continuous improvement. Leadership establishes a context that facilitates these four requirements. This is done by creating an appropriate architecture that is made up of roles, responsibilities, systems and procedures. We refer to this important leadership role as that of a systems architect.

Leader as Efficacy Builder                                                                                                                 Self-efficacy refers to the confidence an individual has in his or her ability to achieve challenging goals. A high level of self-efficacy makes it easy for individuals to learn new things because they experience less learning anxiety. As we have noted, the subjective world and mindsets of organizational members determine what they see and how they would think and act. The leadership role of fostering a positive belief in people that they can face the challenges of change and overcome them has been termed as ‘efficacy builder’ role. To build self-efficacy, leaders enhance the aspirations of people to face challenging tasks. In short, they structure opportunities for people to set challenging goals and achieve them.

Managing organisations in the current global environment is a complex challenge that requires sophisticated solutions. Our organisations can effectively meet this challenge by viewing leadership as a multifaceted task of cognitive tuning, people catalysing, architecting effective systems and building efficacy of the people in the organisation.

This post is an extract from the original article which was published as “The Four Challenges of Leadership” by S Ramnarayan, ISBInsight, December 2006, pp 6-9. 

Click here to download the full article- The Four Challenges of Leadership

 

Posted in From the archives | Tagged , , , , , , | Comments Off

Applying to ISB PGP in Round 2
avatar

Each year, applicants have to take a call between applying in Round 1 Vs Round 2. For a particular individual, any number of reasons could make it better to apply in one round than in the other.

There are some advantages of applying in Round 1. For example, getting an offer of admission early gives applicants more time to get prepared for the changes coming up – planning the resignation from their job and handing over responsibilities, terminating home lease, making travel arrangements, organising finances, looking for a new job for the spouse in the new city, looking for good schools for kids in the new city, etc. It also allows them to take a break before joining the programme. Travel seems to be a popular option with many of the students admitted in Round 1. Even in the case where one doesn’t receive an offer of admission, it still helps to know it early so that they can get a head start on addressing any weaknesses in their profile before reapplying next year.

Applying in Round 2 has its own unique set of advantages:

  1. More time is available to evaluate options and figure out if B-school is the right avenue for improving your careers (Related: Should You Go to B-school?). If the choice to go to B-school has already been made, then you may use the time to decide on which schools and programmes would be right for you (Related: Studying at ISB Vs Studying Abroad).
  2. If you are ready to apply, the additional time gained by applying in Round 2 can help you prepare and submit a stronger application:
    1. You may be completing an important assignment shortly, which would go towards improving your overall profile and ability to add value to class discussions.
    2. A significant increase in responsibility through a promotion or profile change could be on the horizon and you can showcase that in your application.
    3. If you are not happy with your GMAT score, you can try and improve your score. Note that for those who have taken GMAT more than once, we consider only the best score while evaluating applications.
    4. You can use the additional time to complete any certifications or courses that you had taken up.
    5. Most importantly, submitting in Round 2 allows you to iterate a little more on your application and articulate your story better through essays, CV, etc. Get friends and colleagues to review them, incorporate helpful feedback and try to present a stronger application.
  3. Applying in Round 2 allows you more insights into the application process. You can benefit from the greater collective intelligence of the community, which has had a few extra months to analyze the procedure, essay questions, etc for the year. Input from Round 1 applicants about their experience is also something that you may find very useful.
  4. And finally, if you had other engagements or business travel during Round 1 and couldn’t really concentrate on your application effort, Round 2 gives you another opportunity to apply to B-school and take the next step towards improving your career. Make the most of it and put your best foot forward.

At this point let me make it clear that submitting your application in Round 2 has, by itself,  no effect on your likelihood of acceptance. For e.g., one myth is that most seats are filled up in Round 1, leaving very little for Round 2 applicants. Another common myth is that the number of applications is lesser in Round 2 and hence admissions are less competitive than in Round 1. I assure you that both of these are incorrect. We see a similar mix of students applying in both the rounds, and the number of offers made in each round is kept proportional to the number of applications received, guided by historical data and prevailing trends. So applying in a particular round, by itself, will neither improve nor hurt your chances of admission.

To those of you who were considering applying in Round 1 but decided to submit your applications in Round 2 instead, congratulations! You have rightly followed the first rule of submitting a winning application – “Apply when you are ready.”

All the best!

Posted in Uncategorized | Tagged , , | Comments Off

Let the public participate
avatar

Given the failure of many government legislations in achieving the objectives for which they were formulated, a case for institutionalising deeper public consultations in the legislative process has been made in the recent past. Currently, there are four entry points where citizens can participate in the legislative process: first, the identifying stage; second, the drafting stage; third, the legislative stage; and fourth, the post-legislative stage.

Civil society organisations can alert the government to the need for a particular legislation or changes in an existing law. The Mazdoor Kisan Shakti Sangathan, a farmers and workers group, ran a successful campaign for a Right to Information law, which was finally enacted in 2005. The recent anti-corruption agitation led to the introduction of a Lokpal Bill currently pending in the Rajya Sabha. The long-running Right to Food campaign by a network of NGOs has been instrumental in raising awareness about chronic hunger and the eventual introduction of the National Food Security Bill in 2011.

The government can also suo moto decide that a law is required in a particular sector. It may get inputs from specialised bodies such as the National Human Rights Commission and the Law Commission or appoint a group to study a sector and draft a law. These groups or bodies may hold consultations with independent experts and stakeholders. Furthermore, an individual Member of Parliament (MP) can also introduce a Bill in either House. This is known as a Private Member’s Bill (for example, Lok Sabha MP, Kalikesh Singh Deo introduced the Disclosure of Lobbying Activities Bill in 2013 to regulate lobbying activities). Although these are generally never passed, they act as signalling devices to the government, which may introduce its own legislation on the subject. It is possible for the public to approach their constituency representatives to advocate for a particular law.

Government Bills are drafted by the concerned ministry, which is then vetted by other ministries. There are also times when the government approaches an independent expert to draft a law. Recently, it appointed the Financial Sector Legislative Reforms Commission, under the chairmanship of Justice BN Srikrishna to reform the financial sector laws.

The government may publish the draft legislation in the public domain for feedback. Drafts of the Electronic Service Delivery Bill, the National Sports Bill and the Land Acquisition and Resettlement Bill were published for a specified time period (generally 20-30 days). It may also circulate the draft among a select set of stakeholders for comments.  An individual MP may solicit public feedback on his Private Member Legislation. For example, Biju Janata Dal, MP Baijayant Panda uses his personal website and social media tools such as Facebook to publicise the draft of his private member bills.

There are few avenues of public engagement once the Bill is introduced in the Parliament. Since 1993, 24 Department-related Standing Committees (DRSCs) were formed to scrutinise Bills and other policies of the Government (before 1993 Bills were sometimes referred to ad-hoc committees for scrutiny). Generally most Bills are referred to these DRSCs, however, the presiding officer of the House has the discretion not to do so. For instance, key Bills such as the Special Economic Zones Bill, 2005 and the National Investigation Agency Bill, 2008 were not referred to a DRSC. In contrast, the Lokpal Bill passed by the Lok Sabha was sent to a Select Committee by the Rajya Sabha although it had been examined by the DRSC.

These DRSCs may solicit feedback from the public by issuing notices in key newspapers and the Gazette of India. The public comments are also tabled in the form of a report. However, the level of public engagement varies with different Bills. For instance, the DRSC scrutinising the Companies Bill, 2009 received 101 comments while only 10 submissions were received for the Armed Forces Tribunal (Amendment) Bill, 2012.

The government is not bound to accept the recommendations of the DRSC but individual MPs may introduce amendments to the Bill when it is being considered by the House. The MP may suggest amendments based on the DRSC’s suggestions or any public feedback.

Once Bills are enacted, ministries draft and notify Rules (also known as subordinate legislation) to enable their implementation. These Rules may be scrutinised by the Subordinate Legislation Committee, which is empowered to seek public feedback.

Post legislative scrutiny of laws is not mandatory in India. It may however be undertaken by bodies such as the Law Commission of India, the DRSCs or a specific commission appointed for the purpose who may hold public consultations. Recently, rape laws were reviewed by the Justice Verma Committee before an Ordinance was promulgated on the matter.

Many other democracies have devised meaningful ways to encourage public participation in the legislative process. In countries such as the UK, Australia and South Africa, it is mandatory to hold public consultations or publish draft Bills for comments. In fact, in South Africa it is a constitutionally mandated provision. In the UK, the Government publishes Green Paper and White Paper, which sets out its central ideas on the Bill. After introduction, it is compulsory to refer a Bill to a committee in the UK and the US. However, there is no such requirement in Australia, Canada and South Africa. Unlike in India and South Africa, it is mandatory for the Government in countries such as the UK, Australia and Canada to respond to the recommendations of the committee. While post legislative scrutiny in India is largely a matter of discretion of the Government, in the UK it is compulsory to do so within three to five years. In the US, legislative oversight committees review laws on a continuous basis. In Australia, most laws have to be reviewed within three years.  Public comments are also solicited during the post-legislative scrutiny.

India can learn from the experience of these countries and tailor them to suit our requirements. There are many ways in which the government can deepen public engagement in the legislative process.

First, ministries can be mandatorily required to publish the draft Bill for a reasonable time and publicise it through different media. Along with the draft Bill, the ministry may be required to include available background information on the subject and facilitate access to legal and legislative record on the matter.

Second, it should be compulsory to refer a Bill to a DRSC or select committee for scrutiny. This could be at both the pre-legislative stage and the legislative stage.  These committees should be required to hold wide consultations with a variety of stakeholders (NGOs, state and local governments, special interest groups, academics and legal experts). Public participation may be facilitated by increasing access to constituency offices, using a variety of media outlets to publicise the Bill and creating public participation offices that can interface with the public.

Third, in order to increase transparency in the feedback process, the government could be required to publish a report demonstrating how the inputs from stakeholders have been considered while formulating the law.

Fourth, most Acts should be subject to a post legislative scrutiny through public engagement every three to five years.  This could be carried out if each Bill includes an Explanatory Note giving the criteria or outcomes by which the Bill could be judged for effectiveness.  This responsibility could be given to a specialised committee.

Such measures will result in robust legislations, which shall need lesser amendments and will be successful in achieving the objective with which that legislation was enacted.

This article was first published in Pragati on May 3, 2013.

Posted in Law, Public Policy, Regulations | Tagged , , , , , , , , , | Comments Off

Business and spirituality: Can they co-exist?
avatar

Business and SpiritualityMost people would believe that practicing spirituality in business is a sure road to failure. However in recent times, the belief in combining spirituality and business practices is becoming commonplace. This is evident in the explosion of articles on workplace spirituality, clubs and organisations working for this goal, and the myriad of coaches available to preach spiritual practices for the workplace. Psychotherapist, Swati Desai explores the question: is it possible to mix spirituality and a successful business career? The answer she proposes  is: “absolutely”.  

What is spirituality in the corporate world? A common meaning of spirituality is to involve oneself in activities that renew, lift up, comfort, heal and inspire both ourselves and those with whom we interact. Lifting up refers to going beyond the worldly things and going closer to a higher purpose. Often enough, spirituality is associated with religious practices that are meant for putting a person in touch with the Higher Power.

There are two major conflicts that arise with this definition and business practices. The first conflict comes with the expectation of going beyond “worldly things” while for profit businesses are supposed to be all about amassing wealth. The second conflict comes in with the implication of lifting up others which goes against the selfish and aggressive personality traits typically associated with successful corporate executives.    

Some CEOs reflect their spirituality in their wish to discover the purpose of life, the passion in work. So does any prescription for spiritual bliss. Deepak Chopra, Osho, or any new age Guru, all attest that we are all born with a purpose and once that purpose is found then the deeper meaning and getting in touch with God in us follows.

Some leaders derive their meaning in their work in the same way as a messiah would. A managing director of a company with 30,000 employees said that what gives him a spiritual experience in his work is the fact that he can influence the values and ethics of so many people. The money and the personal power are secondary.

Beyond mixing spirituality and business, the next step is to use the spiritual messages to make the business more successful by providing more meaning to the employees.

This post is an extract from the original article which was published as “Business and spirituality: Can they co-exist?” by Swati Desai, ISBInsight, June 2005, pp 34-35.

Click here to download the full article- Business and Spirituality: Can they co-exist ?

Posted in From the archives | Tagged , , | Comments Off

Coal block allotment: Getting the auctions right
avatar

Rajesh ChakrabartiHow can auctions help in allocating national resources in an optimal and efficient manner? Professor Rajesh Chakrabarti, Executive Director, Bharti Institute of Public Policy, ISB addresses key concerns and explores experiences from the international scenario. 

The current controversy over the coal block allotment is perhaps the latest and one of the most sordid examples of inefficient allocation of national resources, but the malaise is hardly new.

In fact, in an interview back in 2010, Raghuram Rajan had identified favoured allocation of resources as the driving force behind the fortunes of many billionaires in India – a nation that ranked second only to Russia in terms of the number of billionaires per trillion dollar of GDP.

How then to best allocate national resources – mining rights and telecommunication spectrum – in an efficient manner? Auctions come to mind immediately as competitive and transparent mechanisms of allocating resources. They allocate resources to the highest valuer, ensuring both socially most productive allocation as well as maximum revenue gathering by the exchequer.

Still a Surprise Element                                                                                                                   But governments around the world have long used auctions to allocate resources and yet the mechanism has at times thrown nasty surprises. Auctions can be of several types and the success of the mechanism depends critically on its design.

Take, for instance, the 3G spectrum auction in six European countries in 2000. While in UK and Germany, the auction yielded prices over 600 per person, in Switzerland, the yield came to only 20, about 5% of the predicted value. In 1999, in Germany, as spectrum was being auctioned in 10 blocks, Mannesman and T-Mobile colluded to split the spectrum between themselves, each picking up half the offering at a very low price.

A successful allocation mechanism should ensure widespread participation, a prerequisite for competition. It should also prevent collusion so that each bidder reveals close to its true reserve price for the item or items being auctioned.

Sealed with a Dutch                                                                                                                       Broadly, auctions follow two formats: ascending, or “Anglo”, approach where an auctioneer keeps raising prices till there is only one bidder left (there is a descending version as well); and sealed-bid, or “Dutch”, auction where bids are simultaneously revealed. The former has the advantage of transparency, price discovery and revenue maximisation, but, in the presence of one or more “strong” players, may end up discouraging participation by smaller players, in the absence of which the supposed “stronger” player can get away with offering significantly less than what it truly values the resource at.

A mix of the two, “Anglo-Dutch”, is sometimes resorted to that runs the “Anglo” way till only two bidders are left in the fray, and then switches to “Dutch” with the floor of the last price of the Anglo auction.

Another deterrence for auctions is the infamous “winner’s curse”, referring to the fact that the actual winner is likely to be the party that has overvalued the resource the most. The issue is particularly significant when the resource being auctioned, like mining rights, whether land or offshore, is difficult to value. This is where valuation becomes critical.

“Common-value” resources like oil, that are valued pretty much the same way per unit by all parties, but whose supply per block is something each bidder is uncertain about, differ from “private-value” items to which bidders assign different values irrespective of the valuation given by others. The “winner’s curse” problem is strongest in the former.

Tailor-Made for Scam                                                                                                                       A standard solution to this problem is the “second-price” option where the highest bidder gets the resource but pays the next highest bidder’s bid. A common result: less hesitation to bid on the higher side. But even this can throw uncomfortable surprises. Consider the embarrassment of the New Zealand auctioneer – and the immediate suspicion of foul play had it been in a country like India – when a winner bidding NZ$7 million walked away paying the next highest price of NZ$5,000! Clearly, the presence of a reserve price is essential to avoid such situations.

While under certain, rather unrealistic assumptions, all major auction designs would yield the same results, in reality, the suitability of the design to the resource being auctioned, the nature of information about it and the nature of competition among bidders hold the key to the success of the auction process.

Then, one has to pay attention to other auctions as well. Turkey auctioned two mobile telephone licences in 2000; sequentially, with the condition that the price of the second auction could not fall short of the first. The result? The winner of the first auction bid (and paid) a price so high that it could never be worth with two rivals in competition. The second licence, naturally, went unclaimed!

Rules and punishments are not beyond question either. The design issues apply not just to minerals – coal or offshore oil, for instance – but also to PPP projects where we have often seen renegotiations and cost escalations. Auctions are better than the first-come-first-served or government-determined allocation, but their outcomes depend critically on the appropriateness of their design.

This post appeared as an opinion piece in The Economic Times, dated October 31, 2013. 

Posted in Insight in the News | Tagged , , , , | Comments Off

The Value of the ISB Alumni Network
avatar

This past weekend, we hosted our alumni at Equinox, the annual alumni learning and networking event at our Mohali campus. I thought this may be a good time to share some thoughts on what you can look forward to if you become part of our rapidly growing alumni network.

Long after our students graduate from ISB, the network that they became a part of continues to play an important role in their lives. Whether one is looking for valuable business leads or exclusive job opportunities, is settling into a new city and building a circle of friends, or for just about anything else, the alumni network is almost always the first port of call.

With over 5200 alumni spread across 32 countries, the ISB alumni network is vibrant, engaged and growing rapidly. They are an active lot and passionate about helping one another. Many of the alumni report that their career growth post graduation has come directly through alumni referrals and job postings on the network. If you thought job opportunities are available only during placement season, think again – the alumni email group sees high-level jobs and opportunities being posted almost on a daily basis! A lot of alumni also reach out to the network for information, guidance or ideas on solving challenges that they grapple with at work. The collective input from them leads to faster and more effective solutions – something that organisations have come to deeply appreciate in their employees. It is no surprise that many organisations encourage the ISB alumni in their employment to recruit more ISB graduates, from the alumni network as well as from the school directly through placements.

Apart from helping corporate careers, the alumni network is also proving to be a great resource for the growing pool of entrepreneurs in the ISB community. Whether they are trying to recruit good talent, looking for top professional services like designers, developers, subject matter experts, lawyers, etc, trying to get publicity for their ventures and build a client base, or even generating investor interest, the collective network often has great references and advice to share, based on personal experiences with these. An encouraging trend at ISB is the ever-increasing number of alumni coming together to co-found businesses.

Of course, the network is not only about work and business. The community is socially active and meet often, in small groups as well as large ones. Movies, get-togethers, and weekend getaways provide a welcome break from work and are especially enjoyable in the company of individuals one shares a pleasant history with. If an alumnus is visiting a city on work and finds that he/she has some free time at the end of the day, fellow alumni are a phone call away – definitely a better option than killing time in the airport lounge. Alumni relocating to a new city also find that the network is there for them – anything from finding a house and suggesting good schools for the children to showing them around town and helping them build a social circle. With such a support system in place, transitions become a lot more comfortable.

Apart from the informal interactions and events, the school and the various chapters of the ISB Alumni Association (ISBAA) also organise official alumni events in different cities. Every year, we celebrate our two alumni reunions, Solstice and Equinox, at our two campuses. These help alumni reconnect with the school, meet old friends and make new ones. They also get to relive their student days by returning to the classroom for learning sessions at these events. In fact, such “Lifelong Learning” sessions are conducted throughout the year at different cities, organised by the elected ISBAA representatives of the different chapters.

All this sharing of resources and opportunities, social interactions and a strong support system are not only rewards in themselves, but also serve a higher purpose. They build a strong sense of belonging and promote a mindset of helping the fraternity. Today, this habit helps make life a little more comfortable. Tomorrow, with a critical mass of alumni in leadership and decision-making positions, this translates to opening up of exclusive opportunities and social circles comprising of CXOs and influential individuals. It doesn’t take a rocket scientist to figure out the immense value that such a network has to offer.

However, to reach that critical mass of ISB alumni in key positions is not easy. We do have an advantage because our graduates start higher up on the corporate ladder, as indicated in my earlier blog post on Career Advancement Services at ISB. And as they have shown, they will scale heights quickly from there. We are a young school, but while most other schools with several years of heritage are adding between 200-400 alumni to their fold every year, we are adding about 800, while maintaining the most stringent admission criteria. At this rate, the day is not far when a critical mass of our alumni will be leading global companies and be the foremost decision makers influencing business, economy and society. Consequently, the reach and influence of each alumnus in the network will also increase manifold.

I will point out a simple, present-day indicator of how the ISB alumni network increases reach. In fact, some of you may already have noticed this: An ISB alumnus’ Facebook or LinkedIn account generally has a significantly higher number of connections/followers than those of the average social media user. They also happen to be connected with fairly influential individuals in their areas of interest. Safe to say this effect is going to grow faster and faster from here on.

Let me leave you with a little anecdote about how the alumni network tends to go above and beyond when help is needed, even in the simplest of things. This is from the personal experience of our alumnus Subramani Ramachandrappa (PGP ’04), CMD of Richcore Lifesciences:

We were putting up a manufacturing plant and my engineering consultant said we needed X units of steam and therefore needed Y kilowatts of backup power, etc. On the look of it, I felt it was too much, but I was not the expert here. So I sent a mail to the alumni network with my concerns and I got six replies almost immediately from alumni who were experts in the energy space, having spent years in the best consulting firms and industry. They each offered to take look at this, and I did not even know any of them! It was just because of the pgp.isb.edu email id that we all had in common. In two days, somebody actually flew down pro bono, sat with me and ran through the program, suggesting changes and helping me understand the system. I could trust him because he was an expert, a fellow alumnus and was not going to steer me wrong. We went with the new recommendations, and even today, my plant has been running great with what we implemented. In fact, the engineer who suggested the original specifications to me also wanted to collaborate with my friend on future projects!

That is the kind of support you can get from the alumni network. Any request for help never goes unanswered, anything from a simple request for information all the way up to support during medical emergencies. We are not looking at it as a transaction, but saying that we all belong to the same family.

All the best!

Posted in Uncategorized | Tagged , , , , | Comments Off

Mohnish Pabrai on Cloning as a Strategy
avatar

by

Nupur Pavan Bang1 and Vikram Kuriyan2

 

This interview was first published by the Global Association of Risk Professionals on October 29, 2013.

http://www.garp.org/risk-news-and-resources/2013/october/mohnish-pabrai-on-cloning-as-a-strategy.aspx

 
Mohnish Pabrai Photo

 
As a hedge fund manager, Mohnish Pabrai does not have to be fully transparent with his results- except to the investors who receive his reports. But he makes no secret about his targets and successful results in terms of compound returns, nor about the fact that they are grounded in value investing principles, particularly those espoused by Warren Buffett.

Anyone can gain insight into Pabrai’s way of thinking in books he has written: “The Dhandho Investor: The Low – Risk Value Method to High Returns” and “Mosaic: Perspectives on Investing”.

Pabrai talks up a principle of his own, which he describes as cloning. Successful formulas are visible for all to see, but, as Pabrai observed in a recent interview, there is something in human nature that devalues cloned ideas and strategies. “Be a cloner… but clone the best”, advises the managing partner of Pabrai Investment Funds.

The Irvine, Calif. firm is billed as a family of hedge funds inspired by the Buffett Partnerships, with more than $500 million of assets.

A Mumbai native and former IT consultant- founder of TransTech in 1990, which was sold 10 years later to Kurt Salmon Associates- Pabrai won the 1999 Illinois High Tech Entrepreneur Award given by KPMG, the State of Illinois and the City of Chicago. In 2005 he and his wife, Harina Kapoor, started the Dakshana Foundation, with the goal of recycling most of their wealth. The foundation is focused on alleviating poverty in India through education and scholarship grants.

The interview with Pabrai was conducted by Dr. Nupur Pavan Bang (nupur_bang@isb.edu), senior researcher, and Dr. Vikram Kuriyan, director of the Centre for Investment, Indian School of Business, Hyderabad.

 

Tell us about your belief in the concept of compounding.

Einstein called compounding the 8th wonder of the world. Let me tell you a story.

One day an inventor of games brought a game to the king- the game of chess. Since it was about battle between two armies, the king was amused and spent a lot of time playing the game. So impressed was he that he offered the inventor to ask for any reward. The inventor asked that he be given an amount of rice that would be equal to what the board could hold if we were to start doubling one grain of rice from the first square of the board up to the 64th square.

The king thought that this was a petty and stupid request and ordered for the reward to be given. The minister who was in charge of arranging this did not return for a few days. Upon inquiring about the delay the minister said that the whole kingdom did not have the 18,446,744,073,709,551,615 grains of rice required, or close to $300 trillion worth. Much greater than the combined wealth of the earth.

Such is the power of compounding. This is a concept that many great investors have time and again used for wealth creation. The celebrated Warren Buffett is a great example.

 

Warren Buffett and Charlie Munger have had a lot of influence in your life. How did you first learn about them and what got you interested in them?

In 1994, I was 30 years old and heard of Buffett for the first time. I did not have any knowledge about investments or capital allocation. Around that time, a couple of his biographies were published. I read them and looked at his track record from 1950 to 1993. Over 44 years he had compounded money at 31% a year. If you compound money at 26% a year, it will double every three years; at 31% you will double in less than three years. I thought about the story of the chess board again and realized that if Warren continued doing what he was doing, he would become the wealthiest person on the planet. He did became the wealthiest person on the planet.

I have never been to a business school and thought of investment, but few things stood out to me. In the investing world, hardly anyone followed Warren Buffett and hardly anyone generated returns the way he did. However, I thought that his approach to compounding was right, and these things were related. Buffett’s approach looked replicable, but no one was doing that. I liked compounding and thought of giving it a try.

 

How did you start? Where did you get your initial capital from?

I had sold some assets in the business I was running at that time [1994] and ended up with $1 million in the bank. I had no immediate use for that money. When I read Buffett’s biography,  I decided to play his game for 30 years. If I compounded at 26% a year, and my money would double every 3 years, a million would become a billion in 30 years. I thought that even if I fail by 95%, or 97%, I would be okay.

Swami Vivekananda used to say, “Take one idea, make that one idea your life. Think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body be full of that idea, and just leave every other idea alone. This is the way to success”. That is exactly what I did.

 

Could you tell us a little bit more about your journey from then on?

In 1995 I started putting the million dollars to work. By 1999, $1 million had become $5.1 million, growing at 43.4% per annum, way above my target of 26%. So I said, I think this could be done.

 

When did you start Pabrai Funds?

I used to give investment tips to friends and family. They would ask me to manage their money. So, in July 1999, I set up Pabrai Funds with $1 million in assets from nine investors. From 1999 to 2007, we compounded at 37.2% per annum before fees, 29.4% after fees.

 

Did the financial crisis hit you?

Oh yes, it hit everyone! From the mid 2007, for the next 21 months, we compounded at a negative 47.1%. That came to an end in 2009. Eighteen and a half years after I first started [1995 to mid 2013], I have compounded at 25.8% per annum. Short by 0.2. The good news is that I still have 11.5 years left, and in investments, the more you play, the better you get at the game (unlike tennis). I am excited to see how next 11.5 years unfold.

 

So how do you compound at 26%- especially since you were not formally educated in finance or investments? [Editor's note: Pabrai left his master's degree program at Illinois Institute of Technology to start his consulting and systems integration company, TransTech.]

When I set up Pabrai funds, I looked at the Buffett Partnership. It was closed in 1969; I opened in 1999. In that 30-year period, I did not find a single fund that replicated the Buffett model. I got all the information that I could about the model from published sources, took it to my lawyer and told him to simply replicate it. I adopted cloning in a very serious manner. I then started investing in stocks in which Buffett and his Berkshire Hathaway invested.

 

Why is it that we don’t see many others succeed like you have? If it’s only about cloning, anyone can do it.

That’s right. Anyone can do it. But nobody does. There is something strange in the human genome which makes people think that cloning is beneath them. Everyone wants to do something unique.

There are other examples of cloning that have succeeded. If you look at Microsoft, Excel was cloned from Lotus; Windows, Word, and a lot of its other products are cloned. It’s not even a great cloner, as most of its products take a number of versions to remove bugs. Even though Microsoft is not a great cloner, it is one the most successful companies in the world.

McDonald’s spends a lot of time to figure out locations for their franchisees. They do a lot of analysis. While Burger Kings that compete with McDonald’s, just look at where McDonald’s is opening up.

There is a lot of debate going on about letting retailers like Wal-Mart into India. What perplexes me is that there is nothing in Wal-Mart’s business model that anyone cannot figure out by walking into their stores. There is nothing in their model that cannot be replicated. India does not need Wal-Marts. It just needs an entrepreneur to look at their model and replicate it.

 

Do you blindly follow Warren Buffett and invest in any company he is investing in?

There were some professors in the U.S. who looked at every stock Warren Buffett bought from 1975 to 2005, and they did an analysis. If you bought what Buffett bought after it became publicly known, on the last day of the month at a higher price and held it until Buffett started selling and sold it after it was known publicly that Buffett had sold, and got the price which was the lowest price on the last day of the month, and you did this for every stock he bought and sold for 30 years, you would beat the index by 11.5% a year.

Bottom line, cloning is a very powerful notion. No good books have been written on cloning yet. If you take what Buffett did, then you are already beating the S&P by 11.5% per year. Mostly what Pabrai Funds did was to copy the other investors. I just give a slight tweak to it. I don’t buy what others are buying. I look at what they are buying. Then I buy what I can understand and limit myself  to two-three decisions a year.

 

How has your strategy evolved over the years?

We don’t learn from success. When we stumble we learn a lot. I am grateful that every time I stumbled, it has lead to growth. The period 2007-’09 was wonderful from a growth and learning perspective. Over the entire 1999-’07 period there were no negative returns. Not only did we make 37.7% per annum on a compounded basis, but there were no negative returns. We thought nothing went wrong, and I never saw the housing bubble.

In 2008-’09, financial system was out of oxygen. I had companies which depended on access to capital markets and financing. They just went into a tailspin. In one case, our investment went to zero. We had permanent losses. We had things which were knocked down on price and we had no ability to be offensive. We had no cash. I learned the rule that cash is king. Most of last year I was sitting with 20% cash. That was a big change.

Another change in my approach was the development of a pre-investment checklist, which is very powerful. It looks at mistakes made by other investors. This checklist helps me in catching those mistakes. One of the Warren Buffett biographies reveals that as a kid he used to walk in a strange way. It was to absolutely take out the probability of falling. He picks stocks similarly. He looks at the downside- how can he lose money. So  I did the same…questioning and re-questioning many times about how can I lose money on an investment. The checklist helps me there.

Also, I started having conversations with another investment manager. I got this advice from Charlie Munger, who said he always has someone to talk to about his investments. Until 2008 I never talked to anyone about investments. We mostly never agree, but conversations are helpful.

 

What about your fee structure?

My investors love my fees structure- which is copied straight from Buffett. Zero management fees for assets under management.  First 6% of returns go to the investor. Above that 6%, I get one-fourth and they get three-fourths. So if the portfolio is up 10%,  I get one-fourth of 4 percent (that is, 1%). If it is up 5%, we get nothing.

 

Warren Buffett is a Value investor. Isn’t it very restricting to just copy him? There may be many more opportunities out there that may not strictly fall under the Graham and Dodd definition of a value investment, and yet be a great opportunity.

Well, Buffett is a multi dimensional investor. Dozens of investments that he has made are not moat based or may not be value investments. For example he has done a lot of restructuring and arbitrage deals. It is not so much about moat or value investing. It is about what you pay for a business. If you pick four or five investors and decide to pick the best of their ideas with some of your own criteria put in, you will be fine. You can skip the businesses which you don’t understand or which are in conflict with your own criteria, and you will still have enough options to invest. Keeping it simple and buying at a great price are important. It is also important that if you are cloning, you clone the best.

[1] Senior Researcher, Centre for Investment, Indian School of Business, Hyderabad (Nupur_bang@isb.edu.)
[2] Executive Director, Centre for Investment, Indian School of Business, Hyderabad.

Posted in Asset Allocation, Interview, Investment | Tagged , , , , , , , , , | Comments Off

The CMO’s Dilemma
avatar

Sriram GopalakrishnanSriram Gopalakrishnan, Director of Marketing & Communications at ISB, and Editor – ISBInsight offers a glimpse into the role of the new CMO. 

In the recent years, there has been a spate of questions raised on the relevance of various C-suite roles leading to their fragmentation, and corresponding emergence of newer (and often fancier) titles. All of this stems from the frenetic pace of change in the business environment we are witnessing and the resulting pressure it imposes on businesses to adapt, evolve or even reinvent themselves. Whether it is technologies or products, brands or even relationships – all are vulnerable to the forces of these disruptive changes. The role of a Chief Marketing Officer is no different.

Look at what a typical CMO is up against: an increasingly demanding customer, shorter product life cycles, heightened consumer activism on social networks, fragmentation of media, and more. On the up side though, there is a whole new world of possibilities of micro targeting customers, a surge in the quantum of data available, and in some cases even pricing dynamically. Business leaders, by whatever title they are referred to, who can navigate their organizations through this complex environment and demonstrate growth are the ones who will thrive.

So, what does the new CMO need to do? 

First, of course is to adopt the inevitability of new technology and big data for better customer understanding. Deepening the understanding of the customer has always been the bread-and-butter of the CMO. But there are newer ways to do this than traditional market research alone. There are host of other systems and tools that companies can invest in to micro target, observe behavior and provide greater value to customers who are evolving continually. Such a data based approach not just allows you to make sure-footed decisions, but also demonstrates accountability within the organisation and buys the freedom to make more risky investments.

The second is, in some ways, complementary to the first. The CMO is ultimately responsible for generating growth for the organisation. But that often causes them, either due to risk aversion or a lack of imagination, to become more sales oriented. And this can be the death knell for the organization. Incremental short term measures used to generate sales in the short run soon dry up. Staying the current course inevitably never leads to sustained growth in today’s environment. The reasons could be various, but Marketing has indeed been taken over by extremely analytical processes. However, it is as much a creative process as it is an analytical one. Creative interpretation of data often gives voice to what customers want but are not telling us. And such insights pave the way to breakthrough innovation. It is important therefore that marketers continue to make bold guesses about their customers and evaluate them meticulously.

Finally, new age CMOs must lead the way towards becoming truly social organizations. The rise of social media is making organizations a lot more accountable. Forging deep relationships with customers necessitates co-opting them into the value creation process. This will require breaking away from a control mindset and being honest and transparent with them. More importantly, the new CMO must work with the internal organisation in being consistent across the value chain and delivering a consistent brand experience right down to the last mile.

This post appeared as a contributory piece in The Strategist, Business Standard dated October 28, 2013. 

Posted in Insight in the News | Comments Off

Coal block allotment: Getting the auctions right
avatar

By Rajesh Chakrabarti, Executive Director, Bharti Institute of Public Policy, ISB

This article was first published in the Economic Times on Oct 31, 2013

The current controversy over the coal block allotment is perhaps the latest and one of the most sordid examples of inefficient allocation of national resources, but the malaise is hardly new.

In fact, in an interview back in 2010, Raghuram Rajan had identified favoured allocation of resources as the driving force behind the fortunes of many billionaires in India – a nation that ranked second only to Russia in terms of the number of billionaires per trillion dollar of GDP.

How then to best allocate national resources – mining rights and telecommunication spectrum – in an efficient manner? Auctions come to mind immediately as competitive and transparent mechanisms of allocating resources. They allocate resources to the highest valuer, ensuring both socially most productive allocation as well as maximum revenue gathering by the exchequer.

Still a Surprise Element

But governments around the world have long used auctions to allocate resources and yet the mechanism has at times thrown nasty surprises. Auctions can be of several types and the success of the mechanism depends critically on its design.

Take, for instance, the 3G spectrum auction in six European countries in 2000. While in UK and Germany, the auction yielded prices over 600 per person, in Switzerland, the yield came to only 20, about 5% of the predicted value. In 1999, in Germany, as spectrum was being auctioned in 10 blocks, Mannesman and T-Mobile colluded to split the spectrum between themselves, each picking up half the offering at a very low price.

A successful allocation mechanism should ensure widespread participation, a prerequisite for competition. It should also prevent collusion so that each bidder reveals close to its true reserve price for the item or items being auctioned.

Sealed with a Dutch

Broadly, auctions follow two formats: ascending, or “Anglo”, approach where an auctioneer keeps raising prices till there is only one bidder left (there is a descending version as well); and sealed-bid, or “Dutch”, auction where bids are simultaneously revealed. The former has the advantage of transparency, price discovery and revenue maximisation, but, in the presence of one or more “strong” players, may end up discouraging participation by smaller players, in the absence of which the supposed “stronger” player can get away with offering significantly less than what it truly values the resource at.

A mix of the two, “Anglo-Dutch”, is sometimes resorted to that runs the “Anglo” way till only two bidders are left in the fray, and then switches to “Dutch” with the floor of the last price of the Anglo auction.

Another deterrence for auctions is the infamous “winner’s curse”, referring to the fact that the actual winner is likely to be the party that has overvalued the resource the most. The issue is particularly significant when the resource being auctioned, like mining rights, whether land or offshore, is difficult to value. This is where valuation becomes critical.

“Common-value” resources like oil, that are valued pretty much the same way per unit by all parties, but whose supply per block is something each bidder is uncertain about, differ from “private-value” items to which bidders assign different values irrespective of the valuation given by others. The “winner’s curse” problem is strongest in the former.

Tailor-Made for Scam

A standard solution to this problem is the “second-price” option where the highest bidder gets the resource but pays the next highest bidder’s bid. A common result: less hesitation to bid on the higher side. But even this can throw uncomfortable surprises. Consider the embarrassment of the New Zealand auctioneer – and the immediate suspicion of foul play had it been in a country like India – when a winner bidding NZ$7 million walked away paying the next highest price of NZ$5,000! Clearly, the presence of a reserve price is essential to avoid such situations.

While under certain, rather unrealistic assumptions, all major auction designs would yield the same results, in reality, the suitability of the design to the resource being auctioned, the nature of information about it and the nature of competition among bidders hold the key to the success of the auction process.

Then, one has to pay attention to other auctions as well. Turkey auctioned two mobile telephone licences in 2000; sequentially, with the condition that the price of the second auction could not fall short of the first. The result? The winner of the first auction bid (and paid) a price so high that it could never be worth with two rivals in competition. The second licence, naturally, went unclaimed!

Rules and punishments are not beyond question either. The design issues apply not just to minerals – coal or offshore oil, for instance – but also to PPP projects where we have often seen re-negotiations and cost escalations. Auctions are better than the first-come-first-served or government-determined allocation, but their outcomes depend critically on the appropriateness of their design.

Posted in Economic policy, Energy, Regulations | Tagged , , , , , , , , | Comments Off

Good economics makes for good politics
avatar

 

Higher economic growth increases winning chances of ruling party candidates, especially in states with more literate voters, contends Professor Krishnamurthy Subramaniam, Assistant Professor of Finance and Prasanna Tantri, Associate Director, Centre for Analytical Finance at the Indian School of Business. 

Does good economics make for good politics? Historically, In India, good economics has not been considered good politics. However, recent experiences in Gujarat, Bihar, Odhisha, Chattisgarh, Haryana and Madhya Pradesh have pushed forward the view that good economics can make for good politics as well. Nevertheless, anecdotes cannot substitute for systematic evidence.

Poonam Gupta and Arvind Panagariya study the 2009 Loksabha elections and find that candidates of incumbent parties in states that recorded high growth won more often than their counterparts in states that recorded low growth. The 2009 elections followed a period of high growth in the economy. Therefore, evidence from the 2009 elections may be an exception rather than the norm. To establish whether good economics makes for good politics in general in India, one needs to examine the evidence across several electoral cycles that span high and low growth periods. Moreover, with a voting population that contains a significant proportion of illiterate voters, a related question that arises is: does the positive effect of growth on reelection prospects hold only in states where the population of literate voters is high? Or does good economics make for good politics in states where the proportion of literate voters is low? Since literate voters are more likely to be aware of the state of the economy, the effect of good economics on good politics needs to be viewed through this prism. In a recent working paper, we examine these questions using data on all elections—state and national level—from 1980 until 2012.

Our analysis of over 20,000 election outcomes from every constituency over more than three decades reveals the following. First, high economic growth generated by the incumbent government significantly enhances the chances of ruling party candidates getting re-elected. Careful empirical analysis requires controlling for the effects of various other determinants of the incumbents’ success. Factors that are peculiar to a particular state, such as the leftist leanings of the electorate in states such as West Bengal and Kerala, can influence the incumbent’s ability to get reelected in that particular state. Moreover, a wave that sweeps the entire nation, such as the sympathy wave generated in the 1984 national elections after Indira Gandhi’s death, can affect all incumbents’ ability to get reelected. In arriving at our results, we control for such state level determinants as well as general time trends. Since a higher turnout ratio is considered bad news for the incumbent, we also control for the effect of voter turnout on the likelihood of ruling party candidates getting reelected. After controlling for all such determinants, we find that a 1% increase in growth achieved during the entire tenure increases the chances of reelection of every ruling party candidate by 0.6%.  Such an increase for every ruling party candidate translates into a significant difference particularly given three-pronged contests in most constituencies, which include candidates from the two main national parties and from the main regional party in a state.

Second, we find that creating a mirage of economic growth by pushing up growth in the election year cannot mask the incumbent’s incompetence over the entire tenure. Specifically, a government that manufactures growth just in the year of election by inflating the economy is likely to be punished by the voters while a government that achieves high growth throughout its tenure is likely to be rewarded. The above finding goes contrary to political cycle theories where incumbents successfully manipulate economic variables just before the elections and are handsomely rewarded by myopic voters.  Nordhaus (1975) shows that politicians can exploit the Philips Curve, which posits a negative relation between inflation and unemployment in the short term, to create artificial prosperity just before the election. Since such growth is achieved by inflating the economy, it dies down quickly leading to post election recessions. Our analysis reveals that Indian Voters are not myopic in Nordhaus’s sense. Indian politicians, take note.

Third, we examine the effect of the percentage of literate voters in a state on the ruling party candidates’ fortunes. We find that while incumbents are more likely to retain power in states where the population of literate voters is lower, higher economic growth translates into greater prospects of reelection particularly in states where the percentage of literate voters is higher. In other words, not only are illiterate voters more likely to vote back the incumbent to power, they also care relatively less about economic growth when voting back the incumbent power. In contrast, literate voters are less likely to vote back the incumbent to power and care a lot about the performance of the incumbent in generating economic growth when deciding whether to vote back the incumbent power or not.

A caveat: a statistical exercise such as ours highlights the average effects observed over more than 20000 election outcomes spanning more than three decades. However, a few exceptions that constitute statistical outliers do not necessarily undermine our findings.  For example, among the various states, Kerala and Tamil Nadu have the highest percentage of literate voters. Moreover, these states have also enjoyed high economic growth rates. Yet, they also exhibit high levels of bias against the incumbent. In sum, our analysis exhorts politicians to take note: good economics can indeed make for good politics!

This post originally appeared as an op-ed column in The Times of India dated October 30, 2013. 

Posted in Insight in the News | Comments Off

Good economics is good politics
avatar

Guest post by Krishnamurthy Subramanian, Assistant Professor, Finance, ISB and Prasanna Tantri, Associate Director, Centre for Analytical Finance, ISB

This article was first published in the Times of India on Oct 30, 2013 

Does good economics make for good politics? Historically, in India, good economics hasn’t been considered good politics. However, recent experiences in Gujarat, Bihar, Odisha, Chhattisgarh, Haryana and Madhya Pradesh have pushed forward the view that good economics can make for good politics as well. Nevertheless, anecdotes can’t substitute for systematic evidence.

Poonam Gupta and Arvind Panagariya study the 2009 Lok Sabha elections and find that candidates of incumbent parties in states that recorded high growth won more often than their counterparts in states that recorded low growth. The 2009 elections followed a period of high growth in the economy. Therefore, evidence from the 2009 elections may be an exception rather than the norm.

To establish whether good economics makes for good politics in general in India, one needs to examine the evidence across several electoral cycles that span high and low growth periods. Moreover, with a voting population that contains a significant proportion of illiterate voters, a related question that arises is: Does the positive effect of growth on re-election prospects hold only in states where the population of literate voters is high? Since literate voters are more likely to be aware of the state of the economy, the effect of good economics on good politics needs to be viewed through this prism. In a recent working paper, we examine these questions using data on all elections – state and national level – from 1980 until 2012.

Our analysis of over 20,000 election outcomes from every constituency over more than three decades reveals the following. First, high economic growth generated by the incumbent government significantly enhances the chances of ruling party candidates getting re-elected. Careful empirical analysis requires controlling for the effects of various other determinants of the incumbents’ success.

Factors that are peculiar to a particular state, such as the leftist leanings of the electorate in states such as West Bengal and Kerala, can influence the incumbent’s ability to get re-elected in that particular state. Moreover, a wave that sweeps the entire nation, such as the sympathy wave generated in the 1984 national elections after Indira Gandhi’s death, can affect all incumbents’ ability to get re-elected. In arriving at our results, we control for such state-level determinants as well as general time trends. Since a higher turnout ratio is considered bad news for the incumbent, we also control for the effect of voter turnout on the likelihood of ruling party candidates getting re-elected.

After controlling for all such determinants, we find that a 1% increase in growth achieved during the entire tenure increases the chances of re-election of every ruling party candidate by 0.6%. Such an increase for every ruling party candidate translates into a significant difference, particularly given three-pronged contests in most constituencies, which include candidates from the two main national parties and from the main regional party in a state.

Second, we find that creating a mirage of economic growth by pushing up growth in the election year can’t mask an incumbent’s incompetence over the entire tenure. Specifically, a government that manufactures growth just in the year of election by inflating the economy is likely to be punished by the voters while a government that achieves high growth throughout its tenure is likely to be rewarded. The above finding goes contrary to political cycle theories where incumbents successfully manipulate economic variables just before the elections and are handsomely rewarded by myopic voters.

William Nordhaus shows that politicians can exploit the Phillips Curve, which posits a negative relation between inflation and unemployment in the short term, to create artificial prosperity just before the election. Since such growth is achieved by inflating the economy, it dies down quickly leading to post-election recessions. Our analysis reveals that Indian voters aren’t myopic in Nordhaus’s sense. Indian politicians, take note.

Third, we examine the effect of the percentage of literate voters in a state on the ruling party candidates’ fortunes. We find that while incumbents are more likely to retain power in states where the population of literate voters is lower, higher economic growth translates into greater prospects of reelection particularly in states where the percentage of literate voters is higher. In other words, not only are illiterate v oters more likely to vote back the incumbent to power, they also care relatively less about economic growth when voting back the incumbent to power. In contrast, literate voters are less likely to vote back the incumbent to power and care a lot about the performance of the incumbent in generating economic growth when deciding whether to vote back the incumbent power or not.

A caveat: a statistical exercise such as ours highlights the average effects observed over more than 20,000 election outcomes spanning more than three decades. However, a few exceptions that constitute statistical outliers don’t necessarily undermine our findings. For example, among the various states, Kerala and Tamil Nadu have the highest percentage of literate voters. Moreover, these states have also enjoyed high economic growth rates. Yet, they also exhibit high levels of bias against the incumbent. In sum, however, our analysis exhorts politicians to take note: good economics can indeed make for good politics!

Posted in Economic policy, Political | Tagged , , , , , , | Comments Off

Superman or not, Raghuram Rajan has indeed made a difference
avatar

by

Puran Singh[1] and Nupur Pavan Bang[2]

 

This article was first published in the business section of www.rediff.com on October 28, 2013

http://www.rediff.com/business/special/special-superman-or-not-raghuram-rajan-has-indeed-made-a-difference/20131028.htm

 

NewRBIGuv

“I am not a superman”, he says, but the reaction of markets to his initiatives has been super indeed. He took over the office of RBI Governor amongst much hustle and media gush on September 4, 2013. Having predicted the financial crisis and carrying an image of an internationally recognised economist, Raghuram Rajan was seen as the savior for the Indian economy that had multiple economic issues to grapple with.

He had his guns ready and fired right away on the day he took over. He endorsed transparency and financial stability in addition to issues related to inclusive growth and development. A range of measures were announced that included elimination of license requirements for new bank branches, appointment of committee to assess RBI’s approach to financial inclusion, allowing rebooking of cancelled forward exchange contracts by exporters and importers, issue of cash settled ten year interest rate future contracts, interest rate futures on overnight interest rates, special concessional window for swapping FCNR (B) dollars, increase in foreign borrowing limit of banks to 100 per cent of unimpaired Tier I capital, etc.

On Financial Infrastructure front, he expressed an intention to implement Electronic Bill Factoring Exchanges to facilitate prompt bill payment facility to Micro Small and Medium Enterprises (MSMEs). He acknowledged the need to have Debt Recovery Tribunals and Asset Reconstruction Companies for efficient loan recoveries.

For households, the governor announced that they will issue Inflation Indexed Savings Certificates, come out with national giro-based Bill Payment System to facilitate bill payments any time, start mini ATMs operated by non-bank entities for better financial access.

These measures were well received by markets as the key economic indicators improved swiftly. Depreciating rupee that had been a cause of concern for some time, gained considerably from a low of Rs 68 per dollar on August 29 to stabilise at Rs 62 per dollar by September 16.

Sensex rode on investor expectations of favourable policies by the RBI and rallied by a maximum of 700 points, eventually crossing the psychological mark of 20,000 points. Forex reserves also remained stable during the time. Gold imports remained low at 7 tons in September helping India’s current account deficit. Only thing that remained unleashed was inflation that rose to 6.46 per cent for the month of September 2013 (see Figure 1).

Figure 1: Key Financial Indicators before and after Raghuram Rajan’s taking over

Figure 1: Key Financial Indicators before and after Raghuram Rajan’s taking over

Source: Reserve Bank of India; www.bseindia.com; www.oanda.com;

In order to arrest inflation, in his first monetary policy review on September 20, Rajan increased the interest rate to 7.5 per cent (by 25 basis points), against the common expectations. This might have irked Finance Minister P Chidambaram, but he remained quiet, while he had openly criticised Rajan’s predecessor Subbarao for a similar move.

Rajan maintained that controlling inflation was important which eventually provided a growth environment pretty much in line with his predecessor’s line of thinking. He made up for the increase in interest rate to some extent by rolling back the rate on Marginal Standing Facility (MSF rate is the rate at which the RBI lends emergency funds to the banks) to 9.5 per cent from 10.25 per cent earlier (it helped reduce the cost of funds to banks and hence their lending rates).

In one of the measures, norms for Non-Resident Indian (NRI) deposits and overseas borrowings by banks were relaxed. This helped the foreign exchange reserves of the country. When Rajan took over, the reserves were at three year low of $274 billion. A month after, the reserves are up by $5.6 billion.

The month of September also saw gold imports go down that resulted in trade deficits to trim down to a 30 month low of $6.76 billion, resulting in a much lower second quarter (July-September 2013) deficit of $29.9 billion as against $50.3 billion in the first quarter (April-June 2013).

On October 3, Rajan met Chidambaram and decided to provide additional capital to banks for lending to auto and consumer durables sector. On October 7, RBI reduced the Marginal Standing Facility rate by another 50 basis points (now 9%) to bring down the cost of funds to the banks (RBI had increased the MSF rate from 8.25 per cent to 10.25 per cent in July 2013). Two reductions in MSF indicated that the rupee position of India was comfortable. According to Rajan, current account deficit of $70 billion was achievable at a stable rupee.

On October 10, RBI allowed banks to raise funds from international institutions until 30 November 2013 for general banking purposes (not for capital enhancement). On October 12, Rajan announced that major reforms in the form of allowing foreign banks to enter and takeover domestic banks were to be introduced in the coming months.

He promised near national treatment to the foreign banks subject to couple of operational conditions. In a meeting at IMF on the same day, he pointed that India must not be seen as a country in crisis as he did not see India running for IMF money in next five years and even beyond.

In a speech at Harvard University, Rajan stated that Indian economy was to pick up in fourth quarter of the financial year as government cleared stalled resource projects worth $115 billion. Also, good monsoon season was expected to boost agricultural production. He also pointed that economic troubles of India had to do with unwinding of stimulus during financial crisis and increased spending on things such as gold rather than any structural problems.

RBI launched new Real Time Gross Settlement (RTGS) system for large-value funds transfer for settlement of inter-bank transactions (first implemented by RBI in 2004) on October 19. Its advanced liquidity and queue management features were expected to make financial markets more efficient.

On October 21, Confederation of Indian Industries and Association of Chamber of Commerce and Industries urged Rajan to cut key policy rates for better liquidity conditions. However, the seven month high inflation figure of 6.46% for September does not go in their favor. Given Rajan’s reputation, we may see another hike in interest rates on October 29 and given his ability to communicate to all stakeholders, the finance minister may not even be in a position to criticize his policies as it may not be received well by the markets.

In this short span of time, Raghuram Rajan has introduced/announced many initiatives, most of them yielding positive reactions from markets. Whether this is first aid or permanent solution, is too soon to tell.

 

[1] Research Associate, Indian School of Business, Hyderabad (Puran_Singh@isb.edu)

[2] Senior Researcher, Centre for Investment, Indian School of Business, Hyderabad (Nupur_bang@isb.edu)

Posted in Macro Economy, Regulations | Tagged , , , , , | Comments Off

Transformational Entrepreneurship
avatar

How can India turn job seekers into jobs creators? Krishna Tanaku, Executive Director, Wadhwani Centre for Entrepreneurship Development at the ISB, argues that an SME-led growth strategy supported by an entrepreneurial ecosystem, can reshape India’s economic landscape.

Analysing the Indian Growth Story

The gap between the “haves” and “have-nots” is growing at an alarming rate despite macroeconomic indicators that should be painting a rosier picture. Primarily, the major reasons for the gap are:

  1. Weak employment and employability

  2. Unbalanced urban migration

  3. Micro solutions chasing mega problems

Entrepreneurially focused SMEs can address India’s Challenges

The solution to India’s challenges lies in reframing the question on poverty: from eliminating poverty to fostering the creation of wealth by many across the nation. A holistic and well-thought out approach to developing India’s SME sector is the most effective approach to addressing disparity.

Thus far, Indian SMEs have played a very significant role in India achieving its current robust overall economic growth. The SME sector currently contributes to over 40 percent of exports, and creates over 1.3 million jobs per year. About 60 million are employed in this sector. A well-thought out SME-driven entrepreneurial ecosystem can take the industry and India, to the next level.

Addressing the Current Gap

In order to address this growing economic disparity, Indian SMEs will have to play a far more significant role in the future, both in terms of employment generation as well as contribution to India’s overall GDP and exports.

India can achieve its socio-economic objectives by focusing on gainful employment for millions of educated youth and by helping millions of others transition from an overburdened agricultural sector to the small-scale manufacturing and service sectors in the next decade. A strategic and holistic approach of encouraging entrepreneurship can tap into India’s entrepreneurial gene and redirect a few million of the job seekers into jobs creators. Nationwide entrepreneurship development with the appropriate scale, scope and relevance can catapult India into the higher orbits of socio-economic prosperity.

What are the key steps that would help both existing SMEs and new startups contribute to the overall socio- economic growth of India in the coming decade?

  1. Focus on SME Revitalisation Strategy- Previous SME revitalisation efforts have offered broad-based micro and SME (MSME) support in the shape of government-initiated financial incentives and schemes. The MSME Act of 2005 is one concrete example. These initiatives have had only a diffused impact on the sector. However, with a sharpened focus on sustainable enterprise creation and growth of existing SME base leveraging local resources, the Government of India can think beyond short-term financial infusions and simplified administrative measures.

  1. Nurture Transformational Entrepreneurship- India is leveraging the inherent entrepreneurial culture of its people through the adoption of modern entrepreneurship models. Despite this growing awareness, new ventures creation activity is still too low. To address these challenges, India needs to evolve its own framework for entrepreneurship within a nationwide ecosystem. The development of such an ecosystem requires innovation through public-private partnerships, and collaborative models of engagement between government, educational and training institutions, financial institutions and the industry.

  1. Spark Indian Innovation- Innovation under local conditions is another critical element to help SMEs, both new and existing, address India’s mega challenges. First and foremost, any innovation must think about the concept of scale in the Indian context, the target customer size, reach, price points, and how to leverage local resources, given all attendant cultural and regional sensitivities. To address this, India needs to develop its own indigenous models to make them pervasive. It cannot simply emulate established models from elsewhere. India needs to reassess the applicability of these models in the Indian context.

This post is an extract from the original article which was published as “Transformational Entrepreneurship” by Krishna Tanuku, ISBInsight, December 2009, p 5-8.

Click here to download the full article- Transformational Entrepreneurship

Posted in From the archives | Tagged , , , , , | Comments Off

The Green Channel to Global Growth
avatar

By Rajesh Chakrabarti, Executive Director, The Bharti Institute of Public Policy

Hello and welcome to the Bharti Institute’s blogspace! Special thanks to my colleagues at the Bharti Institute of Public Policy led by Dr. Kaushiki Sanyal and the ISB communications team for making this blog a reality. Mark this site for regular updates on policy related inputs and analysis with a focus on India and other emerging markets. But in this inaugural blog I want to go global and tell you about a major conference where I spoke last week. With four Prime Ministers and the UN Secretary General speaking there, it was a big deal indeed. Well, you guessed it. I am talking about the just-concluded Fourth Global Green Growth Forum (3GF) at Copenhagen (www.3gf.dk). The forum is a platform initiated by the Prime Minister of Denmark in collaboration with the governments of China, Kenya, Mexico, Qatar and Republic of Korea. Other participating leaders at 3GF 2013 included the Prime Minister of France and Ethiopia.

The two-day conclave turned out to be a much-awaited meet of the global green brigade. Held in a massive four storey former warehouse at the heart of Copenhagen, the plenary sessions overflowed (and were telecast) to two major locations outside the main auditorium. The parallel sessions frequently were standing-crowd only. And if you thought the entire action was restricted to the wisdom being distributed at the sessions, well think again. There was as much buzz in the café area, well set-up with comfortable sofas, and meetings were being set up and concluded with the alacrity of a speed dating fair. And if you wanted longer and more serious meetings, the bilateral rooms could be booked as well, but getting a free spot on that calendar was not easy either. Every green foundation worth its name was there, talking furiously to multiple government and multilateral funding agency pushing various aspects of the green growth agenda, striking deals, signing MoUs and generally networking and card-swapping at a frantic pace. Private investors in green technology eyed opportunities and multi-billion-dollar green funds checked out on new initiatives they could focus on later.

What was the thrust of the sessions? The focus was less on the scientific and technological aspects of green technology and more on the economic, strategic and financial challenges. How to structure fiscal incentives, payment systems and build proper incentives to implement environment-friendly alternatives to drive the growth engine? Infrastructure was a recurring theme and deservedly so, for given the irreversibility and size of infrastructure projects, a country putting in place an environmentally inappropriate technology binds itself to a wrong growth path for decades to come. Public-private partnerships, particularly in the emerging markets of Asia and Africa occupied a central place in the dialogue. Policy makers were eager to learn from each others’ experiences. The Danish Environment Minister, for instance, cited the example of a road project in Holland that was supposed to pass through an ethnically sensitive neighborhood. Shunning the cheap way of taking it through the neighborhood, the authorities actually passed the road through a tunnel under it creating a park above the road solving multiple political and environmental problems in one stroke.

Sharing of national experiences brought out the universality of many of the challenges. Alignment of incentives was a critical issue.  Everyone understands that bringing in green alternatives would raise the cost of projects but ultimately also pay off in the long run, but the question is how to incentivize the bureaucrat to accept the higher project bid without stipulating stifling one-shoe-fits-all criteria in policies? How to create room for innovative environment-friendly solutions without putting the signing bureaucrat’s neck on the line? Similarly, the politicians wanted to know how to sell the “green” alternative to communities and to give it political voice. Hard and relevant questions all.

The two days passed in frenzied activity. The sharing of ideas as much as the contacts and deals struck surely helped push forth the shared agenda. Green growth is a big and expanding business space. Currently, it touches 19% of the energy generation globally and is expected to reach a size of $615 billion by 2015. In India itself, Renewable Energy accounted for 12% of total energy generation in 2012 up from 1% a decade earlier. In China it is a $67 billion industry. And this is only the beginning.

Thank you for visiting the Bharti Institute blogspace! Please keep coming back and share your views through comments on the blogs here as we keep posting blogs from Bharti Institute members, ISB faculty and invited experts on various topics of public policy. Let’s keep talking!

(The Bharti Institute is active in the Green Growth space though its collaboration with Climate Policy Initiative (CPI), the CPI-ISB Project).

Posted in Economic policy, Energy | Tagged , , , , | Comments Off

Leveraging Digital Power for Small and Medium Businesses
avatar

Introduction                                                                                                                                       Small and medium Businesses (SMBs) globally have been slow to catch on to the IT bandwagon in general. Whether it was lack of access, affordability (both financial and other risks) or ignorance, reasons are many. Digital marketing is a critical component of such enablers for SMBs, a leveler where David meets Goliath and small and medium are adjectives only in mind. Now, nearly a decade into the digital revolution- digital media, digital marketing, ecommerce, social media are no longer buzzwords within the professional reach of a privileged few but has taken root in the mainstream. But how and where is an SMB owner to turn ‘digital’? Innovative in its concept as also in execution, the Digital Summit, organized on August 30-31, 2013 at the Indian School of Business (ISB) was inaugurated with a workshop on digital power for SMBs.

Understanding Digital Presence                                                                                                   Amit Mehra, Assistant Professor of Information Systems at the ISB kick-started the workshop by introducing the theme and providing a framework for the discussions and sessions that followed. Using the concept of the ‘purchase funnel’, a step-wise marketing decision-guide, he analysed how business goals of firms can be approached within the framework of digital media.

Fig 1. The Purchase Funnel

Through local Indian examples like Kalyan Jewellers and Pal Dhaba, popular small businesses that are already implementing digital media strategies, participants were exposed to the nuances of the theme. In examining a range of media options such as email marketing, sponsored link advertising, search engine optimization (SEO), social media and blogs, participants were made to relook at branding and media strategies.

Some interesting insights from the session included commonly faced issues like comparison of payment options, viz. cash cards vs. cash on delivery options. Tips were shared for increasing collection ratio through email reminders, customer segmentation and also promotional techniques like coupons and rewarding brand loyalists on social media.

Marketers also learnt about other current practices in digital marketing- like retargeting of customers through cookies and path dependence of advertisements online. Interesting discussions on issues of ethics in such practices aided a comprehensive understanding among participants. The power of analytics and design of experiments to enable good decisions in online marketing was emphasized too.

Professor Mehra concluded the session by focusing on opportunities offered by owned, paid and earned media- referring to privately owned media like websites, paid access to media space in the form of advertisements on portals and aggregator websites, and the media reach generated through customers and stakeholders willingly providing free publicity through social media.

Digital landscape in India                                                                                                           The second session was organised by digital media experts from Google. Google has designed various popular and free tools specifically for the benefit of SMBs. Mrinalini Chakrabarty from Google referred to the case of Tanjore paintings as an example of small, niche businesses going digital and reaping benefits. While emphasizing on the reach, precision and economies associated with digital marketing she also cited various statistical trends as evidence of an exponential rise in web use, SMB presence and video content, indicating the potential of the opportunities that can arise.

 

Fig 2. Mobile internet traffic overtook the web traffic in India last year

 

Fig 3. Internet Economy as percentage of GDP

 

 

 

 

 

 

 

In highlighting the contribution of the internet economy to the overall GDP of a country, Chakrabarty pointed out to a research study by Boston Consulting Group, where India scores higher than the developing market average, though still much below developed countries. The Comscore report for 2013 puts India as the fourth largest market for search engines and third largest for internet using population, having recently overtaken Japan. With Google controlling nearly 90% of the search engine market, the experts recommended integrating SEO and marketing strategies and developing multiple device and multiple platform applications for optimal digital media utilization.

Participants were also given a hands-on opportunity to interactively design and implement digital marketing strategies in the workshop. Syed Malik, Pooja Srinivas, Saumitra Pant and Bhavana Moryani took turns to demonstrate Google’s easy-to-use yet powerful tools for digital marketing. Apart from a detailed overview of webmaster tools required by a digital marketer including search engine optimisation, AdWords, AdSense and TrueView, a suite of popular tools for marketers were shown with live examples. Among them included Google Trends, Brand Impressions and Global Market Finder, tools that help marketers plan, design, execute, monitor, analyse and report on marketing campaigns. An interesting and useful feature is the ability to compare and feed both online and offline marketing channel data from Google as well as other providers into Google Analytics to generate a common report.

If the proof of pudding is in its eating, the power of digital marketing lies in the numbers. The ability to track campaigns through their customer’s online footprints gives much power to marketers. Whether it is to design experiments to plan optimal strategies, or to fine-tune and implement mid-course corrections or to be able to assess accurate Return on Investment on the marketing rupee, the control provided by digital marketing is unique and dynamic. But then how does one measure and track this value? Suman Ann Thomas, Assistant Professor in Marketing at the ISB, led the participants through the nitty-gritty of the calculations while keeping the business goals in mind.

The objectives for digital marketing could be along the entire marketing value-chain; from increasing access to a larger prospect base to increasing loyalty through increased engagement of customers. Resonating with the theme of the purchase funnel, this framework is easy to relate to. While defining objectives, a popular and powerful way is to use the SMART- Singular, Measurable, Achievable, Relevant and Timely approach.

Fig 4. Digital Marketing Objectives

Digital Marketing Analytics: Lessons from Air France Internet marketing case study             A representative case study on SEO of Air France put the analytics of digital marketing in perspective. Built around pillars of customer analysis, competitor benchmarking and SWOT analysis of self and competition, the market-place analysis helps set the stage for further analysis.

In the execution stage, one must build the elements for analysis. A sample list for these is shown below. In order to get these finer details one needs to do exhaustive customer study and market research. Surveys or other primary and secondary data sources are required to extract the required information.

Measurement metrics                                                                                                                 The intuitive metrics used for SEO analysis in internet marketing are:-                                       • CPI- cost per impression                                                                                                                 • CPC- cost per click                                                                                                                           • CTR- click through rate                                                                                                                   • TCR- transaction conversion rate

Using these simple metrics one can derive marketing outcome metrics. Return on advertising (RoA) spends simply captures efficiency in terms of revenue generated per unit amount spent on advertising. Another metric of interest is probability of booking represented by- CTR multiplied by TCR. This calculates the probability of generating a sale from a delivered impression. Mapping booking rates and costs per click along with volumes (represented in the graphic below) enables better and efficient decision making. There are other similar techniques to plan campaign level strategy and increase impact on Key Performance Indicators. Professor Thomas concluded with her marketing analytics mantra, “An appropriate framework, right metrics and a comprehensive analytics toolbox.”

Ecommerce for SMBs                                                                                                                       The size of the Indian ecommerce industry is estimated to be around US$ 1.8 billion in 2013 with over 14.3 million online shoppers in India. The increasing use of the mobile is a trend fast catching up in ecommerce. Processes and features like payment, store location, in-store comparison, discount coupons and self-checkout, are fast changing with the increased use of mobile ecommerce.

Fig 5. Top 10 eCommerce Savvy States

Fig 6. Engines of Growth

Popular sites like eBay play the role of creating two-sided markets. Getting both buyers and sellers requires a value creation by the market-place that is simultaneously attractive to both. On one hand, it promotes low-cost entrepreneurship that is profitable and on the other, it translates into value at lower costs for the customer.

Consumer behavior in ecommerce is being shaped by increasing mobile penetration and the growing role of social media as a recommendation engine. As a sourcing destination, Indian ecommerce entrepreneurs are exporting among other products natural diamonds, fashion accessories, homeopathic medicines and sarees to the US, China, UK and South-East Asia.

Conclusion                                                                                                                                         The time of “the long tail” has truly arrived. There was a significant amount of business activity in small and medium businesses that was hitherto untapped. However now, such businesses are increasing their scope and breadth of activities through aggregator sites like Google and eBay. Large businesses were the focus of IT, telecom and other technological advances but SMBs have emerged as a segment- the long tail- that no one in digital marketing can ignore. Success stories are many, and with some handy tips one can navigate the road of opportunities and pitfalls with ease. A roadmap, strategies, shared experiences from execution and a step-by-step evaluation of the journey surely prepares an enterprising SMB better. The day-long workshop exactly delivered on that premise.

The workshop and industry sessions were organised at ISB Digital Summit 2013 on August 30 and 31, 2013.  The 2-day annual conference, explores successful and emerging business models which leverage the Networked Economy & Digital Media. 

Sandeep Khurana, Fellow Programme in Management (FPM) researcher compiled this post for ISBInsight. 

Posted in Knowledge Session | Tagged , , , , , | Comments Off

Studying at ISB Vs. Studying Abroad
avatar

In last week’s blog, Should You Go to B-school?, I wrote about a few things that could help you decide if B-school is right for you at this point in your career. If you believe that you have reached a stage where it can help both career growth as well as personal growth, you may be curious about the differences between studying in an Indian B-school and studying abroad. So let’s take a look at some of the key parameters you need to think about while choosing a location. In each case, I will also explain how we approach it at ISB. Many of the points may also apply to other Indian B-schools.

Local context – Top global B-schools have robust MBA programmes that equip their graduates with the necessary tools and abilities to do business anywhere in the world. That being said, having local context can provide sharp insights that you will need in your post-MBA job in that country. Whether you are studying consumer behaviour, the public policy system, accounting norms, or just about anything else, nuances vary from country to country. My suggestion to you is to go to B-school in a country where you intend to work after graduation.

The ISB PGP is structured so that there is a good mix of local and global context. Visiting faculty coming to ISB from various parts of the world bring case studies and insights from their countries while Permanent faculty provide a strong understanding of Indian business fundamentals, based on their research in local companies and organisations. This gives our students a breadth of exposure to international practices along with depth of expertise in Indian business. That means that not only will you be able to thrive in an India-based role, but will also be able to adapt quickly to an international posting.

Pedagogy – While deciding between Indian and international B-schools, try to learn more about the pedagogy a school follows. Is teaching purely case-based, or is it driven by lectures, or is there a mix of both, or do they follow something else? International schools often use different pedagogical tools than what’s common in India and different students respond differently to the various teaching methods. So pick a school that uses methods that work for you.

At ISB, while the subject matter being taught provides flavours of Indian and international business, the method of delivery follows global best practices. We use a combination of lectures, simulations and case studies, depending on which is better suited to a subject. Case method of teaching may have little to offer in a class that is introducing basic accounting terminology but would be critical in a class on change management, where a lecture by itself cannot lead students to uncover the complexities and nuances of the subject. And if you want to understand how customers react to your marketing strategy, why not use a simulation?

Faculty – Most of you will agree that the faculty at a school play a central role in determining the quality of education that students receive. In fact, students’ decision to apply to a school is often heavily influenced by the strength of the faculty there. Some schools have a roster of Nobel laureates as faculty, while some other schools boast of faculty with a track record of nurturing student companies into technology giants, and yet another school’s faculty may be known for developing and using unique pedagogical tools. While choosing whether to study in India or abroad, consider what the faculty have to offer you – your learning in B-school is highly dependent on this.

In fact, why limit yourself to the faculty of just one school when you could learn under top faculty from several global B-schools in your programme? ISB’s unique portfolio faculty model offers you precisely that – a potent combination of Permanent faculty from ISB and Visiting faculty from other schools like Kellogg, Wharton, LBS, MIT Sloan, Fletcher, Stanford, Haas, Darden, HEC, CEIBS, NUS, and many, many other top schools. Some of our Visiting faculty even come from organisations like UNICEF, World Bank and NASA! The Visiting faculty bring a strong international element to the PGP.

Our highly accomplished Permanent faculty add tremendous depth to your learning. We follow the tenure system, which is designed to reward faculty that perform high-quality research. So when you learn from them, you are the beneficiary of a wealth of knowledge and insight that they have accumulated by analyzing tons of data over several years, closely interacting with decision makers, and conducting impactful research that gets published in top-tier journals. 100% of our faculty hold Ph.D. degrees.

International exposure – Obviously, if you want to learn more about life in a particular country, a great way to do that is to live there. Combining it with business education makes it an experience of a lifetime. Some international schools also have a very diverse class with the majority of students coming from other countries. If cross-cultural experiences are what you seek, then going to such a school would be prudent.

At ISB, international exposure through peer learning is critical, with approximately 30% of our students having had significant international experience. In addition to their input as well as that of foreign students that enrol in the PGP every year, we provide global exposure through our faculty (as discussed above), various international B-plan competitions and industry visits, and our international exchange programme. ISB has exchange programmes with 40+ schools across the world and this gives you a great opportunity to either visit those countries or host students from there when they come to India. Explore the international exchange opportunities at ISB to learn more about how you can benefit from them.

Careers –A lot of students are interested in international careers. Once again, studying in the country that you would eventually like to live and work in is a great way to build networks and uncover opportunities. However, do the necessary homework to figure out the visa requirements, work culture, long term career options, taxes and regulations, quality of living, impact on family members, exit options, etc. before investing your time, money and effort in a B-school programme in a particular country.

The placement process at ISB includes an international placements component. Companies with presence in multiple geographies and looking to hire for an international posting start their recruitment process at ISB much earlier than those looking at domestic placements. Students in an international exchange programme may also have access to career fairs and mixers being held at the host school.

Cost – Finally, let us take a look at a critical parameter in most applicants’ decisions to take up a programme. Various costs associated with going to B-school include tuition, books, accommodation, living expenses, insurance, opportunity cost of not earning for the duration of the programme and miscellaneous expenses. Not counting opportunity cost, an MBA programme from a top school in the US may cost a single student (as opposed to a student travelling with his family) about USD 180,000 for 2 years. A 1-year programme in Europe may cost about EUR 80,000. Taking today’s (currently high) exchange rates of INR 61.6 per USD 1 and INR 84.7 per EUR 1, this approximately works out to INR 1.1 Crore for the 2-year programme and INR 67.7 Lakh for the 1-year programme, not counting travel and documentation charges. If you plan to bring your family along, these numbers increase. There are less expensive programmes available, of course, and there are many ways to finance your education too – scholarships, loans, etc. What is important is that you determine how much debt burden you can take on, given the opportunities and experience this offers you, and how you plan to service that debt.

We believe that it is important to keep opportunity costs low and so have adopted the 1-year format for the PGP. This means you can graduate and get back to the workforce faster, now earning a multiple of the salary you entered the programme with. Also, at INR 25.7 Lakh (including taxes), cost of the ISB programme is significantly lower than comparable international programmes. Of course, this is higher than most other Indian programmes but few can match what the ISB PGP offers – a 1-year, internationally top-ranked, research-driven business programme delivered in world-class campuses by faculty from some of the best schools in the world! I should also mention here that ISB is AACSB-accredited (the first in South Asia to earn this accreditation) and is supported by Associate Schools – Kellogg, Wharton, London Business School, MIT Sloan and Fletcher School of Law & Diplomacy.

So keeping the various parameters discussed here in mind, do your research and evaluate different options for your B-school education. Your requirements and constraints are yours alone and you need to find the programme that suits you best before you embark on an experience of a lifetime! If you find that you need more information or advice at any point in the decision-making process, you are always welcome to contact us.

All the best!

Posted in Uncategorized | Tagged , , , , , , , , | Comments Off

Doctoral Education in Management: The Crisis & Blueprint for a Possible Cure
avatar

India does not have enough qualified teachers to train managers for its growing needs. It is estimated that the current shortage of faculty in Indian business schools is about 16,000, of which by norms a third should be PhDs. Professor Phanish Puranam of INSEAD and visiting faculty at the ISB, signals the looming crisis in the future of management education in India and proposes a blueprint for a possible cure. 

Doctoral education in management in India is in crisis. There are about 4,000 business schools in India today, with estimated faculty strength of 30,000. These schools collectively have the approved capacity to offer postgraduate degrees in management to about 350,000 students every year. If the All India Council of Technical Education (AICTE) mandate to maintain a student to faculty ratio of 15:1 is taken seriously, and assuming a two-year programme, the shortfall comes to about 16,000 faculty members.

The AICTE norms for faculty positions at management schools also require that professors and associate professors together make up a third of the faculty strength and that they should all have PhDs (or equivalent qualifications). Thus, there is no dearth of demand for management faculty with PhDs.

Rather, the problems lie on the supply side. The country has about 500 doctoral programmes spread across various universities and institutes of national importance. Together, these produce fewer than 1,000 PhDs in management and allied topics in a year. Even more critical than the shortfall per se, is the question of quality and cost of resources involved.

Various segments of PhD Aspirants                                                                                           My conversations with colleagues and friends engaged in the doctoral education space in India suggest that there are several different segments in the market for doctoral education: 1. Researcher: Following the award of a degree, the recipient aims to take up a professional academic career as a peer-reviewed researcher and teacher in a university department or business school.                                                                                                                               2. Educator: The recipient of this degree will take up a professional academic career in a university department or business school primarily involved in teaching and occasionally developing pedagogical case studies.                                                                                             3. Sophisticated Practitioner: In this case, the graduate will (re) enter a career in industry, or occasionally, public policy. The primary activity is the practice of management itself.             In the case of each of these kinds of PhD seekers, the creation of knowledge features in their post PhD activities; however, there are some other categories of PhD seekers for whom this is less obvious.                                                                                                                                     4. Job Keeper: As the AICTE directives become mandatory, many assistant and associate professors who currently do not have PhDs will be forced to earn them in order to be promoted or retain their positions.                                                                                                   5. CV Builder: For individuals in this category, the PhD degree is essentially a vanity product to enhance their CVs.                                                                                                                         6. Stipend Seeker: For some candidates, the stipend they receive as a PhD student may be sufficient reward, without any focus on knowledge as such.

Focus on creating knowledge                                                                                                          In the Indian market for doctoral education, the Educator and Sophisticated Practitioner segments are virtually ignored by the top B-schools; in fact, they are actively screened out.

The doctorate is undoubtedly a research-based degree, but this does not imply that the recipient need only pursue a career in research. Prima facie, there is a market for Educators and Sophisticated Practitioners with PhDs.

In India, the model of doctoral education we have adopted is one that, at least on paper, focuses exclusively on producing Researchers. It is doubtful though that this has been a very successful move; we can certainly say from the publication data that only a small handful of researchers in management successfully publish their research in the world’s top-ranked journals.

Spending meagre resources to try to offer all things to all candidates is a recipe for all-round mediocrity. Putting everyone through a poorly delivered Researcher training programme (even if we throw in the option to do it part-time) and hoping that we end up with reasonable Educators and Practitioners is futile. We may end up producing Job Keepers, CV Builders and Stipend Seekers, but no outstanding Researchers, Educators or Sophisticated Practitioners.

Thus, a solution I submit for consideration is to explicitly design multiple tracks for doctoral education. While a core set of courses would be common across these tracks, candidates could sort themselves into different streams based on their interests. This will also aid the process of creating quality and cutting-edge knowledge and practice.

Of course, not every institution needs to cater to all three tracks; there may well be gains from specialisation. Perhaps the biggest gains will come from the ability to invest scarce resources −scholarships, faculty time and research budgets − in a more discriminating manner.

Conclusion                                                                                                                                         One fact seems inescapable: the next few years will see a dramatic explosion in the scale and importance of doctoral education in India, given the mismatch between demand and supply. To meet this demand, we can be innovative and try to use the opportunity to build better models from scratch − ones that work for us and are free of the legacy constraints of models from around the world. I have proposed one blueprint, which involves recognising the broader possibilities of doctoral education in management. Surely there are other possible blueprints. Let the conversation begin.

PhD Training in Management in India: Is there a Doctor in the House?                                       By Phanish Puranam                                                                                                                         ISBInsight, April –June 2013, Vol 10 Issue 4, pp 5-11 

Read the full article- PhD Training in Management in India Is there a Doctor in the House

Posted in From the archives | Tagged , , , , , | Comments Off

Should you go to B-school?
avatar

Today, let’s take a look at some of the basic issues that many B-school aspirants have to consider before deciding on whether to apply or not. Most aspirants want to grow fast in their careers and have different avenues to do so, so what benefit does one get from investing time, money and effort to complete a business programme? Let’s look at different scenarios and then deep dive into the nuances of going to B-school.

Consider this situation: You’ve done fairly well thus far in your career/ academics/ activities, etc and have been growing fast in your organisation. You have a good salary, growing responsibility and some recognition. You’re still doing great work and putting in the necessary effort, but deep down, you know that there is a lot more that you could be doing. You yearn for far greater responsibility, recognition, profitability in business, etc, commensurate with your potential. Sounds familiar? Some of you may even have identified what is holding you back: you may need to develop new skills, new thinking, new networks, and/or greater credibility.

So how can you do this? You could try to do it within the organisation, but the reality is that most job roles focus on deliverables rather than on building an individual’s skills and networks – skill building in such cases is more a secondary outcome than the primary intention. You could switch roles/jobs and get a boost in responsibility and recognition, but what happens when the same situation reoccurs in another year or two? You could switch your field itself to something with greater growth potential (assuming an organisation gives a newcomer an opportunity) but then you would most likely have to start from scratch.

Of course, skill development and career growth can come from outside of your workplace too. You could go back to school and focus on learning new skills required for your dream career. However, full-time courses from top schools require time and money, while part-time courses extend for several years and may not be as well-recognized. Instead, you could pick up new skills by volunteering in social groups and communities. That needs significant commitment, gives no guarantee of recognition, and learning would be ad-hoc (still, not a bad option). You could even start up on your own, assuming you have an idea you are passionate about, sufficient resources and an appetite for risk (again, not a bad option).

There are several other avenues, each with their own pros and cons. You may not know which is right for you, but you do know one thing: the time has come to do something about your unmet aspirations. So evaluate your options and identify what works best for you. Let me help by sharing some thoughts on the costs and benefits of going back to school – more specifically, business school.

The most fundamental benefit coming from B-school is the process of learning. When you shift your primary focus from executing daily tasks to immersive learning over an extended period, it rapidly elevates you to a much higher plane of abilities. This is especially true when using advanced course material and teaching formats, and being guided by subject matter experts. You evolve in the way you think and react, having been exposed to multiple ways of approaching any given problem. And when you are spending days on end with diverse individuals who share your quest for improvement, transformative life experiences abound. The end result is that you are now able to handle a whole new range of challenges in a creative, methodical and mature manner. This makes you highly valuable to recruiters, bosses and investors.

It is common for B-school grads to see returns in the short term by way of challenging jobs, new responsibilities via promotions or business opportunities, soon after graduation. However, you must realise that the true value of higher education is unlocked only over the medium- and long-term – opening doors for leadership roles, an ever-expanding network of influential alumni, or even just a credible brand that backs you for life. Keep that in mind while considering going back to school.

Of course, all this doesn’t come free – you must be willing to invest your money, time and effort in your future. Depending on the programme chosen, you may be away from the workforce for one or two years, during which time you are no longer earning but are spending on your education. Weigh the cost of financing your education against the increased income over your working career to compute (a purely financial) RoI. Also understand that time spent in school is time spent away from home, family, friends, hobbies, sports, travel, etc. Whether it is a part-time programme on weekends or a full-time programme, it will cut into your personal time. Weigh the benefits of a brighter future against the cost of quality time sacrificed in the present. Finally, appreciate the fact that B-school can be extremely demanding. There is a reason why admissions to top B-schools place so much importance on learnability and achievement orientation – it is because you will need both of these to survive the programme, let alone thrive in it. If you are considering going back to B-school, be mentally prepared to immerse yourself in it, and you will come out stronger.

These are the basic costs and benefits that most applicants would need to think about, and there are likely to be several more that are unique to your needs. Find ways to mitigate or eliminate the costs, and weigh the remaining against the benefits of taking up the programme. That will help you decide if you should go to B-school at this point in your career or not.

At ISB, we recognise these issues and have done our best to address them. Our 1-year PGP format minimises your time away from work, as compared to a traditional 2-year MBA. We also support you in acquiring a significant career shift and/or advancement, so that you can more than make up for the year away from work, possibly exiting with a multiple of incoming salary, and on a new path towards the career you envision for yourself.

1 year also means lesser time away from family, which is great. However, we go a step further and encourage you to bring your family to campus itself! Both our campuses are very family-friendly and offer a range of amenities for your spouse, kids and parents. The course is also structured so that classes take up only 4 hours a day, so you can manage your schedule to spend sufficient time with family and/or pursuing your hobbies and interests. Of course, you would also need to spend a significant amount of time preparing for class and working on assignments, but time management and setting priorities are in your control. There are also 6-8 significant term breaks throughout the year, which students often use to travel home or to different places. In fact, many students travel a lot more during this 1 year in the PGP than they do while in a job with limited leave!

And finally, we want to ensure that your effort is not wasted. Yes, the course is hectic with 680 contact hours in 1 year (as opposed to 720 hours in a typical 2-year programme), but you can choose where to invest your time and learn what is important to your career, rather than focusing only on marks. We are serious about this – so much so that for every person on the Dean’s List who is recognized for academic performance, there is also a Young Leader or Torch Bearer awardee, who is recognised for accomplishments in leadership roles, industry interface, global business competitions, etc. So invest your effort where it gives you the most benefit.

I hope this has helped you gain some clarity about evaluating your options and what role B-school (and ISB in particular) can play in your learning and career growth. My suggestion to you is that when it comes to making one of the most important decisions of your career, keep the long-term view in mind.

If you want to learn more about what the B-school experience has to offer, you can go through some of my previous posts on different aspects of the ISB PGP: Learning goals of the programme, importance of faculty research, applied learning opportunities, extracurricular activities, diversity of student body, and more. You may also be interested in listening to Prof Sarang Deo’s advice to prospective applicants. And finally, if you are curious about what is needed to apply to B-school, here is a quick reference guide to applying to ISB. As always, if you have any questions, please do not hesitate to contact us.

All the best!

Posted in Uncategorized | Tagged , , , , | Comments Off

International Exchange Opportunities at ISB
avatar

Every year, many of our students participate in international exchange programmes and study at B-schools in different countries for 1-2 terms. This gives them a great way to experience new cultures, expand their global network and get a feel for what it’s like to do business in that country.

The motivations to take up an exchange programme are many. Perhaps you may want to experience the teaching methods followed in another country and benefit from being exposed to a new approach to learning. Or you may be considering an international job opportunity and want to participate in an international career fair, which would be available to you at many of our partner schools. Perhaps you already have an international job offer and want to get a taste of work and life in that country before accepting the offer. You could be part of a family business, looking to explore business opportunities in that geography. Or maybe you are an avid traveller and want to use this opportunity to live as a student in a different country for a few months – undoubtedly an experience of a lifetime. Whatever your reason, the exchange programme is a great way to expand your horizons and build a network of classmates from multiple countries.

Currently we have exchange programmes with 40 schools across the world, in all continents except Antarctica! So there is no dearth of opportunity to visit a country you’ve never been to before. The process of choosing a school/country for the exchange programme is also very simple and everyone has equal opportunity, based on bidding points (the same process we use for choosing electives in the programme). You’ll be happy to learn that there is no additional tuition cost for studying in exchange schools, which normally could get quite expensive. You will need to manage your own travel and living though. And of course, ISB and the exchange school will help with visas, so please keep your passports ready! More information about eligibility criteria, application procedure, code of conduct, etc can be found here.

So if you’ve always been curious about what makes China tick, or what life is like in Spain, or how Wharton or LBS students are preparing for business, why not go there for two months and see for yourself? ISB is providing you a world of opportunity, literally, so make the most of it. And if you are unable to go on exchange for whatever reason, you will still get significant exposure through the several international students who come on exchange to ISB every year. Chances are you will be doing business across borders with them sometime in the future.

All the best!

Posted in Uncategorized | Tagged , , , , , | Comments Off

When should founders call it a day?
avatar

 In light of the recent investors’ call for Bill Gates to step down as Microsoft chairman, Professor Kavil RamachandranThomas Schmidheiny Chair Professor of Family Business and Wealth Management at the Indian School of Business, examines the role of the founder.    

Most organisations do not last even two generations, let alone evolve themselves to become lasting institutions. Indeed, founders feel shattered. They cannot imagine such a scenario. They seldom realise that they themselves could be the cause of death of their baby and that is often because they do not hand over their creation to the safe hands of someone else in time, and leave the scene. Why?

Starting with a passionate idea of an organisation, the founder is expected to lead its growth and transformation, fully aware of the organisational challenges of identifying and blending resources to take advantage of the opportunities. The most important value that a founder should always possess and practice is custodianship. Leaders with this value believe that they have a responsibility to preserve, enrich and pass this value over to their succeeding stakeholders. Such a value has a number of manifestations. Founders will see the organisation beyond themselves. Their decisions will be driven basically by a single criterion of relevance to the organisation.

Founders should realise that institution-building is like a relay race. Founding leaders who set norms for the successors to follow do well for the creation of institutions out of organisations. Precisely for the same reason, a founder is expected to listen to others encouraging criticism and disagreements. Such leaders know that there are smarter and more capable people around, and there are many ways of addressing organisational challenges.

Founders’ dilemma: It is not that founders of well-established organisations are intellectually timid not to know about institution-building or even the need to have a relay race for succession. In fact, at the top, in their lonely palace, founders constantly face a number of dilemmas, to some of which they are unable to find answers, and on some of which they never act.

There are two kinds of dilemmas. One is related to the organisations. Most founders who grow up along with the organisations tend to believe that they know the organisation and its requirements much better than anyone else. They do not expect anyone to have the same level of parental passion and commitment to take care of the organisation in the future. In the absence of identifying any successor with adequate capabilities or attempting to find one, the founder takes it as a fait accompli that they will continue to play an active role.

The other dilemma is about what to do next. Also, many founders do not plan or even visualise a situation in which they will not be indispensable to the organisation they had passionately helped create.

Founder departure – have a strategy: Founders then need to prepare the ground for their own departure. They need three things. One, a strategy for the organisation and development of its leadership; two, to decide what they would do once they move out of the organisation; and three, to decide a date for completing the transition and stick to it.

(i) Prepare the organisation: The founder has to nurture a pool of talented people with leadership qualities in the organisation. Succession then happens like a smooth relay race, with all runners sharing a passionate goal, and doing everything to accomplish it. This takes time, but enables the founder to leave the stage without any worries about the organisation’s future.

(ii) Monitor relevance: Given that an organisation and the founder are two separate entities, founders have to regularly monitor the relevance of their capabilities for the future success of the organisation. Some warning signals are: gradual loss in market share and drop in performance, frustration and departure of key employees, difficulty in attracting talent and losing respect in the market place. In most cases, founders tend to find convenient explanations for a less than comfortable situation. Founders need trustworthy individuals who are encouraged to express their views, particularly dissenting ones. Founders should seek frank feedback from their board on their role and contribution. They need “detached passion”.

Time to change personal portfolio: As one grows old, the ability to take risk naturally declines, and so, it is almost impossible for a person with a proven track record in one area to start exploration and experimentation in new areas that may not always prove to be so successful. Everyone has a fear of failure in different degrees. This is particularly so for those who have spent a lifetime in a single business. Besides, in most cases, people do not realise or recognise their own diminished relevance in a changing society.

Founders should develop a personal strategy for themselves and review it every five to ten years, especially once they turn 50 years, and retain flexibility to reconfigure their portfolio of activities. They need to cultivate interests in other areas, related or not. It is important to start reflecting over oneself and acquire new personal capabilities early on, particularly in terms of attitude and willingness to change. This alone will enable founders to shift gears at short notice. They should start redefining their roles more frequently after 50 and empower more capable and passionate people to take charge. Once the ground is prepared, founders will have less difficulty to move on based on a planned schedule. It is always useful to remember: Ask not for whom the bell tolls, it tolls for thee!

This post originally appeared as an opinion column in Business Standard dated October 10, 2013.

Posted in Insight in the News | Comments Off

Teaching and Learning in Management
avatar

“Sage on the stage” or “guide on the side”? What will be the right role and training for the next generation management faculty? Professor Arun Pereira of the Indian School of Business highlights new approaches to revolutionizing teaching and learning in Indian business schools.

The Importance of Teaching
Phanish Puranam makes a compelling case for modifying the traditional model of doctoral education through specialised “tracks” that would lead to PhD specialists. The three types of specialist tracks he suggests are “researcher,” “educator,” and the “sophisticated practitioner.” Also, he proposes a set of minimum requirements in the curriculum that would be common to all tracks. I think there is a strong case to be made to broaden his proposed common curriculum to include the function of teaching, because irrespective of the specialisation, all three types of PhDs would be expected to perform a teaching role, albeit to varying degrees…if Professor Puranam’s PhD model gets wide acceptance, then
programmes with a teaching function as part of their general curriculum requirement will produce PhDs who are more valued in the market, than programmes without this component.

The Doctoral Consortium Approach
How should teaching and its related areas be addressed in the curriculum of a PhD programme? This process can be accelerated with an appropriate teacher-training intervention – ideally, early in an academic’s career – to help move the novice teacher up the learning curve quickly. One such intervention is a “doctoral consortium” on teaching that invites final year PhD students from business schools’ doctoral programmes for intensive teacher training and coaching, before they embark on their academic careers. Such a consortium was organised by the Indian School of Business (ISB) in 2012.

The consortium will address various issues with regard to teaching excellence in the MBA classroom, including the critical element of one-on-one coaching. The aim is to expose doctoral students to tried and tested practices as well as exciting emerging innovations in the area of teaching. It will help PhD students get a head start in developing their own individual teaching style, by first understanding what enables deep and long-lasting learning.

Further, the consortium will highlight innovative approaches to effective teaching by taking advantage of new technologies; for example, today’s technology enables the “flipped classroom” where traditional lectures (passive learning) can be taken out of the classroom and offered as assignments, and traditional group assignments (active learning) can be brought into the classroom to be managed by the teacher for more effective learning.

The consortium will attempt to spark a change in the approach to teaching and learning in India, by encouraging the next generation of Indian business school faculty to move from the traditional “sage on the stage” model to one where the teacher takes on the role of a “guide on the side.”

Doctoral Education and the Teaching Function by Arun Pereira                                                   ISBInsight, Volume 10, Issue 4, March 2013, pp 24-26   

Read the full article- Doctoral Education and the Teaching Function

Posted in From the archives | Tagged , , , | Comments Off

Release of ISB Insight October- December 2013
avatar

We are pleased to announce the release of the new issue of ISBInsight for October-December 2013. At the outset, we would like to acknowledge our Guest Editor-          Professor Krishnamurthy Subramaniam, Assistant Professor of Finance, ISB, whose contributions and efforts in conceptualising and shaping this issue were invaluable.

This issue brings a selection of articles from one of the most selective finance research
conferences in the world: the Summer Research Conference in Corporate Finance organised
by the Centre for Analytical Finance at the ISB and the Wharton School of the University of
Pennsylvania. The burning topic these articles address is one that concerns central bankers,
business leaders, share-brokers and equity analysts alike – what are the mysterious
fundamentals that make or break company fortunes?

The drivers of enterprise valuation our authors uncover are sometimes surprising
- corporate board composition, innovative assets, political speeches, and philanthropic
contributions. Who would have thought? Yet, if any evidence is to be trusted, it is in these
pages. These authors are not after mere correlation or connection. Their findings aim to
identify concrete verifiable causal relations, established with the most rigorous statistical
tools of academic research.

Our Features section this time showcases answers to a truly eclectic range of questions: can
a city-wide public transport system like the metro really reduce pollution levels? How do
young people in slums interact with Facebook and social media? And for all those of us
who have ever wondered: why do unhealthy foods have to taste so good?

Also not to be missed this time is our Face-to-Face section. We are especially pleased to
bring you an exclusive interview with YC Deveshwar, Chairman of ITC Limited and quite
possibly corporate India’s Guru of sustainability. Also, adding to the themes of the cover,
Eduardo Schwartz, one of the world’s leading thinkers on financial valuation, speaks about
“real options”.

For fresh, interesting insights and much more, read ISBInsightTo order your personal copy online, please click here.

Posted in Announcement | Tagged , , , | Comments Off

More ISB Myth Busters
avatar

Last year, I had blogged about ISB Myth Busters, with the aim of clearing up a few common myths about the ISB PGP. I am glad to see that it has helped a lot of applicants avoid some common mistakes. But more myths abound, so let me address some more:

Myth 1: I am an IT professional, so my profile doesn’t stand a chance

It is a well known fact that ISB values diversity in the PGP class. It is also known that a large pool of our applications (30-35%) consists of IT professionals every year. So the myth has propagated that IT professionals would find it difficult to differentiate themselves from the rest of the applicants and hence can’t get an offer of admission. Let me clear this up by first pointing out that your profession is only one among several possible differentiators, and we are more interested in your overall profile than just the profession you chose. In fact, the IT industry is known to provide candidates ample opportunities to build unique skills and differentiate themselves. From working on complex projects and managing teams at a young age, to building in-depth domain expertise with business-facing roles, and even learning about new cultures through significant international exposure, IT professionals have several opportunities to differentiate themselves with their skills and experiences. So if you happen to be from an industry that is booming in India and is a common choice among your peers, no problem at all. We are more interested in what you have done with all the opportunities you have had. It is up to you to identify your strengths and differentiators and present them well.

Myth 2: I am NOT an IT professional and my work experience is in a “not so well-known” organisation, so my profile doesn’t stand a chance

For every IT professional who is worried that his/her profession eliminates them from consideration, there is a non-IT professional, often from a little-known organisation, with the exact same concern about his/her own career choice! Once again, I must point out that your profession is only one among several possible differentiators, and we are more interested in your overall profile than just your profession. Even in your chosen profession itself, depending on the industry or function you are from, you may have had the chance to work with big brands, run complex audits, be part of teams that advise top companies, start your own enterprise, defend the country, save lives, make a difference to society, etc, etc, etc. The list of opportunities and differentiators is endless. We take pride in putting together a class where your skills can augment others’ and you can all learn from each other, so show us what you bring to the table (without worrying that it is not IT).

Myth 3: If I have a high GMAT score, then I will be offered admission easily

This is a follow-up to Myth 1 in the previous post, ISB Myth Busters. GMAT is only one parameter among several that we look at while evaluating an application. Yes, it is helpful to have a good GMAT score, but the evaluation process ensures that a candidate with a high GMAT score and a one-dimensional personality cannot get an offer of admission to ISB PGP. So even if you have a good score, you will need to focus on building a strong application and presenting your case well. This includes essays, recommendations, activities and awards, etc.

I’ll repeat it again: Low GMAT score does not mean immediate elimination and high GMAT score does not mean guaranteed admission. Your overall profile, evaluated holistically, will determine admission.

Myth 4: People should apply to ISB PGP with the main intention of getting a high-paying job when they graduate.

Top global B-schools the world over focus on learning and careers, not just job placements, and ISB is no different. What we offer is an opportunity to favourably alter the course of your career and your life by participating in an immersive, challenging and rewarding learning experience.  The ISB PGP gives you a chance to interact with the best academic minds in the world and learn from them; to meet highly accomplished people from the industry and work with them. This is a chance to push your limits and see what you are really capable of achieving. It is an opportunity to challenge your beliefs, by observing more viewpoints in one year than in your previous five years combined. Yes, Career Advancement Services will provide you many opportunities to interview with top companies for great jobs, but it is up to you to be well prepared, demonstrate your value, and sign on the dotted line. And of course, in the long run, far more valuable than any post-graduation job will be the lifelong friendships you will build with your classmates, who also happen to be the future CXOs of industry – just like yourself.

The ISB PGP is one transformative year of your life where you can build new skills, expand your network, evolve your thinking, and unlock your potential. Make the most of this platform to improve yourself and your career, rather than treating this as a year-long job hunt. We have much more to offer than that, so keep your eye on the big picture.

All the best!

Posted in Uncategorized | Tagged , , , , , , | Comments Off

Concentration: the case for putting all your eggs in one basket
avatar

by

Nupur Pavan Bang[1] and Khemchand H Sakaldeepi[2]

 

This article was first published in the Financial Times, FTfm, on September 30, 2013

http://www.ft.com/cms/s/0/d4e511fc-250f-11e3-bcf7-00144feab7de.html#axzz2gLgr9ACE

 

Is diversification the best way to invest in the market today? Not really. The portfolios of major investors worldwide make the case for another, often-ignored, strategy: concentration. Business schools need to refrain from pushing the merits of diversification without highlighting the efficacy of concentration.

“Do not put all your eggs in one basket. Diversify.” In 1952, investment aspirants received this clarion call from Harry Markowitz, a US economist and Nobel laureate. Peter Lynch, the famous US businessman and stock investor, “never saw a stock he didn’t like” and was a great proponent of portfolio diversification. While managing the Magellan fund, at the peak of his career, Mr Lynch’s portfolio had more than 1,000 stocks. To date, portfolio diversification remains the most important lesson taught to students of investment and risk management. The concept is a common thread in the investment approach of most fund managers and investors.

However, if we look at the portfolios of the rich and famous, they are, surprisingly, mostly concentrated. Several great investors, spread across geographies, have very concentrated portfolios. Warren Buffett, George Soros, Rakesh Jhunjhunwala and many others are renowned proponents of portfolio concentration. To Mr. Buffett, over-diversification presented a “low-hazard, low-return” situation and thus he dismissed it. A concentrated portfolio pivots on the absolute conviction of the investor in his or her stocks and his or her risk appetite.

A diversified portfolio, on the other hand, works well if the investor is optimistic about the stock, but wary of the associated risk. Investors like the first billion-dollar Indian investor, Mr. Jhunjhunwala, walk a fine line between the two.

John Maynard Keynes, the influential British economist, was another staunch supporter of concentration. “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes,” he once said.

Mr. Buffett, echoing Benjamin Graham, the father of “value” investing, says he does not just buy an insignificant thing that bounces by a small percentage every day on the stock market. He buys part of a real business and thinks like the owner of a business would.

Mr. Buffett says: “Wide diversification is only required when investors do not understand what they are doing.” Bruce Berkowitz, founder of Fairholme Capital and a leading “value” proponent, adds that just a handful of significant positions are enough to do unbelievably well in a lifetime.

In 2012, the results of a study from the Paul Woolley Centre for the Study of Capital Market Dysfunctionality, University of Technology Sydney, showed that if skilled fund managers invested in concentrated portfolios, they would improve their performance markedly as compared with the portfolios that they would build under the compulsion to diversify. Despite mitigating stock-specific risks, the method of diversification cannot fortify the portfolio against market risks.

Advocates of concentration also opine that building or creating wealth with a diversified portfolio is difficult, unless the entire market is experiencing a bull phase and all the stocks in the portfolio are performing well. Even then, you may not get the full advantage of a multi-bagger as your investment in that particular stock would be just a fraction of your entire portfolio. The anti-diversification camp proposes that to generate wealth some concentration is required, provided people know how to assess their risk appetites and simultaneously pick winning stocks.

Fund managers today are caught in a catch-22 situation. Is wealth generated first by diversification and then maintained through concentration or vice versa? Knowing that concentration has been the mantra for success for most investment gurus, is it savvy to jump on the “diversification bandwagon” by adhering to popular belief? Awareness of such dilemmas and seeking clarity on them is essential for future managers.

It is, thus, time for business schools to introduce concentration as an important strategy in wealth creation, management and enhancement. Special attention needs to be given to this in business pedagogy, as the training of financial advisers and finance students will remain incomplete if it is restricted to the hallowed realm of diversification as the only plausible investment strategy.

 

[1] Senior Researcher, Centre for Investment, Indian School of Business, Hyderabad (Nupur_bang@isb.edu)
[2] Researcher, Centre for Investment, Indian School of Business, Hyderabad (Khemchand_sakaldeepi@isb.edu)

Posted in Asset Allocation, Investment, Risk Management | Tagged , , , , | Comments Off

Preparing for the ISB PGP Interview
avatar

With the conclusion of Round 1 of applying to ISB PGP 2014-15 and the starting of interviews for shortlisted applicants, I wanted to share some thoughts on how you can put your best foot forward in the interview. The main points were covered in my previous blog post, Important Tips on Interviews. If you haven’t read that yet, please do so now before continuing with this post.

Assuming that you have read it and you now know some of the things we are looking for, let me tell you why they are important to us and give you some insight into our psyche. Through the PGP, we want to encourage well-rounded individuals with leadership potential and strong work ethic to realise their goals. We can help by equipping you with knowledge, skills, resources, opportunities, etc. In return, we expect that you will have an impactful career and make a difference to industry and society. But how can we identify the right candidates to invest our effort and resources in? Our logic is this:

  1. We believe that future leaders have a strong desire to accomplish more.
  2. We believe that they often overcome challenges and find ways to make things happen.
  3. We believe that past performance is a good predictor of future success.

These are the driving philosophies behind our selection process and our interview process. So at the admission interviews, keeping the above in mind, we will be delving deep into your experiences and achievements. We try to learn more about what motivates you, the tasks you took up and completed, obstacles you overcame and the learning from those experiences. We try to gauge your clarity of thought and ability to communicate those thoughts. We also see if you have a track record of exceeding expectations. While we may seek clarifications on any perceived weaknesses, our primary focus will be on understanding more about your strengths and drivers.

So while preparing for the interviews, something you must do is think about each of the things you have stated in your application and try to articulate your thoughts around them. Tie it to your future goals and see how the ISB PGP can help you make the transition from here to there. If you are clear in your mind about all these, then the interview will make for a thoughtful, interesting discussion between you and us.

And as stated before, it is very important to be yourself and to be honest. It will definitely come across in the interview and, needless to say, we value it greatly.

All the best!

Posted in Uncategorized | Tagged , , , , , | Comments Off