Responsible Management Education

The rise of Indigo

Indigo is india’s biggest profitable airline with roughly 40 percent market share . The airline has risen in last 10 years. It has got 135 modern and new aircrafts. The story of indigo is all the more exciting as the established airlines like air india, jet airways and kingfisher have made huge losses during last 10 years. Kingfisher has gone for bankruptcy and is closed down Air India has debt burden of 50000 crores. And the government is planning to privatise it. Jet airways could be saved because of timely investment by Ethihad. What has gone right for the indigo? Obviously many things. That’s why it has gained strength in a very difficult market. The key word here is business model innovation and coherent strategy where each part of the action is linked to the other to create unique positioning in the customer’s mind.

Indigo is low cost airline. For any low cost airline to survive , it has to bring down the cost operations to the minimum without affecting the quality and as well safety of passengers. Indigo bought single type of aircraft that was A 320 . The single type of aircraft brought down the cost of maintenance as well training to the staff members. The turn around time for one flight to another is also minimum. The company and its staff members reap the benefits of experience curve economy. As you gain experience doing same same things over and over again, your productivity and efficiency increase. The idea is to keep the aircraft flying for maximum number of hours to gain more revenue

Indigo gave bulk order to the Airbus industries and got maximum possible discount. That brought the the most essential fixed cost of buying aircrafts. The aircrafts are owned by the subsidiary company of the indigo which has leased the aircraft to indigo . While giving rent to its subsidiary, the cost of buying plane does not show up on its accounts. This is business model innovation which has made the airline profitable after first two years of its operations.

Indigo work force is young and aggressive. It has been able to ensure that flights are on schedule. Flights getting delayed have been very common in India By improving processes, it has been able to get almost 98 percent of flights on time. Punctuality has been the biggest driving factor for the growth of the airline. There many small process innovations which have made indigo such a powerful airline.

The airline spends good amount of time and money on training of the staff. That shows up in the operations. The rise of indigo has proved that if companies can get their acts rights and innovative , they can manage the tough external environment too.

In my workshops with executives on innovation , I try to emphasise that innovation should not be misunderstood with new product launch and research and development, it has got far wider meaning of doing new things, improving processes, doing business model innovations and looking at the innovative pricing to crate unique positioning of the company’s product in the minds of customer. The rise of indigo reinforces this view .

Education for Judgement

The role of a manger is to make decision and to make a choice out of many options to lead organisation successfully to the next level. Can we teach how to make decision and to think strategically? It is hard thing to do . But thats what management programmes around the world claim to do. It is very easy for professors to teach management principles in a class room but it is very difficult for mangers to practice those theories in fast changing, disruptive and difficult world. The firefighting, the survival and making sense out of chaos fill manager’s or leader’s days and months. The outside change is so powerful that it is difficult to change the dominant logic of the company even if the leader knows that past success is no longer relevant in the new context. The example of Kodak and Nokia are too prominent on this. Management programmes claim to train people to become leaders? Can they do that . For sure, leaders can’t be created in a classroom and through classroom discussions . But what can be done in the classroom is that students can learn thoughtfully from their own experience and understand the context. They also get to know that leaders arise in the context. They understand context and attempt to adapt and change the context.

Even the modest aim of making student reflect on their experience and helping them to understand the context, a normal MBA class should not be taught like a normal post graduate class. In a normal class the teacher lectures and student absorbs and records and keeps the notes That’s where the case method scores over lecture method of teaching and learning. In each case study you get ample opportunity to understand the context of a decision maker and also reflect thoughtfully on your own experiences and learn from the connection

The case method of teaching and learning is difficult to practice. The traditional model of teaching and learning is based on the idea of transferring information from the teacher to students. The teacher controls the pace, sequencing and presentation. The teacher lectures and student listen and retains the essence of what is being taught . In this method the teacher provides the solution . In the real world no body has the solution When a manager goes to the real world he has to find solution on his own based on the knowledge and logical and gut thinking. He needs to think and asks questions to make sense of an emerging scenario on daily and long term basis

The case method is unique way of teaching as it teaches students to think and think for themselves. Any concept or theory which helps him to dig deeper in the case to make judgement needs to be learnt and applied . He should ask questions and should prepare his own answer. In an ideal case discussion scenario ,students can discuss and form opinion to take a particular decision. Learning to think is hard. Learning to think by using numbers and structured process is harder. Learning to think by connecting dots and form a holistic picture is the hardest. In the case method a student is co creator of knowledge and explains the context along with faculty unlike the the lecture method .

This is a difficult mindset to master where teacher ideally should not teach and students also feel confident enough to ask questions, think , challenge assumptions ,explain context, connect with their own experience . The mastery of judgement takes a lifetime .leaders also falter and make wrong decisions but they remain open about it as the self aware person . They have got nothing to hide. This self awareness leads to success in spotting new opportunities, in understanding context and people and taking to a new path

By teaching through case method, a faculty gets enriched by that process. He discovers the new facets through his students . He knows the deeply about the case but not everything. At the end end he connects the dot and enables students to see a interconnection between forces to make decision. A leader is also judged by the quality of his decisions, his assumptions about people and situation .

The great business leaders like Jeff Bezos of Amazon, Henry Smith of FedEx , Herb Keller of South west airlines, jack welch and Jeff Immelt of GE, Ratan Tata of Tata group, Narayan Murthy and Nandan Nilekani of Infosys demonstrate great many skills but the mastery of judgement comes from thinking though and understanding context and emerging future and being guided the strong values .

Case method of teaching and learning should be introduced in school to make sure that students learn that there are no right and wrong answers at the end. The context matters, the character matters and that get forged in the real world through hard work and perseverance and resilience .while knowing a certain body of knowledge is essential it the application which matters most

Teaching and learning by transferring information has become obsolete as Google and apps are going give information whenever required . But curiosity, learning to think, raising questions are critical tools on which future of learning seems to be based on . Case method despite its weaknesses fills the gap and is the most apt method for education for judgement

The Economics of Innovation

Innovation has become key buzzword for the economy around the world. There are reasons for that.  The recent research shows that a major part of the rise of productivity in developed economies comes through innovation. Innovation in technology and management practices has raised productivity all across industries. This has increased the size of GDP and also per capita income. The good part Innovation led growth is that it requires improvement in quality of education and health and also human rights and democracy. They all contribute to this factor.

The role of  innovation in economy was recognized by famous economist Schumpeter, calling it necessary condition for economic growth through the process of ‘creative destruction” where new firms come up and old firms die out and in the process the overall economy and society get benefitted.

Economic growth depends on two ways in modern economy.  The one way is to increase inputs as land, capital and labour and the output increases. The accumulation of capital leads to the increase in output .But there is limit to this economic growth.  A low per capita income economy can rise to middle level economy. After that if the country does not start focusing on the research and innovation, the economic growth stagnates. The middle income trap sets in.

There is another way to increase the output by improving the productivity through improvement in technology and management of existing resources. It is also about finding cheaper alternative which increases productivity and lowers cost. Over the last few decades, the economic growth in developed economies has been spurred by that innovation. The computer, IT, telecom, Internet, Bio-tech revolutions have done stellar role in that.  New materials which are used in cars, airplanes, glass buildings, mobile phones and other gadgets make products better, cheaper and more effective. Innovations in medical equipment and diagnostic will make more effective .

Some of the innovations have done wonders to Indian economy. The best one is High Yield Variety  seeds which led to increase in production of food grains in India ,making it self sufficient in that. The productivity per hectare also increased, farm incomes in Punjab, Haryana and western UP also increased. Overall economic condition improved.

But to make innovation happen, one needs an eco system. The eco system includes Universities, R&D laboratories, interdisciplinary research, private companies spending on research and also sponsoring research in universities, culture of experimentation, investment in education, the facility of incubators, accelerators for start ups, the  private equity  firms and venture capitalists and Angel investors, robust  Intellectual property  and patent laws,  a start- up culture where student are encouraged to come up with new ideas and allowed to set up companies.

It is a tall order but a few shoots of this Innovation culture is springing up in India lately. Companies like Flipkart, Paytm, Snapdeal and Ola ,musigma, Inmobi, and many others have tried to become successful in recent days. There are thousands of small companies which are trying very hard.

The other part of startup eco system is focus on high growth small companies. The higher growth comes from scaling up and going beyond their home market.

India needs innovation because we are capital scarce country with huge population and high level of inequality.   The quality of innovations will determine the growth in economy and the quality of life in India.  How do we create schools where fees are very low but quality of teaching very high? How do we create hospitals where quality of health care is very high but charges very affordable? Two sectors have done this kind of innovation; one is telecom service providers and second is Delhi Metro- they provide best class services at cheapest cost possible while making reasonable amount of profit. Ola and Uber have shown how innovations can make public transport smooth, standardized and profitable for everyone.

Society which will try to solve global problems through innovation will become richer and better.  That’s why governments across the world are scrambling to get on board of this bandwagon of innovation, but it requires whole range of co-ordinated and yet independent institutions and also culture of tinkering and experimentation.  This is really hard to achieve.

– Professor Rahul Mishra
IILM Lodhi Road Campus

A Broad Liberal Business Education Is A Must

All across the world,business education has quite a narrow focus. The application oriented subjects which have got practical value are being taught to students. This serves well when the pace of technological, economic and social change is slow and managers mostly have to act with functional knowledge. When the pace of change quickens, managers must wear leader’s hat and think broadly beyond their functional knowledge.

The best B-schools of the world claim to educate leaders who are going to make a difference in the world. To make this happen, B-schools need to look at the curriculum more closely and bring in the broad liberal education component which can make students think and act like leaders whose action will have impact on society at large. The broad liberal education should include subjects like political science, sociology, literature, study of classics , history, business history, philosophy and ethics and evolution of science and technology. The broad liberal management education will stretch imagination of management student beyond functional knowledge.  Writing and public speaking skills should also be taught to make the offering complete.

Creating authentic, ethical and visionary business leaders should  be the main aim of business school. These leaders can act as entrepreneurs and can also don the hat of  a manager for day to day functioning if required. But they essentially remain a leader with broad social , economic and technological vision. They make ethical choices in their decision making. Without these kind of leaders , organizations will not thrive. In fact, companies like Enron  and Satyam  lost enormous value because of lack of those kind of authentic leaders.

Leaders with broad and general education have done pretty well. Anand Mahindra is one example who pursed film making and liberal arts education . Steve Jobs quest for calligraphy ,spiritualism and Zen Buddhism’s simplicity and aesthetics had enormous influence on business decisions he took . To get the glimpse of Bill Gate’s mind , one has to look at his wide and varied reading list. Leaders always look beyond immediate environment . Broad liberal education will help him doing that.

–  Mr Rahul K.Mishra
Professor- Strategy and International Business, IILM. 

Mr. Arun Jaitley’s Fine Balancing Act | Annual Budget 2016-17

Finance minister Arun Jaitley’s  has pressed all the right buttons  while presenting Annual Budget for financial year 2016-17. There are few misses too. The salient features of the budget are –

  1.  Finance Minister’s best act is to stick to the target of fiscal deficit of 3.5 percent of GDP. By reducing fiscal deficit from almost 4.8% of GDP in 2014 to 3.5%  GDP 2016 -17, he has demonstrated commitment to fiscal prudence. India looks far stronger economy in the world right now. Because of this the government outgo on interest payment has come down. Fiscal prudence has also eased pressure of  inflation and in turn high interest rate and high cost of capital for businesses. It is almost certain given the lower fiscal deficit and low inflation, Reserve Bank of India (RBI) is going to lower  interest rate in near future, fuelling the demand and economic growth.  Higher fiscal deficit leads to crowding out private investment which is so required at this point in time .Fiscal prudence is the base for future economic expansion and development. This is also best insurance against slowing global economic growth.
  2. The Government’s second important gamble is to give more money to agricultural development. The government has taken comprehensive view on this. There are initiatives and allocations to irrigation, organic farming,  effective crop insurance scheme,  FDI in food processing, creating a single market for agri produce and focus on the production fruits vegetables, dairy, fisheries, and poultry products, They all generate additional income for farm families. . . This is the right step but agriculture requires more action on sustained basis. Raising MSP ( Minimum support prices) of most of the agri- products particularly Dal and making investment in the warehousing  and supply chain will help ease the problems of lack of incentives for farmers to go beyond production of cereals How acute is this problem, one must read The Economic survey on this.. Indian farmers need to move beyond the production of paddy and wheat while demand for proteins is through Dal, dairy and poultry products going up .  The diversified portfolio of agricultural production will lead to higher income of farmers. Though there are questions  on Government claims on doubling of   income of farmers by 2022. The government has not given any roadmap of  15 percent annual growth in farmer’s income in every year for next five years. But focus on irrigation by raising allocation to 20000 crores , if implemented, will lead to all round development of agriculture . This could possibly a game changer  for farmers..
  3. The third right button which  Mr.Jaitley has pressed is investment in infrastructure. All along roughly One lac crore is going to be put in road construction for next year. The increased road construction activity  is the highlights of Modi government along with increased outlay of pradhan Mantri Gram Sadak Yojna which will have positive impact on rural infrastructure. The whopping roughly one lac crore for development of Railways and other infrastructural projects will have cascading effect. The challenge is in execution .With the investment in power generation and rural electrification, the thrust on infrastructure development is complete. This is where the budget is bang on right.  If India’s infrastructure is taken care of , the economic growth rate will accelerate. With increased allocation to Panchayats and Municipalities will mostly go into more investment in improving local hard and soft infrastructure  need, plugging the last mile of  requirement of  development
  4. Initiatives like giving LPG connections to 5 crore poor family households , automation of PDS outlets using Aadhar cards, a nationwide deployment of micro atms in post offices and a digital depository for degree certificates will also lead to improvement, efficiency and transparency in economy. The budget is forward looking in that sense

But there are areas which finance minister could have done more .  The finance minister could have given more policy clarification on disinvestment about loss making PSUs like Air India to  give more allocation to  social sectors in education and health , research and innovation and also more money to stat  .

The efforts in recapitalization of banks could have been more in the budget.. Public sector banks need money, autonomy, technology to survive and to remain relevant.

He could  have spend more on mid day meal and  give more money to create model secondary schools on the line of Kendriya Vidalayas. He should have given money roughly to 350 state level universities and struggling private universities for improving quality of research and teaching. More sops could have been given to promote research and innovation in companies.

The allocation of health and modernization of district hospitals in all 700 district hospitals of India could have been done with more allocation. These hospitals can be in a limited way be the hub for the block level hospitals

The glaring avoidance not tackling the issue of subsidies to non poor which has been mentioned in the economic survey is too cautious approach. A few more bold steps could have given this budget shine. Mr. Jaitley wants to sail steadily against adverse global headwinds of slowing down economic growth. Probably not rocking the boat too much is the only sensible proposition for India right now. In that sense the budget is a fine balancing act between good politics and  economics.

The Economic Survey 2016 – Key Issues for Business

At the outset, one must congratulate Chief Economic Advisor Mr. Arvind Subramanian and his team for writing a brilliant Economic Survey 2016.  This is possibly the best document for anyone who wants study problems and challenges affecting Indian Economy. I strongly recommend students of management, economics and public policy to download and  read the document.  Reading this document, you will know more about economy and public policy in Indian context than from any other source..

I pick up three topics in this survey which are of importance to managers and companies . The first one  is the problem of Twin Balance Sheet. The twin balance sheet is affecting private investment and also increasing  the cost of capital..

To quote Economic Survey on this critical problem “One of the most critical short-term challenges confronting the Indian economy is the twin balance sheet (TBS) problem—the impaired financial positions of the Public Sector Banks (PSBs) and some large corporate houses—what we have hitherto characterized as the ‘Balance Sheet Syndrome with Indian characteristics’. By now,  it is clear that the TBS problem is the major impediment to private investment, and thereby to a full-fledged economic recovery. The problems in the banking system have been growing for some time. Stressed assets (nonperforming loans plus restructured assets) have been rising ever since 2010, impinging on capital positions, even as the strictures of Basel III loom ever closer on the horizon. Banks have responded by limiting the flow of credit to the real economy so as to conserve capital, while investors have responded by pushing down bank valuations, especially over the past year. The shares of many banks now trade well below their book value. This balance sheet vulnerability is in some ways a mirror and derivative of similar frailties in the corporate sector, especially the large business houses that borrowed heavily during the boom years to invest in infrastructure and commodity-related businesses, such as steel. Corporate profits are low while debts are rising, forcing firms to cut investment to preserve cash flow.

Despite efforts from the government, the private investment is not taking off and which is going to  impact creation of quality jobs on big scale. The over capacity and lack of demand for companies products  weakened the financial health of companies which in turn created higher NPA for Public sector banks, leading to weaknesses in banking system.This is huge issue. The government has tried in a limited way to recapitalize the Public sector banks and also create more demand in the economy so that the financial health of companies start improving.

The second issue which Mr. Subramanian has flagged is “ The chakarvyuh  challenge of Indian economy “  from socialism of restricted entry to “marketism “ with restricted exist  The chapter refers to license –quota Raj which restricted industrial development and no before 1980s  and now  the restrictions imposed on the firms from closing down even if they cease to add value in the economy. This restriction is underutilization of limited economic resources.

To quote the Economic survey “The Charkravyuha legend from the Mahabharata describes the ability to enter but not exit, with seriously adverse consequences. It is a metaphor for the workings of the Indian economy in the 21st century, the legacy of several decades of economic policy making. A market economy requires unrestricted entry of new firms, new ideas, and new technologies so that the forces of competition can guide capital and labour resources to their most productive and dynamic uses. But it also requires exit so that resources are forced or enticed away from inefficient and unsustainable uses.  Joseph Schumpeter recognized the vital role of exit, via “the gale of creative destruction,” in the efficient workings of a market economy “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

The chapter goes in lot of details of the economic and political costs involved of not allowing firms to close down quickly and DRT taking over the assets and selling it off to recover whatever value that is left in that for future fresh investment. As the pace of technological and economic change is going to be very high, not allowing firms to quickly exit will have huge cost for job creation. There are bills like bankruptcy bills and others  pending in the parliament, once they go through, that will be easier for firms to set up and also exit if they don’t create any value on the capital.. But flagging this issue in the economic survey makes it important reading for public policy and managerial perspective

The third important issue which The Survey has raised is “Industrial, corporate and infrastructural  performance “. The chapter sums up the initiatives taken by the government to improve performance of companies and institutions performing in industrial  sector.The government has launched several programmes/initiatives such as ease of doing business, Make in India, Invest India, and e-biz Mission Mode Project under the National e-Governance Plan. Further, the Government of India is also building a pentagon of corridors across the country to boost manufacturing and to project India as a global manufacturing destination. The National Investment and Infrastructure Fund (NIIF) have been approved to extend equity support to infrastructure Non-Bank Financial Companies (NBFC). Issue of tax-free infrastructure bonds has been allowed for rail, roads and irrigation programmes. The Ministry of Environment, Forest and Climate Change has completed the process for online submission and clearance of applications for environment, coastal regulation zone and forest clearances. The system for coal block auctions has been streamlined so that these are now granted in a transparent framework. In order to improve the financial viability of the State Electricity Distribution Companies, a comprehensive financial restructuring of these bodies has been taken up through the Ujwal DISCOM Assurance Yojana (UDAY) programme. The scheme envisages reduction of interest burden and cost of power and AT&C (Aggregate Technical and Commercial) losses incurred by discoms that have entered into tripartite agreements with the Government of India and the respective state governments..

With these initiatives, Indian industry has been given a boost leading to an improved business environment and larger FDI inflows and these have also improved India’s global outlook. In the World Bank’s Ease of Doing Business report 2016, India’s position has improved to 130 in 2016 from 142 in 2015.

The economic survey 2016 is one document which gives both micro and macro picture. It provides an insight into government’s take on different issues. Some of the issues flagged in the survey have been taken up the finance minister Arun Jaitley in his budget speech. This is brilliant document to know cutting edge analysis of all aspects on Indian economy. The document also refers to academic writing to give an intellectual  base for economic analysis for deeper  understanding of issues.

Responsible Business | Can Business be responsible?

Words have different meaning in different context. Capitalists have been shown as cruel people with single minded focus on profit . They are not bothered about the larger well being of society. Over the years , things have changed. The government plays an important role in regulating business. Firms have to compete and play by the rules. In the modern world, business needs to be responsible to the challenges faced by society and the world. Super capitalists like Bill Gates and Warren Buffet, Mark Zuckerberg of Facebook are super philanthropists too,championing the causes of the poor and the challenges faced the world.

Business is important for society as it organizes production and distribution of goods and services for people. It brings innovation and increases productivity, introduces better techniques of production , employs people, pays taxes to the government and makes profit for its investors .

A responsible business does all this playing by the rules and norms set by the community and the government . But there is more to this term Responsible Business . As I see there two main challenges which our world faces and businesses can’t be oblivious to these challenges . The first challenge is environmental problems due to economic development and burning of fossil fuels which are impacting nature in negative way. The second challenge is the prevailing inequality in the world between the rich and the poor . These problems will increase in their proportions as population of the world will increase from existing 7 billion to 9 billion in next 30 years, though most of the increase will happen Africa where consumption level is very low .

Business has the three important factors what in management jargon is said ” Triple Bottom Line ” . People, planet and profit . There is going to be tough balancing act for any company to do as the scope and range of competition at the market place are getting sharper everyday.

The economic and scientific and technological development of last 200 years have brought enormous benefits to mankind but there are downsides with serious consequences . The use of plastics is one case which is so harmful. It is choking the drains, pollutes water bodies and is non biodegradable . We need an alternative to plastics for packaging and other uses .

Companies drain their untreated chemical effluents to fresh water rivers . That is creating serious problem to large number of people. There are many examples where planet friendly business processes create higher cost to the company which affect their competitiveness at the market place . This is serious dilemma for any company to create a right long term path.

A company which can balance people Profit and Planet or triple bottom line is responsible business. A very few is venturing out in that direction in real sense. Most of the initiatives are on surface and for media and government consumption while maximizing profit remains the main mantra.

The economics and accounting measurement need to change to reflect the ideal balance which a company has achieved and that also gets rewarded at the marketplace. . Without thinking long term and aligning the personal goals with larger social goals, nothing much can be achieved .That is precisely the role of enlightened leadership. Responsible Business will stem out of responsible , visionary and enlightened business leadership.

Responsible business will come out of only from responsible leadership.