Is the Crisis finally over???

One more blog post on crises trying to answer same question which every newspaper writes about or every economy guru debates or discusses on various channels on television. So it’s obvious for you guys to believe that this blog would be nothing but copy pasted material from different sources on web. What else can fresh management graduate do other than, the very skill acquired (CTRL-C & CTRL –V) and now being groomed by corporate world? I believe it would have been same if it had no impact on my career but like other 2009 graduates my career has been one of biggest casualty of the crisis and so I do have fair amount of opinion at least on this topic. But at same time I can obviously not resist temptation of copying so like Mba assignments sources would be quoted.

‘Big Banks cannot fail’- It is believed by lot of people the part of the financial crisis was due to this assumption. But the crisis has proved this assumption to be wrong. It has also proved that if such banks fail it could lead to system failure. So what has action has been taken? No banks are allowed to act as investment banker like before on Wall Street. So did it have any impact? Have we ensured that we don’t create such huge banks whose greed can affect entire world? I have attached image below and it’s up to you to see and come to your own conclusion
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We have ended up with bigger and fewer banks. Some would say that it was survival of fittest and the better players have survived and it’s good for everyone. But it concerns me even more. Just imagine impact of these even more larger banks failing in future years. Any lack of prudence and responsibility by these banks can lead to even bigger crisis and I doubt world would be able tackle the same.

Liquidity game – Let’s go back to history and understand the lessons from previous crises. The end of Great Depression had seen lot of tough policy changes, socio-economic changes etc. but do we see such drastic changes today? I really doubt. It was dotcom burst at start of 2000-2001 which had created huge recession scare. So how was that avoided? By increasing liquidity in markets, pushing federal rates close to 0%. But did it achieve its purpose? Yes and No. In short term it avoided recession but in long term it led to this housing bubble. So what have we done this time? Nothing different the same policy has been followed by all the central banks across the world. The interest rates brought to lowest level, huge borrowing was allowed for banks and bad loans were restructured for longer duration to ease liquidity pressure and avoid bankruptcy. I believe there was no other option to stop the “run on the banks”. So if I use same deduction reasoning then would I be wrong to believe that the recovery is nothing but temporary bubble or perception due to excessive liquidity in the markets?

US-China duopoly - Isn’t this crisis an indication that correction is required here? In any markets, fundamental theory believes that asset attains its true value then for how long do we have to wait for correction for US economy which has huge fiscal deficit and China which has huge surplus. Both of them have avoided this correction for too long I believe. China is throwing its huge surplus in its local markets to fuel consumerism and get rid of this huge surplus. But this can lead to nothing but one more local bubble. Won’t we have to face similar financial crisis when this correction occurs? Everyone believes world economic order is set to change but it’s time we are trying to buy with this temporary recovery. Maybe to be ready to handle the bigger crisis better!! I still haven’t considered the demographic factors like ageing population and its distribution across the world. It looks scary. Just go through recent Mckinsey report which indicated the year when China’s population would be aged and their conclusions.

I do believe this crisis hasn’t changed the world much. Our inertia to avoid changes and inclination for short term gains or maybe our short sightedness has led to same state as we were before the crisis. When markets plummeted people believed it was correction and now again we are reaching sky crappers so was that correction not correct? No one in the world is isolated in this globalised economy so there can be no India story without considering these macroeconomic factors. So guys pour in your comments on this pessimistic blog of mine. I would be more than happy to be proved wrong though.

Experiential Learning

This post is going to be quite uninteresting because it is about mundane stuff which all of us experience everyday but still make mistakes. It is especially key learning of fresh MBA entering the corporate world. Even though I had previous work experience and knew this very well but still a stint in academic changes the mindset. These are my 3 most important learning in first two months of work:-

1)Expectation Management :-
MBA coming out of from B school working 20 hrs a day, learning a merger and acquisition case study, developing pricing strategy for new product, understanding the impact of globalization, doing industry analysis using Porter framework as part of assignments that too in a day, one can imagine his expectation from the corporate world. He considers himself fully ready equipped with all sort of management ammunition to attack the “bottom of the pyramid” and "creating value for the shareholder". He is waiting for companies to embrace him and ask him to turnaround their company. Don’t get bewildered, this is practically most of the MBA’s expectation to work as management consultant/investment manager/brand manager etc. And please don’t ask about salary and of course there is certainly location preference (after all he is “MBA”).
But wait what he finds in real world? He is not doing the expected work but is simply googling data or making some report for some senior to make presentation and no one is asking his inputs for the company’s future strategy. And what happen to salary it’s not even 50% of what he was suppose to get. Location? ? Are you joking to ask such question in globalized world? Wait didn’t mention most important point he would have landed in wrong industry all together
So you can understand his state of mind. So what should one do? Someone told don’t worry till you are in “right bus” but here there seems to be no vehicle altogether.
Relax this is fact of life and most of people would have experienced the same. It’s called Murphy’s Law. I had read somewhere “career planning = career limiting” and most of us make this mistake. We make ourself too inflexible since we have planned career well from manager to CEO in some record time of 5-6 yrs. We have fixation to profile, industry to such an extent that even if we get better opportunity in other areas we turn blind eye to it. So my only learning is plan career with caveat its never going to be way you intended. Then you may ask y plan career? Simple answer to this is that everyone of us either make gymn schedule or study schedule or take new year resolution sometime or the other knowing fully that we have always failed to follow it but that doesn’t stop us from making them. Same is true with career planning.
This is how I have reconciled myself :).

2)People Management:-
Recollect your OB lectures when everyone was sleeping wondering why one has course such as this in their program. However after an MBA, in just few months one would realize that Kotler’s and Damodaran is of not much of use nor the Peffer’s ,Prahlads and Ghemavat. You don’t need to read “Talent is never enough” by John Maxwell since you experience it. You can see very talented MBA from best of Bschool reporting to someone who is hardly graduate and this fresh from B school starts complaining about company not being able to give its employee due worth. These examples help him to reinforce his belief that company has not given right profile/money. But the fact is intellectual capability is not of much importance if person cannot drive the behavior in organization. Best of strategies are of no use if they cannot be implemented. Sales manager who cannot motivate his team to achieve their target is of no use even if he has fool proof strategy. The same is true with all the other functions of business. Everyone has a supervisor and the other fact is everyone finds his/her supervisor as biggest fool on the Earth. Moreover this is true for fresh MBA who was taught “Managing with Power” and was never taught how to work without power. It’s very important to pursue ones viewpoint rather than reconciling to the belief that the other person is fool. It requires lot of courage, persuasion power, negotiation skill and understanding of OB to get one’s work done without “power”.

3)Don’t miss forest for trees:-
Completely frustrated MBA in wrong place under fool considers his work very trivial. He fails most of the time how this trivial work of his fits in bigger picture of the organization. This may be because he is too dejected that he doesn’t even want to put an effort to visualize the big picture. This is big trap and if one falls in it then it can act as a “tipping point” after which there would be steep descent in his career. So ensure you have big picture in mind and work towards it with hope that it would be rewarded and you would get better opportunities in future.

This has been my experiential learning till now. Some of the things I have experienced and some are my opinions/belief and its quite difficult for me to separate one from other.
Quite big and boring post and it’s in my interest to stop gyaan before I loose subscribers to my blogs.

Value based pricing ??????

I am just wondering how many theories backed by case study which you one learns in B-school have no relevance in real world. Or is it that I have not understood them properly so finding it difficult to relate to problems in corporate world or is it due to my inexperience. I sincerely wish that second reason should turn out to be true.

Value based pricing was one the most abused word in all my marketing lectures. Every professor would provide “gyaan” that customer is willing to pay upon the perceived value of the product/service and not based on the cost aspect. It is duty of the marketer to create this value perception. They told us it is difficult for company to move from cost based pricing to value based pricing. The examples of Pepsi, FMCG products etc were standard. So it became mantra for us that wherever we work we must ensure that gradually we adopt value based pricing by educating the customer. But in real life situation is totally different. Consider for example entire outsourcing industry which came to existence due to cost factor. Now Indian players as outsourcing center played cost card to their advantage and gain competitive edge over other MNC. As Indian players matured the cost of employees in India increased manifold though nothing compared to US and Europe still. Further the new cost centers like China, Brazil, and Philippines etc emerged. Also most of the MNC established there delivery center in India and such places and have removed cost as differentiator. In this given industry landscape, there is no doubt that service providers would enjoy benefit if they go for value based pricing. But how can one make transition to such pricing strategy when you are never sure whether other player would adopt such strategy or not. It could be serious loss of business if industry as whole does not adopt it. Further how do you educate customer when entire industry came to existence because of the cost arbitrage. What about the competition arising from other parts of the world? So here the service provider can only succeed if it is adopted industry wide. But that is very difficult to achieve in fragmented market where there are large number of players. So this is one more theory learnt in B-school which I have found it difficult to implement due to real world constraints. In fact I was wondering in this era of globalization where buyers are well educated and connected across the globe how difficult is to sustain value based pricing for players in other industry too?

So my marketing friends pour your views, counter arguments on this supported by as much “gas” as possible.