Pratibimb october2013

October 2013

PRATIBIMB The Reflection of Management FINANCE | GENERAL MANAGEMENT | HUMAN RESOURCE | MARKETING | HEALTHCARE | OPERATIONS | SYSTEMS

In this issue….

Revisiting Ghoshal Services Marketing Financial Independence in India The Future of Indian Rupee Performance Vs Rewards !!

Maslow’s Higher Order Needs A Students’ Initiative

A Students’ Initiative

T. A. Pai Management Institute Manipal, Karnataka

About TAPMI T. A. Pai Management Institute (TAPMI) is a premier management institute situated in Manipal and is well known for its academic rigor & faculty-student interaction. The Institute has been recently ranked amongst top 1 per cent of B-schools in India & 4th in the South Zone by The Week Magazine.

Founded by the visionary, Late Shri. T. A. Pai, TAPMI’s mission is to provide much needed impetus to the task of building professional management capability in the country. In the process, it has also played a role in strengthening the existing educational and health infrastructure of Manipal.

Our Mission “To excel in post-graduate management education, research and practice”.

Means: 

By nurturing and developing global wealth creators and leaders.



By continually benchmarking ourselves against best in class institutions.



By fostering continuous learning and reflection, achievement orientation, creative interdependence and respect for diversity.

Value Bounds: 

Holistic concern for ethics, environment and society.

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PRATIBIMB TAPMI’S MONTHLY e-MAGAZINE

VOLUME 2, ISSUE XXIII

OCTOBER, 2013

TAPMI’s e-Magazine - is the conglomeration of the various specializations in MBA (Marketing, Finance, HR, Systems and Operations). It is primarily intended to provide insights into the plethora of knowledge that relate to the various departments of Management and to give an opportunity to the students of TAPMI and the best brains across country to exhibit their creative cells. The magazine also strives to bring expert inputs from industries, thereby bringing the academia and industry together.

Pratibimb the e-Magazine of TAPMI had its first issue in December 2010. The issue comprised of an interview of well known writer Ms. Rashmi Bansal along with a series of articles by students and industry experts like MadhuSudan Rao (AVP-Delivery, Mahindra Satyam) & Ed Cohen who is a global leader and chief learning officer who led Booz Allen Hamilton & Satyam Computer Services to the first rank globally for learning & development . It also included a hugely successful and engrossing game for finance geeks called “Beat the Market” to bring out the application based knowledge of students by providing them the platform where they were expected to predict the stock prices of two selected stocks on a future date. The magazine is primarily intended for the development of all around management knowledge by providing unbiased critical insights into the modern developments.

TAPMI believes that learning is a continuous process and is not limited to the four walls of the classroom. This viewpoint is further enhanced through Pratibimb wherein students manage and contribute to create a refreshing learning environment outside the classrooms which eventually leads to a holistic development process. The magazine provides a competitive platform and opportunity to the students where they can compete with the best brains in the B-Schools of the country. The magazine also provides a platform for prominent industry stalwarts to communicate their views and learning about and from the recent developments from their respective fields of business which in turn helps to create a collaborative learning base for its readers.

Pratibimb is committed in continuing this initiative by bringing in continuous improvement in the magazine by including quality articles related to various management issues and eventually creating a more engaging relationship with its readers by providing them a platform to showcase their talent.

We invite all the best brains across country to be part of this initiative and help us take this to the next level.

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Director’s Message

Research activities are very important element of student development. The purpose of research is to generate new management thoughts. Thus, our study should seek to find the latest trends in management arena. A high quality research will provide new insights into the student community as well as to the business world. Pratibimb is a platform for nurturing the research activities among students. The articles published are the reflections of the immense knowledge potential of management students across India. When the ideas presented in Pratibimb get implemented in actual business situations, the purpose of the magazine will be realized.

I wish the magazine the very best and look forward to it achieving even greater excellence in the times to come.

Dr R C Natarajan Director

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Editor’s corner Dear Readers Pratibimb is not just the name of an end-product, it is not just a magazine. It has been much more, and it will be much more. It is a journey, which a student undertakes in an attempt to connect to hundreds of other students, whether in the form of contributing an article, or by contributing his/her precious time to read and gain insights from the articles written by people in the same journey, but with different experiences. Every issue aims to make this experience as unique, as worthy and as meaningful to your time as possible.

With this in mind, the October issue presents you with some valuable additions to your store of knowledge. Ms. Rhea Joglekar from SIMS Pune offers certain conclusions from her study of the intertwined aspects of Graphology, Neuro Linguistic Programming and Organisational Behaviour theories in her article “Maslow’s Higher Order Needs & Alphabet T”. Mr. Arnab Mandal from IIM Shillong on the other hand, questions the well accepted links between Performance and the Rewards, and leads you through a series of logical arguments, to a final conclusion in his article “Linking Rewards to Performance: Is it so very important?”.

Ms. Seerat Jangda from IIM Lucknow takes a very relevant look at the Service Industry in terms of Marketing in her article “At your Service!!”.

Whereas, for all the Finance enthusiasts, two articles talk about very important as well as relevant topics. The first one, “The future of Rupee: The senior citizen (>60)” by Mr. Harshit Dedhia and Mr. Kaushal Shah from SIMSREE, talks about the the value of Rupee currently, and how it might be expected to behave in the near future and the factors that affect it. The second article “Financial Independence: An Indian Perspective” by Mr. Harshit Lamba and Ms. Shaguna Harbola talks about, as is evident from the title, the Indian economy and how factors such as the FIIs, the rising level of short-term external debt with respect to forex reserves and the NFSB affect it, and what should be the future course of actions. Pratibimb will continue to bring to you such meaningful insights in the months to come. Keep reading, keep contributing, and most importantly, keep learning.

In order to know more about Pratibimb and its future endeavours, like our page on Facebook- https://www.facebook.com/tapmi.pratibimb Our sincere thanks to all the contributors of articles who make Pratibimb what it is, to our readers who give us their most precious thing – their time, and to our Faculty members at TAPMI, without whose valuable inputs and critical insights Pratibimb would not be half as worthy as it is today. Kindly e -mail us your suggestions, inputs or feedbacks at- pratibimb@tapmi.edu.in Enjoy Reading!

Arun Stephen

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Editor in Chief Arun Stephen Marketing & Advertising Abhineet Rastogi Bhavnita Nareshkumar Creative & Cover Design Devi Kailas Communications Kannan Venkat Shubha Prabhu Operations Aditya Bhat Publishing Lloyd George Sub Editors Ayon Kumar Gayathri Mohan Amruth C Debidatta Sathapathy Priyam Goyal Debayan Bhattacharjee Akash Gupta Pallavi Prasad Avni Mooljee Faculty Advisors Prof. Chowdari Prasad Dean (PR) & Chairman-Admissions

Prof. Aparna Bhat

Contents At Your Service

7

by Seerat Jangda, IIM Lucknow

Financial Independence - An Indian Perspective

10

by Harshit Lamba & Shaguna Harbola, SIMS

The Future of Rupee: The Senior Citizen (>60)

13

by Harshit Dedhia & Kaushal Shah, SIMSREE

Linking Rewards to Performance: Is it so Very Important?

15

by Arnab Mandal, IIM Shillong

Maslow’s Higher Order Needs and Alphabet T

18

by Rhea Joglekar, SIMS Pune

What is Wrong with Management Theories: Revisiting Ghoshal

By Prof. Sushanta Kumar Sarma, TAPMI

Pratibimb | October 2013 | 6

20

At Your Service Seerat Jangda, IIM-Lucknow

At your service True to the maxim by Philip Kotler- “Marketing takes a day to learn. Unfortunately it takes a lifetime to master”, all the companies try to achieve the best of the marketing practices in this vicious world. If one looks at service sector in particular, it is going through a phase of rapid changes. The changes in government regulation, privatization, globalization, internationalization, advances in IT, the role of manufacturers as service providers have modified the face of service marketing. A question to ponder here is why do we see the skewed nature of economies towards the service sector? Can there be an economy which derives its GDP solely on services? If yes, then How? For example, we see country like Malaysia which bases its economies solely on tourism. For such economy, manufactured goods are usually imported. The probable pitfall to such an economy can be that it may become less self-sufficient and may be a threat to national security. A more apt question at this stage is why the economies are leaning towards the service sector? Globalization drives international trade and tourism which in turn has increased the demand of passenger transportation, communication, leisure activities, international finance and food services. The rise in technology is the key driver in increasing service component of the GDP. If I were to draw a line between products and services, the first thing which is the most important is the timing. The real time nature of delivery of services is unique to itself.

Either one takes the physical presence of the person into account or the speedy process people want to see in services, both are novel to services. In the latter case where service delivery takes place without the customer’s presence, they have expectations about how long a specific service would take to complete. For example, repairing a dysfunctional gadget, financial services from a bank, or preparing a legal document. If this takes more than the expected time, this causes ‘consumer dissonance’, which is an uncomfortable feeling and usually leads to the customer take his money elsewhere or experiencing remorse over the purchase. A buyer can experience remorse over a product purchase at any point in the entire purchase experience, including well after the consumer makes the purchase decision. Companies seek to shore up the buyer's emotional status through reassuring post-purchase services, which generally is a money-back guarantee or free product service for the life of the asset purchased. These services form an important part of customer relationship management. For example, many auto dealers have service outlets to repair vehicle and offer free safety inspections of vehicles purchased through the dealerships for the entire life of the cars. This post purchase behavior by the companies can set them apart from competitors and allow buyers to make less-stressful purchasing decisions in the future with these companies. If we compare the marketing, HR, operations for a manufactured product vis-à-vis a service, we would know that in case of a product, the marketing is segregated from other functions. On the other hand in services, the customer becomes a part of the entire production process and hence complicates the segregation between these functions.

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There is no tangible component to service, so the customers efforts. There has been a change in the way services are berely on ‘physical’ clues, such as staff uniforms, the kind of ing branded. Earlier, the service companies used to emphaambience, plastic or silver cutlery, in the restaurant. size the corporate name but today, in a highly competitive environment where a lot of product proliferation is present, Let’s take an example of a bank. To enhance its service delivproduct brand names (sub-brands) have been given greater ery, it wants to contact its customers via email, internet, preference. A question which may come to someone’s mind phone, ATMs rather than the customers physically coming to is: Why does British Airways use specific sub-brand names the bank. For this, the bank wants to know why people like Club World? British Airlines wants its travelers to distindon’t use certain delivery option for certain tasks. Suppose guish between the products and to know about the proliferpeople would withdraw money from an ATM but would not ation they have created. Club World is its intercontinental like to deposit money at an ATM. For depositing the money, business class brand, which offers a different type of experione would want the “physical evidence” of the 7P’s. With ence from that of other airlines and also from that of its Euthis idea in mind, we can see a lot of adaptation in the serropean business class, known as Club Europe. In an ideal vice industry especially food, where customers can have a scenario, every step of the branding process should reprepeek at the backstage activities. One example is Mad Over sent a distinctive branded-service ideal scenario, every step Donuts, where one could see his/her favorite donut being of the branding process should represent a distinctive prepared. Similarly, this can be extended to car repair facilibranded-service experience so as to create preference for a ties where the service operations are fully visible through specific offering. glass windows. However, many of these backstage activities could be boring for some customers. Still, to have an impact What is that which differentiates between a services comupon the customer, this seems a viable option catering to munication and a product communication? When a commuthe 7th P. nication is made for the promotion of a product, physical evidence is used to add abstract ideas whereas in services The aforesaid points have been discussed with respect to communication is made, abstract ideas have to be converted customer. The other half with complements the entire serto physical evidence in order to make effective communicavices process is ‘people’ i.e. the employees providing the tion. Next cue could be, what kind of promotional activities service. If you are into a hospitality business, tourism indusshould be carried out for such firms? For a quality leader try, banking, employees in your organization and their bekind of firm, the best promotions could be done by “Word of havior towards the customers defines you. Relationship with Mouth”(WOM). For a service product, people generally take the seller is a major driver for purchase as the products is recommendations from their friends, relatives, because they intangible. are considered a neutral person rather than the communicaAnother intriguing thought could be: ‘How the branding of a tions by the firm itself. Some of the ways for a better promoservice is different from a product?’ Service branding does tion by WOM could be referral schemes, publicizing testimonot differ much from customer perspective but rather on nials, let people talk about the exciting offers, faster resoluthe company side. Services are intangible, cannot be stand- tion of their complaints. ardized. Therefore it is difficult to build brand management models for the same. A service product is an experience related to service consumption, which may differ according to people’s tastes and experiences with the brand, which makes it difficult to standardize. With respect to branding of products, marketing is assumed to communicate product benefits and the organization handles production and logistics. In service business, all levels of the organization are involved in creating the customer experience. The organization and its employees must be aware of the company values, otherwise the service experience will not be effective and long lasting. Therefore, internal communications regarding values, messages to be conveyed o the end customers need to be taken care of, in order to deliver a consistent service experience and be able to do successful marketing

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If we change places, and examine the situation from a customer’s viewpoint, what factors create value for a customer and how do these factors determine the pricing strategy?

Generally, the services process is a combination of mental processing and people processing. It is a case of mental processing because people expect something pre-purchase of services and try to compare it with the service performed.

People processing refers to the involvement of people i.e. employees in delivering services. Suppose, when you go to a salon for a haircut you expect value in terms of more stylish hair. You see price menu in front of you and pay an aforesaid price for every element of the service, e.g., this price for a wash, so much for a cut, etc. Here is the branding which comes into play. You may wish to pay more for a well-known

stylist eg Shahnaz Husain, or at a prestigious salon, say Lakme/Matrix. Some services are of the type which requires the active participation of the customer, e.g. marriage counseling or a weight reduction program, here customers are viewed as the co-producers of the services. Any delay in performance by the customers may lead to a degraded out

Reference

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http://jsr.sagepub.com/content/7/1/20

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http://alexanderconsultingsbiz.com/art_s_m_challenge.html

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http://www.marketingprofs.com/topic/articles/servicesmarketing

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bx.businessweek.com/customer-service-marketing

Pratibimb | October 2013 | 9

come of the service performed. So, managers should be competent enough to educate their customers to coproduce well in such situations.

With the 7P’s in-place and the growing use of technology in every field, the nature of the service economy is bound to change. So, what is the way ahead?

Financial Independence – An Indian Perspective Harshit Lamba & Shaguna Harbola, SIMS

The year was 2009 when India’s audacity to global economic meltdown was the theme of conversation from tea table to corporate meetings. The Ministries in North Block were raising toast to impeccable decision-making and policies. The bold black inked newspapers’ headlines enunciated in arrogance and overconfidence, the fable of Maharaja. Least was known that the black ink signified something else. There was something mysterious, something hidden that was soon to be revealed.

Cut to 2012-13, and the statistics show that the road to achieve status of an irrepressible economy is dwindling. Stock markets are trembling in apprehension, rupee is gasping to catch up with the top currencies, current account deficit (CAD) and fiscal account deficit are at peak, growth has hit the rock-bottom and rating agencies are only hairsbreadth away to downgrade India to lower medium grade. The experts say that India has slipped two decades back to 1991. Is it just an overstatement? How did the outlook changed so drastically?

The concept of financial independence and the extent to which India is financially dependent can offer an explanation for this change. So, what is financial independence exactly in the context of nation? The term itself is subjective. For some nations, it simply means being debt free, while for others it means ensuring a life free of financial stress for its citizens by empowering them. So, in order to evaluate the financial independence of a nation, we need to take into account both internal and external factors.

Here, in the present Indian scenario, the three significant parameters that would determine the financial independence are investments in Indian markets by foreign institutional investors (FIIs), external debt equation of the country and introduction of National Food Security Bill (NFSB).

First, we’ll consider the effect of FIIs on Indian stock indices. As per a Business Today Report (November, 2011), a trend analysis of stock indices since 2006 reveals that market peaks when FII inflows are high and fall when FII inflows dry out or they start pulling out their investments from Indian markets (see Table 1). This observation is reinforced by a study conducted on the influence of FII flows on Indian stock market (GYANPRATHA–ACCMAN Journal of Management, Volume 5 Issue 1, 2013) which suggests that there exists a positive correlation between the FII flows and movement of sensex (see Graph 1).

FIIs’ holdings in Indian stocks were close to 19% of overall market value of shares by June 2013. Hence, theoretically, the FIIs hold the power to bring down Indian stock market to shambles in one big exodus, which will have a ripple effect on value of home currency, CAD, external borrowings by companies and costlier imports. So much for unabated Indian stock market.

Second, the rising level of short-term external debt with respect to forex reserves from 5.1% in 2002-03 to 31.1% in December 2012 is ringing alarm bells.

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Year

FII Inflows/(Outflows) (in

Percentage Increase/(Decrease) in

2008

(13 billion)

(50%)

2009

19 billion (net)

85%

2010

30 billion

25%

2011 (uptil September)

281 million

(11%)

Table 1: Effect of FII flows on Sensex

Graph 1: Trend of FIIs and Sensex from 2001 to 2010 (Source: accman.in/images/feb13/Shrivastav%20A.pdf)

The problem is further exacerbated by long-term debt, which is also coming up for maturity. Moreover, the slowing down exports, deceleration of industrial production and growing appetite for imports, including non-essential commodities, is adding fuel to the fire. The debt that needs to be repaid this fiscal is to the tune of USD 172.35 billion, i.e. about 61% of India’s forex reserves. This will have serious implications on balance of payments, which in turn will have undesirable effect on sovereign ratings.

The underlying reasons for this problem are:



Lower rates at which credit can be obtained from international markets



Surge of capital inflows during 2003-04 into emerging economies like India



High interest rates in India, which led to ‘carry trade’

During heydays, the rapid GDP growth and strengthening rupee rendered these factors unnoticeable due to low external debt to GDP ratio. But now, as the rupee has depreciated by almost 25% of its value, debt servicing burden has greatly increased. In addition to this, there is nonavailability of cheap domestic credit to substitute nowexpensive external debts as domestic rates are riding high.

Hence, the definition of financially independent as “being debt- free” does not hold quite well. Third, we’ll focus on NFSB. The initial perception of NFSB seems to fit well with one of the proposed explanations of financial independence.

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But the numbers tell a different story. The fiscal deficit for 2013 is projected at 5.12% of the GDP by FICCI against the target comfortable value of 4.6%. Clearly, the economy is in bad shape and passing of this legislation will increase the fiscal pressure by Rs. 10,000 crore in the first year itself, which will only worsen (about Rs. 1.25 lakh crore each year) when this measure would be fully rolled out.

To service the fiscal deficit, the government will either have to raise funds from external sources or increase taxes or issue long-term government bonds. Neither of these alternatives seem favorable and will pull the nation farther from being financially independent.

The big question still remains. How to achieve, or rather pursue financial independence? The solution lies in proposing and implementing holistic approach as these problems are inter related. The first step should be cutting down of unnecessary and politically motivated government expenses such as undue waive offs and subsidies.

Instead, these capital resources should be diverted to more important activities such as building world-class infrastructure, and developing and enhancing food storage facilities that will produce productive future results.

According to FOX news report, about USD 6.8 billion of food is wasted every year in India. In 2011-12, there was a storage gap of 32 million tons. Therefore, management of resources coupled with rational positive intentions pose a major obstacle, overcoming which would solve two financial problems. First, the surplus could be exported to earn foreign exchange, thereby improving balance of trade (B.O.T.), and second, government debt burden would red-

-uce. This would have a ripple effect on currency value, food aid the battered state of home currency, set B.O.T. equainflation, financial markets and economic growth. tions right and reduce external debt burden, especially for corporates.

Encouraging foreign direct investment (FDI) rather than FII needs to be the focus of policy makers due to its long term Jim Citrin, an expert on leadership, governance and profesnature. Though FDI limits have been raised for many sec- sional success, once said, “Uncertainty can lead to paralysis. tors, the basic implementation framework is still missing And you if you become indecisive, you’re dead”. Indian econwhich is making companies reluctant to invest. A good quali- omy has been sailing in troubled domestic waters under a ty physical infrastructure along with ease of doing business gloomy international economic environment for quite a are the two factors that would definitely inspire foreign in- sometime. It is now when stern and thoughtful decisions vestors. In addition to capital inflows, the FDI would bring should be taken and more importantly, implemented effialong employment opportunities, which in turn would em- ciently, so as to mitigate the effect of worldwide downturn, power people to rely less on subsidies. The inflows would create opportunities by developing optimistic investment atmosphere and pursue financial independence.

References



Shrivastav, A. (2013). A Study Of Influence Of FII Flows On Indian Stock Market. GYANPRATHA–ACCMAN Journal of Management, Volume 5, Issue 1.

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ET Bureau. (August 23, 2013). The Economic Times. In Food Security Bill will eat into finances, growing subsidies to hurt investments: RBI. Retrieved 24 August, 2013, from http://articles.economictimes.indiatimes.com/2013-08-23/ news/41440859_1_iron-ore-central-bank-food-subsidies

     

Vikaraman, S. (August 24, 2013). The Economic Times. In Food security plan to increase govt's fiscal stress: Bimal Jalan. Retrieved 24 August, 2013, from http://articles.economictimes.indiatimes.com/2013-08-24/news/41443941_1_food-securityplan-fiscal-deficit-bimal-jalan Merwin, R. (June 22, 2013). The Hindu Business Line. In As the rupee sinks the LOSERS are.... Retrieved 21 August, 2013, from http://www.thehindubusinessline.com/features/investment-world/as-the-rupee-sinks-the-losers-are/article4841002.ece Vikaraman, S and Nayak, G. (June 26 2013). The Economic Times. In External debt growing to unmanageable proportions, putting pressure on rupee. Retrieved 23 August, 2013, from http://articles.economictimes.indiatimes.com/2013-06-26/ news/40207079_1_external-debt-debt-service-ratio-debt-management/2 Padmanabhan, A. (January 27, 2013). Live Mint. In The perfect recipe for an external debt crisis. Retrieved 23 August, 2013, from http://www.livemint.com/Opinion/h7cxYMVFLk9lF0Nsa07AtO/The-perfect-recipe-for-an-external-debt-crisis.html Krishnan, A. (March 10, 2013). The Hindu Business Line. In Who’s afraid of FIIs?. Retrieved 21 August, 2013, from http:// www.thehindubusinessline.com/opinion/columns/aarati-krishnan/whos-afraid-of-fiis/article4496458.ece Focus must be on FDI and not on FII inflows, says Raghuram Rajan. (September 25, 2012). Retrieved 21 August, 2013, from http://www.thehindu.com/business/Economy/focus-must-be-on-fdi-and-not-on-fii-inflows-says-raghuram-rajan/ article3935783.ece

 

Varma, T. (November 2011). Business Today. In Flying in from Abroad. Retrieved 21 August, 2013, from http:// businesstoday.intoday.in/story/fii-inflows-sensex-movement-should-you-follow-the-trend/1/19525.html Chandrasekhar C. P. (January 18, 2012). The Hindu. In Debt as burden. Retrieved 23 August, 2013, from http:// www.thehindu.com/opinion/columns/Chandrasekhar/debt-as-burden/article2726394.ece

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The future of Rupee: The senior citizen(>60) Harshit Dedhiya & Kaushal Shah, SIMSREE

It has taken more than 65 years for India to get this far after independence. Our GDP is currently 10th largest in the world with $1.8 trillion. During last decade India ranked just behind China in terms of fastest growing economy. But suddenly after coming this far we have started facing serious problems. A period of high inflation, low growth rate, high external debt is holding country back. During this journey of 65 years India has seen many ups and downs. Two consecutive wars, one with China in 1962 and another one with Pakistan in 1965 resulted in a huge deficit on India's budget, forcing the government to devalue the currency to 7.57 against the dollar. But no crisis is bigger than balance of payment crisis of 1991. India faced a serious balance of payment crisis in 1991 and was forced to sharply devalue its currency. The country was in the grip of high inflation, low growth and the foreign reserves were not even worth to meet three weeks of imports. Under this situation, the currency was devalued to 17.90 against a dollar. After the 1991 balance of payment problem key steps have been taken to ensure that such a situation does not arise henceforth. But the dependence on the foreign investments has always been an issue. India imports much more than what it exports which increase the trade deficit which in turn increase the Current Account Deficit. During the 3rd quarter of 2012-2013 fiscal India’s CAD reached astronomical figure of 4.8% GDP. This has been a major reason why our economy has been under pressure.

India came out with minimum loss during the 2008 crisis when economies of the world suffered heavily. This was because RBI which is the Central Bank of India has implemented many strict laws for the commercial as well as private banks to function and restricted exposure of banks from buying international assets. That is why the losses suffered were very less during the economic crisis in 2008. It also gives minimal liberty on spending unlike in U.S where the banks have the liberty to function as they want due to which the crisis of 2008 occurred. But India faces a major issue of Liquidity. As mentioned above, there is a heavy dependence on the foreign investments and so any redundancy in foreign currency creates a panic in the economy. This is one of the main reasons for the rupee sliding below the 60 mark.

Firstly let us look at the factors which create necessity for heavy imports in our country.

According to the reports by the Government of India Crude Oil is the major importer in our country. The price of crude puts tremendous stress on the Indian Rupee. India has to import a bulk of her oil requirements to satisfy local demand, which is rising year-onyear. Then comes the yellow metal which is Gold. Requirement of physical Gold is very large in India which puts undue pressure on the rupee. Many such items when imported create an unbalance between import and export which result in high current account deficit and the economy goes week. On the other side when exports are concerned, majority of the exports are done through the service industry but because of the recession in U.S and U.K there has been a reduction in services used by them which has hit our export oriented service industry hard. Inflation is another key issue where India is feeling the pinch. Due to high inflation, Interest rates have always been high-

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India is facing trouble from all sides when its economy is concerned. Poor economic growth in the manufacturing, agricultural and mining sector has dented investor sentiments and they have become vary of investing in India.

Reflecting a persistent slowdown, industrial production in May contracted by 1.6 percent, lowest in the past 11 months. Last week RBI cut its growth forecast to 5.5 percent for the fiscal year, from 5.7 percent. Unless a better sentiment prevails, confidence. Thus as the days are progressing the rupee is sliding down to new levels. This is putting pressure on the RBI as well as the government in power to taken some quick and effective steps as people are comparing this situation to the 1991 fiasco. The confiranging from 9-11% whereas in other countries like U.S it is 1-2%. That is why our companies face a disadvantage as dence of the investor is losing and it will be tough to gain momentum. Strong reforms will have to be introduced and they have to borrow money at higher rates. the RBI will also have to raise its hand as all their measures The depreciation of rupee recently started when the FII’s are failing day by day. If India has to progress it has to stop recently plunged out Rs 18500 crore (about USD 3 billion) in July and 44,162 Crores (about USD 7.5 billion) in the month of June from the Indian capital markets. This was because of the Federal Reserve of U.S tapering its quantitative easing (QE). This had a huge impact on the rupee as it slides from 54 to 60 in two week’s time. RBI took some stern steps to bring back the rupee to its original position. Some steps taken were as Hiked marginal standing facility (MSF) rate by 200 bps to 10.25%. This is the penalty rate at which banks can borrow over repo rate (was at 100 bps over repo so far).

Restricted borrowing under LAF(Liquid Advance & Finance) to 1 percent of NDTL(Net Demand and Time Liabilities) or approx INR 75,000 Crores and conduct OMO(Off Market operations) sale (sell securities to market and mop up liquidity) of INR 12,000 Crores. This decision by the RBI brought a stop to the sliding rupee but for a very short period and it its heavy dependency on foreign investment and have a did not help in rupee gaining back strength. RBI thus decid- control on its imports. It has to look beyond inflation and ed to take more stern steps which included banks keeping a concentrate on overall GDP growth and make the country minimum daily requirement of CRR at 99% of requirement more independent. The rupee is falling by almost 2%on which was 70% so far. Also access to repo window restricted every working day and it won’t be long when it will reach for each bank at 0.5% of net demand and time liabilities the 70 mark if necessary actions are not taken.

(NDTL) for that bank. It also announced cash management bill (CMB) of INR 6,000 crores to drain liquidity.

After many such steps taken by both RBI and the Govern- Reference ment the liquidity issue could not be solved and rising inter http://www.rbi.org.in/home.aspx est rates stopped the foreign investors from entering back  http://www.finmin.nic.in/ into the Indian market. The belief is lost and getting back http://data.worldbank.org/data-catalog/GDP-rankingthe confidence of the investors has been a hassle. Also in  table the last six months US dollar index has strengthened by 3.52%. The strengthening of dollar is beyond government’s control which is ultimately hammering the Indian currency.

Gradual recovery in US economy coupled with rising expectations that Federal Reserve will withdraw its stimulus package soon is underpinning the US dollar index. Thus

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Linking rewards to performance: Is it so very Important Arnab Mandal, IIM Shillong

Rewards are used to acknowledge employee behavior and performance in organizations and include all forms of monetary and non-monetary compensation, promotions and recognitions. Reward systems are one of the most potent modes of control and the criteria of getting rewarded reflect organizational structure, culture and values. There is a popular conception that rewards should be always tied to performance parameters. These are generally in the form of incentives or variable pay and follows directly from defining and evaluating performance parameters for employees. The Compensation Trends Survey of 2012 by Deloitte shows that average variable pay is 16% of the CTC across different industries in India with the percentage increasing with senior managerial roles.

Different approaches to reward systems Performance-based reward systems rely on quantifiable performance parameters like profitability and revenue generation. There is no room for subjectivity in this system like working style or methods adopted to reach the goal. Hence there is a bias for actions that can push the numbers in the short-term as opposed to those that have a long-term strategic consequence and are non-quantifiable. Interactions between superiors and subordinates are infrequent and feedback is more evaluation oriented than towards employee development. Focus is more on individual performance than on the impact of the team, which gets reflected during reward pay-out as well. The system promotes individualistic culture where the organization shares a contractual relationship with the employees leading to decreased loyalty for the organization. Integration around a common goal is absent leading to lack of inter-departmental or inter-personal cooperation though there are personal initiatives and ownership of responsibility.

The opposite of this is the hierarchy-based reward system which relies on both quantitative and qualitative aspects of performance. Superiors play the role of mentors and are responsible for evaluation and development of their subordinates. Apart from just numbers the working scenario is also analyzed by the superior according to his understanding leading to certain amount of subjectivity in the evaluation. Rewards are conferred upon teams and not individuals leading to collaborative behavior and both tenure and performance are analyzed to decide the nature of the reward. Thus this collaborative clan culture revolves around communication and integration with shared goals and behavior.

Employee loyalty increases but risk appetite decreases as does ownership and innovation. Impact of Organizational Life Cycle (OLC) on rewards OLC has a profound influence on rewards and compensation which in turn plays an important role in recruitment, retention and engagement of employees. A start-up firm has limited financial resources and needs to adopt performance-based strategy to push sales whereas in the growth stage diversification and expansion are the main characteristics

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along with an improved balance sheet leading to more complexity in jobs which call for increased proportion of salary.

This proportion rises further in the maturity stage where business is marked by strong finances, operational success and consolidation requiring a skilled workforce who has to be attracted as well as guarded from poaching by competitors. During decline stage the objective is to retain customers amidst dwindling finances and demand. To minimize risk, organizations choose lower salary and increased incentives to meet dual objectives of financial constraints and employee motivation. The Figure explains variation in compensation with changing job complexity along the OLC. Impact of Business Cycle on rewards

High DOL implies high risk-high return profile. Low DOL means low risk-low return profile. DOL increases when the fixed component within a given compensation package increases. So a company can do well if it can cleverly predict the near-future business trend and negotiate it through its reward system. If the business risk is low a proactive firm should increase the DOL (fixed component) and lower variable component to increase the return. If the business risk is high then a proactive firm should lower DOL (fixed component) and increase the variable component (connected to individual or group performance) to minimize the risk.

That is the company tries to transfer some of the business risk to the employees by increasing the variable component.

Any business generally passes through business cycles i.e. upward and downward movements of level of GDP and subsequent expansion and contraction of economic activities around a growth or decline trend. The reward system should also be aligned to this change in economic activity.

This requires a well-structured but also a responsive reward system. A few financial terms will help to make the concept clear. In this respect let us look at two terms – Operating Leverage and Degree of Operating Leverage (DOL)

Strategy and Reward System (‘A’ positions and ‘A’ players) Super performers give company a competitive edge. Star players however cannot help achieve the bottom line unless they are deployed in strategic positions. Thus the comOperating leverage = Contribution Margin/EBIT pany needs to first identify their ‘A’ positions (strategic poContribution Margin = Sales – Variable Cost sitions) and deploy star performers (‘A’ players) in those roles. Thus the company needs to identify and map the Thus, Operating Leverage = (Sales – Variable cost) / EBIT positions and players accordingly (‘A’ positions-‘A’ players; DOL (Degree of Operating Leverage) = %∆EBIT / %∆Sales ‘B’ positions-‘B’ players; ‘C’ positions- ‘C’ players). For example , Nordstrom and Costco rely on customer satisfaction DOL of 4 means Profit increases 80% with 20% increase in but how they position themselves in market is different. sales. DOL of 4 also means Profit decreases by 80% with Nordstrom provides personalized service and advice while 20% decrease in sales.

Costco relies on low price. Thus Nordstrom’s ‘A’ positions include frontline salesperson while Costco’s ‘A’

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positions includes purchasing sales managers role. Thus identification of ‘A’ positions etc. depends on the company strategy. The reward system should also be tuned to the strategic impact making capabilities of those positions not simply on performance.

Nigel Piercy et al undertook a study in which they established that behaviour control and outcome control are two separate constructs which individually affect organizational effectiveness and also interact with each other.(See Figure) Infact effective interaction of both forms of control has a positive influence on both performance and effectiveness. However, the extent to which individual control forms should be present in the mix needs to be determined by organizational strategy and local cultural traits like individualism, collectivism, risk aversion, risk exposure, hierarchy or egalitarianism.

Sufficient investment should be made for ‘A’ players holding ‘A’ positions. ‘B’ players need to be nourished so that they can take up ‘A’ positions in future and offer support and feeder roles. ‘C’ players need to be trained or replaced if necessary. So reward system should not only focus on only on performance but on the strategic impact or economic [The reward system should be dove-tailed with the Organizavalue addition (EVA). tional and HR strategy to meet business Goals. Thus the reward system should attract, retain and motivate employees Executive Pay: Long-term v/s short-term performance to perform. A sufficient and optimal mix of both behavioural Executive compensation tries to redress principal/agent control and outcome control is necessary as is seen from the problem but it has failed miserably as is evident from nu- works of Nigel Piercy et al. The reward system are also influmerous scandals (e.g. Enron) or the recent recession fuelled enced by factors such as Organizational Life Cycle stage, by mortgage defaults. [Principal/Agent problem states that Business cycle andEVA rather than only performance] Positions

Determinant of Compensation

A positions (Strategic)

Performance

B positions (Support)

Job level

C positions (Surplus)

Market

the Principal (owners or shareholders) needs the Agents (Executives) to work for their interests]. So the executives are often paid above the average and also given stock options and have seen continuous increase in compensation whether the company performance increases or otherwise.

The executives have in fact been able to undercut the arm’s length in negotiations due to tremendous power they they enjoy [Managerial power theory]. Also if they leave they are given hefty severance package (golden parachutes). The reward system has failed miserably because the executives could leverage their managerial power to manipulate the earnings or are generally focused on short term perfor- Reference mance to increase their personal gain. Thus the executive reward system should be designed so that it focusses on  Realigning Fixed and Variable Pay Compensation Management, Pankaj M. Madhani, SCMS Journal of Indian Managelong term performance and measures such as ‘claw backs’ ment needs to be incorporated in the reward system.

Hence we can say A lot of factors play a major role to determine whether rewards should be attached to performance or otherwise, but it is safe to say that it should be synchronized with organizational culture. Moreover reward systems should be a mix of both hierarchy-based and performance-based systems, which helps control behaviour and outcome respectively.

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

“A Players” or “A Positions”? The Strategic Logic of Workforce Management , Harvard business review



The Managerial Power Theory of Executive Compensation

by Paul J. Schneider, JD, LLM, JOURNAL OF FINANCIAL SERVICE PROFESSIONALS



Compensation’s Role in Human Resource Strategy , Int. Studies of Mgt. & Org., vol. 42, no. 1, Spring 2012, pp. 7– 23.© 2012 M.E. Sharpe, Inc.

Maslow’s Higher Order Needs & Alphabet T Rhea Joglekar, SIMS Pune

Introduction: Despite of motivational theories and intervention techniques being successfully implemented, research still shows an alarming lag in an organisation’s ability to retain its employees. Studies show three main facts in workplaces- 1) Pervasive job dissatisfaction, distrust, and disengagement 2) How people are managed and job attitudes as significant predictors of a number of dimensions of organizational performance 3) Most organizations have failed to take appropriate actions, thereby, in some sense, “leaving money on the table.” [1] All these explain the ripple effect that hampers facets beyond merely the employee’s performance.

The heavy bend towards predictive analysis and the research in the same has rendered some tools inaccurate. However, no method can be completely written off for different tools may offer varied perspectives on the same aspect. This article speaks of the similarly intertwined aspects of Graphology, Neuro Linguistic Programming and Organisational Behaviour theories uncovered during my study of the three.

Background: Graphology is a pseudoscientific study and research shows it as a tool with a low quotient of accurate predictability [2] . One of the tenets explains that when we write, the ego is active, but it is not always active to the same degree. Its activity waxes and wanes; being at its highest level when an effort has to be made by the writer and at its lowest level when the motion of the writing organ has gained momentum and is driven by it.[3] The second aspect NLP; emphasises upon development through neuro-linguistic programming of an individual[4] Again a tool for psychotherapy and personal development, NLP emphasises on body language, cognition, kinaesthetic, recall. [5] The third aspect focuses on theories by Maslow and Alderfer with special emphasis on the Self Actualisation level of an individual.

Concept: Graphology and Maslow’s Theory: Something as simple as the alphabet ‘t’ speak volumes about one’s personality. Following is a brief on how the t crossbar is in sync with Maslow’s hierarchy. The position of the crossbar indicates which need level is the individual aligned to. (Ref Fig 1) Graphology and Alderfer’s ERG Theory: Alderfer’s ERG theory also applies to the T crossbar. An individual can move to a higher need level without his/ her lower need being satisfied.

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A movement of T crossbar can be observed with it being analogous to the level of need.

Graphology and Alderfer’s ERG Theory: Alderfer’s ERG theory also applies to the T crossbar. An individual can move to a higher need level without his/ her lower need being satisfied.

A movement of T crossbar can be observed with it being analogous to the level of need.

NLP and Maslow’s Theory: The eye assessing cue chart explains the movement of eyes in relation to construct and recall. Left movement indicates recall and while the right indicates construct(Ref Fig 2). Graphology too attributes left to the past and right to future. Going beyond Maslow’s Self Actualisation level, we encounter the three behavioural selfs - Cognitive, Aesthetic, Transcendant.

Cognition refers to our ability to gain from the environment while aesthetics refers to contributing to the present due to past knowledge. Transcendent goes beyond these needs and gives an overall perspective to the situation. An individual at the transcendent level is highly intuitive and may also be considered as a visionary. He however is less likely to achieve tangible goals although his psychic self may be highly advanced. (Ref Fig 3)

5. A Transcendent level crossbar may not necessarily indicate that each of his material goals is achieved. Although he may be termed a visionary or someone with higher connect with the cosmos, his creativity would only be channelized if he realises his goal in time and abides by a path to make it real.

References: 

Conclusions: 1. The level of an individual’s need can be deciphered from  the height of his T crossbar.

2. A person may move from a higher to a lower level or vice versa if he feels deficiency of one. However, a person may  also stay at a higher order need without the lower order  need being satisfied.

3. A T crossbar tending towards the right indicates enhanced  cognitive ability while the one tending more on the left indicates higher ability to recall or aesthetic sense 4. The above two being more pronounced when an individual is in the self actualization bracket.

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“Human Resources from an Organizational Behavior Perspective: Some Paradoxes Explained” , Jeffrey Pfeffer. Journal of Economic Perspectives—Volume 21, Number 4—Fall 2007 Retrieved from http://en.wikipedia.org/wiki/Graphology.

Accessed On: 24th August 2013 “The predictive accuracy of assessment and pre-screening methods, Anderson and Shackleton, 1993 Retrieved From http://en.wikipedia.org/wiki/Neurolinguistic_programming. Accessed on 25th August 2013 “Eye accessing cue chart” - Frogs into Princes, Bandler & Grinder, 1979

What is Wrong with Management Theories?

Revisiting Ghoshal Prof. Sushanta Kumar Sarma, TAPMI

The admission process in all of the business school is over and the classroom sessions have started. The demand for management education has not decreased significantly despite economic slowdown and placement problems. There are more than 2 lakhs of candidates appeared for CAT in 2012 and many them are hoping to transform their lives with a management degree. However, in this ever growing demand for management education because of higher job opportunities, the debate on quality of education has taken a backstage. There are hundreds of business schools in the country imparting management education, and teaching management theories to their students. But to what extent are these theories helping the budding managers to solve real life issues?

How good are these theories proving to be when used to address issues of social concern? As we search for answers to these questions, it may be appropriate to revisit the teachings of Sumantra Ghoshal, the great management scholar who generated an entirely new way of thinking on management education to make it more useful to the society.

Sumantra Ghoshal, a radical management thinker and Professor of Strategy and International Management at the London Business School until his death in March 2004, worked on the relevance of managerial education and was passionate about generating useful knowledge. His last published work was on the quality of management education currently being taught in business schools wherein he argued that bad management theories taught in the business schools are overrunning best management practices.

Ghoshal’s core argument was that theories and research related to the conduct of business and management had influenced the practice of management in an adverse manner. These theories have corrupted the worldview of managers, especially those with an MBA education. For example, Ghoshal takes the case of ‘agency problem’- a theory that propounds the idea that managers are by nature opportunist and cannot be trusted for their behavior. Such theories have, to some extent, legitimized the corrupt actions of managers and CEOs of corporations when they placed their interest over and above the shareholders. By this account, the likes of Rajat Gupta incident, and the recent chopper scam by Agusta Westland (AW) seems to be all natural and expected. Apparently, in all of these cases the accused have behaved in an opportunistic manner as expected by the theory.

The danger with negative theories is that managers become both the consumer and the subject of such theories and over a period of time start behaving in conformance with the theory. A theory formulated on the presumption that managers are opportunist and selfish by character and which draws its conclusion based on such presumptions can gradually induce opportunistic managerial actions. The worst part is that while emulating such behaviors, mangers will be acting in a guilt-free manner blaming everything

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on the theoretical assumptions. Many a times people use ness from certain states or regions citing regulatory reorganizational resources (starting from stationeries to office strictions or political unrest and thereby avoid sticking to vehicles) for personal consumption and they engage in such any moral or ethical obligation towards the local communiactivities with a ‘catch me if you can’ kind of attitude. The ty. argument is that ‘we are going to use organizational resources if you don’t have a foolproof monitoring system’.

This is the danger of bad theories that Professor Ghoshal was referring to. That is, we involve in a wrongful act without any guilt because we are taught that the practical man is an opportunist looking for exploitative opportunities. As an organization, it is the responsibility of senior management to design a flawless system to protect the organization from any selfish managerial actions.

The managerial theories have originated from diverse academic disciplines like sociology, psychology, economics, etc.

These theories have collectively developed a gloomy vision about the human nature, and the role of organization in society. Negative assumptions about human nature are reflected in theories like the resource based theory, institutional theory, and transaction economics. Ghoshal points that such a negative view of human nature has created a despondent vision about the world and has led to a self full-

Management theories indiscriminately apply methods of filling prophecy. For example, there is a fundamental flaw physical science to study the problems of corporations. But about our assumptions on preferences. Borrowing from ecosuch applications of scientific method ignore the fundamen- nomics, management theories always consider human betal differences that exist between social science and physical ings as self-interested. But according to Avner Ben-Ner and science. They are often ignored as two separate academic Louis Putter (1998), people can have preferences in three disciplines. In case of physical science, the mode of explana- ways - self-regarding, other-regarding, and processtion relies heavily on causal and functional explanations. regarding. Self- regarding preference is about a selfWhile the causal explanation takes recourse to temporal interested

individual

who

is

bothered

about

self-

precedence, the functional explanation takes recourse in consumption and outcome of other’s. Other-regarding prefnotions like benefits, progress, etc. These modes of explana- erences are concerned with both consumption and the outtion are extremely useful in physical science and are also come of others. Process-regarding preferences are conapplicable in some stream of business studies like the capital cerned with how individuals in question and others achieve market, where a large number of diverse actors are inter- the outcome of common interest. acting simultaneously. But the major building block in social science is the individual action laden with some intention.

Human intention is of primary importance to explain business phenomenon. Overemphasis on mathematical elegance to make theories appear to be more scientifically rigorous has led management scholars to undermine the role of human intention in explaining business situations.

Management theories rarely take into account the otherregarding and process-regarding preferences. They always treated individuals as a self-interest seeking opportunist. All managerial explanations have come from the basic assumption of human preferences for protecting self-interest.

Transaction cost economies assume human beings to be interested in maximizing their benefit even at the cost of

Ghoshal retorts that one of the significant casualties of in- others. The implication of such theory is that managers deterpreting management theories with principles of physical vote a lot of time and energy in creating a hierarchical strucscience is the oversight of moral and ethical considerations ture to prevent one individual from benefitting at the cost of inherently present in the conduct of business. Managers another. This kind of structure builds up distrust among emoften resort to the excuse of helplessness in the face of ployees and management. As a result of such structures, competition in the market. They justify their actions by employees develop a perception that they are not trusted blaming invisible market forces and claim that they take and become wary of working within such surveillance mechcertain actions in order to comply with forces of capital mar- anisms. This leads to a damage of employee’s selfket or competition. Ghoshal calls this as “dehumanization of perception and hampers the intrinsic motivation to work. A practice” through which management generally frees them- possible consequence of such damage is a reduction in volselves from all kinds of moral and ethical considerations. We untary compliance and cooperation, and increased opporoften witness such dehumanization of practices in the con- tunism. Thus, the basic negative assumptions underlying the duct of business whereby corporations withdraws their busi- theory have a conformance effect on the behavior of man-

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agers and employees. Hence, it is suggested that preference as a basis of decision-making should also take elementary values of moral or social concerns into considerations. Like self-interest seeking actions, concerns for society and concern for right or wrong can also influence human actions guided by their intentions.

The Ghoshal’s contention is that the negative assumption about people ingrained in management theories influence the action of the managers in a negative manner. As managers tend to adopt the worldviews of theorists, over a period of time their behavior gradually transform to conform with the negative assumption. Compared to physical science, social science, especially the management theories, has a larger responsibility towards society because they influence human worldwide and can have far-reaching consequences.

In Indian context, at a time when business schools are considered as placement agencies and students look for certain ROI (Return on Investment) before taking admission in an MBA course, whose concern should it be to examine the quality of management theory? In this rat race of placement and business school ranking, who can afford the time to pause and reflect on what we are learning at the business schools?

Sumantra Ghoshal perceive these courses to be more useful in their working life and institutes also find it easier to offer these courses by sourcing faculties with a blend of technical skills and industry exposure. The teaching of management theories, however, demands a well-groomed background in management research which many management faculties are lacking in

Ghoshal is still relevant after nine years of his untimely the current context. death and so is his half-finished work where he said that it is the academia that needs to make the theories more useful and positive. It is the core responsibility of academics to act more consciously in building theories which can generate more positive actions. Head of academic institutions need to put additional effort in promoting research with a positive assumption of human nature. In Indian context, the challenge is more acute because it suffers from a lack of enabling environment for management research. We are yet to see world class management theories borne out of Indian context. We don’t have any management forum that is recognized all over the world like the Academy of Management (AOM). So we need to work harder to create a researchenabling environment before getting into generating positive management theories.

In Indian business schools, where there is always a crunch of good faculty, the teachings of management theories have been a challenge. Theories are often considered as something not relevant to our day-to-day conduct of business.

Many business schools prefer to stick to courses that are more skill-based rather than theory-focused. It serves a purpose for both the students as well as the institutes; students

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The idea of developing best management theories should not be misplaced as an act of delegitimizing the existing management theories. Let the existing management theories remain as a part of the MBA education. The idea is to create space for pluralism of theories where both types of management theories can co-exist. The head of academic institutions has to take the lead by creating organizational space and resource for promoting scholarship on alternative theories. Courses on ethics, and corporate governance are not sufficient to inculcate the sense of moral or ethical responsibility among managers in conducting business; rather support should be offered in a wider range of scholarships covering discipline like organizational behavior, strategy, marketing, etc.

The alumni of business schools also have a role to play. They are the ones who are bridging the gap between theory and practice; often applying and experiencing the role of theory in the conduct of business. Based on their own experience with regard to the usability of management theories, they should press their alma mater to realign MBA courses with practical experiences. The alumni interaction should not be

limited to the idea of networking and resultant placements. It should extend beyond the short-term goal of getting job offers and should encompass long-term endeavors of making business education more positive and productive. Alumni should interact with faculty on specific research agenda and should collaborate more often to generate better theories which eventually will benefit their own business. After all, nothing is more practical and relevant than a good theory.

References 

Ben-Ner,A & Putterman,L. (Eds) (1998). “Economics, values, and organization:7.” Cambridge, England:Cambridge University Press.



Ghoshal, S. (2005), “Bad Management Theories Are Destroying Good Management Practices”, Academy of Management Learning & Education, 4(1):75-91.

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