How's my Luck now?

Reflections, views and descriptions during my stay at IIM Lucknow from July 2004 to March 2006

Name:
Location: India

Friday, November 25, 2005

Death of a salesman

One of our alumni, S. Manjunath, of the batch of 2002, was murdered in Lakhimpur-Kheri district of UP, allegedly by the owners of a petrol pump which he had sealed due to sale of adulterated diesel there. Manjunath was a sales officer of Indian Oil Corp. and was in charge of 35 petrol pumps in L-K district. The crime was reported in the print media only two or three days later (stories can be found here, here & here). The perpetrators have been caught, two of them red-handed (with the dead body). But one has to keep one's fingers crossed till they are actually convicted.

While this shocking incident brings to light the issue of petrol pump allotments and criminal elements having penetrated this business, it also brings to light the immense pressure under which honest sales officers of oil companies have to work under the operating guidelines for them. What it also highlights is the serious law & order problem that UP as a state has. For the last ten years or more, when one asked anyone about the worst governed state in India, Bihar's name would invariably come first. I argue, after having read about UP politics & crime and having watched a couple of excellent films on this issue, that UP is really not that different from Bihar in terms of lawlessness. Violence has become quite entrenched in people's minds. Murder is so common that only Sahir's biting lines do justice to the situation:

yahaan ik khilaunaa hai insaa.N kii hastii
ye bastii hai murdaa-paraston kii bastii
yahaan par to jiivan se hai maut sastii

Indeed, ye duniyaa agar mil bhii jaaye to kyaa hai?

Tuesday, November 22, 2005

Capital tour

I went to Delhi with a friend over the weekend to participate in a corporate finance contest at the Indian Institute of Foreign Trade (IIFT). I was visiting Delhi for only the second time. The first visit had been 15 years ago, and was for only a day. This time again, the visit was limited to 24 hours. Reaching Delhi was a breeze, as we took the Lucknow-Delhi Shatabdi Express, but the return journey had the usual problems - RAC ticket, late train, etc.

IIFT is located in the Qutab Institutional Area in south Delhi. This area houses several institutions: private business schools, the Lal Bahadur Shastri Sanskrit Vidyapeeth, the Indian Statistical Institute (Delhi centre), the offices of the Central Water Commission, etc. That distances are immense in Delhi became apparent from the time it took us to reach it from my friend's house in east Delhi. On the way, we passed through Rajpath and the India Gate, a road leading to Raj Ghat, AIIMS, IIT Delhi, etc. The journey was made pleasant by the wide roads that New Delhi enjoys, along with a reduction in pollution due to extensive use of CNG as a fuel.

The contest itself was a part of IIFT's management fest called Quo Vadis. The activity levels at the institute were pretty low and there seemed to be more informal events than more serious ones. Having reached there at around 11am in the morning, we were handed a copy of the National Steel Policy (released recently) and asked to analyse the prospects of a global steel company wanting to enter India using any external data on the industry that we wished to use. So most of the time till 4pm was spent looking up relevant facts and statistics on the steel industry and loosely devising an approach.

The contest had 6 finalist teams, and consisted of three written rounds of 15 minutes each, involving the three corporate finance decisions of Investment, Financing and Dividend. These were evaluated by a panel of two judges - executives from the steel industry (from SAIL and Nova Steel, respectively). The overall strategy was then to be presented to the judges. Although we couldn't see the presentations of the other teams, I think most of us harped on the same points (locating near the source of iron ore; breaking up the supply chain of steel and performing each part where it was cheapest; importance of transportation costs, etc.). In the end, we lost out mainly because of one glaring mistake that we made in calculating and presenting the debt-equity ratio we wished to keep for our venture. But overall, it was well-organized and the experience was good. One of the judges also clarified some important facts about the steel industry after the presentations (the segmentation of steel products into long products and flat products, the differences in their demand characteristics; how semi-finished steel production provides economies of scale, rather than finished steel production; that Mittal Steel and others were entering India not out of love for the country, but because of its rich iron ore reserves :) ).

Thursday, November 17, 2005

Surrealism

Recent happenings on campus seem almost surreal, straight out of a dream (or rather, a nightmare). The proliferation of animals is giving some real problems. The dogs are as wild and as numerous as ever. After the dog-bite incident, another stunning incident happened yesterday evening. Right in front of the academic block, a rampaging nilgai gave two first-year students no chance of reacting as it grounded them. One of them fell unconscious and sustained a hairline fracture in the arm. So fast was the nilgai that this guy never actually saw it - before or after the incident. And who should be behind all this but the dogs. Two dogs, which must have been troubling the nilgai, had aroused the excitable Big Bertha to charge down to the academic block.

Later, at night, two of my friends discovered a dead dog near my hostel. This dog was in rigor mortis, with horror on its face and no apparent signs of injury :). Possibly, it might have suffered from a poor heart, and the sight of a nilgai at full throttle was too much for its heart to bear :).
Another weird sighting in the evening today was a dog with something resembling a shirt collar on its back, looking like it had just returned from a fresh attack on someone.

Today we asked a guard on our half-walk (the full walk is rendered impossible by the bovine creatures) about the nilgai. He said there was a whole family of them on campus, some of which were walled in when the campus wall was built! Now, they can jump the wall, and go in and out at will. Some dogs were foolish enough to kill a baby nilgai, igniting the dog-nilgai battle.

Now the list of animals spotted on campus reads as follows: dogs, nilgai-s, snakes, foxes/jackals, (allegedly) hyenas, tortoises, porcupines, peacocks. Enough to declare IIML a sanctuary and earn revenue through tourism.

Owing to the numerous holidays this term, the class schedule has also gone for a toss. Scheduling is a nightmare, and notices on classes are coming thick and fast. Perhaps a stock ticker-type announcement mechanism is required, the regular noticeboard won't work :).

Monday, November 14, 2005

Guest lecture on data mining

As part of the BIDM (Business Intelligence & Data Mining) course, we had an interesting guest lecture delivered by Mr. Rajiv Pratap, COO, Virtual Gold. His company, co-founded by him and other IBM employees in the US in 1997, has developed cutting-edge data mining technology which they have deployed in several different industries for their clients. It was an excellent, first-hand insight into a business model based on data mining technology.

What captured the students' attention most was that they had begun with an application in a relatively unlikely area - sports. A data mining application called Advanced Scout was developed for basketball coaches for analysing basketball games (pre-match, post-match and even real-time) to discover patterns in their own and opposing teams' plays and exploit these patterns. Sports is big business in the USA and this must have been a lucrative foray, because the software is quite expensive. But there is an outcome uncertainty here: if every team starts employing the software, games can either improve in quality, or become more mechanical.

After dwelling on this software, Mr. Pratap took us through the conventional data mining process. Then, he introduced us to autonomic reporting, a technique developed in-house to proactively alert managers or decision-makers to patterns in data that the decision-makers are currently exploring through more conventional means (like OLAP-based queries). This integration of OLAP with data mining in a single web-based interface is a good development. As Mr. Pratap said, in most cases, users used the OLAP part much more and used the data mining application only in cases where there was a recognized problem which had to be investigated. Now, with this integration, many inquiries can be accompanied by a pattern discovered by mining relevant data (normally pre-discovered and stored in a pattern store), enabling greater use of data mining.

Thursday, November 10, 2005

'SCM & IT - the Asian Paints Story'

This was the topic of the talk delivered yesterday by Mr. Soren Malekar - General Manager, Materials for Asian Paints. The talk was to cover Asian Paints' experience with successful IT-enablement of their own supply chain. Unfortunately, I could not attend the full talk because I was participating in an online contest. Still, I was there for an hour or so.

The talk was delivered very informally, encouraging participation from the audience. In fact, it was as entertaining (perhaps more so) as it was informative. Most people from industry bring this slightly cynical, slightly sarcastic attitude with them, particularly towards theory and towards consultants and their practices. Mr. Malekar has been with Asian Paints for 14 years now in various capacities, and so had a very good overall picture of the business to offer.

The session opened with an introduction to Asian Paints' complex, 5-layer supply chain. The lesson was that while designing a supply chain and while IT-enabling it, the emphasis should be on how the firm can gain competitive advantage from it. AP decided to make quick and reliable delivery for their fast-moving paints products through an integrated supply chain their competitive advantage. This competitive advantage also included an extensive and motivated sales force. AP owns three layers of the supply chain - the paint factories, the regional distribution centres and the sales depots. The final layer - the dealers (hardware stores and the like) were not fully IT-enabled as yet, because of various reasons: the prohibitive cost of IT-enabling 18000+ dealers; space constraints in most dealer stores; low immediate value from point-of-sales data for a product with predictable demand (note: not stable demand, as paints demand shows seasonality, especially on festivals like Diwali). Certain other areas explored in SCM theory, like trans-shipment, were shown to be difficult to implement in practice.

Mr. Malekar then went back to the period of 1997-98 when the IT initiative began at AP. Earlier, they had an in-house SCM solution and a long-term relationship with the consultants Booz-Allen & Hamilton. But this solution was proving to be too difficult to scale. Indeed, several attempts were made by independent entrepreneurs to 'optimize' AP's supply chain, to no avail. Certain key decisions were taken at this stage, including: deciding that it would be best to go for state-of-the-art IT infrastructure despite having a commanding market share of the Indian market; zeroing in on i2 Technologies' as their implementation partner, etc. They implemented the IT system in three layers: the Execution layer at the lowest level; the Transaction layer in the middle (consisting of SAP R/3 ERP); and the Decision Support layer at the top, which included i2's SCM modules like Demand Planner, Master Planner, Production Scheduler, etc.

The next part of the talk was to deal with each of these modules, but I couldn't attend it.

Wednesday, November 09, 2005

Summers and winters

As winter gains ascendance over Lucknow, it was time for summer placements on campus for the last few days. It was, as usual, a busy time for both batches - the PGP1's getting placed and the PGP2's conducting the entire process. I had my share of running around to do. But it had its positive aspects, two of which were: getting to know many more people of the junior batch in a short time; and observing the behaviour of people coming here from various industries and companies. From an observation of the latter, it becomes clear how pervasive 'corporate culture' is: an example comes from two leading firms in the FMCG industry in India, whose people behaved in totally different ways - one aggressive and demanding (perhaps overly so), the other more friendly and accommodating.

Sunday, November 06, 2005

'Thinking Strategically' - I

I took a month to finish this fabulous book by Professors Avinash Dixit and Barry Nalebuff (W. W. Norton & Co., 1991). The book's sub-title is: 'The competitive edge in business, politics, and everyday life'. It deals with 'strategic interactions' that individuals and organizations experience in their everyday life from the perspective of game theory.

The book is basically a very informal and example-laden introduction to game theory and its applications. The numerous examples are stylized versions of situations found in sports, politics, business, and other social relationships. The premise of the book is that every person must behave 'strategically', by which is meant that in making any decision or undertaking any action, one must be rational oneself, as well as assume that one's competitor(s) will behave rationally too. In the book's words: 'strategic thinking is the art of outdoing an adversary, knowing that the adversary is trying to do the same to you'. Thus, game theory becomes a theory of competition (the reason we study it in the ATSC course). The book succeeds in capturing the reader's attention throughout by its lucid language and interesting and entertaining examples.

The importance of game theory lies in its wide range of applications, a fact which is corroborated by the awarding of the Nobel Prize in Economics to pioneering game theorists (John Nash, as well as this year's winners, Aumann and Tom Schelling).

However, game theory alone cannot function as a theory of business strategy and competition. It is a theory of social interaction, and has applications in business strategy, but isn't the be-all and end-all of it. One notable criticism is that adopting only a game-theoretic view of dealing with competition may make an organization fail to develop any fundamental source of competitive advantage, spending all its time only in moves and counter-moves to competitive behaviour; in other words, too many tactics, too little strategy. Another is that competitive situations in real life (in business or otherwise) are seldom so simple that all outcomes are known with exact payoffs for each competitor. Lack of information or incorrect information can break down many of the techniques. As for its social applications, the game-theoretic assumption of mutual rationality is far-fetched, as most of us have experienced. One doesn't need to deal with a lunatic or a brainwashed terrorist or an egoistic dictator to realize this. Most of us make decisions on an emotional or non-rational basis every day.

'Thinking Strategically' - II

Now for a description of the book and its contents, which go beyond business alone (as reflected in the sub-title). What follows may not be immediately comprehensible to readers not familiar with game theory, because I have summarized the contents of the book in brief, and as such, the concepts are taken out of their context and shorn of detail.

The book is divided into three parts. The first part deals with the most basic concepts of game theory: dominant strategies, dominated strategies, Nash equilibrium; first, in sequential games and then, in simultaneous games. These concepts help in 'anticipating your rival's response', and 'seeing through your rival's strategy'.

The second part deals with more advanced concepts. The famous 'prisoner's dilemma' is introduced and its solution by mutual co-operation of players is explored. Related concepts like detection of cheating, desirable characteristics of punishment and tit-for-tat strategies are discussed. The chapter on strategic moves deals with moves that 'are designed to alter the beliefs and actions of others in a direction favourable to oneself'. In this context, unconditional moves and conditional moves (threats and promises) are explored. A related concept is that of credible commitments. In order to make a strategic move credible to your competitors, you must make a commitment which might leave you with less options than before, but makes your path ahead clearer. This chapter shows eight ways to achieve credibility (by use of reputation; contracts; cutting off communications; burning bridges behind you; leaving the outcome to chance; moving in small steps; teamwork; use of mandated negotiating agents). In case of games where there is no dominant strategy, and no Nash equilibrium, players have to used mixed strategies (random or unpredictable strategies). Just how unpredictable each player should be and how moves should be mixed up is the subject of another chapter.

The third part has chapters dealing with very specific topics in game theory. The chapter on brinkmanship defines it as: 'the deliberate creation of a recognizable risk, a risk that one does not completely control; the tactic of deliberately letting the situation get somewhat out of hand, just because being out of hand may be intolerable to the other party and force his accommodation'. The most common example of brinkmanship is in nuclear deterrence. The next chapter deals with situations in which Adam Smith's 'invisible hand' of self-interest fails to achieve common good. Thus, it deals with implications for public policy in such situations where some things don't have a set price. The chapter on voting strategies deals with the limitations of majority rule in deciding outcomes, less common voting schemes like 'approval voting', etc. The chapter on bargaining, a short one, deals with how 'looking forward and reasoning backward' applies to bargaining, application of brinkmanship to bargaining, etc. Finally, the chapter on incentives deals with how to construct incentive schemes to motivate a worker to give off his best effort; and to ensure truthfulness and efficient outcomes in case of joint venture contracts and sealed-bid auctions.

The book ends with a chapter which only has case studies - puzzles solvable by applying the concepts introduced in the book.

Friday, November 04, 2005

Planning under uncertainty

Faced with an uncertain environment, should one plan less or more? We have encountered this question a few times under different courses here. Even in very uncertain environments, planning by scenario-building helps build expectations, more than anything else. I built two scenarios for my Term IV GPA, a best-case scenario and a worst-case scenario, faced with the uncertainty of the way grades are allotted, as well as the uncertainty arising from my middling, ambiguous position in most subjects. The best-case scenario predicted a TG of 7.4 and the worst-case one, 6.33. It turns out that, with minor internal adjustments, my TG has actually come out at exactly 7.4. Maybe I'll become a good strategic planner :) (of course, I didn't have to make any personal resource allocations based on the scenarios).

Tuesday, November 01, 2005

Diwali, dingos, etc.

The hostels and other buildings are illuminated with lights and rangoli-s are being created in each hostel as Diwali gets celebrated on campus. There was to be a round of fireworks in the Commercial Plaza as well. Let's see what's for dinner today. But otherwise, it has been pretty much like any other holiday. When we went to the city a couple of days ago, it seemed to be gearing up for the occasion, with myriad small stalls selling all kinds of stuff set up.

There has been some development on another count too. The stray dogs on campus, who have multiplied prodigiously in recent times, have suddenly turned more aggressive and wild. There was a dog-bite incident at night a couple of days ago to which we were close witnesses. The following day, a few of the dogs were picked up and taken away, but many of them continue to fight internecine wars and trouble people. With all due respect to animal lovers, these dogs are a big menace and must be treated accordingly.