Vikalpa: The Journal for Decision Makers

All large firms around the world are concerned about value creation through organic growth and innovation. In fact, continuous innovation is the only source of sustainable advantage. Indian industry can be a source of innovations, not just for the Indian market but also for the global market. And for this, India has to focus on the next practices, not just be content with the best practices.

The competitive landscape is being altered by five major forces that will reshape the basis for competition: They are: i) Deregulation of a large number of industries such as telecom, power, health, and financial services bringing a significant change; ii) Globalization giving rise to ‘micro multinationals;’ iii) Emerging markets like India and China growing rapidly and already positioned to be the No. 2 and No. 3 economies of the world; iv) Convergence of technologies and industries wiping out old business boundaries and creating new ones; and v) Ubiquitous connectivity having a big impact on how business is done as more than a billion people are connected through wireless and personal computers (PCs).

The innovation and the value creation debate around the world are centring on these five issues and the firms that adapt themselves fast to the changing scenario are going to be the winners. In this lecture, the author addresses the following questions:

Where will the ‘next practices’ come from?

How do we start seeing a pattern of opportunity that others may not yet recognize?

How do we commercialize complex technologies?

How do we understand the changing nature of the key driving forces that will create the next world economic order?

How do we create a global perspective irrespective of our work or our current preoccupations?

The author cites, as examples, specific case studies of innovation taking place in India in a wide variety of areas: hospitality industry, adult education, automotive, health care, and communications and computing. He believes that these examples represent the harbingers of next practices.

The author has the following suggestions for the Indian industry to move to the next phase – to lead:

Indians need to have the confidence and commitment to leverage their capacity for experimentation into the global marketplace.

India needs to recognize the emerging patterns and develop a methodology for radical innovations.

India needs a full measure of knowledge creators and thinkers.

Indian companies are in a cusp of a very good opportunity and those who have the courage and imagination to move forward, experiment, consolidate, and leverage will be at an advantage.

There has been growing criticism of financial measures in performance evaluation system in postreform India as they are historic in nature and lack futuristic outlook. Their relevance in the information age, when the companies are building internal assets and capabilities, is questioned. The situation may worsen when the firm is compelled to pursue short-term goals at the cost of the organization's long-term objectives.

Kaplan and Norton developed an innovative and multi-dimensional corporate performance scorecard known as the Balanced Scorecard. It compels the firm to align its performance measurement and controls from the customers' perspective, internal business processes, and learning and growth perspectives and investigate their impact on the financial indicators. There are arguments that the Balanced Scorecard should be ‘unbalanced’ based on the strategy followed by the firm. The corporate experiences with the implementation of the Balanced Scorecard suggest mixed results. In this article, the authors a) identify the extent of the usage of the Balanced Scorecard by corporate India; b) explore whether Indian firms use all the four perspectives, namely, customer, financial, internal business, and learning and growth in their performance scorecard; c) capture the management motivations for implementation of the Balanced Scorecard; d) identify the key performance indicators in different perspectives of the performance scorecard; and e) evaluate the performance of the Balanced Scorecard as a management tool.

The major findings of this study are as follows:

The Balanced Scorecard adoption rate is 45.28 per cent in corporate India which compares favourably with 43.90 per cent in the US.

The financial perspective has been found to be the most important perspective followed by customers' perspective, shareholders' perspective, internal business perspective, and learning and growth perspective. The environmental, social, and employees' perspectives also figure in it.

The expense centre budgets, brand revenue/market share monitoring, profit centre, and transfer pricing mechanism are the other performance management tools used by the Indian companies.

Corporate India monitors the indicators as per ISO 14000 norms in the environmental and social perspectives of the performance scorecard.

The difficulty in assigning ‘weightage’ to the different perspectives and in ‘establishing cause and effect relationship among these perspectives’ has been found to be the most critical issue in the implementation of the Balanced Scorecard in corporate India.

Most companies claimed that the implementation of the Balanced Scorecard has led to the identification of cost reduction opportunities in their organizations which, in turn, has resulted in improvement in the bottom line.

Insights from such an analysis can be useful to both management practitioners and management accounting academics.

Estimation and forecasting of volatility of asset returns is important in various applications related to financial markets such as valuation of derivatives, risk management, etc. Till early eighties, it was commonly assumed that the volatility of an asset is constant and estimation procedures were based on this assumption even though some of the pioneering studies on property of stock market returns did not support this assumption. Following the pioneering work of Engle and Bollerslev in eighties on developing models (ARCH/GARCH type models) to capture time-varying characteristics of volatility and other stock return properties, extensive research has been done world over in modeling volatility for estimation and forecasting.

There are broadly four possible approaches for estimating and forecasting volatility. These are:

Traditional Volatility Estimators — These estimators assume that ‘true’ volatility is unconditional and constant. The estimation is based on either squared returns or standard deviation of returns over a period.

Extreme Value Volatility Estimators — These estimators are similar to traditional estimators except that these also incorporate high and low prices observed unlike traditional estimators which are based on closing prices of the asset.

Conditional Volatility Models — These models (ARCH/GARCH type models) take into account the time-varying nature of volatility. There have been quite a few extensions of the basic conditional volatility models to incorporate ‘observed’ characteristics of asset/stock returns.

Implied Volatility — In case of options, most of the parameters relevant for their valuation can be directly observed or estimated, except volatility. Volatility is, therefore, backed out from the observed option values and is used as volatility forecast.

The empirical research across countries and markets has not been equivocal about the effectiveness of using these approaches. This study compares the result of the first three approaches in estimating and forecasting Nifty returns.

Based on four different criteria related to bias and efficiency of the various estimators and models, this study analysed the estimation and forecasting ability of three different traditional estimators, four extreme value estimators, and two conditional volatility models. As a benchmark, it used ‘realized’ volatility estimates. The findings of this study are as follows:

For estimating the volatility, the extreme value estimators perform better on efficiency criteria that the conditional volatility models.

In terms of bias, conditional volatility models perform better than the extreme value estimators.

As far as predictive power is concerned, extreme value estimators estimated from sample of length equal to forecast period perform better than the conditional volatility estimators in providing five-day and month ahead volatility forecasts.

Globalization and rapid technological change is a reality for companies today. It has changed the manner in which business has been routinely conducted and has brought into focus delivery of results in real time. Newer forms of organizational structures have emerged that are flatter with fewer hierarchical levels. Career paths are no longer linear and unbroken but are spiralling and lateral in nature. The traditional employment contract between employees and organization has altered. While earlier it was normal to assume a life time of security in exchange for doing a good job, now employees are increasingly looking for opportunities for professional development that will enhance their future employability.

All these changes have had implications for HR departments and performance appraisal in the new business context. Instead of evaluating primarily on the basis of quantitative results and on what is achieved, the focus is shifting to how it is achieved as an indication of an employee's ability to keep performing well in the future. It has made ‘competencies’ the new mantra for the HR departments aiming to effect change within organizations.

Based on a sample data of over 250 executives in one of India's largest vehicle manufacturing companies, this paper reviews the concept of competency, how it is assessed, and brings out the need for assessing technical competency. The final model that emerges from the study goes beyond managerial competencies — a model of techno-managerial competency that may be better suited to emerging jobs in a more technology-driven future.

This model consists of four factors:

technical skills comprising of knowledge fundamentals, engineering drawing appreciation, manufacturability appreciation, materials choice appreciation, knowledge of emerging trends, etc.

group problem-solving skills comprising of problem analysis, creativity and originality, technical leadership ability, communication ability, people management skills, etc.

managerial skills comprising of perseverance, quest for learning, business understanding, visualization, attention to detail, etc.

aptitude comprising of analytical ability, creativity, risk-taking orientation, etc.

This paper argues that for effective development of managers, training programmes are far from sufficient. The major development of managerial capabilities, in fact, takes place not so much as a result of training programmes as on the job. But this development can be directed or undirected and one of the important tasks of a senior manager is to make sure this development is directed and effective.

The development of junior managers by senior managers is a vital activity in a learning organization. In today�s fast changing environment, the only organizations that will survive will be learning organizations. Competitive advantage is not static. Organizations cannot place themselves in particular strategic postures in an industry and stay there for all time to come but have to evolve and adapt to new situations. This ability to adapt depends on the amount and kind of learning that takes place continuously in the organizations and how effectively managers can apply these learnings in their jobs.

Formal training programmes can be useful and effective not by themselves but through effective coupling to organizational situations. This linkage is often lacking which is the prime reason for the apparent lack of effectiveness of such formal programmes. But building such linkages can hardly be done by academic institutions or consultants; they need to be ultimately done by the managers of the organizations themselves.

As a general rule, most managers are aware of this role but have neither the time, energy nor incentive to do the development and training of their junior managers. They also lack a framework to do this systematically. This article suggests a possible framework.

The role of senior managers as trainers varies with the stages the junior manager is in his career:

as the first boss of a new manager, the senior managers have to shape the values and develop the ability in the new manager to prioritize and set goals for himself

for the middle level managers, the senior managers have to act as trainers capitalizing on the experience the junior managers would have had thus far and integrating them with the training programmes they might have been deputed to

for senior managers, they must act as disseminators and enablers of dissemination of new ideas

for all levels, mentoring is very important.

Not all managers can make effective mentors; and for those who have the aptitude, training programmes for mentorship can be useful. Ultimately, the role of the senior managers as trainers, coaches, and mentors is to enable the junior managers to learn effectively and help them in their self development.

China ‘watching,’ China ‘worship,’ and China ‘bashing,’ are the favourite agenda of our politicians, bureaucrats, thinkers, and industry captains. This is because of the re-emergence of China in the global canvas after many years of being encircled in the ‘Great Wall.‘ India has special reasons to look at China seriously not just because it is emerging as a competitor, but because of its size, population, and demography, it appears to be the only country with which India could ‘benchmark.’

The economic indicators of China are baffling not only because they are outstanding but also because China is the only country in the world which has shown consistency in the last decade or so. The size of its GDP, its growth and dispersion, massive impact in the global trade, and the admirable manner in which it has contained its inflation merits acknowledgement and admiration. Such consistent results are possible due to well-thought out and carefully orchestrated strategies.

The Chinese economy was planned by looking at the world as the market. China has clear priorities and focus (both in terms of geography as well as sectors when it comes to allocating resources). It is interesting to note the consistency with which China is unleashing the ‘enterprise’ in the ‘private domain.’

This brings us to the role of the government. In China, it is the solemn responsibility of the state to provide outstanding and comprehensive infrastructure to the nation�a job it is doing with amazing speed and efficiency. The government is everywhere but it shows ‘integrity’ and what is more important ‘flexibility.’ This makes them most friendly to foreign investments and investors who are racing to be there.

There are some popular myths that we attribute to China. We like to label China as having capabilities at the low-end of intellectual spread, we suspect the quality of its goods, and above all we associate inefficiency with a Communist regime. They are at best wishful thinking by those who struggle to compete. China, however, has its concerns, for instance, the contrast between the east and the west part of the country and rural-urban divide (conscious results of the planned growth). This is dangerous in a country where revolutions are not uncommon. Despite the concerns, China has done very well as far as its society and its economy is concerned.

While we in India cannot replicate these models and policies, we can certainly take inspiration from the Chinese and evolve our own clear agenda which can be spelt as follows:

focus on infrastructure

think �big� and plan �globally�

prioritize key sectors/issues of development

create a niche for ourselves by leveraging on our strengths.

The managerial philosophy of a company is generally based upon the top management's assumptions about people working in the organization. It reflects the attitude of the top management towards the human resources of an organization. Managerial philosophies of companies are embedded in the society. McGregor (1960) has labelled these managerial philosophies as ‘Theory X and Theory Y.’

This paper is an attempt to identify the relationship between human resource (HR) practices and the philosophy of management of the Indian business organizations. For this, the different variables of HR practices were studied and the management's philosophy was identified by measuring beliefs of top management about employees in the organizations. The sample for the study consisted of 95 respondents from two private sector organizations and 119 respondents from two public sector organizations.

The findings of the study indicate that the variables of HR practices (planning, recruitment, and selection) were highly but negatively related to the philosophy of management in the private sector organizations. This meant that the Indian organizations were practising traditional philosophy of management in such organizations. The prevalence of traditional managerial philosophy focusing on managerial control has always dominated the managerial community in the sense that it is more prevalent and is more ‘tightly’ linked to managerial practice. As new managerial ideologies evolved, the older ones “never disappeared; instead, images and practices central to each were gradually institutionalized” (Barley and Kunda, 1992).

The philosophy of management showed a blurred picture in the public sector organizations. Though the top management's views and balance sheet emphasized the belief of the organization towards Theory Y, the analysed responses proved that management philosophy was not clear to managers working in these organizations.

In fact, the Indian public sector organizations started as welfare organizations. However, the impact of market economy has led to a competitive environment. Though the public sector organizations have started realizing the impact of competition, it is difficult for them to understand when they lost their focus on the managerial philosophy.

The following key issues emerged from the study:

Organizations will have to design managerial philosophy which is sensitive to human existence.

The managerial philosophy in the organization has an impact on the organizations of the future.

HR concepts that get packaged along with modern managerial philosophy are likely to revolutionize the workplace.

The bottom line is that people want to be cared for and respected.

On their part, organizations want commitment and integrity. A successful combination of committed people and a benevolent organization could well be the way for organizations in this competitive environment in India.

In India, when we talk about rural finance, the stereotype offered is that of a banking system that fails to reach out to the poorer clients and, when it does, fails to recover the money so disbursed. The counter-point offered is usually the magic wand of microfinance. This Colloquium was an interface between leading bankers and microfinance practitioners in India to examine where these two worlds meet and how they could learn from each other. The discussions were organized around three themes: a) the legacy of the banking system, b) the limitations of microfinance, and c) an assessment of the potential.

On the issue of legacy, the message was clear that the intervention of the state in certain aspects has been undesirable. These areas were clearly identified as granting general pardon for loans, tinkering around with interest subsidies, and interfering with the commercial aspects of banking.

The limitations of the microfinance institutions were in terms of their sustainability and their inability to draw commercial capital and grow rapidly. However, these limitations were partly seen as a consequence of regulatory apathy and support from the state both in terms of formulating and articulating a regulatory framework and also in terms of the central bank being reluctant to supervise the efforts. These did not help in enhancing the legitimacy of microfinance institutions.

The participants saw a great potential in the rural markets which were beyond agriculture. The emerging sectors were identified as construction, non-farm enterprise, handloom, clusters that involve garment making and quarrying, etc. According to them, there was scope for both the banks and the microfinance institutions to intervene. The following points emerged from the discussion:

Rural finance has suffered from interventions from the state in the past. While some interventions have been positive, they have harmed the sector when compromises such as write-offs have been made.

Microfinance has emerged as an important mechanism to reach out financial services to the poor. There are interesting lessons from this for the banks to adopt.

There are problems for the microfinance institutions in the form of regulatory and supervisory apathy. This leads to financial exclusion of large segments of the poor.

There is a huge market for financial services — both loans and savings.

Innovations across the world indicate important breakthroughs in delivery of financial services. These can be implemented provided the regulatory impediments are removed.

The issue of risk management has to be systematically addressed.

The role of the state, wherever positive, has been effective and, therefore, this should be sharply defined to see how the state could contribute to this sector.

The issue of interest rates continues to be vexatious and needs to be addressed urgently.