CREST_November_2010

Nov ‘10

The E-Magazine of CRESCENT, XLRI

Issue 12

CREST Consulting Research

Entrepreneurship Strategy

Research and management

MOMENT OF TRUTH

CHANNEL FINANCE DOING BUSINESS IN EMERGING MARKET

Campus Reporter

From the Editor’s Desk...

Crescent The Committee for Research,

Strategy, Consulting and En-

trepreneurship (CRESCENT)

is the result of the endeavor

of the student community of

XLRI to promote an environ-

ment of creative solution

building amongst the stu-

dents of the institute, while

reaffirming high ethical stan-

dards and values, and foster-

ing personal development in

the pursuit of excellence. It

works with the two fold

agenda of creating a brand

presence of XLRI among the

corporate and to help nur-

ture ideas of budding entre-

preneurs by providing a plat-

form to them to showcase

their Ideas.

CREST Nov 2010

Editoria l Tea m

Neeti Kumar

Siddhartha Saran

T H I S I S S U E . . .

Cover Story Page 5

Role of Research in Management

Features

Understanding Moment Of Truth| Page 2 How Moment of Truth can be used to deliver better results Role of Channel Finance in Business Strategy| Page 7 Managing working capital in the most effective way Doing Business in Emerging Markets| Page 9 Campus Reporter | Page 10 What CRESCENT’s been upto!

1

After a successful Summer Internship Process (SIP) and a grand Ensemble

2010, the mood in the college is upbeat.

As always we have brought interesting articles to you. Our cover story focuses

on the increasing complexity of business scenario today as we are growing

transnational. Management has extended its arms towards many disciplines.

And to fathom depths and develop strategy research is required. The article

also talks about the need to appreciate the interdependence of both.

Apart from this, we bring articles on how companies can do business effec-

tively in emerging markets along with articles on managing working capital

effectively and on what moment of truth is all about.

This November CRESCENT has stared with a unique initiative of nurturing

entrepreneurship at XLRI in the form of Idea Factory. We share with you our

experience and learning of this new beginning.

The Editorial Team would love to get feedback from you on

[email protected]. Happy Reading!

2

CREST Nov 2010

Understanding Moment of Truth!

Whether it is about creating customer loyalty or employee engagement, understanding moment of truth will help in facilitating great results. In this article Neeti Kumar tries to understand what moment of truth is

and how it can be used to deliver great results.

Placements are the most crucial offering of a B School to most of the students. A

lot of thought and energy goes towards getting a good placement. Jan Carlzon,

the former CEO of SAS coined the term ―moment of truth‖ which rightly ex-

plains what Placements are for students. Moment of truth is a decisive time on

which much depends. In this article we will look into how the moment of truth is

created by different entities.

Whether it is about creating customer loyalty or employee engagement, under-

standing moment of truth will help in facilitating great results.

In today’s competitive and dynamic business ecosystem, creating loyal custom-

ers is very important. Look, feel and content of products and services are no

longer value differentiators. Customer experience has become of paramount im-

portance. The more convenient, comfortable, collaborative, transparent and om-

nipresent the experience, the more likely one is to create an "ambassador". The

idea is to not just to make a great product but the right kind of experience for

customers in myriad encounters with them. Companies which think from the

customer’s perspective rightly focus on the value they have created for custom-

ers. McKinsey research on customer experience in various countries identified

the critical moments for customers as well as prize awaiting banks that respond

appropriately to them. These moments often occur when the customer has a

problem (such as a hold on a check or a need for a quick answer on a loan) or

receives financial advice; either good or bad. By contrast, humdrum transactions

(such as buying traveler's checks) generally don't offer the same opportunity to

create an emotional bond with the customer. Many companies make the mistake

of overinvesting in humdrum transactions but fail to differentiate themselves in

the customer experiences that really matter. The frontline employees need to

have a high emotional intelligence to facilitate the process.

Even managing a team involves understanding and revealing ―moments of

truth‖. The purpose of good leadership is not just to increase shareholder’s value

or the productivity of work teams but to stand for one’s values and make a posi-

tive difference to this world. It is not possible to live personal values till the team

also understands and implements them. One way to accomplish this is to share

how the values are real to us, where they came from and how we learned them,

and the intimate and profound personal experiences—glorious or traumatic—

that shaped our self-awareness. In a way this means making ourselves vulnerable

but the results are worth taking the risk. The story we share does not need to be

very dramatic, only real.

“These moment

of truth often

occur when the

customer has a

problem.”

3

CREST Nov 2010

E N T R E P R E N E U R S H I P

True epiphanies often come from a series of small moments—visible, for in-

stance, only after reflecting on the decisions that first caused us to need our val-

ues or become aware of them.

The world recession and financial crisis was a moment of truth for the world.

Bankers played on other people’s money to generate wealth for themselves. The

insatiable greed of few created a global problem.

All these examples have a connection. They tell us that creating and understand-

ing moment of truth are linked to addressing problems. If we want to win over

our team then we should share our source of values and our real experiences

with them. If we want to create ambassadors from our customers we need to un-

derstand and solve their problems and create a delightful experience for them.

Even the moment of truth for the world was exposed during subprime crisis

only.

Inputs from: - mckinseyquarterly.com; returnonbehaviormagazine.com

References https://www.mckinseyquarterly.com/The_moment_of_truth_in_customer_service_1728 http://www.returnonbehaviormagazine.com/articles-of-interest/the-moment-of-truth-customer-

experience-management.html

https://www.mckinseyquarterly.com/Revealing_your_moment_of_truth_2680

“The world re-

cession and fi-

nancial crisis

was a moment

of truth for the

world”

4

CREST Nov 2010

C O V E R S T O R Y — R E S E A R C H

Role of Research in Management

Asif Nazir from IMI explores the increasing complexity of business sce-nario today as we are growing transnational. Management has extended its arms towards many disciplines. And to fathom depths and develop strategy research is required. The article also talks about the need to ap-preciate the interdependence of both. Research decides the continuity of any discipline. It is an important link in the

life-cycle of any discipline. Take it out of any discipline, and that discipline

heads toward extinction. If not extinction, it will be put under the category of

endangered species. Research supplies fresh blood to the subject, and pumps en-

ergy, vigour and vitality to the discipline. Vibrancy of a discipline is the measure

of the quality of research in that discipline. Research resurrects the dead disci-

pline, and pumps fresh blood in it. In fact research is the lifeline of any disci-

pline.

Management by its nature is the amalgamation of various disciplines. It incorpo-

rates and blends concepts and theories in itself harmoniously. This is the beauty

of management. Its contributing sources are vibrant and live, providing nourish-

ment to its body and soul. Research unearths a fact that was already there but

either beyond obvious or blurred from view. The popularity of the Management

as the most promising discipline is due to the research work that is continuously

refreshing it. It is the ongoing research work that puts this discipline in shape

and size. Management has extended its arms towards many disciplines so as to

measure objects that are obvious and fathom depths that are beyond obvious.

Application of knowledge of other disciplines in the management is very chal-

lenging. To apply abstract concept, theory and application of other disciplines in

the vibrant, practical and ever changing discipline of the management is a chal-

lenging one. Only continuous research can bind and act as a true glue and adhe-

sive.

Business has crossed national boundaries. Multinationals have transformed into

Transnationals. Business entities are now in the zone of interdependence, an im-

proved state of independence. A lot is needed to conduct business in culturally

different setup and exotic lands. Here research comes handy, and at least helps in

absorbing cultural awe and shock. Relevant research melts the ice and gives new

orientation to the relationship of diverse workforce.

Continued on Page 5

“Only continu-

ous research

can bind and

act as a true

glue and adhe-

sive to the vari-

ous disciplines

that manage-

ment has.”

5

CREST Nov 2010

C O V E R S T O R Y — R E S E A R C H

Every nation has its past and hence its history, and the binding force between the

history and the present is the culture -- the continuation of values, beliefs, ethics

and mannerism. The culture, closely guarded inheritance of any civilization, is de-

fended, presented and manifested in every possible way. Once a business entity

misses on this platform, it may slip in oblivion. Such is the sensitivity of the issue;

and the role of the research so crucial here.

Business needs strategy and the research provides that. In the absence of well re-

searched strategy business is bound to lock itself in the suffocating cocoon, only to

find itself fossilized. A researcher either feels the need of the research or need in-

spires him to research. Organization being dynamic and ever changing its form

needs terra firma to stand upon. This firm platform is the findings of the research.

An organization dips into the ever refreshing new findings and emerges fresh. Dy-

namism is sustainable as long as the research is progressing.

The main challenge to the researcher and the organization is the need to under-

stand interdependence of each other. Each should open arms and embrace each

other. This will open ever expanding realm of the research, and the business will

get fresh impetus. It is the research that gives different exposure to the business. It

shows the path, and helps in decision making. Various instruments developed in

the past to measure Organizational behaviour have helped Organization in select-

ing team, understanding its work force, its utilization, defining the role of manag-

ers and understanding the style of leadership and its appropriateness. These are the

results of continuous endeavour of researchers. The organizations take maximum

advantages of these findings. The beauty of the research is its practical application.

Some research is specific and restricted to particular circumstances, and some are

generalized and having more breadth. Both types of research are important and

relevant. In today’s business environment, challenges are diverse. Challenges

bring opportunity, and stretch our ability to see the realms beyond obvious. This is

the area and arena that will boost the research and findings. Every day is a new

challenge for business houses, and researchers have to come forward to provide

tools and instruments that may help the management in taking decisions.

Continued on Page 6

6

CREST Nov 2010

C O V E R S T O R Y — R E S E A R C H

Never before was such a need felt. The survival is at stake. Organizations are ex-

panding and shrinking, rising and falling. What are the facts behind rise and fall of

Business Empire? Of course, it is an interesting addition in the genre of the his-

tory. There may be traces of causes that helped in building of the business empire,

and there may be possible pitfalls that resulted in their demise. Seeking the mean-

ing is not an easy task. But the role of the researcher is to unearth the past for the

betterment of the present.

Organizations are in the constant pursuit of the betterment in every aspect of the

business. So they are encouraging research for the solution of their specific needs.

Here lies the opportunity as well as pitfall -- curtailed freedom of the choice of the

area and interest of research, but opportunity to taste different flavours of research

activities. A lot in terms of ethics and values are at stake while researching, and

the researcher has to prove his ability to walk on this razor sharp less trodden path.

There is the need of fine balance between abstract and applied research work.

Original contribution with insight to influence the research in the realm of the

management is lacking. This may possibly be due to encouragement in finding

quick-fix solutions.

Research is a serious business, and the researcher has a responsible role to play.

Management as a discipline has to give insight to the business and organization.

Complexity of business due to its dynamic nature needs to be understood. Vision-

aries are not always in the Organization all the time.

But the organization has to deliver. Managers have to take decision, and the com-

pany has to earn profit. In this scenario there must be tested instruments and

workable tools to carry out the business effectively and efficiently. The researcher

and the business enterprises will have to understand each other’s role. The best

conceivable relationship between the two will be that of interdependence. Here lies

their present and future. Both can meaningfully aid in the growth of knowledge –

knowledge helpful in sustaining business and sustenance for the discipline called

management. Management has borrowed ideas from many disciplines but treated

well those ideas while modifying and applying. It is the power of research that has

kept all these disciplines so closely knit. If the trend of the research continues, and

the business entity sees it as meaningful tool, the future for both is bright.

“If the trend of

the research

continues and

the business en-

tities sees it as a

meaningful tool,

the future for

both is bright ”

7

CREST Nov 2010

“Role of Channel Finance in Business Strategy”

To achieve competitive advantage Organizations today focus on building efficiency not just inside but also in their partners. Vishal Agarwal, Ex Sec-retary CRESCENT writes exclusively for CREST on how Channel Finance is a tool to achieve this. Forward and backward linkages in a business organization play a significant role

in the success or failure of the business entity. For a manufacturing or trading

firm, while the suppliers of raw material are important as they provide input for

production, equally important is the role of its distributors which sell products

manufactured by the firm through retailers to the ultimate consumer. A corporate

which is looking to grow aggressively in order to thwart competition or to con-

solidate, invariably finds itself constrained by the financial (in)ability of its chan-

nel partners. Also, many a times, companies, especially those in the FMCG in-

dustry, struggle to manage their working capital in the most efficient way. An

often recommended solution for such problems is Channel Finance.

Channel Finance is supply chain finance where a Bank provides flexible financ-

ing arrangements at competitive rates to both suppliers and distributors. Channel

financing is different from the conventional lending since, in conventional lend-

ing, the financing banks are generally not concerned as to how the suppliers of

the firm and dealers of the products of firm, are financing their activity. Lending

is backed by collaterals. However, in Channel Financing, Banks play the role of

an intermediary. The typically diverse interests of buyer & seller on the payment

date, where the buyer wants to increase his days payable and the seller wants to

reduce his days receivables & collect as early as possible, are reconciled by the

bank. The bank can allow the buyer & the seller to select an appropriate funding

option through a mix of payment-credit structure so that both can manage their

working capital most efficiently.

How does it work?

The manufacturing firm (Company) functions as the principal customer and sug-

gests the names of its suppliers and dealers to the bank. Thereafter, the bank

makes a due diligence assessment of the suppliers’/dealers’ standing and credit

worthiness and decides to provide finance on merit. The actual financing can

happen in various ways, depending on the agreement between the Company and

the bank.

“Channel Fi-

nance is a sup-

ply chain fi-

nance where a

Bank provides

flexible financ-

ing arrange-

ments at com-

petitive rates to

both suppliers

and distribu-

tions.”

S T R A T E G Y

Continued on Page 8

8

CREST Nov 2010

”

One of the ways of implementing dealer financing is through discounting of

trade bills drawn by the Company and accepted by its dealers. The Company can

submit the accepted bills with a post dated cheque. On the due date, bank can

credit the Company’s account by debiting dealer’s account. An alternative and

improved way is to open a current account, in the nature of Overdraft account,

for each dealer (With the advent of core banking, the dealer can choose to open

the account in any branch of the bank within the country). A limit is fixed for

individual dealer based on the recommendation of the Company and credit his-

tory of the dealer. Whenever, the Company makes a sale to the dealer, the Bank

pays the company within the credit limits of the dealer and in turn follows up

with the dealer for recovery of dues. The dealer can repay as and when it has

funds within the due date and interest gets calculated on a daily reducing bal-

ance, thus reducing the net interest outgo of the dealer. In case of default, the

Company is duty bound to stop supplies and assist the bank in recovery.

Benefits to the financed concern, the supplier and the dealers

The pre and post sale working capital requirement of the manufacturing firm

would be scaled down. Such firms can concentrate more on their core compe-

tence area of production and marketing their products besides saving time and

costs involved in arranging creditors and monitoring recovery. As regards the

suppliers and dealers, the major benefit is that they get payments promptly,

which improve their liquidity position and cost. This also helps them as well as

the bank to cut level of counter party risks.

Gains to Banks

The banks also gain substantially from the process of channel financing which

include increased customer base, effective due diligence and smoothness of lend-

ing activity and loan origination process. Besides, the banks will be able to en-

sure better credit discipline. Since the risk is diversified through finance to sup-

plier, manufacturer and the dealers, the credit exposure norms are better ob-

served. Thus, channel financing becomes a very convenient tool in managing

their assets portfolio.

With almost all the scheduled commercial banks and a few NBFCs now offering

this facility, Channel Finance is finding a prominent place in the strategy formu-

lation of many Indian companies.

“With almost

all scheduled

commercial

banks and a few

NBFCs are now

offering this fa-

cility, Channel

Finance is find-

ing a prominent

place in the

strategy formu-

lation of many

Indian compa-

nies ”

S T R A T E G Y

9

CREST Nov 2010

”

Companies all over the world are increasingly looking to emerging mar-kets like India, China and other countries like Eastern Europe as a vital source of growth. The problem is these companies often lack an effective strategy for identifying which countries to do business with. In this article Siddhartha Saran explains a "five contexts framework"—issues to con-sider, in essence—to understand institutional variations between coun-tries. Basic Managerial Economics tells us that companies buy inputs in the product,

labour, and capital markets and sell their outputs in the products (raw materials

and finished goods) or services market. When choosing strategies, therefore, ex-

ecutives need to figure out how the product, labour, and capital markets work in

their target countries. This will help them understand the differences between

home markets and those in developing countries. In addition, each country's so-

cial and political milieu—as well as the manner in which it has opened up to the

outside world—shapes those markets and companies must consider those fac-

tors, too.

Political & Social Systems: The governments across the world play a major role

in facilitating the business environment. In fact many people would not know

that the Silicon Valley was hugely funded by the U.S. Department of Defense in

its early years. Other local governments elsewhere have also played similar cata-

lytic roles in creating hubs of innovation especially in places such as Tel Aviv

and Singapore. Such success stories often get lost against the common percep-

tion that government just bungles things when it wades into the private sector.

Policies that governments employ to encourage venture capital and entrepreneu-

rial activity take two broad forms: those that ensure that the economic environ-

ment is conducive to entrepreneurial activity and venture capital investments,

and those that directly invest in companies and funds. Apart from this companies

should also be able to gauge the level of actual trust among the populace for their

ventures. For instance, if people believe companies won't vanish with their sav-

ings, firms may be able to raise money locally sooner rather than later.

Openness: CEOs often talk about the need for economies to be open because

they believe it's best to enter countries that welcome direct investment by multi-

national corporations—although companies can get into countries that don't al-

low foreign investment by entering into joint ventures or by licensing local part-

ners. Still, they must remember that the concept of "open" can be deceptive. For

example, executives believe that China is an open economy because the govern-

ment welcomes foreign investment but that India is a relatively closed economy

because of the lukewarm reception the Indian government gives multinationals.

However, India has been open to ideas from the West, and people have always

been able to travel freely in and out of the country, whereas for decades, the Chi-

nese government didn't allow its citizens to travel abroad freely, and it still does-

n't allow many ideas to cross its borders. Consequently, while it may be true that

multinational companies can invest in China more easily than they can in India,

managers in India are more inclined to be market oriented and globally aware

than managers are in China.

“The concept of

open is decep-

tive”

S T R A T E G Y

Doing business in Emerging Markets

10

CREST Nov 2010

”

Product Markets: Developing countries have opened up their markets and

grown rapidly during the past decade, but companies still struggle to get reliable

information about consumers, especially those with low incomes. Market re-

search and advertising are in their infancy in developing countries, and it's diffi-

cult to find the databases on consumption patterns that allow companies to seg-

ment consumers in more-developed markets. There are few government bodies

or independent publications that provide expert advice on the features and qual-

ity of products. The countries where rudimentary marketing support systems are

available or where marketing research and advertising options are beginning to

look up emerge as better bets for investment.

Labour Markets: In spite of emerging markets' large populations, multinationals

have trouble recruiting managers and other skilled workers because the quality

of talent is hard to ascertain. There are relatively few search firms and recruiting

agencies in low-income countries. The high-quality firms that do exist focus on

top-level searches, so companies must scramble to identify middle-level manag-

ers, engineers, or floor supervisors. Engineering colleges, business schools, and

training institutions have proliferated, but apart from an elite few, there's no way

for companies to tell which schools produce skilled managers. There still exists a

void in many countries in the kind of talent these companies are seeking and the

talent being produced by the countries educational institutions.

Capital Markets: The capital and financial markets in developing countries are

remarkable for their lack of sophistication. Apart from a few stock exchanges

and government-appointed regulators, there aren't many reliable intermediaries

like credit-rating agencies, investment analysts, merchant bankers, or venture

capital firms. Multinationals can't count on raising debt or equity capital locally

to finance their operations. Like investors, creditors don't have access to accurate

information on companies. Corporate governance is also notoriously poor in

emerging markets. Multinational companies, therefore, can't trust their partners

to adhere to local laws and joint venture agreements.

We can conclude that although industry factors like scale economies, entry barri-

ers, and the ability to differentiate products matter in every industry, the weight

of their importance varies from place to place. An attractive industry in your

home market may turn out to be unattractive in another country. Companies

should analyse industry factors—always a useful exercise—but only after they

understand a country's institutional context.

Source: HBS Working Knowledge

“Companies

should analyze

industry factors

but only after

they understand

a country’s in-

stitutional con-

text”

S T R A T E G Y

11

CREST Nov 2010

”

S T R AT E G I KO N Strategikon is the annual flagship event of CRESCENT in ENSEMBLE at

XLRI. The final round of Strategikon 2010, sponsored by Cognizant, was held

on 14th November, 2010. It was an attempt to make B-school students put on

their thinking caps and come up with strategies to deal with a few grappling

challenges in today’s business domain, ranging from green technology to cloud

computing. The event was held in two stages- the first round saw participation

from teams across the country, and finally, six teams were shortlisted by industry

experts on the basis of the solutions suggested by them for a green consulting

division.

The shortlisted teams were then asked to come up with a case brief and a plan of

action for a consulting firm that was looking to enter the cloud computing space

in the Indian context. The participants were required to explore the opportunities

for the firm to benefit from possible mergers and also to devise a marketing

strategy for the firm. They had to take into account current bottlenecks faced by

the Indian IT industry. The participants were judged based on the logical flow of

thinking, their approach, creativity, and presentation. A panel of industry experts

from Cognizant was present to evaluate the teams. Besides, the teams were also

invited to play impromptu strategy-based games that tested their ability to adapt

to changing business environments and emerge victorious.

IDEA FACTORY

The first phase of Idea Factory, the platform for young entrepreneurial minds

at XLRI, was successfully organised by CRESCENT (the Committee for Re-

search, Strategy, Consultancy and Entrepreneurship) on November 07, 2010

at XLRI. The event is first of its kind in XLRI and is promoted by Venture

Capitalists. The students were guided by Dr T. Prasad, popularly known as

Dr Mandi- Faculty Advisor at NITIE, on starting up small ventures while

being at the institute. The Experts’ Panel consisted of Prof. Uday Damoda-

ran, Prof. Prabal Sen, Dr Madhukar Shukla and Dr T. Prasad, which helped

the students understand the nuances of entrepreneurship.

This initiative has been widely applauded by the students who desired for a

platform to demonstrate their entrepreneurial streak. The students are look-

ing forward positively to gaining from this initiative. With this platform, we

are bound to see multiple entrepreneurial ventures from the XLRI’s den. The

committee is planning to promote the event further in premier engineering

institutes across the nation, so as to foster the spirit of entrepreneurship

amongst not only would be managers; but also the

torch-bearers of technology.

C A M P U S B U Z Z

CRESCENT e-mail id

[email protected]

CREST Nov 2010

CRESCENT MEMBERS

Faculty Advisor

Prof. Munish Thakur

Secretary

Mohammed Sadique Quraishi

Senior Executive Members

Aalok Sanghvi

Miti Vaidya

Nitin Agarwal

Siddhesh Ajgaonkar

Vikas Kedia

Vikram Singh Rathore

Junior Executive Members

Namrata Singh

Neeti Kumar

Rama Krishna Chava

Rohnak Shah

Shashwat Sahai

Siddhartha Saran

Urshila Ghag

Cover Photo Courtesy Karthik Srinivasan

The Editorial Team of Crest invites articles from readers for publication in forthcoming issues. If you have articles/ ex-periences/ studies to share in the areas of consulting, en-trepreneurship, research or strategy, please do send them in to [email protected] mentioning your name and insti-tute name.