Politicos, BCCI Need HR Touch

THERE are vacancies for HR heads in two of the largest organisations in the country. And even though the need for pros to step into these positions was felt acutely over the past couple of months, these two job openings went unadvertised.

The first organisation that could clearly do with a professional HR head is the Board for Control of Cricket in India. The prolonged comedy of errors that was played out in front of the nation clearly demonstrated that BCCI needed two professionals desperately — instead of politicians, it needed an HR head and a qualified spin doctor. The last category has many aspiring naturals already playing the game. But it’s difficult for everybody to fancy themselves in the role of a professional HR head. 

So, why does BCCI need an HR head? For one, because it is constantly recruiting — whether it’s coaches or consultants or players. Secondly, there seems to be some confusion within the board about the job profile — no one seems to be sure whether it needs a coach or a manager. Look at the chain of events leading up to the selection of Chandu Borde as the new coach/manager. They first had Greg Chappell, who had a public fall-out with the board. Then started the hunt for the immediate task at hand — the Bangladesh tour. After searching high and low, the board stumbled on to a talent residing in its backyard: Ravi Shastri. The new coach/manager agreed, but subject to the condition that he be relieved after the tour, presumably because his regular day job was more remunerative (another critical HR insight here, but more of it later). As promised, as soon as the tour was over, the hunt began all over again, with renewed vigour. A shortlist of two names was prepared, which was duly leaked to the media. Then they zeroed in on a name — Graham Ford, former South African manager, currently employed by the Kent county team in England. This name was also leaked to the media. In all the back-slapping and self-congratulatory messages that followed, the board forgot one crucial bit — to interview the candidate or to explain the process to him. So, when after the celebrations, they broke the news to him, he gently told them he was not available for the job! The second choice by then, miffed about the way the board had gone about the whole process, also declined the job. The last-minute solution: a 72-year-old former India cap. 

The other lesson is the way the Congress played out the selection of its Presidential candidate. Poor Shivraj Patil. Once his party first announced his name, he seemed self-assured about the whole election process. Then suddenly, as Patil prepared to move his wardrobe and office to the Rashtrapati Bhavan, the Left threw a monkey wrench into the works. The quest began all over again, till Pratibha Patil’s name was pulled out of a hat. In the meantime, President Kalam’s name also popped up, primarily put forward by the other parties to add to the Congress’ embarrassment. 

There are some elementary lessons on recruiting that both BCCI and Congress can learn from the corporate sector, especially since they also are visibly confronted with the predicament of having to deal with a shortage of talent. Here they are: 

• The first is a truism but bears repetition, especially in this case: know the kind of person you are looking for and whether he has the requisite skill-set and knowledge base. Both will be critical for them to perform their assigned tasks. 

• There should be clarity about the job and work profile (whether it’s a manager or a coach). 

• If the applicant already has another job, make him an offer which is substantially higher than his current packet. It rarely fails (Ravi Shastri must also surely be human!). 

• Please check with the JV partner before recruiting a top-level position. Poor chap should not throw celebratory parties only to realise that he has been left to freeze on an iceberg. 

• Transparency is good but you do not have to reveal all twists and turns in the recruitment process to everybody and his grandmother. Importantly, the candidate should not get to know about his appointment from the evening news. This brouhaha pisses off the rejected candidate, and the Number Two guy is lost to you as well. 

• Try to seek innovative solutions. If your shortlist fails, try to seek candidates from another field. Australia, after all, are the world champions because they decided to get a management teacher. You should not have to fall back on either “loyal” or the straight-and-narrow.

Competition & Good Biz

Every need got an ego to feed 
Every need got an ego to feed
 — Pimper’s Paradise/Bob Marley 

TIME was when dominant shareholders of large companies knew how to be economical with the truth. When faced with pesky reporters asking pointed questions about the next big M&A deal, they would look the journalist straight in the eye and lie unabashedly. Without blinking. These days they have a more sophisticated response — “The company does not wish to respond to market speculation,” or some such. On a more charitable note, they didn’t have a choice but prevaricate, since giving the news away could push up their cost of acquisition. Today, they also have to field some embarrassing questions from the securities market regulator.

They should get prepared for some more awkward questions, this time from a new regulator called the Competition Commission. According to recent reports, this newly minted commission is planning to draft rules that will require companies to inform the commission about its M&A plans. Failure to do so will invite penalties. But there is a crucial difference here: they can inform this new body after they’ve informed the stock exchange about their intentions. The commission will then take about a year to figure out whether the merger or acquisition is in the interest of competition in the system, as well as assess whether it compromises welfare of consumers.

Certain NGOs have been lobbying that companies should have to reveal their marriage intentions before the deed is done, as is mandatory in certain countries. That it’s the other way around is a big relief. Otherwise, it would have been an utter disaster. Here’s why. Some years ago, when private equity was still not a fashionable term, one of India’s oldest private equity players had major gripes about the FIPB rule. It required the private equity investor to seek FIPB clearance before investing in any company, listed or otherwise, since the fund was bringing in foreign investment. But the problem usually arose when the company was listed – if the PE wanted to invest in the company at Rs 100 per share, by the time the FIPB clearance would come, the price would jump to Rs 150. This would start a whole new round of negotiations and the transaction economics would have to be invariably reworked. The curious bit here was this: FIPB had wind of this investment deal even before the company’s shareholders. And, what’s even more curious, news of the impending deal would always leak out to the market.

The regulator’s hunger for price-sensitive information does not end here.

Another regulator was offended when a foreign player in its jurisdiction invested a large-ish chunk in a local player. Reason? The foreign player decided to inform the watchdog only after seeking the target’s board approval. In this case, the regulator’s ego was hurt since it was not informed of the transaction ex ante. Is it proper for a regulator to have prior knowledge of a price-sensitive information, before it is properly disclosed to all shareholders? This is a debate that pits the regulator’s ego against the private sector vulnerability.

The Competition Commission, however, might be justified in its role as a protector of competitive systems and consumer welfare. A long debate about how to avoid the pitfalls of the erstwhile Monopolies and Restrictive Trade Practices Act prefaced the founding of the commission. Also, about a year ago, Vinod Dhall (a member with the commission) wrote in a signed piece in this newspaper: “Experience shows that almost 90-95% of the mergers are not objected to by competition authorities. Only a small proportion of mergers face scrutiny and could be prohibited after due inquiry.” That should be of some respite to worried corporates. But a larger worry looms. Experience worldwide shows that most cases linger on for years.

Example: In 1984, Coca-Cola Bottling Company of the Southwest acquired the Dr Pepper and Canada Dry carbonated soft drink franchises for the San Antonio, Texas area, from the San Antonio Dr Pepper Bottling Company, a wholly-owned subsidiary of the parent Dr Pepper concentrate company. The Federal Trade Commission found the deal would impact competition in the soft drinks industry. The company duly challenged this in a court of law. It won the case and the commission finally dropped its proceedings against the company in 1996 – 12 years after the original deal! Sure this is an isolated case, but given the litigious nature of Indians, this pattern has a strong likelihood of repeating itself here. That will be unfortunate and has the potential to bog down the commission’s genuine intentions.

It leaves another large question unanswered: who is to monitor the uncompetitive and monopolistic ways of PSUs and government bureaucrats? Or, stop the administrative apparatus from misusing price-sensitive data?

Airlines Tying The Knot Shouldn’t Surprise You!

I heard them say that you can have your cake and eat it
But all I wanted was one free lunch 
How can I eat it when the man that’s next to me, he grabbed it 
Lord, he beat me to the punch
 —You Make Me Feel So Free, Van Morrison 
    
IN Bengal it is good form, indeed advisable, to carry antacids when attending a wedding feast. It’s like an insurance policy against the malevolent after-effects of genuine culinary appreciation. Unfortunately, the Indian aviation industry also should have remembered to carry its component of acidity busters. A prolonged indulgence has resulted in an inevitable consolidation among the no-frills airlines, or low-cost carriers (LCCs), though it may still be a bit too early to sing a dirge. The music’s stopped and the party was good till it lasted, but the bill has to be paid now. As a result, Air India’s merging with domestic PSU airline Indian, Jet’s taken over Sahara and, now, Kingfisher has wrapped its wings around Air Deccan. These are symptoms of a feast gone on for too long. Call it, if you will, “the alka-seltzering of the Indian aviation industry”!

The former chief executive of a large blue chip looked visibly traumatised after he once had to fly a low-cost carrier from Goa to catch an unscheduled meeting in Mumbai. Reason: there were only two passengers in the entire aircraft, apart from the full crew component! This, to an extent, shows the degree to which some of the low-cost carriers (LCCs) might have built in over-capacity without caring about yields. Over-capacity and a mad spree for market share resulted in cut-rate ticket prices, leading to negative yields.

But, that such a consolidation was overdue should not have come as a surprise. In January, industry magazine Flight International carried a story titled “Indian aerospace: Too much choice?” The question might have seemed rhetorical then, but subsequent events seem to be bearing out the story’s main contention: “Many see 2007 as the year in which consolidation may finally begin, and it could prove to be a pivotal one for the country’s airline sector.” Watch out for what now happens to the remaining LCCs — SpiceJet, IndiGo, and GoAir.

But, seen globally, India could be following only what’s been recognised world over. The outlook’s grim for most US airlines as domestic demand loses altitude. Even Britain’s LCCs are reporting lower passenger demand as airport taxes have soared. Questions have been raised time and again about the viability of the low-cost model, especially when the legacy carriers have themselves launched LCCs as a flanking strategy (though a majority of these had to be wound up later). With the exception of the first, true-blue LCC — Dallas-based Southwest Airlines — most other no-frills have struggled to maintain their yields or margins. Southwest is known for its ability to keep tweaking its model — within the overall LCC framework — as and when market dynamics change.

But, all this also raises another larger question: at which point does the consumer trade off between value and price? Nirmalya Kumar of London Business School wrote recently: “Most low-cost players alter customer behaviour permanently, getting people to accept fewer benefits at lower prices. Low-price warriors are aided by the fact that consumers are becoming cynical about brands, better informed because of the internet, and more open to value-for-money offers.” HBR, December 2006) The key term here is: ‘value-for-money’! Most LCCs in India felt that only low prices mattered to the consumer. In fact, they got the first part of the model right — a single passenger class, a single type of aircraft (to reduce training and maintenance costs), unreserved seating, reliance on electronic sale of tickets, no “free’ meals on flights and reduced in-flight crew component. But, they were also tripped by an exogenous factor — the miserable state of the country’s aviation infrastructure.

Most LCCs in the world rely on secondary airports, which are cheaper and relatively less crowded (UK-based LCC easyJet flies to Luton, Stansted and Gatwick in London instead of crowded Heathrow). In India, the concept of secondary airports does not exist. Plus, flying to the mainline airports adds to delays and longer turn-around cycles, all of which add to the overall cost. This then defeats the LCC model, especially if the airline is pricing its tickets substantially lower than legacy carriers. In desperation, LCCs then dilute value to keep margins afloat — deliberate mis-statements to passengers about delays, turning off the air-conditioning till the aircraft is airborne, faulty ticketing. All this infuriates passengers.

But it would be a mistake to write off LCCs altogether. Watch out for Chapter II of the Indian LCC story. Coming soon.

Customer Loyalty A Myth

COMPANIES that produce or market mass consumption items (including services, like airline flights) are constantly devising ways to retain their customers. This endeavour has spawned an entire new marketing idiom, which borrows heavily from the conjugal vocabulary. Terms such as infidelity, loyalty, fickleness are all used to describe the range of a consumer’s shopping behaviour. Companies also spend fortunes trying to map how consumers go about deciding what to buy. As part of this exercise, many companies – especially those with retail operations – have launched loyalty programmes as an attempt to retain customers.

Loyalty programmes are essentially sophisticated marketing devices that seek to reward a ‘loyal’ customer, thereby encouraging him with greater incentives to spend more on the same products in the future. It’s somewhat akin to buying fidelity through incentives. In today’s context, most loyalty programmes come in the form of points earned for every purchase, which can then be later redeemed against future purchases. Customers are issued cards or granted membership to a lumpy club of buyers.

These programmes have been around for many years (remember the stamps trading programme introduced many years ago?), but the modern form of loyalty programmes was probably born with the advent of the frequent flier programmes started by the US airline industry in the 1970s (American Airlines is probably credited with the first such plan). Interestingly, travel writer Pico Iyer mentioned in a book that most people now earned more frequent flyer miles on the ground (through hotel reservations, car hires) than in the air. 

But, if you look at it closely enough, most loyalty programmes are also attempts by companies to accumulate buyer data. Membership into most programmes requires the applicant to fill in a form that captures some essential demographic data. By collating data on the customer’s buying patterns, his income levels and his possessions, marketers hope to gain insights into what makes the buyer tick. Or, get a rough outline of his mental mapping. This rush for constructing a customer database is also known as the data-for-dollars madness – retailers willing to offer products at a discount in exchange for data on the consumer. 


But numerous surveys and studies have shown that most loyalty programmes are unable to achieve what they set out to do, that is retain ‘loyal’ customers. Mostly, these studies conclude, loyalty programmes do probably end up giving the customer satisfaction but are still miles away from ensuring loyalty. Take a prominent Indian private airline’s much-feted frequent flier programme, which recently won an international award. But, once low-cost carriers were introduced in the market, flyers deserted this airline (the high-flying airline’s eroding market share is well documented). If its programme was indeed robust (attempts to convert frequent flier miles on this airline is still an ordeal), would patrons walk out on it? As this example highlights, loyalty programmes cannot afford to give value the short shrift. Another example is credit cards. Try converting the points earned through purchases and the annual marathon looks like a stroll through the park. 

All this points to an insincerity among sellers. They seem to be only keen on either obtaining data or ensuring immediate sales, even if that means sacrificing long-term customer value. The customer ends up feeling having gained nothing. Cards issued by many retail outlets force customers to make purchases against their accumulated points within a stipulated time frame, giving rise to the creeping feeling among buyers that the retailer’s programme is only a subterfuge for short term expediency. Loyalty actually be damned. 


Many studies have also pointed out the ineffectiveness of a one-size-fits-all loyalty programme, since it targets everybody but appeals to nobody. According to a research paper written by two professors at Stanford Graduate School of Business (Wesley R Hartmann & V Brian Viard), programmes work only if a company’s heavy buyers are also its most price-sensitive customers. Segmenting heavy and light customers might make more sense for rewards programmes, suggest the two academics. Reason: the greatest beneficiaries of most programmes turn out to be those who do not need any persuading to part with their money in any case (example: business travellers whose airfare is paid by their companies). In such a case, is the company justified in investing money to reward this lot of buyers? Writing in a column recently in Business Week magazine, Steve McKee (president of McKee Wallwork Cleveland Advertising) posited that companies are better off investing their resources on gaining customer affection, rather than loyalty: “I think many companies have gone too far down the road of focusing on loyalty at the expense of equity… If you focus on share of heart, you will get share of wallet. The reverse may not always be true.” I’d drink to that!