Understanding Capitalism

My early brush with the theory of capitalism (well out of all possible options, I choose to call capitalism- at best- as a theory) happened when I read the news several years ago, that after years of glory under the sunshine of communism, ex-president of USSR, Gorbochov had to delay in speech in a public rally in some country, as he had to wait in his hotel room for his only suit to get ironed. This is what the power of an idea ( that is secondary to being a theory), called capitalism. Under the sweeping storm of capitalism, USSR and its communist-socialist ideology brought Gorbochov to bite the low lying dust. Never did I ever see such a great global leader bite the dust due to an idea who's time US decided had come. Communism across the world fell like a pack of cards,and capitalism gained increased currency all over.

Recently(Confluence at IIMA in Nov 2009), Gurcharan Das( ex-CEO of P&G) spoke highly of capitalism, and even going to the extent of calling the CSR (corporate social responsibility) a false bogey. For the people of his ilk, capitalism is a panacea for all ills, including those not yet created.

When I try to understand Gurcharan Das's comments on the idea (or theory) of capitalism in the backdrop of Barack Obama's analysis of the financial meltdown, I wonder how little do we understand of what we speak, only to realize that we have not yet fathomed the depths ( or layers) of theories as it unravels in different contexts, and at different times. Obama mentioned that greed and irresponsibility brought shame to the world and brought a greater shame to capitalism and its pundits. And here is another guru propounding that social responsibility is a sham and corporates exit only to make money, and that their social responsibility ends by creating jobs and increasing shareholders' value.

I still remember Narayan Murthy's words on creating wealth in the backdrop of the idea of socialism. He said in poor country, all one can do was to distribute poverty. He said he would rather first create wealth( in the society), and then distribute richness to everyone. Infosys is a telling example to all that socialism and capitalism can go hand in hand, and that greed is NOT always good. By Das' own admission, we need more practice of Dharma in today's world, since we in our day to day activities are unable to balance our life's priorities. Today, capitalism assumes that making money is good, and making more money is even better; shareholders' value creation is the utmost goal of the company; profits is what companies survive and grow for; everyone should earn for him/her self and spend on him/her self; spending is better than saving;

All of these are assumptions of the theory of capitalism, and only that-assumptions. No where do we find an iota of evidence to prove that these are ultimate truths that we cannot abandon for good. For good f the humanity. Thanks to the financial meltdown we are now forced to revisit and revise the existing assumptions of the theory of capitalism.

Probably it requires another financial meltdown before we realize that this theory is faulty, and needs to be abandoned. We need to wait for that time to understand capitalism. Or we can understand that without paying such a high price for it. The choice is only ours.

If only the poor people in the world could think....

An Abstraction of a Hypothetical Life after Real Reincarnation

I left the "real" corporate life and took a new avataar as a researcher in the academic life.More than 3 years after this reincarnation,I have no tangible output to justify my decision to take a "second life".

Welcome to the abstact world of academics.Everything as an academician, seems to be intangible.However the world outside the research world, strongly believes in tangible results like return on their investment,cash inflows and so on.While we in academic community take more pride in students' teaching feedback, research papers published in leading academic journals(some of which have an average readership of 2.5), intellectual ideas and brainstorming activities within and outside the classrooms, where we teach and learn.

Innumerable debates and discussions have failed to bridge this chasm successfully.So there continues to exist an unsurmountable divide between the "real world" people who struggle to stay alive,making both ends meet,or even playing dumb charades on the trading floors of the most happening of the world's stock markets only to see their fortunes play the fiddle the next day, and the "academic world" people, for whom only ideas matter; the only heirarchy that makes sense is that of that the heirarchy of ideas(in terms of their relative superiority),and not that of people who generated these ideas, hypothesis is the most important thing in their lives and careers,and decides whether truth exists in the world,whether the paper gets published,whether others in their ilk stand up to listen to them,and respect them.

There is a world of difference,a difference which no one cares for. Or may be it doesn't matter.Or are they only two perspectives,or paradigms,best left irreconciled and left to live their own useful lives...the answer to this may depend on whom you are asking for.

If you want an academic answer,it may never be possible to get one,because the answer may not be ever able to get out of the epistemological-ontological debate,of whether the answer exists on its own or is created by the person answering it.

But if you want a quick real world answer,then it probably depends on creating a scalable,sustainable and viable business model that successfully monetizes a win-win solution for customers with a sustainable value proposition,with low investments,and least breakeven period,using cutting edge technological interfaces,and in the process builds competence for the firm that are long term, sustainable, and creates high entry barriers for competitors.

Academics says all models are wrong,yet some are useful for the real world.Those who built the models spend their lifetime to improvise it,yet it takes a smart kid in some corner of the online world to use it for making a fortune.

Is this fortune real? Well don't ask me.If you still do,all I can say is,"it depends...

Mar-keting

Rob Walker in his latest book "Buying In" announces the death of advertising( or almost) and that "murketing" is in.He describes murketing as murky-marketing where companies are walking that extra mile to make consumers design their own experiences with the companies' products and define the meanings they want to derive from using it.

In one sense, Rob is not saying anything new,except that his book is full of stories and narrations that are a hallmark of a good business journalist(which he surely is).

For several decades now, post-modernism has tried to say something similar( read First,Venkatesh,Dholakia and others).Post-modernism says that mass marketing is dead(therefore advertising effectiveness has not only reduced but the control over it has transferred from companies to consumers).Rob also talks about the post-TiVo effect on companies,and how murketing is so essential to lure consumers since the ads on the TV can be TiVoed away.

Post modernism also talks about defragmented media,hyper-reality replacing reality( why else do you thing the reality shows are getting popular TRP ratings?),use of technology,& deconstruction and reconstruction of meaning by consumers.

So today we don't have passive consumers watching an interesting ad on the TV,rather we have consumers who would like product placement on their favorite movie,which they go and watch with their families in the multiplexes.Consumers want more participation in co-creating experience surrounding the product.So experience is in,Ads are out.Service is in,product is out.Perceived quality is in,Technical quality is out.Hyper-reality is in,reality is out.Game and reality shows are in,soaps are out.Second Life is in,First life is out.Email is in,snail mail is out.Hyperlink is in,all other links are out.Social networking websites are in,social gatherings are out.Value is in,price or cost is out.Possessing is in,Becoming is out.One-to-One marketing is in,Mass marketing is out.Word of consumer is in,Word of advertiser is out(so in word of mouth publicity,who's mouth it is makes all the difference).I am in,You are out!!!

Calculating the flow and stock concept of Brand IIM Ahmedabad

(my first post in last 1 year)

I have now spent 3 years at IIMA as doctoral student.I realise that I have studied IIMA more than my thesis topic,which makes me atleast somewhat qualified to comment on my observations about IIMA.

My several discussions with students and faculties of IIMA makes me feel that IIMA as a brand has grown bigger than what its "Brand Manager/s" can handle.However that is only half the truth! The other bitter half of the truth is that the IIMA brand is growing slower than before or not growing at all...Let me explain this using the stock and flow concept. The Sabarmati River(which flows few kms away from IIMA) also has a stock of water which keeps increasing or decreasing ( the flow) depending upon its own sources of water.So is the case with brands.

The stock of IIMA Brand has grown in the protective environs of the Government.The government was liberal in funding it for several decades since its inception in 1961, and protected( or rather insulated) the institute and the institution from the top global Universities. However the flow of the IIMA brand( understood as how much IIMA's brand equity was growing each year) was not getting noticed.Everyone was going 'ga-ga' about "We are No 1 in India" so much that no one stopped to ask " what are we doing to make the IIMA brand grow every year?".

The who's who at IIMA can boast of the Equis accreditation, world class placements( debatable though), Alumni funding growing each year,average salaries rising,more US Phds joining as faculties etc...however the competition is slowly gnawing away its edge.If someone wants a real example of Hare and Tortoise story one heard from parents in childhood,it is here: IIMA plays the hare and other IIMs( read IIMB and IIMC) playing the tortoise. IIMB and C were slow to catch up till now( the stock of their brand was lesser than A) like tortoise but the flow of additional brand equity that IIMB and C were building post 1990s was faster than A,and now on their way to victory( how do you define it...).The rabbit is left to sulk once the race has been run.

Now the story becomes even more murky.Harvard and UMich(University of Michigan) and a host of several top Bschools/Univs are knocking at the door and equipped to enter the Indian Management education market.It is only the government policies which are again protecting the IIMs from it.The ISB FT-20 ranking saga has impacted IIMA too-little too-late.Is IIMA prepared...there is now a committee on future directions that is looking into it....but committees would do what they can do best....i.e. submit some 100 page report that is either too obvious or too general...who will bell the CAT...its now the turn of the organizers of the CAT themselves ( pun intentionally intended)...My take on this issue is that we need a turn-around guru or business magnate...say..Laxmi Mittal...or Anil Ambani (reminds me that Mukesh Ambani has already announced that he would make sure IIMB gets best faculties from abroad by paying them more) ...or..can Prof Sameer Barua draw a rabbit from the hat himself...with Mr Singhania by his side...the dice is loaded already...and fingers are being crossed...but if boat rocks too much...rats may be seen leaving first...but the present moment is defining one in IIMA's history...it would be either a beginning of an end or an end of a beginning...lets hope it is neither and rather a beginning of a beginning of a new growth story for IIMA!

Something to think about for all concerned...

Welcome Back !!

I just checked and found that I have not posted anything for exactly a year now!So on this anniversary of my e-absence(which I hope would have made some hearts grow fonder !! )..I decided to be henceforth more regular in posting new/my ideas here.

As for now...I am just wondering on this:

Marketing has been overflowing with research studies on various dimensions of customer patronage of an organizations and its products/services.But somehow we marketers seem to have missed an important counterpart to customer--> the non-customer.Does a non-customer add value to the organization in any way.

I think a non-customer adds value through network effects(in a network consisting 0f customers and non-customers).One example can be a non-customer despite his emotional and attitudinal loyalty,but lacks patronage intention due to other reasons like affordability( or perceived value).Such a non-customer of Store/Brand A may be a patron/customer of Brand/Store B...but may spread positive WOM to others in his social network so that he/she ends up converting some footfalls in Store A into patronage behavior,thus customers.Aren't such non-customers of Store/brand A valuable to the organization A?

Where do we draw the Line?

I am always fascinated by the way organisations work..infact many of them do not! Organizations are deemed to be one of the most efficient ways of domesticating the markets,as is popularly known in Transactional cost Analysis in Economics.This internalisation of external markets is literally and notionally protected for soverneity and efficiency by drawing of organizational boundaries.

Imaginary social thinkers led by Peter Drucker and others have visualised boundaryless organizations.But boundaries not only within but external to the organizations seems to be getting blurred day by day.Virtual organization,virtual work stations,SOHO,networking and other concepts have swept away the efficacy of strict organizational boundaries in today's business world.

The important issue before business leaders and thinkers is to provide a reasonably assuring answer to the query of re-drawing organizational boundaries.But the most pertinant one should be -Is it important at all?

Fast changing social exchanges in the market and its various normative governance forms is making the internalisation of markets fast redundant and hence the growth in popularity of networking organizations.But where do we draw the line....?

Would we ever have a convincing answer...will the apple ever fall on the right head??

Of Broken Promises and the Cosmic Dust

Some wag once remarked that promises are like babies-Fun to make but painful to deliver!

But that's only an analogy.Promises may connnote many things to many people:

• Brand is a promise of consistent value to its customers.
• Government is a promise of soverneity,security and civil society in the country.
• Marriage is a promise(atleast institutionally) of lifetime sharing and caring on mutual basis.
• Rain is a promise of bountiful when it arrives at the right time and quantity.

Even then as we know, the presence of brands,rains,governments and marriages does not promise anything more than the consumer's own ability to extract utility(borrowed from our economist friends' vocab) from each of them.Since each consumer has a unique utility function,so is the promise different for each of them.If you consider B-G-M-R as products and services,then their points of consumption and network externalities(positive or negative effects that you have on me and others and vice versa) play a more prominent role than the products as delivered by the manufacturer(Company-Polity-Society-Nature)

So are the above and other products really a promise?Hence,even if the government is democratically elected by widely exercised franchise and even if it delivers on its election manifesto,can it promise to the nation's citizens that they would be safe,secure? Even if the police is the best in the world,can it ensure that no crime is committed?-Hence Police is not a promise of law and order in the society!-then what would that promise be?

If nobody derives utility from committing crimes(as defined by the national laws) then the society does not need police.So in that sense,the society's inhabitants are themselves a promise for their own safety and law and order.

We can generalise to say that the promise of a value offering lies more with the consumers of the value than the suppliers of the value offering.So here we are talking of co-creation of value: Creation on one side and consumption on the other side-both adding to the value offering.In that sense the manufacturer and consumers are not on the opposite sides of the consumption game-They are actually on the same side seen conceptually from the perspective of value creation.

Now,we know from physics that matter/energy can neither be created nor destroyed,it can only change forms.Then how can value be ever created? Thats true,when we talk of value creation are we serious?

Hence,Value generation is a more appropiate to use than value creation ! Value is generated from some existing forms of resources which inherently have some value in themselves.Since the time of the big bang,value is constantly being transformed from one form to another.The cosmic dust has certainly come a long way since !