The Dawn of Horse Power

How much Insurance

Behavioural or
should one have?
Operations Horsepower

July 2010

COVER STORY

Indian Infra Companies :On a

Fund Raising Spree

Shailesh J. Mehta School of Management

Indian Institute of Technology, Bombay
|EDITORS NOTE|
TEAM L!VE
ARUN KUMAR SINGARAJ
NANDINI MURALIDHARAN
SOMAK CHAKRABORTY
SWAPNIL KUMAR
VINAY RAJ KUMAR
MANDAVILLE
VISHWANATH PRATAP SINGH
E-mail: live@som.iitb.ac.in
Website: www.som.iitb.ac.in/live
Dear Readers,
Greetings from Team L!VE !
A lot has happened in the past few months; from rate hikes by RBI to introduction of the
new Rupee symbol, from ever increasing food price inflation and escalating expenditures on
the Commonwealth Games infrastructure to ever worsening profitability of Air India. One
of the hot topics of discussion recently has been the rise of Private Equity in India, after the
recent global meltdown. This edition contains a number of articles with discerning insights
into this issue and analysis whether this will be a sustainable strategy for venture capitalists.
The cover story is especially focussed on the fund raising spree of Indian Infra companies,
which are expected to grow very fast, with the industry already in an accelerated growth
trajectory.
Carbon has become a trade commodity in high demand as of late. The Institute of Chartered
Accountants in India (ICAI) is working out accounting policies for Carbon Trade. An article
is dedicated to this new mechanism of trade and different forms of its implementation.
Another of our regular columnists has written about the competitive positioning of India in
Clean Developmental Projects by analysing past growth trends.
From the marketing domain, we have discussed some emerging trends and strategies in
advertising, popularized by innovation and creativity. This edition features interviews with
Mr. Prabhat Pani, CEO Ginger Hotels and Mr. Sukumar Narasimhan, V.P., Supply Chain,
of Reliance Industries.
Keeping al!ve the entrepreneurial spirit, we have an exclusive start-up story of United
Prosperity.
From this issue onwards we have started a regular column on the Insurance Sector by Mr.
Deepak Yohannan, the CEO of MyInsuranceClub.com and distinguished alum of IIM
Calcutta. In this edition he has discussed about the optimal amount of insurance cover one is
supposed to have.
In this rapidly changing economic and cultural geography, evolution and survival of the
fittest are the rules of the game. Be it a firm, a small start-up or the world’s largest economy,
constant improvement by innovation is the way to move forward. We hope you enjoy
reading this issue of L!VE as this magazine continues to evolve for the better.
Happy Reading!
Team L!VE
L!VE July, 2010 3
|CONTENTS|

STUDENTS SPEAK
29 | Is PE the next In-Thing
for India inc?
06 32 | Creative Advertising
36 | The dawn of behav-
ioural Operations
Issue # 3 / 2010
BIZ WITS
COVER STORY
38 | Quetzal
06 | Indian Infra Com- 43 | Answers
panies: On a Fund
Raising Spree START-UP-STORY
The Infrastructure companies
are expected to witness a sub- 40 | United Prosperity
stantial increase in their order
books by around 30-40 % in FY11.
Companies are competitiv ely
bidding for tenders and their
order books indicate that the
number of projects undertaken
is increasing steadily.

RESEARCH LABS
12 | Competitive position
of India in CDM pro-
jects
15 | Will Private Equity
continue to be suc-
cessful in India?

FACE TO FACE 15
19 | Prabhat Pani
21 | Sukumar Narasimhan
CREATIVE BEND
32 44 | Horse Power or
EXPERTS SPEAK Horsepower
23 | How much Insurance 46 | The Green Mile
one should have?
27 | Carbon: A new com-
SOM-thing Special
modity to trade and ac-
count 48 | CONTINUUM

4 L!VE July, 2010

L!VE July, 2010 5
 | C O V E R S T O R Y | INFRASTRUCTURE |

INDIAN INFRA COMPANIES: ON

A FUND RAISING SPREE

The Infrastructure companies are expected to witness a substantial increase in

their order books by around 30-40% in FY11. Companies are competitively bid-
ding for tenders and their order books indicate that the number of projects under-
taken is increasing steadily.

- JASLENE BAWA
FINANCIAL RESEARCH ANALYST
VALUE NOTES

T
he government has taken projects. m i l l i o n – i n c l P o w e r/
continued its focus on US$400bn) of the total budget
modernization, ex- to Infrastructure development.
Infrastructure allocations Road transport accounted for a
pansion and development of
& investments surge major portion (11%) of the total
infrastructure (roads, ports,
Infrastructure development
airports, railways and power) With the positive news flowing budget followed by Railways
to maintain a steady pace of in to the Infrastructure sector in (9%).
economic growth at 8-9%. the form of budget allocations The recent announcement of
The increased budget alloca- and supportive measures an- the 12th infrastructure invest-
tions resulted in an increase nounced by the government, ment plan confirmed the upside
in the infrastructure projects/ Infrastructure companies have in the sector as the investments
orders allotted to private and received boost. Financial are expected to double from
public infrastructure compa- Budget (2010-11) brought the existing 11th plan infrastruc-
nies resulting to an increased cheer to the Infrastructure sec- ture investments* (Rs.22,500
tor companies as the budget billion/ US$500bn) to
need for funding the under-
allocated 47% (Rs.1,786,820
* The government invested around ~US$350 billion in the infrastructure sector in the 11 th plan (2006-2010). And the private sector, invested
worth ~US$150 billion (- 30% of the total 11th planned infrastructure investments worth US$500 billion). The infrastructure investment target of
the 11th plan was achieved with investments in telecom, airports, oil and gas pipelines sector exceeding the targeted figures. Looking at the
buoyancy in the past it is expected that the same level or a higher level of investments will continue to flow in the infrast ructure sector in the 12th
plan.
6 L!VE July, 2010
| C O V E R S T O R Y | INFRASTRUCTURE |

often faced with shortage of

Particulars INR million % of Total funds for project completion.
Road 198400 11% Though the government pro-
vided stimulus (working capital
Rail 167520 9% needs) to the companies; this
Ports 19360 1% was inadequate without private
sector participation. This gave
Airports 95880 5% rise to a widening gap between
Power 51300 3% the budget infrastructure alloca-
tions (resulting to increased or-
Other Infra (Telecom) 1253820 70% ders) and funds for the capital
Total 1786820 100% expenditure (working capital
needs of these companies). To
Infrastructure spend break up reduce the funding deficit, in-
(Source: Budget FY2010-2011 ) frastructure companies adopted
a number of fund raising routes
Rs.44,500 billion (US$1,000 Gas and Infrastructure sector. (Debt financing- primarily debt
bn) reinforcing the infrastructure The table indicates the current raised via Bank Credit, External
growth story. Of the total in- (F Y2010) a nd exp ec te d Commercial Borrowings ECBs,
vestment figure around 40-50% (FY2011) order book figures Non-Banking Finance Compa-
of the 12th Infrastructure invest- indicating an upward surge in nies, etc. and Equity financing
ment plan (US$1,000 billion) the infrastructure projects. via PE – private equity, Quali-
will be financed by the govern- The Infrastructure sector is capi- fied Institutional placements,
ment and the remainder by the tal intensive in nature and is IPOs – Initial Public Offering/
private sector.
OB FY10 OB FY11
Order Book: On the rise Company name (INR million) (INR million)
HCC 188000 250000
The Infrastructure companies L&T 695000 938250
are expected to witness a sub-
stantial increase in their order IRB Infra 89590 134925
books by around ~30-40% in IVRCL 234000 320000
FY11. Companies are competi- GMR Infra* 32000 64000
tively bidding for tenders and
their order books indicate that Gayatri Proj 62500 81250
the number of projects under- Nagarjuna Const. 153700 199810
taken is increasing steadily. L&T,
HCC, Gayatri Projects, Nagar- IL&FS Trans & Networks 120000 150000
juna Construction, GMR Infra, Reliance Infra* 192600 250500
IRB Infra, NMDC, NTPC, etc
Sadbhav Engg 72000 108000
expect their order books to rise
substantially to Rs.2,500 billion Current and Expected order book figures
(US$55 bn) given the continued *GMR Infra - EPC (Engineering, Procurement & Construction)
buoyancy in the Power, Oil & order book, Reliance Infra -EPC order book

L!VE July, 2010 7

| C O V E R S T O R Y | INFRASTRUCTURE |

FPOs – Follow on Public Offers,
FDI – Foreign Direct Investment,
etc.) to ensure smooth comple-
tion of their projects.
Finance raising initiatives
In order to fund projects, com-
panies primarily approach
banks and NBFCs. However,
owing to the global financial
crisis, the supply of credit to the
sector was marred with most of
the projects put on hold or de-
layed substantially.
However, during 2009 funds
started trickling in the sector
with companies‟ increasingly
borrowing debt from domestic
banks. Borrowing slowly spread
to loans availed from foreign
markets as overseas debt could
be raised at cheaper rates
(loans at 9%-10%) compared to
Indian banks. However, the re-
cent European crisis triggered a
second round of credit crunch
causing an increased depend-
ency on Indian bank and NBFC
debts.
Debt-laden Infrastructure com-
panies: Infrastructure Compa-
nies financials are highly debt
laden with mounting borrowing
costs. A Major part of the debt
(short term in nature) used to
fund working capital require-
ments (in contrast to other in-
dustries where debt is used to
finance capital expenditure) is
also used to finance BOT (build,
operate and transfer) projects
that typically have a debt/equity
ratio of 2:1. This increases their
level of the working capital re-
quirements on a regular basis.
Additionally, government con-
tracts form a major portion of
company order books resulting
to delayed realisation of pro-
jects. Intensive working capital
needs coupled with high gesta-
tion periods tend to lengthen
the overall capital cycle. This

Government plans to invest 11% of its Infra-

structure Budget on development of roads.

8 L!VE July, 2010

| C O V E R S T O R Y | INFRASTRUCTURE |
leads to an increased need for
working capital resulting to ex-
tension of existing loans with no
incremental returns.
Debt route
With reference to the 12 Infra-
th
structure investment plan Infra-
structure companies are ex-
pected to raise approximately
50% of the total US$1,000 bil-
lion via the debt route. Tradi-
tionally, Infrastructure compa-
nies raise approximately more
than 60%-70% of their funding
needs via debt. This has been
steadily increasing over the past
years with an increased project
pipeline.
A few examples of debt raised
The companies have been able to raise a fair amount of finance via the equity route
and are increasingly doing so. The supportive budget announcement to provide a boost
to the infrastructure sector has pegged the fund raising momentum in the market.
during the recent period are
listed below:
 Hindustan Construction
Company (HCC) raised
Rs.1,000 million (US$22m)
from J&K Bank (The Jammu
& Kashmir Bank) for its hill
city project – Lavasa.
 IRB Infra has raised debt
worth Rs.25,990 million
(US$578m) with a consor-
tium of financial institutions
(IDFC, Canara Bank, Bank
of Baroda and Union Bank
of India) to fund four pro-
jects (Pathankot-Amritsar
BOT project, Jaipur-Deoli
project, Talegaon-Amravati
BOT project and Panaji-Goa
BOT Project).
The companies are highly debt
laden and are expected to con-
tinue on the same path. Adding
to existing woes, companies
face constraints while obtaining
domestic debt re-financing
through ECBs (As Indian laws
do not permit ECB debt re-
financing) further narrowing
down their borrowing options.
Continuously mounting debt
needs (to finance new projects
and re-finance existing debt)
and the tight situation of global
credit availability urged compa-
nies to look at options other
than debt.
As a move in this direction,
companies extended their fi-
nance raising options to equity
financing via primary and sec-
ondary stock markets, PE and
QIP routes.
FPO Name Amount raised
REC 8.83
NTPC 84.8
Total ~ 100.0
FPO raised in Jan-Jun 2010
(Source: BSE, NSE, Media Releases)
L!VE July, 2010
Buoyant domestic stock markets
since early 2010, assisted infra-
structure companies to raise a
substantial amount via the eq-
uity financing route.
Equity route
Funds raised by corporates dur-
ing Jan – Jun 2010 in the In-
dian primary markets via IPO
and FPO route increased mani-
fold compared to the same pe-
riod last year.
Till date, in Jan – Jun 2010 two
Infrastructure FPOs raised a
total Rs.100 billion (US$2.0 bn).
Overall, Infrastructure IPOs
helped raise ~Rs.62 billion
(US$1,400 million) during the
period Jan – Jun 2010 and
through the PE and QIP route
the companies raised approxi-
mately Rs.1 billion (US$23 m).
The tables shows an indicative
list of the IPOs, PE and QIP
Amount raised
192
1850
2
9
| C O V E R S T O R Y | INFRASTRUCTURE |

deals during the period.
The companies have been able
to raise a fair amount of fi-
nance via the equity route and
are increasingly doing so. The
supportive budget announce-
ment to provide a boost to the
infrastructure sector has pegged
the fund raising momentum in
the market.
The companies that raised
money through the equity route
have received an overwhelming
response (from the market with
majority of the issues ending
with oversubscriptions) laying
ground for their peers to follow
suit.
Riding the positive wave
Riding the positive wave in the
market, the infrastructure sector
is abuzz with forthcoming IPOs,
PE funding, QIP deals such as
 HCC plans to raise around
Rs.20 billion (US$444m)
through an IPO for its unit
Lavasa in FY11
 IRB plans to raise around
Rs.12 billion (US$267m)
through a proposed QIP
issue. This is in line with its
step to support its balance
sheet to win big orders from
NHAI & State highway pro-
jects.
 GMR Infrastructure stated
that PE firm IDFC Private
Equity Fund III, and four
other investors agreed to
invest Rs.4,650 million
(US$ 99.63 m) in its unit,
GMR Energy.
 GMR Infrastructure, the in-
frastructure and power sub-
sidiary of diversified GMR
Group, plans to raise Rs.50
billion ($1,111 m) via eq-
uity route
 ICICI Venture, the PE arm
of lender ICICI Bank, plans
to launch a Rs.22,500 mil-
lion (US$500 m) fund by
Jul 2010 to invest in infra-
structure projects.
 Larsen & Toubro Ltd (L&T)
plans to launch a PE fund
to invest in Indian power
and road projects. The fund
size is expected to be in the
range of Rs.13,500 million
(US$300 m).
 SEW Infrastructure, an engi-
neering, procurement and
construction (EPC) com-
pany in Hyderabad, plans

Amount raised Amount Raised Subscription

Company Name (INR million) (US$ million) (No. of times)
REC (Rural Electrification Corp) 8825 192 3.1
MBL Infra 1020 23 1.3
Hathway Cable & Datacom 7350 160.4 1.3
IL&FS Transportation Networks 7000 152 33.4
Aqua Logistics 1500 32 1.9
MAN Infraconstruction 1410 31 62.3
ARSS Infrastructure 1200 26 47
SJVN 10790 240 6.6
Jaypee Infratech 22500 500 1.2
Total ~61,600 ~1,400

List of IPOs/FPOs during Jan 2010 – Jun 2010

(Source: BSE, NSE, Media releases)

10 L!VE July, 2010

| C O V E R S T O R Y | INFRASTRUCTURE |

Amount
Deal Particulars Type (US$ million)
Temasek Holdings invested in GMR Energy (GEL) PE 200
GMR Energy (GEL) raised capital from investors led by the
IDFC Group for its energy expansion plans PE 103
Allcargo Global Logistics (AGL) raised Rs.1,000 million
through QIP QIP 23
Helion, Foundation Capital and IFC invested in Azure
Power PE 10
International Finance Corporation (IFC) invested in Husk
Power Systems PE 1.3
Saudi BinLaden Group (SBG) acquired 20% stake in May-
tas Infra for Rs.3 billion PE 67
List of PE (Private Equity) and QIP deals during Jan 2010 – Jun 2010
(Source: Media Releases - These are a few selected deals during Jan-Jun 2010)
to raise Rs.1,520 million story. ment plan
(US$33.7 m) from Jacob BSE, NSE
VC Circle website
Ballas PE. Source: Media Releases
Annual report of Infrastructure compa-
Overall, the deals above are nies
Economic Times
expected to raise Rs.124 billion Business Standard
(US$3 bn) in the near term indi- Budget speech 2011
cating that Infra- 11th & 12th India Infrastructure Invest-
structure companies Jaypee Infratech have raised US$ 500 million
are actively moving through IPOs/FPOs during Jan 2010 - Jun2010
out of the traditional
realms of debt and
venturing towards
new financing op-
tions.

Going forward, this

will activity gather
steam offering PE
firms, domestic and
global asset man-
agement companies
a tremendous upside
to participate in the
infrastructure growth

L!VE July, 2010 11

| R E S E A R C H L A B S | CDM |

Competitive
position of India in
CDM projects
-Anirban Naskar
SJMSOM, IIT Bombay

Introduction Comparison amongst Countries These many countries con-

In the previous issue of „Live China hosted 863 projects and tribute to more than 80% of the
magazine‟, I discussed about the India 508, by the time this article total supply of 2234 projects,
implications of climate change was written. Brazil and Mexico implemented globally. As ex-
on the financial sector. Though are not far behind, implementing pected, countries like India,
climate change will pose a risk to 173 and 121 projects respec- China, Mexico and Brazil have
some future businesses too, it will tively. The top contributing na- been in the leading positions in
open windows of opportunities tions are shown in the following supplying CDM projects. The
for some new businesses also. chart (qualifier: number of ac- trend of number of projects in the
CDM (cle an de ve lopme nt cepted projects being more than last three years in these countries
mechanism) consultancies and 40). is as shown in the graph below.
carbon funds are a few of those.
Implementation of CDM projects
brings capital, new technologies
and sustainable development
benefits to developing countries.
In this article, I have analysed
India‟s competitive position as a
supplier of CDM projects.

Methodology
I started analysing it from the
data published by United Nations
Framework Convention on Cli-
m ate Control (UN FCCC).
UNFCCC categorises the projects
as per the stage of application, China started hosting CDM projects lately and hence this industry is still in
the project is going through. I
growth phase there. On the other hand, India, it seems, is already in the matur-
considered only those projects
that were accepted by the execu- ity phase, at least the data suggests the same. Mexico and Brazil have shown a
tive board at UNFCCC. similar trend like India.

12 L!VE July, 2010

| R E S E A R C H L A B S | CDM |

Technology Comparison
To understand the sectorial drivers of these projects, I classified the projects as per the technology used
to abate green house gases.

Type of Project as per Industries those adopt China India Grand Total

technology used this technology

Hydro Power Power generating entities 419 60 479

Wind Power Power generating entities 220 99 319

Biomass Waste management firms, new 21 131 152

businesses were formed for this
purpose only

Waste Heat Recovery Several small and heavy engineer- 57 64 121

ing industries

Methane Utilisation Coal mines, captive power plants, 34 11 45

municipal bodies

Natural Gas Fuelled Power Captive power plants at various 20 16 36

small and heavy industries

Solid Waste Management Municipal bodies 27 8 35

N2O Abatement Fertiliser production 26 4 30

HFC-23 Decomposition Hydro chlorofluorocarbon produc- 11 6 17

tion

CCR Cement plant 5 11 16

Waste Gas Fuelled Power Captive power plants in small and 7 4 11

heavy industries, municipal bodies

Reforestation NA 2 3 5

CFL NA 3 3

Other Power NA 11 27 38

Miscellaneous NA 3 61 64

L!VE July, 2010 13

| R E S E A R C H L A B S | CDM |
Conclusion and Future Outlook
China is leading in popular non-
conventional power generating
technologies e.g. hydro electricity,
wind electricity etc. They have
also managed to implement a
good number of projects, which
utilise methane for power gen-
eration like solid waste manage-
ment and collecting coal bed
methane and burning it to gener-
ate electricity. India is not far be-
hind in using these technologies.
In fact, India has been leading in
generating electricity using bio-
mass and bio fuels. It has also
shown expertise in thermal tech-
14
nologies by utilising heat, which
was otherwise being wasted in
many industries.
Government will be a big driver
behind the success of CDM pro-
jects. Municipal Corporation of
Delhi, India is the first govern-
mental body of India to earn car-
bon credits through municipal
solid waste compost plant in Ok-
hla area of south Delhi. This pro-
ject is a good example of private
public partnership towards
greener India. Average reduction
in a project in China is 257,000
metric ton of CO2 equivalent per
annum, the corresponding figure
for India is 83,072. Although
L!VE July, 2010
India is leading in number of
projects in some of the technolo-
gies, average reduction from a
project in those categories is
much higher in China compared
to that in India. For example in
biomass-related-technologies,
India has implemented higher
number of projects than China
has done, but average reduction
size in Chinese projects is 3 times
that of Indian projects. Govern-
ment will have to address these
areas to create a stage with cor-
rect mix of ingredients so that big
projects can be implemented in
collaboration with multiple par-
ties to reach economies of scale.
| R E S E A R C H L A B S | PE |

Will Private Equity continue to be

successful in India?

-Sanjoe Tom Jose

SJMSOM, IIT Bombay

I
n India where the situation is characterised by money away, PE investors have to be extra cau-
family-owned companies, about 8000 com- tious.
panies listed on the stock exchanges, abun-
dantly available capital, and yet a relative lack of
liquidity in the market means that the private eq-
uity companies will need to position themselves as
partners rather than just fund providers, if they are
to become the preferred source of investment
capital. The article discusses in detail the dynamics
of Private Equity industry in India in the face of
factors like importance of regional forces in busi-
ness strategy, poor governance practices and re-
luctance to go public.

Recent Times
Private Equity in India has still not fully recovered
from the damage caused by recent financial
downturn. Though fund raising had plummeted by
more than 70 percent in the first half of 2009
from the peak in the last year, signs of a strong
rebound are seen with investors showing renewed
interest in the PE industry. Yet it won‟t be as easy
as it seems; the price discovery mechanism has
been completely shattered by rapid collapse and
rebound of equity markets. Further, the credit
crunch has made the cost of leverage financing
much more expensive and in a market like India
where entrepreneurs can be experts at taking your
Still Private Equity has been successful in India, the
main reason being the dire need of their service
much more than their money. Companies in In-
dia have different needs for private capital de-
pending on the type of company and what stage it
is at (i.e. growing, seeking acquisitions, family
owned, or a large corporate). For example, first
generation business builders look for private capi-
tal because they gain considerable credibility and
governance by having a private equity representa-
tive on board. This helps them while bidding for
international contracts or attracting good talent.

L!VE July, 2010 15

| R E S E A R C H L A B S | PE |
Over the years many international companies
have tried to establish their businesses here in In-
dia by making their executives fly in for three days
or so. These employees interact with the same set
of intermediaries who show them the same set of
investment opportunities at exorbitant prices and
hence deals have rarely taken place. In sharp
contrast, today private equity companies realize
that the only way they can do business in India is
by being present on the ground, understanding
local markets, working closely with the promoters
and taking cues out of local decision making.
The Indian Scenario
India where the situation is characterised by family
-owned companies, about 8000 companies listed
on the stock exchanges, abundantly available
capital, and yet a relative lack of liquidity in the
market means that private equity companies will
need to position themselves as partners rather
16 L!VE
than just as fund providers if they are to become
the preferred source of investment capital. These
companies expect private equity firms to be able
to add value, as required, in strategic, operational
and human capital matters in addition to their
financial contribution. For example, in recent
times, private equity firms have been instrumental
in finding leadership talent or improving the com-
position and governance of boards of the compa-
nies they have invested in.
A private equity firm with an expert team in India
with knowledge of the local environment and op-
erational issues is much more preferable com-
pared to a hedge fund flying in from Singapore or
Hong Kong. Many entrepreneurs appreciate being
able to have in-depth discussions with their invest-
ment partners about a variety of business deci-
sions, for instance advertising, merchandising or
hiring. It is not possible with someone who doesn‟t
have an expert team in India. There also exists a
breed of entrepreneurs who are looking for a pri-
vate equity firm that can play the part of a sound-
ing board rather than giving unsolicited advice.
Many entrepreneurs are powerful advocates for
private equity; they go out and talk reasonably
publicly of the value that their private equity inves-
tors have added in helping them build their com-
panies.
“Indianness” of a Company
Indian multinationals are increasingly adopting a
global business approach while maintaining core
Indian values. Equally, many multinationals are
becoming de facto Indian as a result of the rising
percentages of Indians they employ. One might
question whether a company headquartered in
the US, with an Indian CEO domiciled in the US
and with 8,000 out of its 10,000 employees sitting
in India is a US company or an Indian company.
For smaller companies with a strong local pres-
ence, regional factors are much more important
and their needs will rarely be understood by a non
-Indian private equity firm. The fact is that as In-
dian companies grow they must learn to play by
different rules, accessing global talent pools, capi-
tal pools and customers, but in initial stages they
still have to play by local rules.
July, 2010
| R E S E A R C H L A B S | PE |

Labour Diligence (Spencer Stuart, 2007) want to leave the company, insisting that he
should be succeeded by a family member, will not
Another thought worthy issue is how private equity
be aware of the 20 other people who could do the
firms spend resources on due diligence. Much of
job better.
the time spent on “demand diligence” is mostly
irrelevant as companies already know there is Exit Strategy
enough demand and important question is
But private equity investments have to go hand in
whether the management can actually deliver or
hand with an exit strategy.
not. And to find out the answer they need to
Investee companies are not always comfortable
spend time on the shop floor for what can be
with this fact. In a country like India it is vital that
called “labour diligence”. An Indian-based private
investors are able to ensure that in case they in-
equity firm is more likely to understand this par-
vest in a technology company, it does not switch
ticular dynamics affecting a typical Indian com-
to making films down the road. A saying in Private
pany, whereas other firms often mistakenly ap-
Equity business goes like, „until you invest, the en-
proach investment opportunities with a belief that
trepreneur has the vision and you have the capital.
a model that works anywhere else in the world will
Once you invest, he has your capital and you
work successfully in India. It will not be easy for
have the vision.‟ Firms have to ensure that the
them to get the balance right between introducing
capital and the vision are all stuck together until
best practices and discarding what is irrelevant
they are ready for exit.
unless they have a team of experts who are accus-
tomed to Indian situations. Many times firms come across investee companies
who are reluctant to proceed with a public offer-
Most of the family-owned businesses have boards
ing because the market has zero tolerance and is
consisted almost exclusively of family members
unforgiving whereas private equity is seen as
and friends. Private equity firms recognise the im-
more forgiving and willing to take a longer-term
portance of finding outside directors who can pro-
perspective. The company realises though it‟s get-
vide the knowledge, expertise and experience nec-
ting patient capital, at some point in the future it
essary to help steer a company through its next
won‟t be independent and either it is going to be
stage of growth or towards a public offering. For
acquired, or there will be an IPO. But when the
many companies, the board meeting is purely
potential investor raises the inevitability of an exit,
about compliance and the real debate and deci-
the family businesses which may be open to the
sion-making happens outside the meeting. Adjust-
idea of taking capital hesitates and this leads to
ing to a more rigorous style of board meeting can
problematic conditions. Indian stock exchanges
be extremely difficult for such companies.
house 5000-plus companies which have no utility
Private equity firms often play a strong influencing being public; some of these are virtually private
role in helping companies attract talent, commis- companies, except that they happen to be listed.
sioning search activity, and helping promoters to This is borne out by the fact that most of these
interview and assess talent. In the US, the number companies trade their shares once every six
of senior corporate executives who are attracted to months. PEs have to spend a lot of time persuad-
private equity as an alternative and lucrative ca- ing companies that they need people dedicated to
reer step is remarkable. They are either interested investor relations to educate the market about the
in running a portfolio company or becoming an company; not just investors in India, but overseas
operating partner, bringing their operating experi- as well.
ence to portfolio companies and adding value.
In a market, with a rising tide all boats will be
The same level of eagerness among corporate
lifted and even if your boat has a hole in it the
executives may not be true in India, but private
chances are you will be able to attract capital.
equity firms need to be putting a great deal of
However, when the situation changes such com-
energy into finding the right talent to run the busi-
panies will be the first to get into trouble. There is
nesses they invest in. The patriarch who does not
a fine line between capitalising on growing mar-

L!VE July, 2010 17

| R E S E A R C H L A B S | PE |

ket conditions and staying disciplined in terms of evaluations, creating liquidity and global compe-
valuations. If companies sit on the sidelines the tence. Private equity is developing into a major
world could pass by them. Also there is a player in the Indian economy and there is a
view that in India it can sometimes be growing perception among Indian companies that
harder for a company to raise equity private equity firms can add value
worth US$5 million than to raise
US$100 million. At $100m all the
big firms are there with their
cheques. But people are not inter-
ested in US$5 million as it‟s too
small a sum to spend time on.

Major Players
Driving the growth in Private Equity
segment have been several promi-
nent private equity firms, many of
which have opened local of-
fices in India. Gold-
man Sachs, War-
burg Pincus, Black-
stone and Carlyle
have a significant
local presence. Among the lar-
ger recent private equity transactions
is the US$1 billion investment in Bharti In-
on several fronts. With more and more companies
fratel by Goldman Sachs, Temasek Holdings, The
setting up local offices and teams which work at
Investment Corporation of Dubai, Macquarie, Citi-
ground level the industry will continue to be success-
group and others in December 2007, along with ful in the coming years.
an additional US$250 million by KKR in February
2008. Sequoia, GLG Partners, Providence Equity
Partners, Citigroup, TA Associates and India-
based ChrysCapital reportedly invested more than Reference list
US$1 billion in Idea Cellular. Some of the other
big PE deals in India so far have been Carlyle‟s Deloitte. (2009). India private equity survey: Long
$650 million investment for a 5.6 per cent stake term Confidence February 2009. India.
in Housing Development Finance Corporation, Goodwin Procter. (2008, March 4). Private Equity in
ICICI Venture Funds Management Co.‟s $800 India: The Risk, Structure and Reward. Private Equity
million investment in New Delhi-based Jaypee
Informational Newsletter .
Infratech (this was cancelled later on) etc.
K, T. (2009, November). Private equity in Asia:
stepping back from the brink. INSEAD Knowledge,
Conclusion November 2009. . Retrieved from INSEAD
Knowledge: http://knowledge.insead.edu
India needs the industry not only for their funds Spencer Stuart. (2007). Private Equity in India: An
but also to be a partner in taking the country‟s
Executive Roundtable. India.
companies to the next level in terms of good gov-
Venture Intelligence . (2009). Private Equity Impact
ernance, building capable executive teams, im-
proving organisational capability, enhancing 2009. India.

18 L!VE July, 2010

| F A C E T O F A C E | PRABHAT PANI |

“One should be open minded in

terms of connecting with society, not
only as a social
responsibility but from the business
MR. PRABHAT PANI, CEO - GINGER GROUP
perspective too.”
Mr. Prabhat Pani is the CEO of Ginger groups. At pre-
sent he is pursuing his PhD from SJMSOM IIT Bombay.
TATA Group has always been known for the ethics
and values being an integral part of company's
DNA. By what means, does Ginger as a TATA com-
pany integrate the TATA Code of Conduct in day to
day operations ?
Ginger Hotels, being a Tata Enterprise, is definitely
aligned to the Group Purpose of “Attain leadership
through business excellence in the sectors we oper-
ate in, while upholding our values and integrity, to
improve the quality of life of the communities we
serve.” The Tata Group core values are Integrity,
Understanding, Excellence, Unity and Responsibility.
It is driven by respect for people and nature and
passion for the stakeholders. We also periodically
evaluate and check our processes for adherence to
our Group‟s core values. Group Business Excellence
programmes such as the Tata Business Excellence
Model (TBEM) and Tata Quality Management Ser-
vices (TQMS) along with the Tata Code of Conduct
ensure alignment to our Group‟s vision and mission.
What according to you is the major source of com-
petitive advantage for Ginger?
Ginger Hotels started with a clear vision to attain the
leadership position in India by offering a fantastic
value proposition to its customers based upon intel-
ligently thought-out package of benefits, and by
continuously evolving in line with the Customer.
Ginger has created a niche for itself in the Indian
hospitality sector with 21 operational hotels (nearly
2100 rooms) and 9 more hotels under various
stages of development.
Apart from continuing to be one of the fastest grow-
ing and large branded hotel chains in the country, at
Ginger we would like to keep abreast of the changing
needs of the contemporary travelers. In the recent
past, we have accordingly introduced new facilities
and services based on customer feedback such as
introduction of limited room service so that guests can
order a select range of snacks to their rooms. This
works well with many of our guests, who typically
work late hours or travelling executives, who arrive in
late hours to the hotel. Another new offering has been
a 40-60 seater conference room in select hotels to
take care of training, review meetings, conferences,
etc. We are also examining the option of Wi-fi being
made complimentary in our hotels.
The company has also re-looked at the size of rooms,
furniture and other amenities at our hotels. Rooms at
Ginger are now plusher with vibrant colours and
customer-friendly interiors and furnishings.
TATA as a group is focusing on touching the bottom
of the pyramid by innovations like Ginger, Nano,
Nano housing and „Swach‟. Is it a part of the long
term group strategy or just the need of the hour?
We may not be in a position to comment about
Group strategies. However, Ginger is a first of its
kind concept that addresses all the needs of modern
day traveler, business or leisure, at value pricing.
We do not aim to be the least expensive or compete
at price points. Our objective is to be committed in
the long run to provide superior product offering,
value and a consistent experience in a fresh and
simple, yet stylish environment to the customers.
Ginger has been a pioneer in affordable hospitality
segment in the hotel landscape. What are your
views on its growth prospects?
Ginger Hotels is operating in a large opportunity
space. The hotel chain has a first mover advantage
in the branded value, no-frills segment which is still
nascent in India. During the economic slowdown

L!VE July, 2010 19

| F A C E T O F A C E | PRABHAT PANI |
Ginger‟s value offering and wide network found
acceptance amongst a large set of travelers. In re-
cent months, Ginger has seen an increase in occu-
pancy by 15-20% vis-à-vis the corresponding period
last year, largely due to the focused strategy to tie-
up with corporate firms and with on-line travel
agents. Nearly 40% of our customers are repeat
customers. The growth in the network of hotels
across newer markets enables a larger set of people
to sample the product and hence look at revisiting
another Ginger hotel in a different market. This is
because they are assured that they will be delivered
the same service quality, irrespective of the city they
travel to. This growth in hotel network will automati-
cally lead to a growth in the number of guests using
Ginger.
What are the major challenges which you are facing
in the current scenario and how do you plan to
overcome the same?
Ginger‟s operations have grown manifold (since
opening the first hotel in 2004) to 21 operational
hotels today. Managing growth in the changing sce-
nario, while delivering the Ginger brand promise is
one of the key challenges.
One of our big challenges in the early phase was to
accelerate the pace of growth, in a scenario where
real estate costs were going through the roof. We
have managed this by keeping the growth model
flexible. In the initial phase, we bought or leased
land to build green-field hotels. Now, we are doing
things differently – from building a hotel on top of a
shopping mall (where lease costs are relatively low)
in Ludhiana to re-developing an existing property
like the Rail Yatri Niwas (next to the New Delhi Rail-
way station) on a P-P-P model. We are looking at
tapping similar growth opportunities in other cities
to expand our network.
Keeping intact the Ginger value proposition of „no-
frills offering at a great value‟, while facing input
cost increases (especially on real estate and con-
struction materials) and the impact of inflation on
operating costs has given us a great sense of satis-
faction.
Managing and retaining talent is also a significant
challenge. Similarly, a big challenge is to build
strong brand equity amongst target customers with-
out spending much.
20 L!VE
How do you see the competitive landscape for low
cost hotels in next 5 years?
Branded budget hotels are slated to be one of the
fastest growing segments in the Indian hospitality
space. The sector is likely to witness a lot of action
with existing players and international brands plan-
ning to tap this segment.
Ginger is well poised to maintain a dominant lead-
ership position in this opportunity space.
What are your views on the role of technology as an
enabler to achieve efficiency in business process as
far as the Hotel industry is concerned?
Advent of technology has been a boon across indus-
tries to increase operating efficiencies and scale up
growth. This holds true for service oriented entities
like hotels which cater to the evolving needs of the
customers.
For instance we at Ginger Hotels have made signifi-
cant investments in beefing up technology to
achieve greater efficiency as well as offer some ser-
vices to the customers with convenience and ease.
Ginger‟s facilities of providing robust online reserva-
tion system, multiple pricing options, self check-in
kiosks and Wi-Fi services are all examples of adopt-
ing technology to offer superior brand experience
and service to the customers. Ginger Hotels has
now introduced mobile payment gateway where
travelers can book rooms in any of the Ginger Ho-
tels from their cell phones.
Over the years we have seen that the contribution of
B-school graduates in the Hospitality industry is
quite subdued. So, what is your advice to MBA stu-
dents, who want to pursue their career in the Hotel
industry?
Hospitality is always a front-facing job – one has to
interact with customers and guests at all levels.
Therefore, other than being trained and knowing
the technicalities of the job, one needs to be able to
strike the right cord with the customer. Good con-
versational skills and the ability to „listen‟ when
speaking with guests is always a plus. And of
course, a pleasant and forthcoming disposition is
expected. Though there are lot of MBA‟s who are
actually involved in corporate roles across various
verticals including Sales, Marketing, Finance & HR.
As told to - Deepak Gupta, SJMSOM, Batch of 2010
July, 2010
| F A C E T O F A C E | SUKUMAR NARASIMHAN |
“India has a lot to do towards
'greening' itself...Our
practices in the industry are
also not too much to write
home about.”
- SUKUMAR NARASIMHAN, Senior VP - Supply Chain
Reliance Industries Limited
Currently Sr. Vice President, Supply Chain with Reli-
ance Industries Limited, Mr. Sukumar Narasimhan has
close to three decades of experience handling different
segments of the Supply Chain both at the Operational
& Strategic level. Below are the excerpts from the con-
versation we had with him:
What according to you is the pathway of India's jour-
ney towards green supply chain management (SCM)?
India has a lot to do towards 'greening' itself. Programs
in National Geographic and similar other channels are
replete with stories about how we have been continu-
ally polluting the Ganges and other rivers. Our prac-
tices in the industry are also not too much to write
home about. For quite a while, technologies banned
elsewhere were allowed into India (eg: Leather Tan-
ning), but I believe it is high time our attitude towards
environment changed.
The only thing green about India is that many nations
are envious about our industrial progress. But as a
vibrant nation, we need to embrace greenness in eve-
rything we do!
What is our current situation?
Deplorable would be the pessimistic one word, but on
a brighter note, there is so much we can do in so little
time! Beginning with waste management at homes, to
wastes in industry, I guess there is much we can do! As
with everything else, within the Indian ethos, we need
someone with visionary leadership to get this program
started.
L!VE July, 2010
What is your vision for 2025 in green SCM?
Energy from waste, people content with a reasonably
good standard of living without too much ostentation,
extended forms of family comprising people with simi-
lar needs being networked into a composite whole,
and finally a realistic approach to beating the numbers
on the stock exchange.
These are what I believe we need to cultivate as an
attitude to keep 2025 yet a peaceful earth for all to
live in!
As far as Green SCM is concerned, as I mentioned at
the Continuum 2010, we need to adopt a lean, mean
approach towards the processes and paper in opera-
tions. Unless the supply chain fraternity begins collabo-
ration on a wider scale where companies evolve a
common network between themselves, as a nation, we
will continue to expend more in every dimension than
we can really work with.
What kinds of risks are associated with going green?
What are the initial hindrances?
There can be no real risks to going green. The current
hindrances and risks are because of the coloured per-
ception we have towards such initiatives - how profit-
able they can be! The more materialistic we get in our
assessments, the less we will be driven towards truly
green and sustainable improvements.
What are the existing government policies, rules and
regulations which are creating hindrances and what
changes would you like to see for a better transition to
21
| F A C E T O F A C E | SUKUMAR NARASIMHAN |
green SCM?
We, as a nation, are still in infancy towards true eco-
nomic development. When affluence begins to bite at
our toes, when there is so much conspicuous consump-
tion, it is then we will begin to assess what we have lost
to gain what we got! I sincerely hope like I said before,
we learn sooner than other nations that there is virtue in
moderate ostentation!
What are the prospects of collaboration in supply chain
e.g. things like clubbing warehouses and transportation
as can be seen in the Telecom industry where sharing of
towers has become an industry norm?
Asset sharing as a concept in SCM has also existed, like
leasing idle plant capacities, but that's where it has
stopped. We have outsourcing only in Manufacturing in
India, pretty little elsewhere in supply chain.
Can more be done? The answer is a definite yes; much,
much more can be done. Companies across different
industry segments can get together to evolve a com-
bined network of operations that provides synergy to all
participants. The tragedy is when we always want to
benefit at expense of someone else!
What are the global practices that RIL follows?
This is a tough question for me as an individual to an-
swer but CSR themes have been fully adopted by RIL,
and there are many initiatives we have undertaken to
improve the order of things. In the public domain, there
are a lot of socially responsible initiatives RIL has
launched which makes me proud to be working for the
firm!
3PL hasn't been embraced by Indian companies. What
could be the reasons and what would enable it in the
coming future?
A primary reason for 3PL not taking off is because as
managers, we dictate the way 3PL needs to work for us.
I believe we need to focus on what needs to get accom-
plished and leave the 'how' of it to the 3PLs. Without
exaggeration, I keep repeating that the 3PL story is very
similar to the 'mother-in-law/daughter-in-law' syndrome
that's by now so famously known!
I believe 3PL evolution will run hand in hand with the
growth of organized retail in India. It is then, a seamless
supply chain will become a sine qua non for the opera-
tors and then, the 3PL can perform on a level playing
field. Unfortunately, as with everything else, even 3PL
maturation will need to be forced than embraced will-
22 L!VE
ingly by us!
Have you experienced anything in supply chain which
industries take for granted, but it is among the key fac-
tors of supply chain efficiency?
Oh! This is a stupendous question! There is nothing we
need to take for granted, beginning with the simple
work protocol we establish as Standard Operating Pro-
cedures! But unfortunately, we have all become victims
of habit, thanks to the Taylorian theory of Division of
Labor! Somehow, this needs to change ground up for us
to begin the process of supply chain renewal!
What is your daily schedule? Apart from reading what
are your other hobbies? What do you do for recreation?
When you're pushing 50, you have a distinct flavor to
life - need to stabilize and slow down! Some faculties
begin to creek and that's when the reality of imperma-
nence begins to sink in. It is then, you begin to philoso-
phize. And that's why you can pick that thread in all my
thoughts!
My hobbies are to read occasionally and write as well
(am planning to write a book or two on SCM!). I love
travel, but when work takes precedence, this will have to
wait for a little later!
Your message to young budding supply chain managers.
See money in everything you do. Adopt an inquisitive
attitude than having to take things as they are. Continu-
ally challenge the limits of performance you set for your-
self, and cultivate basic discipline. A combination of all
these should land any youngster in good stead!
As told to - Nandini Muralidharan
July, 2010
| E X P E R T S S P E A K | DEEPAK YOHANNAN |
How Much Insurance
Should One Have?
- Deepak
- DEEPAK Yohannan
YOHANNAN,
CEO, MyInsuranceClub.com
MyInsuranceClub.com
What is Life Insurance?
In today‟s world most of us are aware of what Life In-
surance means. Life Insurance in a nutshell means a
policy that people buy from Insurance Company,
which can be the basis of protection and financial sta-
bility of the family in case of any unfortunate eventual-
ity (death, disablement). Simply put, Life Insurance is a
Protection Tool for the earning member of a family
whereby if anything happens to this particular person
and his earning stops, then the family should not suffer
from financial crisis.
Life Insurance is an Insurance of a person‟s life. So, if
he were to die, his family would receive an amount of
money called the Sum Assured, which would help the
family to take care of the financial crisis which would
arise from the sudden inflow in income. To get this
benefit, he would have to pay a certain amount of
money called Life Insurance Premium to the Insurance
Company every year as per the contract.
Who needs Life Insurance?
Buying life insurance doesn't make sense for everyone.
If you have no dependents and enough assets to cover
your debts and the cost of dying (funeral, lawyer's fees,
etc.), then insurance is an unnecessary cost for you.
Also, if you do have dependents and you have enough
assets to provide for them after your death by invest-
ments, property, etc., then you may not need life insur-
ance.
However if you fall under any of the following category,
then you definitely need insurance:
 If you have people financially dependent on you
L!VE July, 2010
CEO
or if you are the sole earning member for your family,
then you need Life Insurance
 If you have any loan or debt that outweighs your
assets, then you need Life Insurance.
 If you are staying at home and providing your
family with such services as child care, cooking, and
cleaning, you need Life Insurance
 If both you and your spouse are earning and you
would like to protect a surviving spouse against the
possibility of the couple's retirement savings being de-
pleted by unexpected medical expenses then you need
Life Insurance
 If you are a parent and you need to protect your
child‟s future against any unforeseen events for your
child‟s security, then you need Life Insurance
If you have a lot of wealth and assets and you would
not like the same to run down by the effects of estate
taxes or if you wish to transfer wealth to your future
generations, then you need Life Insurance
How much Life Insurance cover should one have?
Most of us are not aware of “how much” insurance
one needs to purchase to protect one‟s family or for
his future requirements. Let us understand the factors
which influence the amount of insurance cover one
should purchase to have a good night‟s sleep.
Income Replacement - One of the biggest factors for
life insurance is for income replacement, which is a
major determinant of the size of your Life Insurance
policy. The simplest way to understand it is if you are
earning a certain amount every year for your family,
then you need a policy which provides for an interest
23
| E X P E R T S S P E A K | DEEPAK YOHANNAN |

earning of an equivalent amount.

Currently, a large portion of the income goes to taxes

and to maintain your own lifestyle. Hence the income,
net of taxes, need to be determined for calculation of
Life Insurance Requirement as Insurance Benefits are
usually Income Tax free.

For example, your Income, net of taxes, is Rs 5 lakhs in

a year, then you need „A‟ amount of Sum Assured
which if invested as a Fixed Deposit in a bank at 8%
interest per annum will fetch an interest of Rs 5 lakhs in
a year‟s time.
8% x A = Rs 5 lakhs
Or, A = Rs 5 lakhs / 8%= Rs 62.5 lakhs

Thus Sum Assured requirement is a minimum of Rs

62.5 lakhs which doesn‟t include inflation so as to
ensure that income of the earning member of the fam-
ily can be replaced by interest earning on the Sum
With the constant increase in the cost of education, it
Assured without depleting the actual principal amount.
becomes an important factor for calculation of insur-
ance requirement.
“...calculating the insurance
requirement amount has always (and possibly a little more to take care of the interest
been a much debated topic as it is as well).
very difficult to estimate the amount Hence in addition to Rs 62.5 lakhs (from the above
example), Rs 14 lakhs + interest= Rs 77 lakhs
of financial loss that the family (assuming Rs 50,000 as interest) need to be added as
would face in one’s absence.” a loan component for repayment.

Income replacement for nonworking spouses is also an
important and often overlooked insurance need. Cov-
erage should provide for your costs for day care,
housekeeping, or nursing care. Any net earnings from
part-time employment also need to be added to this.
Child Education Requirement - With the constant in-
crease in the cost of education, it becomes an impor-
tant factor for calculation of Insurance Requirement.
The basic school education needs to be considered
initially.

However as simple as it may sound, calculating it is
not very easy, since there are other factors that need to
be added.
Amount of Debt or Loan - is another very important
factor while calculating Insurance requirement to en-
sure that the liability to repay the same does not fall on
your dependents. All your debts must be paid-off in
full, including car loans, home loans, credit cards,
personal loans, etc. If you have a home loan of Rs 10
lakhs and a car loan of Rs 4 lakhs, then you need at
least Rs 14 lakhs in your policy to cover you debts
Fee per month x 12 months in a year x Number of
years remaining for child to complete education is the
amount that needs to be added to Insurance Require-
ment.
For example: If the fee is Rs.2000 per month and the
child is in 2nd class – Rs 2000 x 12 months x 10 years
remaining for the child to complete class 12 = Rs.2.4
lakhs, which needs to be added to Insurance Require-
ment. Higher Education needs to be factored in sepa-
rately depending on what you would want your child to
study and where and how much you are willing to

24 L!VE July, 2010

| E X P E R T S S P E A K | DEEPAK YOHANNAN |

spend on his or her education.

Between the Age Group
Thus, in continuation with the previ- 20 years – 29 years
ous example, Rs 2.4 lakhs need to
be added to the Insurance Require- 30 years – 39 years
ment of Rs 77 lakhs, which equals Rs 40 years – 55 years
79.4 lakhs, plus maybe an amount
of Rs 10 lakhs for the child‟s higher More than 55 years
education, totalling to Rs 90 lakhs
approximately.
Multiple of annual income with different Age Group
Dreams and Goals - All dreams and goals need to be
considered separately as it is not a necessity but only a
wish of the Life Insured. New house, car, foreign trips,
child‟s wedding, etc. would fall under this category.
The amount that you wish to spend on such occasion
need to be added to the Insurance Requirement, after
incorporating inflation
For example if you wish to spend Rs 10 lakhs for your
daughter‟s wedding 15 years later and the expected
rate of Inflation is 6%, then you actually need to add
Multiple of Annual Income
20 times Annual Income
15 times Annual Income
10 times Annual Income
5 times Annual Income
Rs 23.966 lakhs to the Insurance Requirement instead
of Rs 10 lakhs.
Insuring Others - Obviously there are other people in
your life who are important to you and you may won-
der if you should insure them. As a rule, you should
only insure people whose death would mean a finan-
cial loss to you. The death of a child, while emotion-
ally devastating, does not constitute a financial loss
because children do not contribute to the household
income. The death of spouse, whether earning or not,
does create a situation with both emotional and finan-
Dreams and Goals like New Houses, Cars,
Foreign Trips etc need to be added to Insur-
ance Requirement after incorporating inflation.

L!VE July, 2010 25

| E X P E R T S S P E A K | DEEPAK YOHANNAN |
cial losses and hence needs to be insured.
Is Life Insurance an Investment?
Many people see life insurance as an investment, but
when compared to other investment tools, insurance
cannot be really looked at as an investment tool. Cer-
tain types of life insurance are referred to as tools for
saving or investing money for retirement, etc. These
are insurance policies in which you build up a pool of
capital that gains interest. This interest accrues be-
cause the insurance company is investing that money
for their own benefit and is paying you a percentage
for the use of your money, much like how banks oper-
ate.
However, if you were to take the money from the
forced savings program and invest it in an index fund,
you would likely see much better returns. For people
who lack the discipline to invest regularly, a cash-value
insurance policy may be beneficial. A disciplined inves-
tor, on the other hand, has no such need since he can
manage the same himself.
Alternatives to Life Insurance
Once the total amount has been calculated for Insur-
ance Requirement, the other areas of investment also
need to be considered. Property, bank deposits, other
savings, bonds, mutual funds, stocks, gold, etc. form
asset accumulation, which needs to be subtracted from
Insurance Requirement to arrive at the correct amount.
Term Insurance, a pure protection tool, suffices most
of the requirement in your absence. However an indi-
vidual‟s situation needs to be considered as only death
benefit would not be the answer to all requirements. A
mixture of Endowment and Term plan along with other
forms of assets would form an ideal portfolio for an
individual after considering risk appetite of the individ-
ual.
Easy Calculation of Insurance Requirement
There is a quick calculation without getting into such
nitty- grittiest. Multiples of annual income is considered
as according to the different age groups.
This is a simple and quick reference to calculate the
Life Insurance Requirement. Although it would not ap-
ply to everyone uniformly, it gives an approximate
value for the same.
26 L!VE
Other areas of investment like property, bank deposits,
bonds etc also need to be considered
Conclusion
The topic of calculating the Insurance Requirement
amount has always been a much debated topic as it is
very difficult to calculate the EXACT amount of finan-
cial loss that the family would face in one‟s absence.
Hence there has been many ways and means to come
to a figure that is somewhat close to the actual re-
quirement. The factors mentioned above, if consid-
ered and calculated appropriately, also would yield a
result somewhat close to the actual Insurance Require-
ment.
Calculating the actual figure for Insurance Require-
ment is not possible. Do you really think it is possible
to quantify exactly “how much” financial loss a family
would face in a person‟s absence? Only when the per-
son is actually absent, the family gets to feel the differ-
ence. Till such time, a lot of small aspects of life are
taken for granted and are not really valued.
Therefore to arrive at a conclusive figure of exact
amount of Insurance Requirement depends a lot on
assumptions and expected loss. The rate of expected
inflation, the future value of money and other factors
considered are all on assumptions.
Being adequately covered would also ensure a good
night‟s sleep without having to worry for the family‟s
security. Or, are we putting our families in the slightest
of trouble if something unfortunate were to happen?
Thus, the above factors and calculation would now
help a lot of us to re-value ourselves and find out if we
are adequately covered or not.
July, 2010
| E X P E R T S S P E A K | PRIYANKA OTSWAL |
Carbon: A New Commodity to
Trade and Account
- Priyanka Ostwal, MBA (Finance), M. Phil.
Faculty, Amity Business School
A
lthough India can be termed as a hub for Car-
bon Credit market, still India needs to work on
many issues. In spite of being preferred by
most companies in the UK, Germany, Japan and Den-
mark, India is still not counted among the top three
carbon credit nations because of its project rejection
rate, which is as high as 50%. Such high rejection rate
is due to a shortfall in project performances, changes/
clarifications in the methodology. Despite all these
concerns, outlook of carbon credit market remains
strong owing to active participation of European Un-
ion, rising fuel/energy prices, increase in the number
of developed countries ratifying Kyoto Protocol etc.
As far as the accounting of carbon credit is concerned,
The Institute of Chartered Accountants of India (ICAI) is
still working to design proper accounting policies for
the same. “Whether the carbon credit issued through
CDM projects should be shown as an asset or they
should be termed as goods? Carbon credits should be
termed as revenue or they should be termed as other
income? Is segment reporting possible for CERs? How
to value carbon credits?” are some of the issues, still
waiting for ICAI new guidelines. The views of taxation
authorities would be another interesting dimension.
How to Account for Carbon Credit?
Indian companies are generating a good amount of
revenues from carbon credit sale. This huge amount
becomes material enough to account. But till now
there are no guidelines under Indian GAAP. So the
Indian companies are following lots of practices to
account for the same.
Under International Financial Reporting Standards
(IFRS), most of the companies are treating income
from carbon credit as government grants. And thus this
L!VE July, 2010
becomes a part of income statement on one side, and
as a corresponding debit on the other side, it is treated
as an Asset (Intangible Asset). But there are a lot of
controversies over this accounting treatment. For a
critical evaluation let‟s check out these issues:
Is Carbon Credit an Asset?
The definition of an Asset given by Accounting Stan-
dard 26 (AS-26) is:
An asset is a resource:
(a) Controlled by an enterprise as a result of past
events; and
(b) from which future economic benefits are expected
to flow to the enterprise.
An intangible asset is an identifiable non-monetary
asset, without physical substance, held for use in the
production or supply of goods or services, for rental to
others, or for administrative purposes.
Carbon Emission Reductions (CERs) fulfill all the crite-
rion of an intangible asset except that it is not held for
use in the production or supply of goods or services.
This indicates that CERs cannot be termed as Fixed
Asset, and it is out of the scope of AS-26 (Intangible
assets).
Is Carbon Credit an Inventory?
Second method to account these CERs can be to show
them as inventory (AS-2)
AS-2 defines Inventories as:
Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed
in the production process or in the rendering of ser-
27
| E X P E R T S S P E A K | PRIYANKA OTSWAL |
vices.
Inventories need not be in tangible form, it can be in-
tangible also. CERs fulfill all the above requirements
and thus can be termed as inventories. Thus, If CERs
are held in the business for sale in the ordinary course
of business, they can be termed as inventory (IAS2), if
not they should be considered as identifiable non-
monetary intangible assets.
How to Value CERs?
So far, we have concluded that CERs may be termed
as Intangible inventories. So the valuation criteria will
again be according to AS-2, which says to value in-
ventories at cost or net realization value, whichever is
lower. The only cost which brings CERs into existence
is the certification cost of CERs. All the other costs are
either not relevant or they have incurred before CERs
came into existence. That means in the books of ac-
counts, CERs should be shown at their certification
cost, but in that case there will be a significant mis-
match between cost and revenue of these inventories.
This is because entities would need to expense most of
their costs as soon as incurred but will recognize reve-
nue arising from CERs only when these are actually
sold. So, the valuation criterion of carbon credit is
again a problem.
Is Carbon Credit a Contingent Asset?
From the above discussion, we can say that Carbon
Credits are a part of assets of a business. But again
the problem is, CERs are a kind of contingent assets
(defined in Accounting Standard-29) as that “arises
from the past events and the existence of which will be
confirmed only when the occurrence or non-
occurrence of one or more uncertain future events not
wholly within the control of the enterprises” (when pro-
ject gets approved by the authority). Because of this
reason, CERs (a contingent asset) can not be shown as
assets until and unless communication for credit of
CERs from United Nations Framework for Climate
Change (UNFCCC) is received and provided it is
probable that future benefits associated with CERs will
flow to the entity and costs to generate CERs can be
measured reliably. Thus, CERs can be termed as
“Contingent Asset”.
28 L!VE
Carbon Credit should be termed as Sales or
Other income?
Section 43A(11) of the Companies Act, 1956, defines
„Turnover‟ as “the aggregate value of the realisation
made from the sale, supply or distribution of goods or
on account of services rendered, or both”. Again part
II of Schedule VI to the Companies Act, 1956, requires
a separate disclosure of “profits or losses in respect of
transactions of a kind, not usually undertaken by the
company or undertaken in circumstances of an excep-
tional or non-recurring nature, if material in amount”.
Sale of carbon credit is on non-recurring basis (though
some exceptions are there). Thus, it can not be termed
as „Revenue‟. Again, CDM projects are not cost cen-
ters in themselves and thus making it impossible to
work out separate profit or loss of any CDM project
with accuracy. The combined study of Section 43A
(11) and Schedule VI of companies act shows that in-
come received from sale of carbon credit should be a
part of other income not Sales. If amount received
from sale of CERs is significant, they can be shown as
a separate line item under the head “Other Income”.
Is Segment Reporting possible in case of CERs
(AS-17)?
According to some experts, CDM project (duly ap-
proved by UNFCCC) should be looked as a separate
segment for segment reporting as per AS-17. And the
Capital Investment, Sales and Profit earned by these
projects should be shown separately. This is not practi-
cal as CDM projects are not either a profit center or a
cost center in itself. It‟s a multi segment entity and can
be identified with its parent entity only.
References:
http://unfccc.int/2860.php
http://www.cdmindia.nic.in
http://www.thehindubusinessline.com/2009/10/01/
stories/2009100150370900.htm
http://www.nlsenlaw.org/copy_of_news/accounting-debates-
on-carbon-credits
http://www.icai.org/
The Accounting Debates on Carbon Credits: D Murali, Busi-
ness Line, October 16, 2008
“Carbon Credits: How Big is your Foot-print?”: Pradeep
Kumar Gouda, N Rajashekhar, L!VE Magazine, SJMSOM,
IIT Bombay
July, 2010
| S T U D E N T S S P E A K | PE |

Is PE the
next In-
Thing for
India Inc.?
- Swapnadeep Bhattacharyya
SJMSOM, IIT Bombay

I
t is evident across geog- invested across more than 1500 companies; higher R&D spends
raphies that private equi- VC/PE deals from January 2006 which fuels greater innovation, and
ties create positive impact till date. higher wage payment as com-
on the companies they fund and A study conducted in 2009 by pared to non PE funded compa-
on the overall economy of the Venture Intelligence found that PE nies. The key findings from the
country they operate in. Increase in boosts the Indian economy by cre- study are presented below.
sales and profitability of the parent ating value for corporate India. The economists world over
company and growth in employ- This is through higher growth in have estimated that India needs
ment are some of the tangible sales and profitability of PE funded about USD 1.3 trillion dollars of
benefits that the PE funded compa-
nies tend to gain.
India Inc. weathered the cur-
rent financial crisis steadily to reg-
ister a 7% growth in GDP even in
the troubled times. PE is increas-
ingly being recognized as the vital
asset class in India which can fuel
infrastructural development in In-
dia to support this robust growth
that the India economy is going to
witness in the recent future.
The 2010 fiscal is witnessing
an increase in PE funding, follow-
ing a decrease in PE deals in 2008
and 2009. India has a robust VC/
PE industry with USD 32.5 billion

L!VE July, 2010 29

| S T U D E N T S S P E A K | PE |

Often, PE is chosen because long-term risk capital is not available elsewhere, due to
underdeveloped equity markets. Sometimes, PE may be taken as a substitute for long -term
debt because public and private borrowing channels may be underdeveloped or unavailable .

investment over the next three

years to sustain a GDP growth of
over 7%. This implies that there is
a requirement of USD 60-100
billion of VC/PE investments over
the next three years. Approximately,
PE investments can be in the range
of USD 9-10 billion in the year
ending December 31, 2010. The
graphs show that PE backed com-
panies perform better than Sensex
companies owing to better opera-
tional and fiscal discipline.
What is to be understood is
that PE is essentially a financial
transaction. Often, PE is chosen
because long-term risk capital is
not available elsewhere, due to
underdeveloped equity markets.
Sometimes, PE may be taken as a
substitute for long-term debt be-
cause public and private borrow-
ing channels may be underdevel-
oped or unavailable.
In India, the sources of long-
term debt capital from public mar-
kets are limited due to the rela-
tively nascent stage of Indian debt and adapted to local management business model of running a
capital markets. On the other talent, ownership structures and budget airline.
hand, Indian equity capital markets, needs.
which are well-developed, are pri- Impact of PE on the Aviation In-
marily accessible for more mature Now, we will try to analyze the dustry: Air Deccan had a big im-
companies than those that need PE. impact of PE funding on some In- pact on the industry. Its no-frills
In developing countries like dian companies in particular and flights, focus on second-tier cities,
India, the impact of PE funding some industries in general. and aggressive pricing led to ag-
may well be even more significant. gressive growth and spurred the
There are several reasons. Firstly Impact of PE on Air Deccan: The entry of comparable budget air-
PE fund is the much needed capital PE investment in Air Deccan lines. Its practices were imitated by
for private companies. Secondly, brought both operational and fis- established competitors and be-
PE can help Indian companies by cal discipline. PE firms helped came part of industry practice. The
providing expertise in creating or- setup a proper organization struc- result was a fall in the average cost
ganizations that are both well posi- ture and created a formal business of air travel in India. To a signifi-
tioned for global growth through plan. The financing enabled Air cant extent, these new business
specialization in the supply-chain, Deccan to pursue its aggressive approaches were enabled by the

30 L!VE July, 2010

| S T U D E N T S S P E A K | PE |
initial round of funding and the
models that were introduced by PE
financiers seeking to imitate the
success of budget airlines in other
countries.
Impact of PE on Café Coffee Day:
The primary impact of the PE in-
vestment was operational. Firstly,
the PE funding enabled the com-
pany to hold on to market leader-
ship through expansion and provi-
sion of value-added services such
as Wi-Fi. Secondly, the PE inves-
tors played a role in improving
corporate governance and helping
to recruit the CEO. Thirdly, they
helped the management think
through alternative revenue
streams to complement the core
business model of selling coffee.
Impact of PE on Meru: India Value
Fund‟s (IVF) investment in Meru
was unusual for PE because of the
relatively early stage at which
funds were committed. The taking
of a majority holding was also not
typical of India, though more akin
to the western model. The differ-
ence with the western model was
that the management of Meru was
retained and strengthened. The
impact on Meru is evident. The
Meru brand has become synony-
mous with air-conditioned radio
taxis. Without PE investment, the
company‟s professionalism and
development trajectory would have
undoubtedly been slower; techno-
logical sophistication would likely
have been lower, as well. The
combination of these two factors is
that Meru is not just the largest
taxicab operator in India, but its
most technologically sophisticated
too.
Impact of PE on the Education
Sector: Higher education, a recent
growth leader in India, is a difficult
field for PE investment owing to the
legal requirement that providers of
degree-granting institutions are not
permitted to earn profit. It is esti-
mated that, despite the industry‟s
growth rate in technical fields of
over 40 percent per annum be-
tween 2005 and 2009, PE invest-
ments are less than USD 300 mil-
lion. PE has, therefore, looked to
fund ancillary services that lever-
age brand names. Given the new-
ness of the private higher educa-
tion sector, Manipal Universal
Learning‟s success in using PE
funds to finance for-profit services
established a paradigm shift.
Impact of PE on Naukri: ICICI
Ventures invested in Naukri at a
time when the Internet bubble was
at its peak. This PE firm provided
strategic support covering a range
of functions from corporate gov-
ernance to financial discipline, and
to business focus. The Manage-
ment ascribes its phenomenal
growth (from INR 0.25 million to
INR 2,700 million in 11 years) to
PE funding. As a result, Naukri
L!VE July, 2010
continues to dominate the market
and is a profitable company. The
PE investment enabled Naukri to
set the standard for digital service
in job search.
In conclusion, one may state
that PE capital is „smart money‟
and that PE firms contribute to-
wards the growth and success of
their investee companies. The port-
folio companies are typically SMEs.
New management helps bring in
new business ideas and models.
High standards of corporate gov-
ernance have typically not been an
area of focus by such companies
until the PE investment.
In response, several PE firms
are adopting the western model
and are now building separate
operating teams to support their
portfolio companies. This should
bring increasing benefits to the
portfolio companies and help fur-
ther demonstrate to the Indian
business community that PE capital,
although expensive, is indeed
‟smart money‟.
31
| S T U D E N T S S P E A K | ADVERTISING |
A
200 words ad in a
leading national news-
p a p e r… C o s t- Rs
10,000. A 10 second video com-
mercial in any channel… Cost-
more than Rs 1,00,000. Sponsor-
ing a big scale event…Cost- more
than Rs 10,00,000. As the scale of
advertising increases, so does the
number of zeroes in the cost.
Why do people spend so
much on advertising? A rather silly
question with a rather obvious an-
swer.
What can be the alternative
way of advertising? People are so
much in love with the conventional
ways of advertising that they fail to
experiment. They are threatened by
the fear of failure. This human
phenomenon leads to stagnation
and lack of innovation.
32
- Palak Kumar & Arun Kumar K G
If you look around with open
eyes, there can be a whole lot of
new methodologies to advertise.
Apart from the traditional ways,
there are other cost effective ways
of making the customer aware of
the product – like advertising on
poly bags. Poly bags are used by
almost all retail outlets. But both
the sides of the poly bag carry an
advertisement of the shop that it
belongs to. Product manufacturers
can try and capture one side of the
Poly bag to advertise their product.
For example, a Big Bazaar poly
bag can carry the latest offer or
ads of Woodland shoes on the
other side, not only making it more
attractive but economical as well.
We will revisit this idea in detail in
the same article later on.
L!VE July, 2010
SJMSOM, IIT Bombay
We learn different concepts in
marketing like market segmenta-
tion and targeting the right cus-
tomer base. But we forget to use
the science of basic human psy-
chology while trying to advertise.
Why would a person buy XYZ
product? How can we make a cus-
tomer happy as well as allure him
to our product?
Can a TV commercial do that?
Or that black and white text in a
newspaper? Or is it the sponsor-
ship of a cricket match that can
help achieve that? The truth is that
NONE of them can. They can only
make a customer aware of the
product.
Advertising is not just making
a customer aware, but also influ-
encing him and attracting him to
your product. We should try and
| S T U D E N T S S P E A K | ADVERTISING |
Most of the advances in advertising in recent times have been made in the
online media...Social networking sites are the most powerful online advertising media today.
You can target a wider market at a much lower cost.
find ways of advertising by means
of which we can provide some
value add to the customer. A free
gift can make a person happy.
For instance, a Complan logo
can be printed on an eraser or a
pencil and distributed free on the
billing counter of every modern
retail store. Children are the ones
who will be using these freebies
and in turn demand the product
advertised-Complan. A Nike ad
can be superimposed on a key-
chain and given free with every
shopping bag. Similarly a Dell
Inspiron etched pen can be given
free with every bill above a certain
limit.
The benefits of this type of
advertising are unlimited- modern
retailers like Big Bazaar, Reliance
Mart would be more than happy to
distribute these freebies as it will
increase their customer retention.
The advertisers will be happy to
have their product advertised by
spending less on such small gifts
that could be purchased in bulk at
dirt cheap cost. And finally, the
customer will be happy and satis-
fied for having received the free-
bies. There is a value addition for
everyone. Mostly the customer,
who would be more impressed by
the advertisers for having received
a free gift, rather than just watch-
ing a commercial!!
These are just some of the non
-traditional advertising methods,
which are becoming popular day
by day. The basic idea behind
such campaigns is to connect with
the target audience at a much
deeper level by giving them an
experience that they can‟t forget
easily. This concept was taken to
another level by companies such
as Sony, and T-Mobile. The three
minute guerrilla style advert enti-
tled „Dance‟ is part of T-Mobile‟s
„Life‟s for Sharing‟ campaign. This
commercial manages to uplift with
this ad with what seems like an
entire train station of London com-
muters spontaneously dancing
together (400 people were in on
the commercial gig). They really
drive it home with the tagline "Life's
for sharing". According to Lysa
Hardy, Head of Brand and Com-
munication, this campaign allowed
them to let people learn a bit more
about T-Mobile as a company on
a more emotional level.
Another innovative ad which
caught our attention recently was a
Mr. Clean advertisement. It is an-
other classic example of guerilla
marketing, which tries to capture
your attention when you are least
expecting it. This kind of advertis-
ing uses a surprise effect to tanta-
lize the viewer when they are in a
situation where they would not
typically find media.
Most of the advances in ad-
vertising in recent times have been
made in the online media. How
many of us are present in Orkut,
Facebook or Twitter? The answer
is pretty obvious. Social networking
sites are the most powerful online
advertising media today. You can
target a wider market at a much
lower cost. The flexibility and the
scope for innovation is higher in
online advertising. Flash mobs
show the power of social and other
L!VE July, 2010
telecommunications media in
reaching across to a varied and
dispersed audience and bringing
them together to perform a well
coordinated act. By definition, a
flash mob is a large group of peo-
ple who assemble suddenly in a
public place, perform an unusual
and pointless act for a brief period
of time and then quickly disperse.
The term flash mob is generally
applied to gatherings organized
through telecommunications, so-
cial media and viral mails. It is not
applied to events organized by PR
firms or publicity stunts. Just to add,
these developments do not occur
all of a sudden. They often have
continuous growth or development
over long periods.
So what are the advertising
trends in 2010?
If you look at the advertising
trends of 2009, you would see that
many companies are investing on
green marketing. In addition, we
can see the same trend growing in
a bigger way in 2010. Especially if
you look at car branding, many
companies are coming up with
environment friendly cars that run
on alternative fuels. Many experi-
enced marketers think that Going
Green is not just a fancy trend any
more. People have already started
believing in this concept and the
immediate need of taking some
action. Today it is not enough that
you advertise the Go Green con-
cept. You must add a comprehen-
sive story and show that your busi-
ness or organization is actually
supporting the cause. IBM‟s
smarter planet campaign is an
33
| S T U D E N T S S P E A K | ADVERTISING |
excellent example of branding itself
as a socially responsible corporate
as well as an excellent employer.
The overall advertising envi-
ronment in 2009 was fairly gloomy
with slashed budgets and revised
strategies to address the new real-
ity. However, that didn‟t stop the
industry from evolving, and the
lessons learnt are likely to pay-off
in the year ahead. For example,
advertisers started looking at the
need for accountability metrics and
campaign-specific performance.
They also started to embrace bur-
geoning social networks and con-
sumer generated media to bring
consumers closer to a product or
brand. The Nielsen study has
come out with the top 5 advertis-
ing trends for 2010.
34
Mr. Clean advertisement is another
classic example of Guerilla marketing.
Top Advertising Trends for
2010
1.Optimizing media convergence
is a top priority. A better under-
standing of media convergence
will manifest in order to deliver a
better return on investment. The
ability to accurately measure activ-
ity and link online ads to offline
purchasing behavior will be critical.
2.New models emerge to take
advantage of smartphones. Accu-
rate mobile measurement will be
required to stay ahead of the
snowballing growth of the media
platform.
3.More cross-media ad cam-
paigns surface. The massive
growth of online video games
played and shared online leads the
L!VE July, 2010
way for more successful interactive
and cross-media advertising cam-
paigns to appear. Growth in the
adoption of this innovative adver-
tising across screens and activities
will increase.
4.Commercialization of social net-
working hubs increase. Social me-
dia will provide a new sales chan-
nel for establishing product aware-
ness and commercializing brands
to better support traditional adver-
tising or text-based ads.
5.More interesting and interactive
online ads appear. Increased use
of more creative advertising and
content models online such as
video, attention-seeking page
takeover ads and mechanisms for
| S T U D E N T S S P E A K | ADVERTISING |

A better understanding of media convergence will mani-

fest in order to deliver a better return on investment.

greater interactivity will drive the
next era of Web development.
Given such global trends, we
have to analyze the way ahead. Is
jumping onto the global band-
wagon the only way forward?
Think again.
ITC is a company which has
undertaken a lot of effort to re-
image itself as a socially responsi-
ble company. They use the space
in the notebooks produced by
them to convey social messages
such as global warming and also
they advertise their own social
campaigns. Why can‟t we take
such ideas to an entirely different
level?
Earlier we talked about adver-
tising through poly bags. Stores
used to use this medium to brand
their store names. But, both the
stores and the product companies
can benefit by collaborating in
advertising on the bags. If the
companies invest a small portion
on such advertisements the cost of
ITC is a company which
has undertaken a lot of effort
to reimage itself as a socially
responsible company. They
use the space in the note-
books produced by them to
convey social messages such
as global warming.
poly bags can be covered easily.
This will not only increase the visi-
bility of such products, but also
increase the sales in such stores.
This mutually beneficial plan can
be extended to a socially beneficial
one by introducing bio-degradable
polybags. As such biodegradable
poly bags cost more, thus prevent-
ing the large scale use. If compa-
nies and stores take this medium
of advertising seriously then we
can eliminate poly bags to a large
extent. This could be the one ad
campaign which the world was
waiting for.
Just give a thought to the scale
with which we can affect our soci-
ety and environment through such
innovative ideas. It just requires
some exercise of our brain and
more importantly, the will or capa-
bility to break the traditions and
think beyond the obvious.
Marketing constraints during
the time of this recession can pro-
vide the much required stimulus to
force us to innovate and innovate!

L!VE July, 2010 35

| S T U D E N T S S P E A K | OPERATIONS |
T
he terms Behavioural Finance or Behavioural
Economics are perhaps more common terms
than Behavioural Operations. However, it
has the same implications in this field where human
beings are critical to the functioning of the systems
and processes. The inherent nature of the human
beings prevent them from being rational and thus
induce inconsistencies in the systems, from what is
predicted by theoretical studies and research. Thus
incorporation of this critical aspect of human behav-
iour is essential in the modelling of systems in opera-
tions as well. The performance of a system is defi-
nitely based on inputs, processes and efficiency of
those processes, but the skills, discipline and respon-
siveness of the people involved in those processes
do play a pivotal role in giving superior system per-
formance and output.
As in any other primitive theoretical base, core Op-
erations Management principles assume that people
involved in the systems have consistent responses,
consideration for all possible alternatives and unbi-
36 L!VE
D a w n o f
The
e h av i o u r al
B
e ra t i o n s
Op - Somak Chakraborty
SJMSOM, IIT Bombay
ased evaluation. The decisions and actions in a con-
strained environment, aiming to improve productivity
and/or quality of any system comprise what we call
as Operations Management. Due to the constantly
changing nature of the macro environment, policies
and forces of supply-demand, it is almost impossible
to put in place a fully automatic management system,
seamlessly integrated to incorporate such nuances
and which will keep optimizing the output. If it was
in place, it would eliminate the need of an Opera-
tions Manager. However, major tactical and strate-
gic decisions in this regard still lie with human be-
ings and are often found out to be much more eco-
nomically feasible. Since such a system is far from
perfect, improving a system involves, responding to
intricate problems, managing uncertainty and risks
and often, experimentation, empirical analysis and
live case studies. Given its receptivity to such human
inputs, it is apparently surprising that behavioural
theories have not been incorporated in this field of
study for biases, which arise from cognitive limita-
July, 2010
| S T U D E N T S S P E A K | OPERATIONS |
tions of the human mind. Estimating the nature and
magnitude of such biases can give us a clearer pic-
ture and more holistic assessment of Operations in
any field and make Operations Management mod-
els more practical. The whole rationale behind incor-
poration of "human" factors in Operations Manage-
ment is a better understanding of contemporary
problems and finding out more practically relevant
solutions for the same.
The initial works by Frederick Taylor in the field of
industrial management did involve some behavioural
connotations as in providing monetary incentives as
a means of improving labour productivity. Though
the study is outdated, it provided some valuable in-
sights in affecting systems output by modulating be-
haviour with the help of incentives. The study can be
extended to incorporate the nature of incentives,
since later studies have shown fairness, respect, rec-
ognition etc. to be very powerful incentives as well.
Inventory Theory is a popular subject of mathemati-
cal research and quite a bit of advanced research
has been done in this area which has resulted into
very complicated models. However, very few (or
none) models take into account risk avoidance ver-
sus risk taking behaviour of the manager in charge
of inventory management; the inter departmental
confidence in the organization like that of between
Sales & Marketing and Supply Chain which greatly
affects forecasts and subsequently inventory. More-
over, forecasting is often affected by recent events
than past ones and phenomenon like overconfi-
dence, bias etc., which distort the results of the mod-
els from practicality.
MPS and MRP models are often subject to reschedul-
ing. This is highly a function of risk avoidance na-
ture of customers. If we can quantify or predict these
changes with reasonable certainty, lesser reschedul-
ing will take place, which will in turn lead to cost
savings and optimum capacity utilization.
Product Development and Project Management are
areas which require decision making in uncertainty
and constant updation of prediction and forecasts,
based on past data and/or competitor’s data for
similar products and projects. Since predictions do
L!VE July, 2010
depend on anchors (initial estimated values), the
bias in the subsequent forecasts is a direct function
of the anchors. This largely affects the timeliness and
cost projections of the product or project.
The ‚Bullwhip effect‛ in supply chain has been ex-
plained by many mathematical and causal models.
It can also be explained by considering human cog-
nitive limitations and lack of a proper integrated
channel of communication in the supply chain,
which distorts available information at each up-
stream stage.
Issues such as organizational structure and communi-
cation of the firm in context do affect management
of operations in that firm to a certain extent too.
Problem in implementing innovation in supply chain
or manufacturing, at the onset is again a behav-
ioural factor that relates to resistance to change or
shifting to a new learning curve. Even technology
implementation has to face difficulties due to cogni-
tive biases.
TQM implementation is another instance where be-
havioural factors play a decisive role. Attribution
and evaluation of sub optimal components has a
major human component involved in it and is prone
to attribution bias. Setting quality benchmark and
evaluation of improvement in quality is often subjec-
tive and judgemental in nature, more than being a
function of quantitative structural factors. The behav-
ioural aspect in implementing research in manage-
ment practice is, in itself, an empirical proof of ex-
pectancy mismatch between the OM researchers
and OM practitioners.In a nutshell, multi-pronged
approach is required to effectively understand real
life issues in Operations Management today. This
must ensure that we incorporate psychological, so-
cial, environmental and systemic factors when we
go for modelling. A probable start will be to under-
stand behavioural factors that can be effectively in-
corporated in the feedback loops that influence sys-
tem performance. Subsequently, multiple factors can
be included to further develop the models.
Reference: “Toward a Theory of Behavioral Opera-
tions" by Francesca Gino & Gary Pisano, 2007
37
| B I Z W I T S | QUIZ |

Quetzal
(Contributed by Ujjayan Sen Gupta, SJMSOM, IIT Bombay)

1. Connect:

2. This word had its origins in the death and destruction of WW2. It was RAF slang for a particular kind of
bomb but is used in a totally different sense in the movie industry nowadays. What is this word?

3. This Brazilian player, Manuel Francisco dos Santos was born with severe physical disabilities but grew
up to become a part of one of the finest Brazilian teams to ever play football. He was known by his
nickname____ which means wren, a little bird. Due to his immense popularity in Brazil, he was also
called Alegria do Povo(Joy of the People) and Anjo de Pernas Tortas (Angel with Bent Legs).Can you
identify the player by his most popular nickname?

4. Movies: W, a fine actor was desired to play a role in X, but was offered Y the same year and he ended
up taking the latter role. He eventually lost the Best Actor‟s Oscar that year to Z who played the role of
X in X. Name W, X, Y and Z. (Hint: There is an India connection to one of these films.)

5. At the 1966 FIFA World Cup, Antonio Carbajal, the Mexican goal keeper created the record of playing
in 5 different World Cups from 1950-1966.His record of playing in 5 World Cups was equaled in
1998 by another player who played from 1982-1998. Who is this famous player who even won the
WC during this stint.

6. The advertising campaign of this company has often been controversial. Some of the ads included de-
pictions of a variety of 'shocking' subjects such as a deathbed scene of a man (AIDS activist David Kirby)
dying from AIDS; a bloodied, unwashed newborn baby with umbilical cord still attached; two horses
mating; a collage consisting of genitals of persons of various races; a priest and nun about to engage
in a romantic kiss, pictures of inmates on death row, and picture of bloodied, shot up pants and t-shirt
of a soldier killed in Bosnian War. The company's logo served as the only text accompanying the im-
ages in most of these advertisements. Identify the company.

7. In India, Where would you be posting a letter if the PIN Code started with a 9?

8. The Kármán line, named after Theodore von Kármán, is the internationally designated boundary of
what?

38 L!VE July, 2010

| B I Z W I T S | QUIZ |

9. Andres Escobar Saldarriaga, a Columbian defender became headline news during the FIFA World Cup
1994. Can you say why?

10.This term, used in the management parlance, originated from the process of chiseled horizontal marks
that surveyors made into which an angle - iron could be placed to bracket a leveling rod, thus ensuring
that the leveling rod can be accurately repositioned in the same place in the future. These marks were
usually highlighted with a chiseled arrow below the horizontal line. Which term?

11.”YAMU PANCHAYAT” is a shop in New Delhi which is unique in its own way. Why is it unique?

12. The yubiwa pipe, a finger ring that would allow the wearer to smoke a cigarette down to its nub, was
the first successful product of a well-known company. The profits from the yubiwa pipe were used to
develop an electro-mechanical gadget that has made this company famous. Name the company.

13. The gentleman holding the FIFA World Cup trophy aloft once described it using these words: "The lines
spring out from the base, rising in spirals, stretching out to receive the world. From the remarkable dy-
namic tensions of the compact body of the sculpture rise the figures of two ath-
letes at the stirring moment of victory". Identify the person.

14. The Oxford English Dictionary dates the first publication of the word to 1825.
The origins of the word are unknown, but researchers believe the word stems
from a Latin word which means “utmost deliciousness.” Food writer Harold
McGee claims it to be “from the Creole for a mixture of sugar and molasses”.
Identify.

15. An invention in the late nineteenth century when looked from the side had a resemblance to two coins,
one leading the other. It got its name from these two coins. What invention are we talking about?

16. Each bottle of which alcoholic brand bears a stamp of its originating country to ensure that each bottle
is “truly ________in spirit & authenticity”?

17. Which scheme came into picture when two Indian banks failed in 60‟s,
while at that time India was the only second country to introduce that
scheme, first was the United States. Which scheme am I talking about?

18. Incorporated on December 24, 2003, it operates the first-of-its-kind cate-

gory of „Smart Basics‟ which was launched in June 2004, the Smart Basics concept created a revolu-
tion in the world of Indian hospitality. The first of the Smart Basics hotel was launched in Bangalore
and was called IndiOne. How it is known today?

19. He was a retired flight operations manager at Indian Airlines named Mr. Harpal Singh. He got some-
thing first from the Iron lady of India. What am I talking about?

20. To advertise its company‟s product, the owner encouraged his franchisee to take to the air waves with
their own campaign. Following its directive, two franchisees decided to target kids by sponsoring a
local children‟s show, Bozo‟s Circus. When the station cancelled the show after 4 years, the franchi-
sees hired a television announcer to create a new clown persona for local ads. It marked the birth of
which legendry icon?
Answers are on page 43

L!VE July, 2010 39

| S T A R T U P S T O R Y | UNITED PROSPERITY |
Introduction:
UnitedProsperity.org (UP) is an
internet-based non-profit organi-
zation that was established to
help lift poor and near-poor peo-
ple around the world out of pov-
erty using micro-
financing initiatives.
UP was launched in
June 2009 by Bhal-
chander Vishwanath
when it partnered
with a large bank in
India, and Ajiwika,
an MFI that worked
with the poor in one
of the poorest states
of India.
UP‟s mission is to
empower individu-
als to provide a
compassionate and
impactful microloan
guarantee that mul-
tiplies into a bigger
loan to poor clients.
These microloans
are made to low-
income entrepreneurs, mostly
women, who would not otherwise
have access to banking and fi-
nancial services, to help them
start or grow their own small
businesses. The idea of individu-
als all over the world becoming
„social guarantors‟ for the pur-
pose of making loan guarantees
is an innovative approach to
tackle extreme poverty.
To date, UP has raised around
USD 70,000 in loan guarantees
from individuals in more than 20
countries. As a result, more than
650 entrepreneurs have received
around USD 130,000 in loans.
This scheme makes an immedi-
40
small loans (microloans) to poor
borrowers, through specialist
microfinance institutions is known
as microcredit. In the last couple
ate impact by increasing the in- of years, this has become a
come of the families who take worldwide movement.
part in it. Moreover, since Ajiwika
got access to capital from the Despite its power
to transform lives
microcredit
reaches only a
small fraction of
the people who
need it; many of
the poorest in the
most economi-
cally backward
areas with the
greatest need are
often outside the
reach of micro-
credit. Microfi-
nance Institutions
serve only 100
million of the 1.5
billion working
poor in need of
microfinance
(Gonzalez and
Rosenberg, The
bank through UP‟s guarantees, State of Microfinance, 2006).
other banks have begun lending Current funding of MFIs is esti-
to this MFI. mated at USD 40 billion, but an
estimated funding of USD 250-
Motivation & Opportunity: 300 billion will be required to
meet the potential demand
The poorest people in the world (Jennifer Meehan, Tapping Fi-
have to live on just USD 2 a day. nancial Markets for Microfinance,
They struggle each day to fulfill Grameen Foundation, 2004).
the most basic needs of food, Although there are nearly
shelter, and clothing for them 10,000 microfinance institutions
and their families. By giving this in the world, most of the funding
group access to these microloans, goes to a few institutions. While
they are being given an opportu- Tier 1 MFIs and some Tier 2 MFIs
nity to develop small businesses are relatively well-funded, the
that will ostensibly support the smaller Tier 3 and Tier 4 MFIs
borrower and potentially benefit find it very difficult to raise funds.
the borrower‟s entire village or Thus there is a large number of
community. The provision of Tier 2, Tier 3 and Tier 4 MFIs
L!VE July, 2010
| S T A R T U P S T O R Y | UNITED PROSPERITY |
Basic Model of United Prosperity
who could benefit from addi-
tional funding through United
Prosperity (see Figure 1).
Process of Working:
UnitedProsperity.org
(www.unitedprosperity.org) is an
Internet- based non-profit social
enterprise that enables private
individuals to become social
guarantors and contribute to-
wards the eradication of extreme
global poverty. The UP website is
a platform where poor entrepre-
neurs, MFIs, and social guaran-
tors can come together through
the following steps:
Step 1: UP‟s MFI partners screen
the entrepreneurs and upload
their profiles on the website. In
most cases, the MFI partner is-
sues the loan from their working
capital, to encourage the entre-
preneur to start work on their
business.
Step 2: Individuals can see the
entrepreneurs‟ profiles on the UP
website, choose which ones they
would like to support, and guar-
antee a loan through PayPal.
Step 3: UP consolidates the guar-
antees on multiple loans on be-
half of the MFI partner and then
issues a guarantee to the bank.
The funds are deposited as col-
lateral with the bank.
Step 4: Based on UP‟s guarantee,
the bank issues a loan that is
greater than the total guarantee
L!VE July, 2010
amount. If the loan to the entre-
preneur is already disbursed
from the MFI‟s working capital,
then the microfinance institution
is able to replenish its working
capital. Otherwise the loan is
disbursed to the entrepreneur.
Step 5: The entrepreneurs use the
loans to grow or start their busi-
nesses. After an agreed period,
they start repaying their loans.
Repayment statistics and progress
updates are available to the
guarantor through postings on
the entrepreneur‟s profile on the
UP website made by the MFI staff.
Step 6: Upon repayment of the
MFI‟s loan, UP‟s guarantee to the
bank is released. The guarantor‟s
funds will then be returned. The
41
| S T A R T U P S T O R Y | UNITED PROSPERITY |
guarantor may elect to support
other entrepreneurs or withdraw
the funds.
The beauty of UP‟s guarantee is
that it reduces the risk taken by
the banks, thereby motivating
them to lend to smaller MFIs.
Once banks lend to the smaller
MFIs thanks to UP‟s guarantee,
the MFI starts to build a relation-
ship and credit history with the
bank. This gives the banks
greater confidence to provide
capital to smaller MFIs with man-
ageable levels of risk. As an in-
strument of social and financial
change,
UP‟s loan guarantees are much
more powerful than outright do-
nations or direct loans for a
number of important reasons
because they:
Offer higher social return on in-
vestment – A loan from an indi-
vidual to an MFI results in a loan
of equal size to the poor entre-
preneur. As the guarantee pro-
vided by the UP model is only
partial, the impact for the social
guarantor is greater. For exam-
ple, if the poor entrepreneur
needs to borrow USD 1,000,
then the social guarantor needs
to guarantee the loan only to the
extent of USD 500. This USD 500
will be leveraged to provide a
USD 1,000 loan to the entrepre-
neur giving a leverage ratio of 2
(USD 1 000/USD 500).
Create local self-sufficiency –
UP‟s guarantee for the loan helps
to establish partnerships between
MFIs and local banks, thereby
building institutions and capacity
at the local level for greater long-
term benefits. In contrast, direct
42
international lending to MFIs
from international donors could
foster dependency on foreign
donors rather than strengthen
local institutions and institutional
linkages.
Mitigate currency risk – UP‟s loan
guarantee model has the effect
of mitigating the currency risk to
the MFI because the MFI borrows
money from a local bank in the
local currency. Moreover, social
guarantors are not exposed to
any currency risk, unlike some
other online lending sites which
pass on some of the currency risk
to their individual lenders.
The impact
Since starting operations, UP has
provided more than USD 130,
000 in microloans to over 650
entrepreneurs and their families.
The majority of microfinance bor-
rowers are women. After meeting
the basic needs of their family,
women are more likely to invest
their profits in improving their
family‟s quality of life and oppor-
tunities in education, healthcare
and nutritious food. As a result, it
is more likely that those future
generations will break free from
the cycle of poverty. Other entre-
preneurs have taken out microfi-
nance loans to buy cows or buf-
falos, or more stock for their
shops. As a result, many of them
have increased their income and
their standard of living, enabling
them to improve their homes and
many of them have even started
saving for the future.
More details are available at
http://www. unitedprosper-
L!VE July, 2010
ity.org/us/progress_reports.
The guarantee provided by
United Prosperity impacts several
areas:
1. Entrepreneurs receive mi-
croloans, increase their income
and eventually comes out of pov-
erty.
2. The MFI builds credit history
with the bank which lends to the
MFI based on the guarantee.
Once the credit history has been
established, over a period of time,
the bank will lend to the MFI
even without a guarantee thereby
lifting even more entrepreneurs
out of poverty.
3. Other banks start lending to
the MFI, thereby increasing the
pool of capital available to poor
entrepreneurs.
Final Verdict:
unitedProsperity.org‟s guarantee-
loan- impact model has immense
potential to make capital avail-
able to the poorest families in the
world. It is an excellent way for
the general public to make a
sustainable and meaningful dif-
ference to the lives of low income
clients and their families. As poor
entrepreneurs become wage
earners and start managing their
own loans and savings, their
status in the family and the com-
munity improves, and they are
able to plan for the future.
Contributed by: Nitin Jain
(Nitin Jain graduated from IIT Bom-
bay in 2004 and has been associ-
ated with United Prosperity for past
one year)
| B I Z W I T S | QUIZ-ANSWERS |
Quetzal - Answers
1. Nestlé‟s soup brand, Maggi, was promoted by
McCann Erickson in Romania with an advertis-
ing campaign, “If Only Women Spent Less Time
Cooking”. Three print advertisements suggest
what might have happened if people were able
to make use of ready-made soups: The God-
mother, four USA presidents on Mt Rushmore
and Tarzan rescued by Jane.
2. Blockbuster
3. Garrincha. FIFA considers him the best Brazilian
player ever after Pelé. He is also widely re-
garded as the best dribbler in football history.
4. W - Dustin Hoffman; X - Gandhi; Y - Tootsie; Z
- Ben Kingsley
5. Lothar Matthaeus
6. Benetton
7. Army Post office(APO) and Field Post office
(FPO)
8. The Kármán line lies at an altitude of 100 km
(just over 60 miles) above the sea level, and is
commonly used to define the boundary between
the Earth's atmosphere and outer space. This
definition is accepted by the Fédération Aéro-
nautique Internationale (FAI), which is an inter-
national standard setting and record-keeping
body for aeronautics and astronautics. The line
was named after Theodore von Kármán, (1881
–1963) a Hungarian-American engineer and
physicist who was active primarily in the fields
of aeronautics and astronautics. He first calcu-
lated that around this altitude the Earth's atmos-
phere becomes too thin for aeronautical pur-
poses (because any vehicle at this altitude
would have to travel faster than orbital veloc-
ity in order to derive sufficient aerodynamic
lift from the atmosphere to support itself). Also,
there is an abrupt increase in atmospheric tem-
perature and interaction with solar radiation.
9. During the 1994 World Cup, Colombia‟s Adres
Escobar Saldarriaga (13 March 1967 – 2 July
1994) netted an own-goal that helped USA ad-
vance and sent his own team packing. This own
L!VE July, 2010
goal occurred on June 22, 1994, in the second
match of Group A, which resulted in a 2-1 vic-
tory for the Americans and an exit for the Co-
lombians. On July 2, 1994, Escobar was shot
and killed in Medellin outside “El Indio” bar,
located in a Medellin suburb. It‟s believed by
many that he was killed due to his own-goal in
the „94 World Cup, which resulted in gambling
losses to several powerful drug lords. It has
also been reported that after Escobar was shot,
the killer yelled “Goal!” after each of the 12
bullets fired, just like an announcer would dur-
ing a soccer match.
10. Benchmarking.
11. It is India‟s first ISO CERTIFIED paan parlor,
they even have a website: http://
yamupanchayat.in/home.htm
12. Casio
13. Silvio Gazzaniga, who designed the current ver-
sion of the FIFA World Cup Trophy.
14. Toffee
15. Penny – Farthing or the ordinary Bicycle.
16. Havana Club Rum, truly CUBAN in spirit & au-
thenticity
17. Deposit insurance, as we know it today, was
introduced in India in 1962. India was the sec-
ond country in the world to introduce such a
scheme - the first being the United States in
1933. It was in 1960 that the failure of Laxmi
Bank and the subsequent failure of the Palai
Central Bank catalyzed the introduction of de-
posit insurance in India. The Deposit Insurance
Corporation (DIC) Bill was introduced in the
Parliament on August 21, 1961 and received
the assent of the President on December 7,
1961. The Deposit Insurance Corporation com-
menced functioning on January 1, 1962.
18. Ginger Hotels
19. The first Maruti 800 car.
20. Ronald McDonald, the Hamburger-Happy
Clown
43
| C R E A T I V E B E N D | 180 DEGREES |

OR

Horsepower?
Horse Power

-Thiagu Ranganathanan, Research Scholar

SJMSOM, IIT Bombay

Car Emissions
For all of you who admire
the Car and the comforts it gives
and the luxury factor it encom-
passes, here are a few statistics
for you:
Car emissions kills 30,000
people each year in the U.S. (2,
1998)
More than half of the people
in the U.S. live in areas that
failed to meet federal air quality
standards for several days a
year (7, 1990), and around 80
million Americans live in areas
that continually fail to meet these
standards (6, 1998).
Most ozone pollution is
caused by motor vehicles, which
account for 72% of nitrogen ox-
ides and 52% of reactive hydro-
carbons (principal components of
smog). (7, 1990)
Emissions from cars dwarf
that from power plants. In May
2000, Austin Energy planned to
reduce nitrogen oxide (NOx)
emissions by 40% at its Decker
and Holly power plants, from
1700 tons per year to less than
1000 tons per year by 2003. By
comparison, NOx emissions in
Travis County from motor vehicles
totaled approximately 30,000
tons in 1996 ( the last year for
which complete data was avail-
able). (1, 2000)
SUV's put out 43% more
global-warming pollutants (28
pounds of carbon dioxide per
gallon of gas consumed) and
47% more air pollution than the
average car. (4, cited in 2002)
(Source: http://
bicycleuniverse.info/transpo/
almanac.html )
These are old statistics and
the number would have in-
creased by now to some unimag-
inable proportions. To put things
in perspective, around 15,245
people died in US of HIV/AIDs,
almost half the number of deaths
caused by Car emissions (NIAID,
2000). After seeing these statis-
tics, you might be left to wonder
about continuing with cars as a
means of travel.
Why Cars?
Some of us would be left to
think why such a harmful thing
was invented and how it became
popular at all, in the first place.
Let us look at why this need came.
At the turn of the twenti-
eth century, there were no cars;
there were some 200,000 horses
which worked in the New York
City or 1 horse for every 17 peo-
ple. Horse-drawn wagons were
there all around the city and
when a horse broke down, it was

44 L!VE July, 2010

| C R E A T I V E B E N D | 180 DEGREES |
often put to death on the spot.
Many stable-owners held life-
insurance policies, that, to guard
against fraud, stipulated the animal
be euthanized by a third party.
(And you thought Car Insurance is
a pain!). There was also consider-
able noise pollution that was
caused by iron wagon wheels and
horseshoes. In 1900, horse acci-
dents took away the lives of 200
New Yorkers, or
1 death every
17,000 residents.
By comparision,in
2007, 274 New
Yorkers died in
auto accidents, or
1 death every
30,000 residents!
Oh Sh**!
Horses also need
to eat. According
to one estimate
each urban horse
probably consumed on the order of
1.4 tons of oats and 2.4 tons of
hay per year. One contemporary
British farmer calculated that each
horse consumed the product of five
acres of land, a footprint which
could have produced enough to
feed six to eight people. Probably
fifteen million acres were needed
to feed the urban horse population
at its zenith, an area about the size
of West Virginia. Directly or indi-
rectly, feeding the horse meant
placing new land under cultivation,
clearing it of its natural animal life
and vegetation, and sometimes
diverting water to irrigate it, with
considerable negative effects on
the natural ecosystem.
Worst of all was the problem
caused by horse dung. The aver-
age horse produced about 24
pounds of manure a day, which
totalled to 5 millions pounds of
horse manure a day. In 1894, the
Times of London estimated that by
1950 every street in the city would
be buried nine feet deep in horse
manure. One New York prognosti-
cator of the 1890s concluded that
by 1930 the horse droppings
would rise to Manhattan’s third-
story windows. Also, the manure
emits methane gas, a powerful
greenhouse gas.
The 1898 International Urban con-
ference, the first of its kind had an
agenda dominated by horse ma-
nure. Stumped by the crisis, the
conference declared its work fruit-
less and broke up in three days
instead of the scheduled ten. The
world had seemingly reached a
L!VE July, 2010
point where its largest cities could
not survive without the horse but
couldn’t survive with it either.
Then came the Car!
So, no wonder that when car was
invented it was proclaimed as an
‚environmental savior‛. Even you
would agree with them if you were
living in New York City 100-110
years ago.
The problem was
vanished when the
technological inno-
vation of dung-less
animal called car
was done.
But now the world
is fastly reaching a
stage where living
without automobiles
is difficult and liv-
ing with it is unsus-
tainable.
The horse situation
showed that when
a solution to a given problem does-
n’t lay before our eyes, it is easy to
assume that no solutions exist. But
history has shown again and again
that such assumptions are wrong.
So, maybe it is time we might
come up with a newer innovation
that could stop the perils of cars.
Sources/References:
Super Freakonomics, Steven D.
Levitt, Stephen J. Dubner, 2009
From Horse Power to Horsepower,
Eric Morris, Access, Magazine of
University of California Transporta-
tion Centre, Spring, 2007
http://bicycleuniverse.info/
transpo/almanac.html
45
| C R E A T I V E B E N D | BLOG |

The Green Mile!

- Paritosh Chaube, SJMSOM, IIT Bombay

Folks! This stuff has got nothing to the horizon in perfect harmony! things which are rare in the hu-
do with Stephen King or Tom The green life was expressing its man world... n they marvel us
Hanks! It’s merely an austere at- delight by means of those yellow more than the convoluted!
tempt to recall a trip down the little bunches of florets... which I could’ve stayed in that patch for
countryside during the Christmas drove me closer to them n whoa! eternity, but for another piece of
vacations. Normally I woke up I see myself in the middle of some simplicity which caught my atten-
that Sunday morning ‘round 10, Neverland... and you automati- tion. There was this little space
as if a weekend really matters cally let loose your limbs... n take that appeared to have been natu-
once vacations are on... Never- a 360 degree view... n feel like rally carved out for a purpose...
theless, Dad asked me if I would jumping in the thin air when sud- What surfaced to be Di-hydrogen
accompany him for a drive down denly you feel something just trip Monoxide... with the tiniest of
the ‚Bakshi Ka Talab‛ – a small over your feet! I knew it... It were green leaves covering them...
village on the outskirts of Chip n Dale, jeering me for my similar to a few from the Sum-
Lucknow City! ‚Hmmm, It’s been act... as if scorning – ‚Look at mer/Spring collection of Victo-
a while since I’ve seen a thing this poor chap, deriving pleasure ria’s Secret adorning those zero
green. I quit green vegetables outta the simplest of things!‛ skinned females which just about
long back :P‛, I chuckled... ‚Why Who can explain those dinky qualify to be termed as appar-
not... Let’s Move n set things roll- squirrels, that it’s the simple els! ;) Adjoining which was a
ing!‛ It took about an hour for us
to reach the ‘Talab’... alighted
me from the Tavera with my Ko-
dak... n I seriously felt that God
finally heard me moaning –
‚Gimme some Sunshine‛!
The jacket was thrown away, for
Mr. Apollo was dazzling with full
might! There was something
pleasantly peculiar about the
smell of the breeze, which was
kinda tangy... and there lay a
vast stretch of limitless land,
which was green n yellow n
wavy... outlined by a hazy strip
of woods... which blended with

46 L!VE July, 2010

| C R E A T I V E B E N D | BLOG |
man-made road... which proba-
bly lead to another one of those
la-la lands! Something asked me
to follow that trail... and I aim-
lessly moved about to find an-
other little space... n there stood
this huge dignified gentleman...
quite similar to the Na'vi Home-
tree of Pandora (Avatar Fame)...
the only difference being that
there were no Na’vi warriors
aiming poison arrows at me...
and there was no Neytiri (SIGH)
(SIGH) to... ahem ahem!
Of course... surrounding the
Home-tree, there was this huge
chaff bundle... which would
probably find its way through the
intestines of the village cattle
sometime soon! That spring in me
made me jump at that chaff-
bundle like I’d crash at ma bed
post the last terminal examination
of the semester!! Trust me, lying
down on that... despite running
the risk of bird-drops... was a
heavenly experience in itself!
‚Tumse hi din hota
hai..surmayee, sham aati hai...‛,
Don’t get me wrong there... i aint
L!VE July, 2010
getting romantic... it was ma
bloody cellphone which played
the spoilsport, yet again (SOB)
(SOB)!! ‚Beta, am done with ma
work, where art thou... get back
to the car!‛ Finally, it was time to
go... and I was cursing Airtel...
for it was ‚Expressing Itself‛ at
the wrong time! I did manage a
few clicks here n there... n a few
of those impressions remain in
the gray film of the Cerebellum!
Cheers!
47
| S O M t h i n g S P E C I A L | CONTINUUM |
Shailesh.J.Mehta
School of Manage-
ment (SJMSOM) or-
ganizes Business Semi-
nar Series - Continuum
SJMSOM and Vinnoite Media
launched the annual rolling
seminar series, Continuum, in
association with Financial Express
and COVACSIS on the 20th of
March. At each Continuum, emi-
nent speakers from the industry
as well as academia engage in
talks, presentations and panel
discussions on topics pertinent to
industry.
The series began with the
Consulting and Operations con-
tinuum on the themes: “Handling
Market Optimism with Caution:
A Consultant‟s Approach” and
“Towards creating a Sustainable
Green Supply Chain”, respec-
tively.
Consulting Continuum
The first speaker at the con-
sulting continuum was Mr. Shishir
Kapoor - Lead Principle and
48
Country Head at Opera
Solutions. He advised caution,
suggesting that instead of jump-
ing onto the bandwagon, a firm
should carefully think out its strat-
egy. Mr. Kapoor recommended
using data analytics to achieve
this; by determining trends in
customer value perception, main-
taining a focus across the lifetime
of customers, and then tailoring
products to a “segment of one”.
By doing this, a firm can deliver
customized products and services
that truly provide the greatest
value to its clients.
Next, Mr. Sameer Bapat,
Operations strategy leader, IBM,
spoke about IBM‟s approach in
the recession and recovery. He
stressed on making use of low
prices to target scarce resources
including talent. Driving cost effi-
ciency and using a targeted ap-
proach to grow revenues were
his other remarks.
L!VE July, 2010
The two seminars were fol-
lowed by a panel discussion on
the topic “Rising from the Ashes:
Who would be more effective?
Specialists or Generalists”. On
the panel were Mr. Kedar Gadgil
- Managing Consultant- Pricewa-
terhouseCoopers, Mr. Ryan Lowe
- VP, Avalon Consulting, Mr. Ra-
jesh Iyer, Director, Cedar Man-
agement Consulting and Mr.
Sameer Bapat of IBM. Moderat-
ing the discussion was Mr. Tha-
kor, a PhD student of SJMSOM,
IIT-B.
In the course of an invigorat-
ing discussion, it emerged that
consultants usually begin their
careers as generalists and then
proceed to become specialists.
Also, according to Mr. Iyer, indi-
viduals become more generalist
in their approach as they move
further up, to lead the organiza-
tion. However, the choice of a
generalist or specialist in a con-
sulting team entirely depends on
| S O M t h i n g S P E C I A L | CONTINUUM |
circumstances, and what is right
for a particular project. In the
end, the panel concluded, that
for a B-School student making a
choice between generalization or
specialization, what is important
is following one‟s dreams.
Next, Mr. Vinod Kala, Foun-
der, Emergent Ventures, gave a
very interesting seminar on clean
technology. He spoke of consult-
ing in environmental services,
where a consulting firm might
undertake external projects, such
as afforestation, on behalf of a
client, to lower the client‟s carbon
footprint. He believed that as
renewable energy is becoming
economically viable to produce,
and as consumers develop pref-
erences for “green” products,
there is a great future in going
green. He estimated a $1 trillion
p.a. investment in green projects
by 2030.Following this was a
speech by Mr. Tarun Mishra- co-
founder of Covacsis, who spoke
of a need to change the way a
consultant thinks so that creativity
and innovation could be added
to structured, linear thinking. He
stressed an interdisciplinary ap-
proach to consulting, which he
termed as - the philosophy of
design. He also suggested that
current, numbers based meas-
ures of success should be
changed and also, new business
models for consulting should be
defined.
The day‟s final speaker was
Mr. Rakesh Barik, Director,
Deloitte Consulting, who spoke
on consulting as a career. He
stressed on the importance of
teamwork and networking in a
consultant‟s job and placed a lot
of emphasis on trust. He then
proceeded to humorously de-
bunk various myths of consul-
tancy: including the popular idea
that consultants do not have a
L!VE July, 2010
work life balance.
The consulting continuum
was preceded by a national level
online quiz and case simulation
competition which saw participa-
tion from over 150 teams from
across the world including teams
from UK.
Operations Continuum
The Consulting continuum
was followed by the Operations
Continuum on the 21st of March.
The keynote address for the event
was delivered by Mr. Sukumar
Narasimhan, Senior Vice Presi-
dent - Supply Chain, Reliance
Industries. He spoke about “what
is not so obvious within the sup-
ply chain ecosystem” and em-
phasized on the importance of
going back to basics. He stated
that if all processes are standard-
ized, maintaining these processes
takes precedence over comple-
tion of tasks. Also, flexibility to
49
| S O M t h i n g S P E C I A L | CONTINUUM |
respond to unforeseen events is
reduced. He suggested that
rather than standardizing entire
processes, firms should standard-
ize and automate routine trans-
actions. Next was Mr. Sivakumar
Periasamy, Vice President - Pro-
curement, IBM India. He spoke of
IBM‟s efforts in sustainability,
including the design of green,
energy efficient, data centers. He
also spoke of IBM‟s procurement
policy, wherein the company only
chooses suppliers that are known
to comply with environmental
norms.
The seminars were followed
by a panel discussion among
speakers from a wide range of
industries. The members of the
panel were, Mr Hans-Henrik
Hansen, Cluster Manager, South
Asia, Maersk Group, Dr. Prasad
Kanitkar- Director Plant Opera-
tions, Pfizer India Ltd, Mr. Ja-
gadeesh K Math – Director, Rolta
India Limited and Mr. Sukumar
Narasimhan, Senior VP - Supply
Chain, Reliance Industries. Mod-
erating the panel discussion was
Mr.G. Chandrashekar, Associate
Editor, Business Line. The theme
of the panel discussion was “Role
of Technology in Creating Sus-
tainable Green Supply Chain”.
Points mooted were: the role of
organic biofuel in the supply
chain to enhance “greenness”,
the importance of conserving
water through reuse after purifi-
cation, the use of Geographic
Information System (GIS), to visu-
alize an area and make it easier
to understand and implement
green practices there. The panel
also emphasized on the role of
small actions towards a common
goal, such as switching off lights
50
which are not required in com-
pany offices. The panel agreed
that there are enough Govern-
mental policies in place to pro-
tect the environment; these just
have to be well enforced and
endorsed.
Next, Mr. Chandrashekar
shared his views on macroeco-
nomic environment indicators
and their relevance to the envi-
ronment. He said that it will be
necessary to choose between
growth and environmental sus-
tainability, since both are unlikely
to occur for a developing country
like India: a case of having one‟s
cake and eating it too.
Mr. Hans-Henrik Hansen,
Cluster Manager, South Asia -
Maersk Group, spoke about sus-
tainability in shipping logistics by
combining CSR (Corporate Social
Responsibility) and HSE (Health,
Safety and Environment) to bene-
fit both the business and society.
This was followed by a talk by Mr.
Ashu Khanna, Head Supply
Chain, Marico, who spoke about
building a sustainable organiza-
tion. He suggested involving em-
ployees on both personal and
professional levels in such an
initiative. He also suggested in-
volving business associates in-
cluding suppliers and distributors.
Next was Mr. S. Seshasayee,
Senior General Manger - Supply
Chain, Mahindra & Mahindra.
He spoke about the triple bottom
line principle of “people, planet
and profit” wherein a firm should
perform financial accounting as
well as social and environmental
accounting. He emphasized that
the journey towards sustainability
does not have a finish line. The
L!VE July, 2010
target is always moving.This was
followed by Mr. Jayant Ambast,
Head Supply Chain, Perfetti Van
Melle. He spoke of the impor-
tance of austerity, efficiency in
the usage of scarce resources
and technical efficiency in creat-
ing a green supply chain. He
suggested that suppliers should
be located close to the manufac-
turer, to ensure low transporta-
tion costs and less miles travelled.
The last speaker was Mr.
Rajiv Mehta, Head SCM, Ultra
Tech Cement. He spoke of how
the cement industry has started to
go green by introducing other
industries‟ wastes as components
of cement, for e.g., tire chips and
fly ash from thermal power
plants. He also suggested switch-
ing to the sale of unpackaged,
ready-mix cement in bulk to be
transported to distribution centres
by rail.
An underlying theme, in all
the discussions, was that environ-
mental sustainability has now
become imperative for all busi-
nesses. With growing preference
of consumers for green products,
“green” is now a competitive ad-
vantage. Also, introducing envi-
ronmentally friendly measures
makes good business sense as
these improve efficiency and de-
crease costs, thus improving
profits in the long run.
The first leg of Continuum
was a huge success and was at-
tended by management students
from different B-schools, students
and faculty of IIT Bombay and
representatives from companies
like Morgan Stanley, TCS, L&T
etc.
 www.sjmsom
www.sjmsom--avenues.com
Shailesh . J . Mehta School of Management
Indian Institute of Technology Bombay
Powai, Mumbai
Mumbai— — 400076
Tel: +91 022 257 67781
Fax: +91 022 257 22872