Why family businesses need to be ever more vigilant ..

In a study of 25,000 publicly listed companies in US from 1950-2009, on an average, they did not last for more than 15 years.

About 30% of family businesses make it through the second generation, 10-15% through the third and 3-5% through the fourth ..

Family owned businesses thus are more promising in the long run over public companies.

The two big traps family businesses often confront are

1. All family members can be accommodated - insist that family members will have tp earn their place in the family business by their education and experience

2. The business cannot grow as fast as the families - if there are enough competent people the business can be scaled up into different areas to accommodate competent people

Reference link :
Link 1  -,  Avoid the traps that can destroy family business, George Stalk Jr, HBR, Jan 2012.

Link 2  - Signs you are losing control of your family business, Josh Baron et al, HBR, April, 2017

Link 3  Why  the 20 th century belongs to family businesses, Josh Baron, HBR, March 2016.

Managing change in family run businesses ..

As per data from reliable sources listed below, public professionally run companies in US have an average life of only 15 years (50% wind up in 15 years) while we find 30% of all family run businesses transitioning successfully into the second generation, 10-15% into the third generation, 3-5 % into the fourth generation, creating value for the customer and wealth for the country in the long run. Family run businesses are therefore a vital component of any country's economy as the example of Walmart, Toyota, Volkswagen, BMW and Berkshire Hathway and many others remind us.  (Refer : Baron, Josh, "Why 20th century will belong to family businesses, Harvard Business Review, March, 2016)

One of the best definitions of family business I have ever come across is this -

A family business is a commercial organization in which decision-making is influenced by multiple generations of a family—related by blood or marriage. They are closely identified with the firm through leadership or ownership - wikipedia

Here is Forbes link to the top 25 family businesses of the world, led by Walmart, Volkswagen and Berkshire Hathway ..

The biggest family business on planet earth, Walmart ..

As per a report from rediff.com, of the top 20 businesses in India, 15 are family run businesses and contribute 26 lakh crores to the Indian economy. The exceptions are HDFC Bank, ICICI Bank, Infosys, L&T and Axis Bank.

Family run businesses have been there from time immemorial when men settled and lived in societies from 6000 BC. Though in the present days, government run and professionally run organisations are models to the rest of the world, family run businesses are here to stay ..

Great Indian business families have come and gone ..

This brief writeup is case study of a very successful family run business from the state of Kerala processing one of the oldest and and valuable items India has been famous for thousands of years and which has attracted travellers and traders from wide and far in search of this precious asset - spices. The Spice Route and Silk Route which connected India and China respectively to the rest of the world for the past four millennia and which made them prosperous and rich for thousands of years speak lots about the thriving spices and silk trade in the eastern hemisphere. This writeup is an attempt to link up with one of the oldest and prosperous trade which India has been known for thousands of years, spices.

Synthite Industries, a family run business from Kadayiruppu, Kolenchery, Kerala is the world leader in oleoresins and spice oils, controlling 30% of the global business in oleoresins.

Aju Jacob

Aju Jacob, Director, Synthite in (click here for the video of the ISB talk) where he speaks clearly speaks of the challenges of managing family run businesses. He is the son of CV Jacob, Chairman of Synthite, from Kolencherry. George Paul is the Vice Chairman of Synthite. Their family runs the INR 1800 crores Synthite Industries which controls 30% of global market in spice oils and oleoresins..

Aju, an executive alum of ISB, Hyderabad has hughlighted the challenges faced by family run businesses in this talk he gave at ISB recently. Aju's elder brother Viju, also from Rajagiri, is the Managing Director of Synthite. His articulation of problems, particularly from the viewpoint of a prosperous, educated, spiritual and emotionally well balanced family background has been perfect !! Sparks of humility, understanding and great leadership was visible in that speech.

Dr, Viju Jacob, Mg.Dir., Synthite.

From being an organisation working well for the past 47 years, there is great learning for the third generation in his family and for elders and youngsters of other business families planning transition of leadership and authority to the next generation..  The added lesson from this case study is how to work with the active and often militant  trade union leaders of Kerala. This case in plain high impact words provide simple thoughts very neatly put across to understand the pressures of managing family businesses, both during good and bad times. 

This earlier writeup of mine some time back throws light on Synthite Industries, what they do and how. This Kerala based co. controlling 30% of global market in spice oils and oleoresins supplies to global food processing industry majors across the world !!

References :

1. Baron, Josh, Why 20th century will belong to family run businesses, Harvard Business Review, March 2016.
2. Forbes, Top 25 largest family owned companies in the world, 2017.

George ..

PS : Aju is my classmate from Rajagiri HS Ernakulam during late 70s and a family friend too.

Will the bloodshed in the Indian e-commerce market end anytime soon ?

E-commerce (electronic commerce or EC) is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. These business transactions occur either as business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business. - techtarget.com, 2016.

Even though trading over the Internet is almost thirty years old, its popularity over the past ten years has been great and has seen many players enter this ludicrous market and disappear overnight. It has not been a bed of roses all the way.

Losses of E-commerce cos, INR crores  

                    2014-15             2015-16

Flipkart             2979                  5223

Amazon           1724                   3571

Snapdeal         1328                   2960

   Total             6031                  11,754, (Source Economic Times, January 20, 2017)

Why are Indian e-commerce cos bleeding heavily ? While all are upbeat about our great e-commerce companies, it is but a fact that all of them are bleeding heavily. While all the top three in 2014-15 made losses of approximately INR 6300 crores, 2015-16 saw them making still greater losses. In total about INR 11,600 crores among themselves.

Click here for my presentation in the class analysing the reasons behind it..

Major and minor Indian e-commerce players, at least 14 and many more ..

Even though we are upbeat about e-commerce companies in general, the real picture is very grim. How long can the top three e-commerce companies in India show a bold face and live with these losses. Amazon India may be able to survive for another three or four years of heavy losses, because of its rich US cousin, focusing on just consolidation in the Indian markets. 

It was a good discussion in the class today. One of the suggestion was to  stop the pretensions and get to play the game on the right basics without any pretensions. Customer acquisition and customer retention are two very tricky aspects in e-commerce where we find price-sensitive Indian streetsmart customers switching between e-commerce players at the drop of a hat.

Click here for news item 

The more competitive the ecosystem, the more casualties we can expect. Since it is accepted that Indian e-commerce market is the most populated with maximum number of entities vying for a piece of the pie, it will only do good for the industry in the long run. Just like the telecom market in the country presently being the most competitive in the world where the global majors like China mobile or Vodafone dare not enter and commit harakiri, the e-commerce market can also be expected to be the most competitive.

Since Alibaba, the $480 billion retailer from China and Amazon, $250 billion retailer giant from US are here to stay, e-commerce as a field is to stay, but needs a real cleanup and it will happen pretty soon. The companies cannot afford to bleed for long ! The Indian scene is pretty bad and at the same time we believe it holds the maximum promise in the long run.

Alibaba and Amazon, please stand by ! The bloodshed in the Indian market is on and shortly one can expect peace to return .. If  one succeeds in the Indian market, he/she can succeed anywhere in the world.

george...

Budget Airlines - how they achieve cost advantage over other airlines ..

Last time I caught an early morning 5.30 am flight from Bangalore to Mumbai, I had to leave home by 3.30 AM to reach Devanahalli airport at 4.30 AM. Why so early in the morning ? Since Bangalore does not have a secondary airport, I had to board flights departing the airport at odd times to avail of low airline fares. It was okay considering that I was paying just a third of what I would have paid had I boarded an 8.00 AM flight to Mumbai.

What is this big noise about Budget Airlines and how are they able to offer low fares to the public ?

Airlines operation is an interesting and exciting area of study for an Operations Manager. The airlines recover the initial high capital by carrying out very smart focused manoeuvres. South West Airlines in US was the first airlines in the world to start the concept of Budget Airlines. They started the field of demand management or Yield Management as an area of study where the ticket prices on a route depend on the customer demand for flights in that route. The main objective of yield management is to boost demand by offering tickets at different rates (in different slabs) depending on the demand distribution to optimise the final returns or yields.

Airlines have also looked at other minor yet important and interesting cost cutting aspects. As Sarah Coles (3) says, it is about concentrating in 4 main areas of operations,

• first using the same type of aircraft, 
• secondly, a constant drive to push costs down, 
• thirdly, ensuring a faster turnaround time at the airports and 
• fourthly not selling anything other than seats ..

We shall present them in detail here (1,2) ..

Identifying the cost pain points and addressing them to reduce the costs is the first step. US and India based budget airlines offer tickets that are 20-30% less than traditional airlines, while Budget airlines in Europe offer tickets at 50% of traditional airlines. An 800 km journey could be completed by air in under 10 euro. It is interesting to find how European budget airlines succeed where US and Indian airlines have only partly succeeded.

This video is a great example of how budget airlines constantly innovate to keep their operating costs low. Click for the video ..

There are different aspects we need to look at and they are listed here.

Physical Infrastructure - The planes are mostly of one type. RyanAir has only Boeing 737 and EasyJet only Airbus A320 aircrafts. GoAir and Indigo in India work mostly with Airbus A320 in their fleet. This helps the airlines to reduce their maintenance expenses, keep low inventory stock of spare parts and less training for the staff.
Additionally, the fleet is relatively new, with an average age of less than 5 years. They are more efficient incurring less running expenses, partly offsetting their higher purchase costs. These young planes incur less maintenance costs and are up in the air almost 24x7, giving better returns to the airlines. Most of these planes do not have expensive and luxurious reclining seats reducing costs and maintenance expenses. No back pockets for these seats reduce the cleaning needed reducing the turnaround time after each flight.The gap between the seats is limited, enabling accomodation of more seats in the economy class. (click here for pictures of future seating configurations in budget airlines..)

Airports proximity to city centre and landing fees - Landing fees at airports are a major source of expense for airlines as they have to part with higher airport landing fees when they land at major city airports. To keep the costs low, budget airlines land in slightly distant secondary airports which charge low landing fees, away from the cities with good connectivity to the city centre. The budget airlines use major airports at odd times when landing fees are very low like early morning or late night flights.

Training for Employees - training is imparted to the employees on multiple tasks like ticket checking, cleaning, luggage checking etc. . Fewer employees carrying out multiple tasks eliminates need for excess staff, reducing costs. The duration of training is less with more emphasis on safety than on hospitality. Being a very young workforce, there is no unionisation resulting in employees ready to shift to distant airports at short notice.

Catering facility - the budget airlines do not offer any complementary food or drinks during the flight and these are chargeable. The main advantage of this is that it saves inflight time for attendants who can attend to more important tasks of the passengers. Wastage of food is avoided on the flight.

Passenger loading schedules - The turnaround time at the airports are generally less than 45 minutes as earlier routine tasks like loading food trays, cleaning of planes between stops etc are avoided. As passengers are given seating on First Come First Served basis, passengers generally tend to come early to get window seats, eliminating delay in flights. The self check-ins through automated machines or internet check-ins have accelerated the check-ins.

Flying route schedules - Most of the budget airlines take only direct booking, eliminating middle men and commissions.
In addition most of the conventional established airlines operate on a hub-spoke arrangement, where they tend to touch at their hub or base very often, increasing the flying times and expenses for the airlines. Budget airlines on the other hand, have a point-to-point model of operations wherein they do not return to their main hub on every leg of the flight and instead touch base at different cities as per schedule and demand before reaching base. They also do not book connection flights as this leads to unnecessary extra expenses to the airline if the flight is delayed or connecting flights are missed.

Profit margins - Budget airlines have been observed to have healthy profit margins often running to an average of about 14-15 % while traditional airlines have low profit margins of about 4 - 5 %, besides being burdened with aging planes and heavy maintenance expenses.

What is the future of budget airlines ?

As economies keep growing, there will be increased demand for airline traveling. Hence the demand for budget airlines is only going to increase in the coming days, along  with a healthy demand for conventional long distance airlines. Short haul flights can experience a pull towards lower costs. An innovative technology like Hyperloop can bring great disruption if proved to be successful. 

The Govt of India's UDAN, the Low Cost Regional Connectivity scheme to get the distant parts of the country reachable by air is taking off today 28 April from Delhi to Shimla. Under this scheme, initially 43 cities to increase to 72 cities from across the country will be connected whereby the flying fare for a 500 km distance and a one hour flying time will be capped at Rs 2500.00. Viability Gap Funding (VGF) upto Rs 3000 per seat will be provided by the GoI to the airlines selected under this scheme. The airlines are Alliance Air, SpiceJet, Turbo Megha, Air Odisha and Air Deccan. They were awarded 128 routes under the scheme after a bidding process. With this scheme, more cities in India will be reachable by air promoting the industrial growth of these cities.

References :

1. Nils Pratley, Anatomy of a flight, www.Guardian.com, 2003. Accessed April 2017
2. Wendover Productions, How budget Airlines work, www.youtube.com, 2016, Last accessed April 2017.
3. Sarah Coles, Low cost Airlines - How they cut costs, www.aol.co.uk, 2015, Last accessed  April 2017.
4. http://www.thehindu.com/news/national/all-you-need-to-know-about-the-udan-scheme-for-low-cost-regional-connectivity/article18251599.ece

Compiled and written by George Easaw for classwork in Alliance University, Bangalore, India. Unauthorised use prohibited. Contact geasaw@gmail.com for permission.

UN Sustainable Development Goals 2015 .. What, why and how ?

Climate change is the greatest threat faced by humanity due to environmental pollution.  Sustainability efforts have thus gained importance world over, with leadership actions initiated by United Nations. 

Sustainable development means "meeting the needs of the present without compromising the ability of future generations to meet their own needs" (Brundtland Commission).Apr 21, 2015

UN' 17 Sustainable Development Goals, 2015 - 2030.

The historic Paris Agreement of 22 April 2016,  provides an opportunity for countries to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. It entered into force on 4 November 2016. (click here..)

The UN continues to encourage all stakeholders to take action toward reducing the impacts of climate change.

Click here for the UN website of the 17 Sustainable Development Goals adopted by 187 countries in 2015 to help transform our world, to be achieved by 2030 AD. 

The Lazy person's guide to saving the world (click here) is an interesting UN document which explains how each individual on this planet can contribute to making the earth sustainable in the long run in our small small ways.

Organisations big or small or even individuals need to analyse each of these 17 goals and 

• segregate goals which they can influence and which they cannot, 
• identify and prioritize goals which they can influence, 
• work out smaller macro and micro goals
• set measurable targets 
• try to achieve them in a fixed time frame.

The UN stated goals have been arrived at through consensus by all the 189 countries to be achieved over 15 years from 1 st January 2016. It is not legally binding on the countries of the world, but in the interests of the future generations, we need to take these goals in full earnestness and seriousness and ensure its accomplishment.

Kochi International Airport at Kochi, Kerala, India's third largest in infrastructure (1.5 m sq.ft T3) and fourth largest in terms of passenger traffic at 9 million annually, has built the world's first and only solar energy powered International airport. It remains unchallenged as the first and only fully solar energy powered international airport of the world even after 20 months of its initial insolation in July 2015. With faster economic development happening around the world, more people move around for work and leisure purposes. Air travel will become more popular and common, even though cheaper Mass Rapid Transport Systems alternatives like Hyperloop, do offer great promise. Airports going truly green can help make future air travel more sustainable, though air travel per se still depends on non-renewable resources..

2.5 acres of solar panels at Kochi International
Airport, India.

We find very less awareness of these  in the press and media on the time limit and the goals to be achieved by then ? Let us take it upon each one of us, reading this document and the links given above to act in whatever small way possible to achieving the grand goal for the sake of humanity on planet earth...

It is our world, it is our joint responsibility to protect his world not only for our generation, but for all future generations..

George.. (photo courtesy Kochi airport, taken by Daily Mail, UK.)

Ref :

1. Bhaskar Chakavarthi, How companies can champion sustainable development, Harvard Business Review, March 2017.
2. www,un.org/sustainabledevelopment, Sustainable Development Goals - 17 Goals to transform our world,  Last accessed , 17 April 2017.
3. george-easaw,blogspot.in, Truly green airport at Kochi, Last accessed 17 April, 2017,

India's top 10 market cap companies ..

Market capitalization is a measure of the customer confidence in the companies measured as the value what customers perceive it to have for their stocks in the market.

Total market capitalization of the top 10 Indian corporates as of April 2017 stands at 25,68,310 crores (app US$ 395 billion).

The Market leaders ..

(Market cap in INR, crores) (exchange rate calculated at 1 US $ = INR 65)

#1 Reliance Industries Ltd, 4,57,000 ($70.3 billion)

#2 Tata Consultancy Services, 4,56,000, (70.1 billion)

#3 HDFC Bank, 3,70,480 ($57 billion)

#4 Indian Tobacco Company, 3,38,851 ($52.1 billion)

#5 State Bank of India, 2,35,308 ($36.2 billion)

#6 HDFC 2,35,123 ($36.2 billion)

#7 Oil and Natural Gas Commission, 2,32,346 ($35.7 billion)

#8 Infosys, 2,11,870 ($32.6 billion)

#9 Hindustan Unilever, 1,97,464 ($30.4 billion)

#10 Maruti Udyog Ltd, 1,85,236 ($28.5 billion)

Of the top 10 market cap companies, 2 are from IT, 2 are from energy and telecom area, 3 are from Finance area, 2 are from retail and 1 from automobile manufacturing area. Finance sector is in the top with 3 out of 10 companies in financial services area. 2 of the top 10 companies are in the IT area reinforcing India's dominance and dependence on IT related services as economy drivers.

36% of market cap of the top 10 companies are generated by the top two companies RIL and TCS, the two flagship companies from the private sector in the country, representing energy, telecom and IT sectors.

Services vs Manufacturing -

9 of the top 10 companies are from the service sector and only 1 from manufacturing. It shows the dominance of service sector over manufacturing in the Indian economy.

Public sector vs private sector - 
Only three of the top 10 are public sector enterprises, rest are from the private sector, it shows that India's privatisation push post 1991 has worked quite successfully.

Contribution of different sectors -
Finance related companies , 840,911 crores account for 32.7% of the market capitalisation the top 10 players. Energy and telecom companies account for 26.4 %, IT related companies account for 26%, retail companies account for 20.9 % and manufacturing accounts for 7.2% of the market cap of total top 10 market cap companies.

TCS was India's leading corporate but for the presence of Jio Telecom which has helped Reliance Industries to get a boost of INR 100,000 crore to their market cap over the past six months.

The import this has for the future development of the country is that IT, energy, Finance and Retail will be dominating the Indian economy in the future. 

George..

Source -  Live Mint, 19 April 2017
                wikipedia.com

Aadhar card, can it be a panacea for Indian low levels of development ?

When about two months back I wanted to take my second Jio mobile SIM card, I collected it from a roadside Jio booth selling SIM cards in Bangalore near Christ College on Hosur Road. The employee asked for my aadhar card number which he fed to the Aadhar database and checked my finger print scan with the records in the Aadhar database to confirm my identity. Within 2 minutes my new Jio SIM card was in my hand. This was the first application I experienced wherein my personal details recorded in the Aadhar database has been verified by a commercial operator to establish my identity. It was a big culture shock to me. My existence as an Indian citizen has for the first time been validated and cross checked with the Govt of India database to help me avail of a commercial facility.

The Govt of India's Unique Identification programme Aadhaar (www.uidai.gov.in) is a 12 digit unique-identity number issued to all Indian residents based on their biometric and demographic data. The programme was implemented by Dr Manmohan Singh under the able guidance of Nandan Nilekani, one of the founders of the IT firm Infosys from Bangalore, an alumnus from my alma mater Indian Institute of Technology, Bombay. Though the present PM Modi took scrapping up this project as one of his top election promises, initially out of ignorance of the benefits of such a massive programme, later he accepted the utility and benefits of this programme in eliminating corruption in public systems and has adopted the Aadhar system with great dedication and sincerity now.

Cost of implementing the brilliant unique identification programme, Aadhar card,  of the Govt of India, started by Dr. Manmohan Singh and Nandan Nilekani and presently being pursued with all sincerity of purpose and devotion by PM Modi has been $ 1 billion, app INR 6500 crores.

Nandan Nilekani

Already the GoI has by weeding out false claims been able to save $8.5 billion in subsidies in two and a half years, about one fifth of annual central govt subsidies ..

Once the fingerprints of all the ten fingers and the iris scans of both eyes have been taken, there is no way someone can impersonate a person to run away with his subsidies and rations. (though roughly about 30% of all aadhar authentications are turned negative.)

The Aadhar database is being tapped on an average about 20 million times a day presently and 30 % of authentications are turned negative. About 1200 million people have already availed of Aadhar card across the country as per data released by The Economist of London, covering 99% of the adult population in the country.

The Income Tax department (woefully only 2.5% of Indians pay Income Tax in the country today) has made it mandatory that all IT returns from this year onwards be compulsorily linked with the Aadhar card number of the IT assesee. It is a welcome move as the GoI can keep a track of all citizens and possibly reward them in future for their honesty shown to the nation. It will also identify the dishonest citizens and punish them as the law permits.

With each passing day we find more and more services being linked with the Aadhar card identity of citizens making sure that services reach the actual beneficiary and no impersonation or corruption occurs in the delivery of central govt welfare subsidies and services. No other country has been as successful as India in rolling out this massive database benefiting the 1.25 billion population of the country.

In this recent talk with Quartz, (click here for the link) Nandan tries to defend the security concerns raised against Aadhaar by the tech community and the public at large ..

George (the author wishes to thank The Economist of London, issue of April 12, 2017, and wikipedia for the Aadhar related information provided in this article)