Entrepreneurship vs established companies

Success in entrepreneurship is about creating value in the otherwise saturated ecosystem. Disruptions in technological arena is what has pushed the rise of the likes of SUN Micro-systems. And it is not impossible to take on established and successful players. However it takes a lot of courage and conviction to target and reach the heights. And the liability of newness often decides the route that can be taken. Newness means that the customers would be apprehensive, the investors would be skeptical, the value creators would choose to stay away. But despite all the odds, it's important not to bargain because for some organizational objectives it is critical to play on the size. The task is to minimize the liability by doing something different or something similar but better than the rest. In my understanding, building large organization through an evolutionary process is more likely to succeed. It is critical to dominate through the power of superiority as the 'survival of the fittest' hypothesis operates even in the business environment. Developing a new organization is a process that is to be learned than to acquire. To create that disruption you need the best in the field with similar objectives and beliefs in the opportunity. It is not about spending everything to make a product successful but the resource organization to meet the objectives with the minimum. More often than not the "liability of newness" boils down to the maneuver between "all or nothing". Mediocrity is not an option if the target is the sky. Proactive initiatives and acquired sense of responsibilities and ownership make a good team who can prove to be equivalent to a team twice the size in an older organization. "Early bird catches the worms". Conviction on the success of the product is important to gain the time advantage.

It is worthwhile noting that it is the new players that bring the maximum technological disruption than the incumbents. This is the reason why big players fear a new player with a disruptive business idea as they know that they can become big in no time. This is probably the reason why they are ready to pay any price for newly formed but small enterprises. This is probably the reason why Facebook bought Whatsapp, Instagram etc. as their strategy is to exist in the social platform as the only dominant player. However it is quite possible that incumbents are unable to recognize the disruptions by an entrant or have chosen to ignore it. This is perhaps one of the main reason why SUN Microsystems was able to garner the market share in a very short period of time. 

It is also worth noting that even great companies can fail. Listening to customer is a good idea but in cases it can be the cause of its own destruction as well, particularly in the industry where consumers are not technically qualified and informed. One of the possible reasons of failure is that it is difficult to change the entire ecosystem when you are a big player and not the one who is leading the change. For example the evolution of the disk drive industry started with the fancy of IBM only later to be taken up more aggressively by non-integrated computer makers. Having said that then how to explain the modern model of running a business where customer is considered to be the "King". There are industries where the customers drive the innovative disruptions i.e. the customers can't be ignored on the criteria if the technological innovation is a norm.

In my view, it is important for the big players to identify the disruptions and the nature of the industry to prevent the possible downfall of its market prominence. It is important to embrace the might of the new players and incorporate continuous innovation as a part of its culture.

Read more

Non Performing Assets problem in India

In the last few years, NPA problems in India have grown significantly. According to the RBI, the total value of NPAs stood at 9.8 percent of loans at the end of FY2014. The economic fluctuations of 2008-09 created avenues for possible default by individuals as well as institutions. However I feel the entire blame cannot be attributed to the economic cycles. The rating agencies and ARCs play the most critical role in assessing loans and credits and hence potentially alleviating NPA problems. But the government has not effectively encouraged the use of rating agencies. Consequently, the effectiveness of credit risk assessment and credit administration has come into question. In general, credit rating agencies provide independent assessment of default risk of an issuer on a debt instrument. But the current regulatory framework requires banks to have their own credit risk assessment framework. The reliance on external credit rating is limited to capital adequacy computation.

CRAs can help the lenders alleviate the NPA problems in the following manner:

• There is evidence of lack of rigour in the loan appraisal systems followed by the banks which is critical for identifying possible NPAs in advance. Rating agencies provide a better appraisal system.
• CRAs help the general investors to gain knowledge about the company they are interested to invest in. This enhances liquidity in the market as reduced information asymmetry leads to confidence in investors.
• For companies which don't trade in the market, the rating agencies can provide significant information to enable quality decision making by the banks.
• A standard rating system would ensure that only the most deserving entities get the debt from the market.
• It can help the corporates to explore alternate source of funds.
• Corporates can optimally price their bonds and equity issues.
• CRAs can provide a forward looking market based credit rating which would help the system to reduce the burden of stressed assets and potentially reduce NPAs.
• CRAs can provide a dynamic rating mechanism which can help the lenders to assess the credit risk in advance and the opportunity to take steps to mitigate those risks.

ARCs commands specialization in the field of sale of distressed assets. It help the banks in seizing collateral in secured loans. Although the idea behind the creation of ARCs was novel, the implementation has not been very effective. While the stressed assets increased 8 times in the period 2003-2013, the annual sale of assets by banks to ARCs increased only twice. The government has failed to empower the ARCs. I believe following actions can be taken to empower the ARCs to help reduce the current NPA problems:

• Reducing excessive regulatory interference
• Provisioning of regulations for sale of assets
• Empowering ARCs through building restructuring capabilities
• Addressing the issue of shortage of capital
• Reducing barriers to foreign investors
• Improving the effectiveness of the asset resolution mechanism

Read more

Developing world in the next 10 years

The world is immersed in the pond of destitution- limited access to the supply of food, drinking water, healthcare and other basic necessities. The organizations have striven hard to find solutions to all such problems. They have indeed found success in many of their ventures. One such venture is the objective of achieving universal education and I believe that in the next decade the world will achieve the goal of universal primary education. As per 2011 data there are still about 57 Million children of primary school age who were not in school. It is a known fact that children with no quality education are exposed to exploitation and diseases. The situation is severe for female children as they are exposed to a greater risk at different time points in their life. However, data suggests that this problem, that has been a part of world's millennium development goal, has shown good progress and the world is likely to achieve the goal of net enrollment ratio of 100%. The improvement is particularly encouraging in the Sub-Saharan African countries where in a period of 5-6 years, the net enrollment ratio has increased from 65% to 77%. Overall this figure hovers around 88-90%. 

The root-cause of the problem is quite evident. It is nothing but the existence of sheer poverty and marginalization that is responsible for poor state of primary education. Digging deeper into the source of disparity would reveal three major factors: Income, Gender and Location e.g. the children from the poorest households are at least three times as likely to be out of school as their richest counterparts, rural children are nearly twice as likely to be out of school as urban children. Statistically, the largest income & gender disparity is seen in the South Asian and Sub-Saharan countries while the rural-urban disparity exists in all the countries. 

Different forums at the world level have come together and have embraced the mission of global education as one of the top most development priority. Countries like India have launched development schemes such as Sarva Shiksha Abhiyan to attain the goal. Some of the actions that are being taken by all the institutions, in particular UNICEF, to reach to the goal are:

• Awareness Campaigns: UNICEF has committed $233 million to stage global awareness campaigns on the importance of children going to school. Different campaigns also highlights the issues of gender discrimination and forced child labour. 

• Investment on improving facilities at school: In many places, schools are safe haven for children where they can find latrines, clean water, meals and possibly health care. "UNICEF has a strong presence in school-based water, sanitation and hygiene projects, supporting initiatives in 73 countries such as supplying hand pumps to primary schools and training teachers in hygiene education".

• Ensuring 'Right to Education': The support is being provided in the area of community-based early child care, parent education, nutrition, hygiene and other intervention initiatives.

I believe that the world is in the right path and pace of achieving the goal of universal primary education and would be achieved if various institutions keep implementing different initiatives on a mission mode basis.

Read more