1. Desire becomes greed (Growth, Growth, Growth…..)
It is alright to desire to be strong, healthy and prosperous. Problem starts when this desire becomes insatiable.
Everything in this planet keeps growing till it reaches its optimal level. If growth doesn’t halt at its optimal level, then it
becomes an aberration and starts having destructive effects.
Why would it be different in the case of business houses? The present problems have been created by organizations
that have grown beyond their optimal levels and have become toxic. The primary cause is not the organization or
their executives alone. It is the public at large that has given excessive weight-age to growth thereby making it wanton
and indiscriminate.
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2. Confidence becomes arrogance ( I can do it - I do it)
It is not the brand, processes and goodwill alone that make up an organization. People are the most important
resources. Don’t we tend to judge a bank based on our first interaction with a branch manager?
Why do more than 100 year old organizations collapse? Along the path of growth it is impossible to realize when
confidence gives way to arrogance. Having existed for a long time or being big in size alone is not guarantee that the
company is good or progressing or will be able to sustain itself for long. A single incapable person can damage its
brand, processes and goodwill in a jiffy. An organization withstanding the test of time must definitely have had good
values, but this confidence turning into arrogance can create problems for it in the future.
When an organization is formed, it normally comprises of extremely talented individuals with strong value systems.
With growth, orientation of new joiners to align with the organizational culture and values becomes a challenge. It is
achievable mainly due to the quality of recruits and their adaptability. The successful orientation gives an impression
that anybody can be molded with the help of effective orientation programs. This in turn results in sidelining the
quality and qualification of the recruits. With indiscriminate growth, the orientation itself takes a back seat as it is
assumed that the strong value system on its own will have the desired effects. This is the point at which unknowingly
things start falling apart.
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3. Knowledge Stagnates (I can show you the rule book)
Well, then comes a stage of stagnation in knowledge assimilation. It is deemed that everything that ought to be known
is known. All of knowledge is documented in the form of rules, regulations, policies and procedures.
Experiences are unique and can be hardly captured in documents. There is a lot of difference between
understanding and realizing. Let us say, I document a statement “Candy is sweet”. It can be read and understood by
people based on their own experiences. Unless the specific candy is tasted, the real experience is not fully realized.
Any innovation or change could render an earlier understanding redundant.
Now let’s take an example of a business norm that debt equity ratio should be 2:1. How many finance experts can
answer why? The most likely reason for adherence as I make out is
• Because, that’s what we have been taught.
• I can prove it by referencing books.
• I can avoid answering questions.
Well, there are so many creative professionals who can show you what you want to see. Can we go beyond the rule
books and assess other aspects like quality of debts, the qualifications of people, the idea behind the enterprise etc.?
A gentleman who was willing to give collateral of Rs.3.5 million was refused an overdraft of Rs.200 thousand based
on his financial statements. At the same time one of his under performing employees getting an annual salary of Rs.
60 thousand gets a personal loan of Rs.100 thousand without collateral or personal guarantees.
This is a typical case of “form” taking over “matter”. The more formats we create, the more we emphasize on
adherence, the lesser is the chance for objectivity, creativity and enhancement of assessing capabilities. It is just not
enough to tick the questionnaire. One has to go beyond questionnaires, formats and manuals to assess the situation
objectively and take an informed decision. Every situation, organization and every individual is different. A rule
applicable in one situation may be inappropriate to another.
You may ask at this juncture, that if there is no standardization, how are we to run businesses and conduct audits?
Yes, standardization is required, but, flexibility should be allowed. Encouragement should be given to individuals in
decision making capacities to use some amount of judgment before striking the hammer as per the rule books.
Perhaps there is something wrong with the rule books. Not to mention there are some regressive, ineffective,
inappropriate and meaningless statutes and regulations that we keep debating and analyzing. Their contribution
weighs heavily on productivity.
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4. Paradigms become stubborn (Land prices will go up)
A closed mind is a high security prison which is impregnable. It holds in shackles virtues like creativity, objectiveness
and learning.
Paradigms become robotic commands under which mind functions and rigidity of paradigms blur clarity of mind,
thereby rendering it nothing but a prison.
One of the paradigms is to typecast capability of a person with their basic academic qualifications. It is generally
expected and accepted that a technical expert cannot understand business nuances, a finance professional would
not understand human resource aspects, a doctor cannot be a singer and vice versa.
Similarly, the sub-prime crisis has been a side effect of one such paradigm. Housing loans had been given assuming
that the value of assets would go up endlessly. This assumption has been driven by past statistics and accepted
beliefs. The real worth of the properties, the potential for appreciation and ability of people to pay the asking prices
have not been given due consideration. Not that some people would not have thought about them, but their views did
not merit consideration due to rigid and well set paradigms.
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5. Passion becomes Obsession (I love this - I can think of nothing else!)
Passion is essential for achieving anything but obsession is dangerous. Professionals in the financial sectors have a
passion for numbers as it makes meaningful analysis possible. However, the moment every aspect of business is
attempted to be quantified through numeric representation it starts bordering on obsession. Facts are then attempted
to be converted through arithmetic and complicated algorithms to create awesome metrics. Interpretations based on
these complexities are bound to give confusing and inconclusive results. Sometimes, the numbers are meaningless or
are just not required. Suppose, somebody makes a complicated calculation using algorithms and arithmetic formulae
and statistics and comes up with a figure for risk quotient, say 49.8% risk of getting hurt by going and eating at a
restaurant in Mumbai. How does this figure help me in making my decision of going out for lunch? Do I go out or do I
not go out today? I could be lucky and be in the 50.2% margin or I could get unlucky today. This figure is meaningless
to me. In fact, after the recent terrorist attack, Mumbai may be the most secure place to travel!
Similarly, one could be passionate about using technology, but the moment it becomes an obsession, you start
making your life complicated. You start using technology for even the simplest things which could be done by using
common sense. And, you stop noticing any flaws that may be associated with it.
In fact, truths are simple and common for all to see and not really as complicated as it is made out to be. A simple
thing that a child can understand is not acceptable to us because grown-ups are supposed to know more!
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6. Selfishness turning to self-centeredness and leading to micro management (I, me and myself)
Some amount of selfishness is required for any individual or organization. As Ayn Rand puts it “the virtue of
selfishness - Objectivist ethics proudly advocates and upholds rational selfishness.". The Objectivist holds that man
must act for his own rational self-interest. But, when it turns to self-centeredness and leads to micro-management, it
proves disastrous. A micro-manager always fails to see the bigger picture. The concept of “macroeconomics” or the
Keynesian theory came into picture only after the great depression of 1930s. Till then microeconomics was ruling the
roost. Compartmentalized thinking and concentrating on a single area or limitation may not be enough for survival in
the long run. It is important to see the impact of any action on the overall business and global environment. There is a
famous saying in English which says “penny-wise; pound-foolish”!
Let us put forth some cases of micro-management which are relevant to our discussion.
Scenario 1
The credit manager is given bonus based on the amount of loans disbursed. Well it is difficult to resist the temptation
to reach the target and in fact try a stretch target if possible. Care to evaluate at the quality of assets, ability to repay
and market value of the mortgaged assets are not a problem in the current year. We will cross the bridge when it
comes! It can be explained.
Scenario 2
The Finance manager will earnestly accrue interest income and informing of bad debts to the debt collection team in
time doesn’t come at the top of his priority list because he is focusing on his key result areas for bonus which are
regulatory compliance and cost reduction.
Scenario 3
The manager at the deposits section would receive deposits indiscriminately flouting regulatory issues as his bonus
depends on amount mobilized and wouldn’t worry too much about the penalties that might be shelled out by his
organization.
Scenario 4
The credit card manager gets his incentives based on the number of cards in force and the interest income.
Therefore, his team would aggressively send out cards without sufficient verifications and issue credit limits. The
moment a card is issued, customers are charged interest and other charges through the most creative calculations
possible. The bad ones are not his problem as it is the debt collection department’s responsibility.
These are some of the classic examples of segmental and departmentalized thinking and functioning one can see in
big organizations. Though, a few would agree with the above, the fact remains that the real culprit in these instances
is the faulty performance evaluation and incentive schemes.
Corporate citizenship can only be found in policy books and procedure manuals. We do not suggest that selfishness
should be totally eliminated. But we believe that incentive plans should not trigger the self-centeredness.
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7. Competitiveness becomes aggression (I want it - I want it at any cost)
Competition is healthy. It is a great leveler. It eliminates monopolistic tendencies, brings out options, offers choices to
consumers, enhances quality of goods and services offered and instigates innovation and creativity. But, when
competitiveness turns to aggression, it fails to achieve its true purpose. In our opinion true competitiveness should be
in the quality of goods and services. Unfortunately, competitiveness is being understood to mean only cost
advantage. As a result price war and under-cutting begins.
New entrants or the growth seekers in an industry undercut the existing players to get market share. The strategy is
that once the market share is captured the initial subsidy can be made good through price corrections two years
down the line. The projected NPV calculation and break even analysis look fantastic on the white board.
In reality, it becomes impossible to achieve. The penetrating price becomes the standard and customers refuse to
pay more. To compound the problem existing players also reduce prices to keep up with the market. Eventually,
survival becomes difficult for everyone, as organizations start surviving on highly leveraged positions rather than
cash profits.
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