As consultants, we tend to be heavy users of travel services. Therefore, disruptive business models in the industry are particularly interesting.
Makemytrip, the travel portal, is an interesting case. For a frequent traveler, the ability to quickly evaluate flight options and comparison shop is of phenomenal value. Often travel schedules do become unpredictable and need change during odd hours. No conventional offline travel agent seems to come close to providing the level of experience and flexibility that a portal like Makemytrip does. In addition, what is particularly interesting is that prices online hardly ever differ from those booked through agents. Maybe its because both are hooked onto the same GDS systems for flight bookings and offline travel agent commissions are increasingly on the downward route.
This is making me and a number of my consultant colleagues, increasingly shift online to make bookings despite having dedicated corporate travel agents at our call. Soon offline travel houses will find it hard to justify their value and premium pricing against flexibility offered by these online setups.
The second disruptive case is that of Meru. Meru provides cab services in multiple cities of India with a dedicated phone-based booking facility. What is interesting is that Meru has been able to provide uniformly high quality cab services using a relatively low-cost model. Their cabs might not be the best of cars (and that's changing too), but are certainly clean enough, consistently in every city. Again where Meru beats "traditional" professional cab firms is the flexibilty of booking a car upto 30 minutes in advance in almost any location in cities where they operate - an invaluable service when schedules change rapidly; and at prices that are one-third of a corporate travel firm, they are a hands-down win proposition.
What both these models are doing really well is using technology to provide low-cost services with reasonable levels of quality and focusing on an important value point for frequent travelers - flexibility.
Saturday, January 23, 2010
Tuesday, December 01, 2009
Moonlight descent
A descent under incandescent moonlight, in the deep stillness of the midnight, over the sprawling mumbai nightlights; with twinkling stars in the moonlit sky glistening, the distinct deep blue horizon curving, cabin lights dimmed to support the descent, beside the roaring outspread wing, just capturing the moment.
Sunday, November 22, 2009
Shouldn't governments have service level obligations?
Governments, particularly in India, have an abysmal record of providing uniform high-quality services to citizens. At no place is this more apparent than in the capital Delhi, where in a drive of less than 15 minutes, from the beginning of the Grand Trunk Road to the Rashtrapathi Bhavan, one can see the entire range from stinking dirty garbage covered pot-holed roads with overflowing severs to sparkling-clean well-tarred multi-laned roads bordered with well-trimmed hedges and expansive manicured lawns.
In a democracy, the Government exists to 'serve' the people. Aside from its greater role as a policy maker, every government spends an inordinate amount of time and money providing services to citizens. It is therefore quite sad to observe that they do such an inconsistent and poor job of it.
In the private sector, mature service organizations are increasingly adopting formal service level obligations (that are clearly defined and measured). For example, airports such as Changi in Singapore, or recently those at Hyderabad/Bangalore, have formal service metrics that guarantee that an arriving passenger would receive his bags, finish check-out procedures and be on his way to the cab in so-and-so minutes; as another, most banks have well defined turn-around service timelines for check/statement processing. The formal definition and measurement helps align incentives across the organization for consistent service delivery.
To expect Governments today to adopt a similar professional service mindset is probably a tall order.
Yet changes may be in the offing - if one is to go by the recent US Court ruling on the Army Corps of Engineers, blaming them for "monumental negligence" for some of the flooding during Katrina: Katrina ruling could bring new deluge of lawsuits.
While this could still be called a one-off incident in the advanced democratic setup of the US, if a Government entity could be held responsible for failing on its service obligation, that's quite a harbinger of things to come. Imagine what would happen if some day, the citizens of North Delhi took our government to task for the neglect of their area!
In a democracy, the Government exists to 'serve' the people. Aside from its greater role as a policy maker, every government spends an inordinate amount of time and money providing services to citizens. It is therefore quite sad to observe that they do such an inconsistent and poor job of it.
In the private sector, mature service organizations are increasingly adopting formal service level obligations (that are clearly defined and measured). For example, airports such as Changi in Singapore, or recently those at Hyderabad/Bangalore, have formal service metrics that guarantee that an arriving passenger would receive his bags, finish check-out procedures and be on his way to the cab in so-and-so minutes; as another, most banks have well defined turn-around service timelines for check/statement processing. The formal definition and measurement helps align incentives across the organization for consistent service delivery.
To expect Governments today to adopt a similar professional service mindset is probably a tall order.
Yet changes may be in the offing - if one is to go by the recent US Court ruling on the Army Corps of Engineers, blaming them for "monumental negligence" for some of the flooding during Katrina: Katrina ruling could bring new deluge of lawsuits.
While this could still be called a one-off incident in the advanced democratic setup of the US, if a Government entity could be held responsible for failing on its service obligation, that's quite a harbinger of things to come. Imagine what would happen if some day, the citizens of North Delhi took our government to task for the neglect of their area!
Tuesday, October 27, 2009
Why do teachers focus on the best students?
If anything, it would make better sense to focus on those who struggle through lessons - the best students either are smart enough to understand their lessons and/or put sufficient effort to learn; its the strugglers who require attention. But invariably, most teachers direct their attention at the brightest. Why? I muse.
For one, it has to do with the skewed student-teacher ratios that most schools (at least in India) have. The skew causes undue effort on the teacher's attention span, so that they tend to focus their limited energies on those who are easiest to teach; it therefore, takes no leap of imagination to understand why the brightest rule - they are in sync with what is being taught most of the time, unlike the poor strugglers who gasp at the whizzing bouncers (ah! I still remember the feeling).
Another related reason, is that the best (perceived) students are invariably also the more competitive and aggressive of the lot. So in the babble of the class, the teacher's attention is more taken up by these, who end up asking the most questions and answering a bulk.
A third potential reason, is linked to how teachers get incentivized. Not every teacher is fundamentally motivated by an intent to change the world through pedagogy. For most, its a profession. A profession in which incentives are often linked to the output of the smartest student. Remember how teachers revel in pride when their student tops a school, a major examination or some day wins a Nobel! On the other hand, which teacher is ever felicitated for the poor struggler who barely managed to make it through?
To side with the teachers, one must admit the fact that teaching is a demanding occupation, requiring intense emotional (and physical) involvement and leadership skills that are no less than any other occupation. It is also amongst the most thankless. From the limited teaching I have done, I will attest as much.
So there is limited point in criticism of the teachers. But one must recognize that these behaviors do emerge, and as such might not result in the best of outcomes.
As a concluding afterthought - a personal recollection. I tend to have a quiet disposition and in most of my high-school classes, was often amongst the quietest in class. As a result, at the start of class sessions, I was hardly ever given attention by teachers, and used to struggle to catch their eye if I had a question.
Luckily for me, math and science were my strong points. After the first test or examination in these subjects, I could almost always sense a visible change in the amount of attention I received. The teacher's roving eye would sweep the class and rest on a bunch of us who had scored well.(There were even days, I thought I had perfected the art of predicting test scores in advance based on how the 'eye' swept the class!). Those days, it was often gratifying and embarassing - for along with it came the undue directional focus of questions from the teacher.
But now I look back and wonder - why, oh why, do most teachers focus their efforts on the their best students in class?
For one, it has to do with the skewed student-teacher ratios that most schools (at least in India) have. The skew causes undue effort on the teacher's attention span, so that they tend to focus their limited energies on those who are easiest to teach; it therefore, takes no leap of imagination to understand why the brightest rule - they are in sync with what is being taught most of the time, unlike the poor strugglers who gasp at the whizzing bouncers (ah! I still remember the feeling).
Another related reason, is that the best (perceived) students are invariably also the more competitive and aggressive of the lot. So in the babble of the class, the teacher's attention is more taken up by these, who end up asking the most questions and answering a bulk.
A third potential reason, is linked to how teachers get incentivized. Not every teacher is fundamentally motivated by an intent to change the world through pedagogy. For most, its a profession. A profession in which incentives are often linked to the output of the smartest student. Remember how teachers revel in pride when their student tops a school, a major examination or some day wins a Nobel! On the other hand, which teacher is ever felicitated for the poor struggler who barely managed to make it through?
To side with the teachers, one must admit the fact that teaching is a demanding occupation, requiring intense emotional (and physical) involvement and leadership skills that are no less than any other occupation. It is also amongst the most thankless. From the limited teaching I have done, I will attest as much.
So there is limited point in criticism of the teachers. But one must recognize that these behaviors do emerge, and as such might not result in the best of outcomes.
As a concluding afterthought - a personal recollection. I tend to have a quiet disposition and in most of my high-school classes, was often amongst the quietest in class. As a result, at the start of class sessions, I was hardly ever given attention by teachers, and used to struggle to catch their eye if I had a question.
Luckily for me, math and science were my strong points. After the first test or examination in these subjects, I could almost always sense a visible change in the amount of attention I received. The teacher's roving eye would sweep the class and rest on a bunch of us who had scored well.(There were even days, I thought I had perfected the art of predicting test scores in advance based on how the 'eye' swept the class!). Those days, it was often gratifying and embarassing - for along with it came the undue directional focus of questions from the teacher.
But now I look back and wonder - why, oh why, do most teachers focus their efforts on the their best students in class?
Monday, October 26, 2009
Value, a levered affair
A recent news coverage on PE returns is generating quite a buzz - Private equity’s love affair with leverage. The article cites research on 240 odd PE transactions in the European market to present some interesting findings:
“The analysis found that the value of a company typically rose by 2.71 times during the period it was owned by a private equity house, on average 3.5 years. Of this 0.88 resulted from the use of leverage. Of the remaining 1.83, 0.87 came from growth in earnings before interest, tax, depreciation and amortisation (Ebitda), some 80 per cent of this from sales growth and 20 per cent from improved margins.
Improvements in free cash flow accounted for 0.42 and the effect of a rising multiple (i.e a company being sold for a higher price/earnings multiple than it was bought for) was responsible for 0.51. However, the data suggest the importance of leverage has grown; while it accounted for 28 per cent of value creation between 1989 and 2000, this figure rose to 36 per cent between 2001 and 2006.”
The interesting point is the outcome that a private equity investor could increase a firm's value by a whopping 80 odd percent by merely increasing leverage of the firm.
Now, how does leverage create (so much) value? Valuation theory tells us that debt increases value because its exploits the available tax shield benefit. At a more deeper level, debt increases fiscal discipline in managers as they are forced to commit to a fixed claim on cash flows, preventing them from frittering around with excess cash.
The interesting question is - how could leverage have so much of an impact? And why couldn't firm managers not act on it in the pre-PE days?
One possible reason is that private equity investors have greater risk appetite than internal firm managers, causing them to be more amenable to extensive leverage. This is quite possible - not every manager is incentivized to lever his/her firm to the point where he needs to sweat the business to avoid bankruptcy risks (that arise out of high debt). It is often easier to avoid making those tough project financing decisions than to risk his/her job security from a potential bankruptcy. PE investors, on the other hand, are incentivized to do the opposite. (Note though, at a higher risk).
For another, it is likely that the PE investors went after those firms which had a poor capital structure in the first place, so they could add 'value' by levering the balance sheet. If true, it shows how poorly a number of firms manage their capital structure decisions.
The other interesting note in the article is the (last) point about PE firms being able to time their exit enough to raise exit valuations by ~50 percent! Imagine being able to time valuation cycles in a 3.5 year average time-frame - possibly the function of a rising market in the time-period of the research?
“The analysis found that the value of a company typically rose by 2.71 times during the period it was owned by a private equity house, on average 3.5 years. Of this 0.88 resulted from the use of leverage. Of the remaining 1.83, 0.87 came from growth in earnings before interest, tax, depreciation and amortisation (Ebitda), some 80 per cent of this from sales growth and 20 per cent from improved margins.
Improvements in free cash flow accounted for 0.42 and the effect of a rising multiple (i.e a company being sold for a higher price/earnings multiple than it was bought for) was responsible for 0.51. However, the data suggest the importance of leverage has grown; while it accounted for 28 per cent of value creation between 1989 and 2000, this figure rose to 36 per cent between 2001 and 2006.”
The interesting point is the outcome that a private equity investor could increase a firm's value by a whopping 80 odd percent by merely increasing leverage of the firm.
Now, how does leverage create (so much) value? Valuation theory tells us that debt increases value because its exploits the available tax shield benefit. At a more deeper level, debt increases fiscal discipline in managers as they are forced to commit to a fixed claim on cash flows, preventing them from frittering around with excess cash.
The interesting question is - how could leverage have so much of an impact? And why couldn't firm managers not act on it in the pre-PE days?
One possible reason is that private equity investors have greater risk appetite than internal firm managers, causing them to be more amenable to extensive leverage. This is quite possible - not every manager is incentivized to lever his/her firm to the point where he needs to sweat the business to avoid bankruptcy risks (that arise out of high debt). It is often easier to avoid making those tough project financing decisions than to risk his/her job security from a potential bankruptcy. PE investors, on the other hand, are incentivized to do the opposite. (Note though, at a higher risk).
For another, it is likely that the PE investors went after those firms which had a poor capital structure in the first place, so they could add 'value' by levering the balance sheet. If true, it shows how poorly a number of firms manage their capital structure decisions.
The other interesting note in the article is the (last) point about PE firms being able to time their exit enough to raise exit valuations by ~50 percent! Imagine being able to time valuation cycles in a 3.5 year average time-frame - possibly the function of a rising market in the time-period of the research?
Subscribe to:
Posts (Atom)