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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