Monday, 28 May 2007

Broadbase the growth

The PM has appealed to the corporate sector to reduce CEO and senior management salaries.

His logic is that too much inequality creates social tension and the benefits of four years of 8% per annum economic growth have gone largely to the English educated urban elite.

As the UPA government enters the second half of its five year term putting out this argument does make political sense. And it is also true that if the benefits of economic growth are cornered by the elite it will lead to frustration and unrest among those who desire to participate in the Indian economic miracle but do not possess the wherewithal to do so.

However it is important to understand how the current situation has come to pass. Why ‘trickle down’ is not working. Why growth is not inclusive. This will help the government take action to ensure that the base of those benefiting from the India growth story can widen.

There are three issues the PM has touched upon – first the high salary growth among white collar staff (whether CEOs or senior management or junior and middle managers), second the benefits of economic growth being limited to the English speaking urban elite and the third the evil of greed and self interest.

I’m not much of an economist – though I did study the subject in college and at business school. However here are my two bits.

Where CEO salaries are concerned it is important to distinguish between promoter CEO's and professional employee CEO's.

As far as promoter CEO's are concerned there are existing provisions in the Companies Act which are meant to ensure that at least for publicly listed companies promoters don't determine their own salaries - these are provisions limiting the total compensation of full time directors, the requirement of independent directors on the Board, the requirement of a remuneration committee etc. All you have to do is ensure that this system works - the independent directors are truly independent, the remuneration committee does its job and so on.

The situation for professional CEO's, senior managers and other white collar workers is different.

If salaries of white collar workers are growing at a rapid rate it is because growth in demand for that kind of talent is outstripping growth in supply.

Companies vie for talent in a very competitive marketplace. It would be very difficult for individual companies to ignore market forces when it comes doling out increments to their employees. Professional managers are frequently not wedded to their employers. Most companies would like to pay employees less but they don’t have a choice. To retain quality staff they have to match market salaries. Paying less than the market and losing talent as a consequence would be the kiss of death.

Salary growth will taper off if demand for talent goes down or else supply increases.

Demand for talent will go down in the foreseeable future only if economic growth slows down and that’s not desirable.

What is desirable however is that supply of talent increases. That way everyone wins – industry wins because it has the wherewithal to grow faster, the people win because more get jobs and the government wins because it collects taxes on a larger base, inequality and social tensions are reduced and voters are happy.

Now how do you increase the supply of talent. It’s easy to say but hard to do – reform the education sector.

Better execution in the government school system – ensure teachers come to school and teach well, ensure that government schools have adequate infrastructure and ensure more student attendance in government schools. Private schools will take care of themselves.

Empower school children with skills that are marketable. In one word teach them English. If most high paying jobs are cornered by people who can speak English then the market is giving you a signal. Proficiency in English is a valued skill. It is the language of business. Teach people English and they will get jobs.

My driver knows this. He spends close to forty percent of his salary sending his children to a private English medium school in the resettlement colony where he lives in Trans Yamuna. He knows that their future is secure if they learn English. It is the language of the white collar worker, it gets you ahead in life, it gets you jobs, it is aspirational – it is the language of upward mobility in India. We may not like this but it’s true.

Out of a misplaced sense of nationalism our politicians may have promoted Hindi and other Indian languages in schools at the expense of English (while many of them were sending their own children to English medium schools). But it is English that is a marketable skill. Two or three generations of Indians have been sold down the river as a result of this folly.

Apart from reform in government schools what is needed is reform of higher education. We are producing an army of unemployed and unemployable BA’s. For a large section of Indian youth, college is something you go to in order to get a label of being a graduate without any significant value addition. And what you study in college equips you poorly for any of the jobs that are available in the real world. There is a serious disconnect.

What the government needs to do is ensure colleges teach things that help people get jobs. Now that would mean an overhaul of the state owned colleges, allowing relatively free entry to private colleges with fewer controls and ensuring the REC’s, IIT’s, IIM’s and other centres of excellence are given independence.

It would also mean that colleges become market driven – now that’s something that won’t please a lot of academics. It would mean there is close interaction with industry to ensure that students are acquiring knowledge and skills that are relevant to the workplace. It would mean constant and frequent upgrades of the curriculum. It would mean that the faculty themselves would have to work hard to continuously acquire new skills and knowledge.

It would also mean rewarding the teaching profession better – so as to attract better talent into teaching.

It would mean making teachers and college managements more accountable for measurable results.

Finally this will mean allowing colleges to charge, at least the better off students, fees that reflect the real costs of running these institutions. After all quality upgradation requires investment and that money has to come from somewhere. It is logical that the money comes from those who can afford to pay and who benefit from the education. And they would be willing to pay if they see a reasonable prospect of getting a good job at the end of it.

You may argue that education reform is not a short term solution. But it just takes fifteen years for a class that is today in kindergarten to graduate from college. And that’s not a long time in the life of a nation. If this had been implemented in 1991, at the start of liberalization, we would have been seeing the benefits by now.

What this is about is large scale upgradation of Indian human capital. Convert the large population into an asset from a liability. India's growth will be fuelled by its human capital. That's what has happened thus far. Recognise that and reinforce it by investing in human capital.

Apart from increasing the supply of talent (read empowering people with skills that are currently in demand) the government can also take measures to incentivise growth in those sectors that will enable the non English speaking urban elites to participate in the economic growth that is taking place – without necessarily having to acquire skills and qualifications that they do not have. In other words create demand for the skills that this population possesses.

This would mean ensuring growth takes place in sectors such as retail, infrastructure, construction, logistics and transportation, agriculture and labour intensive manufacturing.

So finally it is all about demand and supply – Microeconomics 101. Increase supply of the kind of talent that is in demand. And increase demand for the skills the deprived population currently possesses.

And you get broad based inclusive growth.

It would be a bad idea to kill the growth that is currently happening by capping salaries and curbing the basic human desire to get ahead in life – call it self interest, call it greed or call it the invisible hand. This desire to get ahead coupled with the opportunity to get ahead that has been provided by the policies of economic liberalization that successive governments have followed over the last decade and a half have largely fuelled the growth that is taking place in India today. Don’t stop a good thing.

Instead focus on how more and more people can benefit from the great Indian economic miracle that is currently unfolding.

Thursday, 24 May 2007

Life After IPO - I

Apologies for the gap in posting. We just returned from a long trip overseas meeting investors and updating them on our financial results for the previous year.

Barnstorming twelve cities in five countries across three continents in 15 days has left me clueless about which time zone I am in and consequentially am wide awake as I write this blog at 3AM.

I think I am one of those people who get badly affected by jet lag. Frankly I don’t know how people do this for a living. I had thought life was supposed to get simpler after the IPO process was over.

Although I must admit we got into this with our eyes open. People older and wiser than I had told me before the IPO that a lot of time and effort would have to go into investor relations on an ongoing basis, we would be under a very public microscope, we would be riding a tiger etc. etc.

Well actually the benefits of doing a successful IPO far outweigh the occupational hazards. Going public has put us in a different strategic space altogether. We’ve got cash in the bank, our stock has currency, employees have seen the value of the ESOP, we are finding it easier to attract quality talent, the VC investors got liquidity, we can take larger bets, we are insulated against a downturn, it’s great for branding, we have unlocked shareholder value and so on.

On the flip side – our numbers are public. Competition knows more about us than we about them.

We were happy with our results and also with the numbers Rediff posted. I called Joy to compare notes and SMSed Ajit to congratulate him. The Rediff turnaround is great for the industry as it validates the confidence that investors have placed once again on the Internet in India. For a company that once traded at under a dollar on NASDAQ, the bounce back makes a great story.

The best part about meeting investors is that the smart ones challenge you with their questions and thereby force you to think in strategic directions that you otherwise may not have. At least some of our good ideas in the last year have come about as an unintended consequence of probing by investors.

One area that every investor we met on this trip asked us about was the penetration of the Internet in India. So how many internet users does India have actually? Is the estimate for usage in Cyber CafĂ©’s real? Why do estimates of Internet users in India vary so much? What’s happening on the Broadband front? What about wireless? How fast will Internet penetration grow? What’s happening on usage on the mobile? How many years behind China is India on penetration? How low will PC prices go? When will usage go beyond the big cities in a meaningful manner? How significant is home usage?

I wish I knew the answers.

Sunday, 6 May 2007

Mirror mirror on the wall - who is the No.1est of them all

I wrote a couple of hundred words about nothing and nine people commented and encouraged me to continue blogging. Thanks guys.

Ah. The burden of expectations.

So here is my second post.

Over the last two weeks several friends have asked me why bragging rights are important as to who is India’s No. 1 Job Site.

The truth is that users of job sites (whether job seekers or recruiters) already know which job site is No. 1 for them. A recruiter knows how many people he hired from where and at what cost and time per hire. A job seeker knows how many relevant jobs he found when he did a search on which job site. Similarly he knows how many interview calls he (or his friends) got by putting up his resume at which job site.

Response is measurable. Evaluation is easy. And no claims by any job site can beat what the user believes from word of mouth and personal experience. So the user knows the truth. You can't make it using smoke and mirrors.

Hence our reluctance to spend serious money in claiming we are No. 1. We spend money on brand building advertising on television and on immediate response advertising on the Internet.

For us our No. 1 claim is something we put into most of our communication along with our logo. For the simple reason, that it is the truth.

But it has not been the central theme of any of our paid communication recently – because if it is the truth the user knows it already. If this is not the truth that he has experienced, then no amount of saying so will convince him otherwise.

(Emails we send to our users and what we say to the media don’t fall into the category of paid communication)

But a more important issue is how No. 1 should be measured.

Of course aggregation is important – of jobs, resume’s, recruiters, job seekers and applications. However mere aggregation is Job Site 1.0

Job Site 2.0 is way beyond that. While some of our efforts go into defending and possibly increasing our leadership on aggregation, over the last two years a greater part of our efforts have gone into addressing issues that we believe will take us to what Job Site 2.0 will be about.

When you create a large job site with plenty of aggregation you may have solved one problem for the user but you have also created a whole set of new ones. What do we do with applicant spam, what do we do with recruiter spam, how do I find that one resume I need out of the jungle of millions of resume's in the database, how do I find the three jobs that are relevant for me, what do we do with the fake resume problem and so on.

The next frontier lies in the areas of improving the user experience through better UI, better use of analytics, better and faster search, better assessment of intent of user, better search result ranking algorithms, better matching of intents of the job seeker and the recruiter, compatibility assessment, solving the employee reference check problem, incorporating Web 2.0 features into our offering and also taking the site beyond the Internet and onto the mobile.

And that's what we are working on these days. To lead the market to Job Site 2.0, where we will go beyond mere aggregation to create value for users, and thereby consolidate our leadership.


Within our company after the Timesjobs, “Everyone’s quitting naukri” campaign broke there was some concern for a couple of days. However soon enough both Marketing and Sales people were smiling.

The Marketing guys were happy because our daily new resume registration was up by twenty percent (even though we were off television) without any change in the marketing inputs that we were providing.

The Sales guys were delighted that by putting forward the claim that they were No. 1 because they were bigger than Naukri, Times was effectively saying that Monster is at best No. 3.

Tuesday, 1 May 2007

Getting started

I have been wanting to blog for a while. Never got down to it. I didn't want to start a blog and then not sustain it.

Years ago I had tried to learn golf. A golfer friend advised me to buy rather than rent a golf set since that would ensure that I would play regularly. A set cost more money than I could afford at that time, so I asked my brother to get one for me from USA. I went to the driving range a couple of times to hit a few balls and then my interest in playing golf petered out. Perhaps if I had paid for the set I would have been more committed to the game. The clubs are lying unused in a cupboard at home.

Now I am often asked if I play golf. I wrinkle up my nose and say I don't have the time.

Will my fledgling blog share the same fate as my golf game? DKCS. I can only try.

I met Gautam Ghosh on a trip to Hyderabad a few months ago and told him about my interest in blogging. He encouraged me to get started. I promised I would. I didn't.

Till now that is.

So here goes I've managed to blog a couple of hundred words without saying anything.

Hopefully I will have something more to say sometime soon.