Vlerick MBA Podcast
Here’s a link to MBA podcast of the school… The podcast can also be downloaded here
It gives an overview of the MBA program from different points of view: couple of my classmates, the dean, director of MBA program, an assitant professor and business development director. Among the two students who feature in the podcast are Andrew who is one of the funniest and finance guru and Corrinne who I will remember for how she described her bicycle… I was expecting she would describe it as conveneince, but she called it freedom : )
Diminishing returns
Two years back, during the stock market boom, one of my friends told me that making money had become too easy and it can’t last too long. last week, I heard a similar observation from a business unit manager, he said making money was so easy a year back that he was fine if the company created jobs even at the cost of efficiency, but in this new reality, he can’t afford budget for expensive labor unless they prove their worth. We seem to have come a full circle in the economic cycle and don’t know where we stand at the moment… and this has significant implication about how we view future MBA opportunities.
Expectation of returns on practically every investment decision made during the boom period must be tempered down: irrespective of whether the investment was in a house, equity stock or education! Expectation of 12-24 month payback time for the investment in MBA is already moving north towards 36-60 months! And I’m still talking about the 30-40K MBA, for the folks who invested in 60-80K MBA… well, what can I say? :)
Curiously though, while there is a direct relationship between the economic climate and demand for most asset classes, the relationship between economic climate and demand for MBA (if you consider MBA as an asset) is inversely related which means that while prices for most asset class will decrease during a recession, an MBA will become more expensive in the next few years. Come to think of it, its because the business school’s value proposition is not merely a function of actual costs and benefits for the customer, instead it is to a large extent determined by total opportunity cost (If the prospective student has lost his job or is not expecting any salary increase, there is little opportunity cost) and the shadow price (If job losses become more imminent, the price prospective students will pay for increasing probability of success even by few percentage points increases significantly) of education.
Will the situation change in the near future? I hope so… Each time I tell my classmates that the economy might not turn around for the next 2-3 years, the defense I hear is about how capital markets are bouncing back! Well, yes they are bouncing back and I haven’t ventured into any analysis here… but the stock prices could bounce back either because the actual EPS trend up or because the WACC goes down. If the capital market bounce back is a function of decreasing WACC, then it is little indication of the real health of economy.
Real world
Benefits we receive from MBA can be truly subtle and almost unnoticed at times.
It’s been a few weeks since I 
entered the “real world” after MBA classes and I have noticed one striking difference in attitude in comparison to pre-MBA days. I’m absolutely at ease at having supposedly “novel” ideas rejected. Come to think of it… if these ideas were rejected 2 years back, behind my smile would be hidden an absolute remorse about the hierarchical structure of firms and I would have jumped to the conclusion that the whole organization has conspired against a brilliant employee for the fear of competition :)
Now, the reaction is completely different, when the Strategy Director says that the hypothesis is novel and well founded and the same hypothesis is rejected by the Managing director, my first reaction is that the Strategy directors’ leadership style is that of the “Good King” and the BU director is a “Warrior” type leader and therefore the presentation has to be customized. Exercises about how to communicate to different personality types was merely fun during the MBA and yet, they seem to gain unprecedented importance in this context, it really helps. The hypothesis was indeed accepted after alterations!
Also, looking at an issue from multiple points of view comes so naturally, an issue can be looked at from organizational design, measurement and attribution, economic theory of agency, competitive framework, management control, alignment of goals or a number of other ways… all relevant, some more than others… So if one of the hypotheses is rejected, the urge is to go work on an alternate hypothesis immediately and with ease… that reduces the need to defend the original idea for the fear of not being able to come up with any other remotely well founded hypothesis. The advantage of looking at the issue from different perspectives of course is that an issue which look like a huge wall, when looked at from a different POV appears merely as a thin facade… it simplifies complicated problems.
Finally, those dreaded conflict laden MBA case studies seem to add value most in the understanding of one specific aspect of firms: Competing priorities and conflicts. Even before presenting ideas, I begin to think about how it affects different stakeholders and how to tackle objections. Just the mere fact that I think about different stakeholders and realise that it is only natural to have objections irrespective of the solutions’ novelty has a significant (positive) impact on attitude!
I think I screwed up…
During my turn of closing comments of the conference yesterday, I said “As a student, it’s truly a privilege to have a chance to participate and contribute in a conference of 40 leaders….”. It was a conference of country managers, sales directors and the regional managing directors. Quite an incredible experience!
After the close, the regional MD asked me “How do you feel about the conference? Was it a different from college?”, I think I might have over-reacted… I replied “I truly enjoyed it… But I’m surprised how similar this workshop was to the group works we do in college!”… hmm… Honest, but not a smart comment. I’m sure I did not offend him with that comment, but I must have given an impression that I learnt nothing from a great opportunity, for I compared a meeting of leaders directly responsible for nearly 5 billion dollars in revenue as merely similar to any other exercise in college. Ouch!
As I introspect, I realise that the group was certainly different from the MBA group for each and every participant was absolutely confident about whatever he/she said. There were different opinions, but almost no argument and the group came to consensus at lightning pace which I least expected. But I can’t put my finger on why I felt the two groups were so similar… was it because the kind of cluster formation by geography, language or function was similar to what we see in class or because the brain storming was only as structured as any other or if it was because I felt there wasn’t enough out-of-box thinking!! Can’t put my finger on it… and yet I’m so sure they were similar. Maybe, the right way to look at it is not that business leaders behaved like MBA students, but MBA students have been behaving like business leaders the entire year!
Resting place
I happen to pass by a graveyard during the train journey to the office (Yes, the in-company project is in full swing)… today I noticed tracks of lawn mower in the graveyard and thought “If it were not for the tombstones, this place would look exactly like a park!” It’s so very well taken care off as opposed to graveyards in India which are at best dilapidated…
Come to think of it, Neither family ties nor economics explain this strange phenomenon because, if generalised, Indians are supposed to be far more closer to their elders compared to Europeans and yet it’s the Europeans who seem to show more respect to the resting place… economics wouldn’t explain it either because I doubt if the survivors of the family in either continent have to make a contribution to the maintenance of graveyards… It couldn’t be religion either because both Indians and Europeans believe in reincarnation… So, I wondered why it was that the graveyard here seems like a much better resting place than in India… and then I remembered hearing that there were many deaths in Leuven during WWII. Could that be the reason? it doesn’t seem like this is the graveyard for soldiers because there are no flags or other national symbolic signs… so it must be normal citizens who were killed during the war. I wonder if there is any nobility in defenceless death; in being murdered. Could it be because citizens feel that those who departed deserved a better end to their lives! Could it be our way of offering a consolation for their unfortunate departure… Well, the last thing somebody would want after they pass away is pity.
Any case, for all that I wonder, it could just be a case that the graveyard happens to be in the middle of the town and the municipal board feels the need to maintain it well to protect the decor of the city and keep criminals away.
I do wonder however, if knowing how you will be rested and treated after life will affect how you live life itself! If so, imagine the pressure an Egyptian pharaoh would feel to live a life that would be deserving of a pyramid at the end of it!! I wonder if the pharaoh’s life would be fun at all :)
How to name it
I came across this instrumental song from 1986 by Ilayaraja who ruled music scene in southern India for over two decades. The problem with piracy is that the original recording company’s private property right has all but disappeared in the practical sense, which makes it extremely hard to turn a profit out of this product… however, this must also be one of the biggest marketing disasters… Just the fact that I remember from when I was 9 years old that parts of this album was distributed free of cost since it was used to fill up the tape (The tape technology meant that there was always some space to be filled on one of the sides) is proof of the music’s quality. Most parts of album were used as back ground score in movies and I guess music did earn money in the sense that it increased ticket sales.
But still, what an opportunity missed. I can imagine that even today, if marketed well, the distributor can still make millions with this album because nobody really knew that something like this existed… the album is called “How to name it”… I know how… Gold mine!
Its might belong to the long tail in most parts of the world… but its certainly in the head of the tail in India (especially south)!!
2×2 Matrix
The problem with 2×2 matrix is that it is static. It assumes that all constraints and enablers will remain the same over a period of time which is hardly true in real life… but then, it does add new perspective to rather trivial events… For example, I’ve been blogging much less lately and I tried to put that into a 2×2 :)
Y axis: volume of interesting events/thoughts in life to blog about
X axis: confidentiality of those events/thoughts.
Since I just signed a non-disclosure agreement for Vlerick’s in-company consulting project (I’ll begin the project on Monday)… I’d like to think I’m exclusively in the upper right hand quadrant. However, I have a niggling suspicion that I’m bordering on the lower right hand quadrant as well :)
Back home
It feels strange to be back at home in Leuven after just 10 days of vacation in Poland. I’m left here wishing that there was a park in front of my studio; a fountain in that park and kids playing in the fountain while I listen to music and read a book in the balcony just like it was in Poland. It has also gotten me thinking about how I’ll feel when I go back to my real home in Bangalore after 1 year in Belgium! Here’s how the first 24 hours will be – I think!
The post is extra ordinarily long that I posted it in a new page called THE FIRST 24 HOURS. The post is so long (4000 words) that the only rational explanation is that I probably went manic today from the long travel:) It turned out to be more of a short story rather than a mere post… well, sometimes, it is good to be creative.
Student City
Back from my vacation!
It’s interesting to see how attitude towards travelling changes over time. The first I set foot in Europe (back in 2001), the excitement I felt was because of fresh cold breeze I felt like I had never felt before, greenery I saw like I had never seen before and travelling over 120 Kms on road which I had never done before. People were not needed for this excitement. After a while, the point of travelling became merely a pursuit of checklist, another country off the list, another place to talk about (read as show off) to friends and family. But that phase passed soon as well. Now, as I travel over 1000 Kms from Poland back to Belgium, it feels no different than travelling from Bangalore to Goa, because the geography of Europe is just as familiar, if not more, as in India. The cherished experiences from travel is now derived from the people I meet, not places I visit and I mean this for the Swiss Alps or New York too.
I was lucky to meet a wonderful family in Wroclaw on this trip. I visited my friend who let me stay in a wonderful apartment. The surprises though came from the family. For Easter, the father invited me to a speedway race, which he has been visiting for the past 5 decades! As I approach 30, often I wonder if I’ve gotten old too quickly, But after the speedway race, I realise age has little to do with ageing, for I felt a lot older among speedway fans, many of whom were twice my age. They cheered louder than me, cursed just as loud and I must admit they were thrilled by the race a lot more than I was. My friend’s mom cooked great (Polish) food throughout the stay. I did not least miss home food during this week. Every dish was tasty and I think I put on weight within a week :) I was a wonderful experience and a new one too!
Here’s what I find intriguing about this trip. Wroclaw is a student city. Anybody who knows something about student cities in Central and Eastern Europe knows that the general culture borders on Hedonism (I agree its stereo typing, but has some truth in it). As an outsider, the only music one hears is techno, trance or R&B, there are more nightclubs in the city than good restaurants, the downtown is filled with drinking holes and party places and just as you move away from the downtown, there are innumerable parks to laze around or get a good sun tan, which a majority of people take advantage of. You can also see other ways in which the parks are taken advantage of by the number of beer cans left over at 5 AM in the morning. A majority of the population lives in the right now and right here. This attitude is understandable in most student cities or college campuses around the world, but I found that concept to be pushed to its limits in this part of the world. The philosophy of life is so simple and uncomplicated that it becomes seductive… after all, why not maximize pleasure and minimize pain every day when you know life is short! It’s like constantly living in a proxy Ibiza island. The objectives of life being get through the boring weekdays and then hit the dance floor from Thursday through Saturday, the only constraint being depth of pockets…
Come to think of it, this is the part of the world which has seen most violence in the past century even in comparison to Middle East and Africa! Clearly people have witnessed tremendous pain and I wonder if that is the reason that this Hedonistic culture among youngsters is tolerated by the older generations even though Poland is one of the most catholic countries in the world.
The business implication is interesting to. Imagine, managing a team in India and another in Poland and both teams are supposed to perform similar operations for different geographies. Given similar volumes, simple mathematical model would suggest the same headcount to be staffed in both locations. But given the difference in cultural environment, the Indian benchmark simply won’t be sufficient in Poland. It’s rare to find any employee staying in office beyond the 9th hour in Poland as opposed to having the entire team stay in office beyond the 12th hour in India :) We could go around blaming leadership, operating model, efficiency and other business buzz words… but all that it come down to is this: Irrespective of the pros and cons, few cultures have figured how to have fun each week, others count on their annual vacation for fun and this has an impact on how business should be conducted :)
Buy house!
While I’m on vacation, my mom called me up to let me know that she heard news about a house on sale in Bangalore. It’s rare that I hear such excitement in her voice. I could tell she was eager to hear me say “Let’s go for it!” because it has been her only material ambition for over 20 years – to own a house. My dad never really was interested in investing in a house and my mom kept seeing house prices soar from under INR 200,000 to more than INR 2,000,000. I can empathise with her for I have seen stock prices explode 30 times while I sat on the sidelines :)
I feel bad (even guilty at times) that while I go on to achieve all I want with education and career, I’m unable to offer her this satisfaction of owning a beautiful house. So, the emotion got the best out of me and I asked her “Mom, What price are they quoting?” She said “3,000,000 Rupees, its high, but lower than what was offered a year back. They are offering such a good price because they are in need of money urgently, so we need to get back to them as soon as possible!”… I began to wonder if this might be a good investment after all. I told my mom that I’ll call her back the next day and began to ponder over it. I must admit it gave me a sleepless night because it is something I really want to do for her.
But then, if I were not to back this up with some simple calculation, this entire year of MBA studies would be a waste, so I quickly crunched a few numbers…
The average expected rent for the house today is INR 6000 per month, which means INR 72,000 per annum. Assuming the average inflation rate over the next decade will be a whopping 10%, the rent would increase at the rate of 10% as well during that period. Assuming that I get really lucky and secure a housing loan for only 6%, I can use this rate as the cost of capital. If I were to discount the total cash flow for the next 10 years (72000+79200+87120+…..+186750) by 6%, the Net present value of the house is INR 900,000!!
Ok, let’s do a reality check. NPV is 900,000 for the cash flow of next 10 years assuming I get a housing loan at 6% and the current quote is 3,000,000… lol.
The actual PE ratio if we were to in fact buy the house at INR 3,000,000 is close to 26! I then begin to wonder when was the last time a company on BSE had a PE ratio of 26!! Long time back, I hope. Imagine, even if a stock like Infosys had a PE ratio of 26 because you expect it to grow 40% (not 10%) per annum and then you are asked to invest not only all your wealth but also leverage yourself 10 times or more (by borrowing) to invest in that single stock!!! I doubt any rational person would do that, even if he is greedy. Certainly not if he is enlightened by the CAPM model…
Long story short… The next day I spoke to my mom and told her “Mom, it’s not a good idea”. She replied “Yeah, I’m not interested anymore either because the kitchen’s Vastu (Indian Feng Shui) is not right” :)
