"Goongey ki mithaai"

In today's New York Times, David Brooks writes in appreciation of the US Treasury Secretary Timothy Geithner in particular, and of the Obama administration in general. He is praising their pragmatic handling of the economic crisis. You can read the entire article here.

About Geithner, he writes:

He also talks like a historian who sees common tendencies in certain contexts, not a philosopher who seeks clear general principles that apply across contexts.

And later...

Some administrations are staffed by hedgehogs, who are guided by a few core principles. But this one is staffed by foxes, who respond flexibly to situations. In the administration’s first big test, that sort of pragmatism paid off.

It is thrilling to read newspaper commentary so precisely articulated and insightful. It links an analysis of a current scenario with two timeless modes of failure of human nature - either being too constrained by rigid philosophy, or being too flexible and unfocused.

Yet my delight is difficult to share in an India TV world. My grandfather used to refer to such pleasures as goongey ki mithaai - it can be enjoyed but hardly discussed.

I hope things do not get any worse than they are today. For example, I hope that even the unintentional hilarity of India TV doesn't become goongey ki mithaai as years go by!

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MBA and ROI - the story of Nandan and Neeta

To me the MBA hiring in India seems generally slow and cautious, except at the very top and perhaps at the lower end. In this scenario, I heard that current and prospective students are wondering about return on investment or ROI.

Wow, ROI on education... in India! I did not expect this.

I grew up in a world where education was about educating oneself, not seen as an investment.

More practically, I also found that the models these students are constructing are rather simplistic and in fact plain wrong (E.g. "I paid x so I should get a starting salary of x, otherwise where is the ROI?")

Which led me to think - is this what they learnt about ROI in their MBAs? :-)

So I thought I'd give a US perspective. In the US, the MBA has been a good investment over decades, through many cycles of good times and bad times. So we in India can learn from the models used there.

5 or 10 year payback:

In the US, the ROI is typically calculated OVER FIVE OR TEN YEARS (see the Forbes MBA ROI calculator for example, which in fact you too can use by putting in rupees instead of dollars).

BTW, the average payback period for the MBA in the US is 4.5 years (see this site for more details).

It's personal:

The ROI depends on the individual. This is mainly because it depends on the salary and annual raises the person can expect without an MBA, and the salary and annual raises the same person makes with the MBA (for a thorough treatment of the subject, see this Excel sheet).

The annual raise part is important in India because the shortage of the best-skilled keeps getting more acute year on year (see the IT industry salaries, for example, they rise fastest as a percentage for the most skilled employees, at least for the first few years).

Let us make a simple model, keeping out the effect of taxes and loans, and see how the ROI calculations might fare in India.

Pre-MBA salary:

The first step is to figure how much you would earn without an MBA. Let us take two people - a Mr. Nandan and a Ms. Neeta.

Let's say Nandan does not have a professional degree and no work experience. His English is fairly ordinary. If he did not do an MBA, he would join a BPO. Let us say his starting salary would be Rs. 8,000 a month or Rs. 0.96 lakhs a year, but increasing every year. "Agle saal hi das hazaar ho jayegi," he feels.

Neeta has an engineering degree but no desire or skills with regards to software. Still, she can expect to make Rs. 2 lakhs a year right away and Rs. 3+ lakhs after a couple of years. But she thinks an MBA will help her "polish" her skills and advance her career faster.

Annual raise without an MBA:

As a BPO operator, Nandan's salary does not increase much year after year. Let us say (for the sake of simplicity) that the inflation rate is steady at 10%. Then Nandan's salary may increase by perhaps 20% a year. So in Year 2, he may make about Rs. 10,000 per month. By Year 7, he may make Rs. 24,000/month, which is not bad. But almost half of the true value of that would be eaten away by inflation (in terms of Year 1 rupees).

As an engineer, Neeta's salary is set to increase faster. Let us say that her salary increases at 25% per year without the MBA. By Year 7, she may be at nearly Rs. 65,000/month or almost Rs. 8 lakhs a year, which is a comfortable salary. But again the true value of that would be just a little more than half that at Year 1 rupees, because of inflation.

Salaries without an MBA:

We express the amounts they make both in terms of the cash they receive and the value of that cash in Year 1 terms (which is lower because of inflation).

NANDAN

Year 1: Rs. 0.96 lakhs
Year 2: Rs. 1.15 lakhs (but worth Rs. 1.05 lakhs in Year 1 money)
Year 3: Rs. 1.38 lakhs (but worth Rs. 1.14 lakhs in Year 1 money)
Year 4: Rs. 1.66 lakhs (but worth Rs. 1.25 lakhs in Year 1 money)
Year 5: Rs. 1.99 lakhs (but worth Rs. 1.36 lakhs in Year 1 money)
Year 6: Rs. 2.39 lakhs (but worth Rs. 1.48 lakhs in Year 1 money)
Year 7: Rs. 2.87 lakhs (but worth Rs. 1.62 lakhs in Year 1 money)


NEETA

Year 1: Rs. 2.00 lakhs
Year 2: Rs. 2.50 lakhs (but worth Rs. 2.27 lakhs in Year 1 money)
Year 3: Rs. 3.13 lakhs (but worth Rs. 2.58 lakhs in Year 1 money)
Year 4: Rs. 3.91 lakhs (but worth Rs. 2.93 lakhs in Year 1 money)
Year 5: Rs. 4.88 lakhs (but worth Rs. 3.36 lakhs in Year 1 money)
Year 6: Rs. 6.10 lakhs (but worth Rs. 3.79 lakhs in Year 1 money)
Year 7: Rs. 7.63 lakhs (but worth Rs. 4.31 lakhs in Year 1 money)


Cost of MBA and post MBA salary:

Both Nandan and Neeta go for an MBA to the same school. Let us suppose they pay Rs. 3 lakhs per year as fees. Since they are living in a hostel, let us suppose they spend a few thousand rupees more each year than they would if they were working. Let us say they spend Rs. 1 lakh EXTRA over the two years, after adjusting for internship stipends etc. and what they would have anyway spent otherwise without the MBA.

All MBA grads do not get similar jobs! Some jobs have good initial salary but flat growth paths (as we saw with the BPO example) while some have relatively low starting salaries but aggressive growth paths (a job with Deloitte this year, e.g.!) Also a lot depends on the backgrounds of the students.

So let us take some practical numbers.

Say, Nandan gets a job with a bank at Rs. 2.75 lakhs a year, with a 35% annual raise instead of the 20% he would have gotten at the BPO. Five years after the MBA, his salary is at Rs. 9.13 lakhs, fully three times what he would have gotten at the BPO, but still highly achievable.

Neeta gets a job as a business analyst at Rs. 4.5 lakhs a year, with a 40% annual raise instead of the 25% she would have otherwise gotten. Five years after the MBA, her salary is at Rs. 17 lakhs, more than twice what she would have otherwise made, but again a highly believable number (I think of how much Anishka can expect to make at Nagarro in 2016, given the inflation of 10%).

Salaries and expenditure with an MBA:

So let us recount these "with MBA" numbers again:

NANDAN

Year 1: investment of Rs. 3.50 lakhs
Year 2: investment of Rs. 3.50 lakhs (but worth Rs. 3.18 lakhs in Year 1 money)
Year 3: Rs. 2.75 lakhs (but worth Rs. 2.27 lakhs in Year 1 money)
Year 4: Rs. 3.71 lakhs (but worth Rs. 2.79 lakhs in Year 1 money)
Year 5: Rs. 5.01 lakhs (but worth Rs. 3.42 lakhs in Year 1 money)
Year 6: Rs. 6.76 lakhs (but worth Rs. 4.20 lakhs in Year 1 money)
Year 7: Rs. 9.13 lakhs (but worth Rs. 5.16 lakhs in Year 1 money)

NEETA

Year 1: investment of Rs. 3.50 lakhs
Year 2: investment of Rs. 3.50 lakhs (but worth Rs. 3.18 lakhs in Year 1 money)
Year 3: Rs. 4.50 lakhs (but worth Rs. 3.72 lakhs in Year 1 money)
Year 4: Rs. 6.30 lakhs (but worth Rs. 4.73 lakhs in Year 1 money)
Year 5: Rs. 8.82 lakhs (but worth Rs. 6.02 lakhs in Year 1 money)
Year 6: Rs. 12.35 lakhs (but worth Rs. 7.67 lakhs in Year 1 money)
Year 7: Rs. 17.29 lakhs (but worth Rs. 9.76 lakhs in Year 1 money)

Payback and ROI:

If you compare the without-MBA and with-MBA numbers in Year 1 money, you will see that the MBA has paid for itself in 5 years (use money in Year 1 rupees for accuracy).

Note also: though Nandan graduates with a Rs. 2.75 lakhs job while Neeta graduates with a Rs. 4.5 lakhs job, their payback period is incidentally almost the same - it is about 5 years. This is because Neeta would have done better than Nandan even without the MBA. Nandan's investment is not much worse than Neeta's despite what it appears at first glance!

The calculations also appear to be realistic. I believe that in this market situation, the payback period for an MBA is going to be similar to the typical US payback period, i.e. 5 years. If the market improves in 2012, say, the payback might be faster.

Is ROI/Payback Period even a good metric?

The most significant lesson from this exercise is what the situation looks like in the long term. Without the MBA, Nandan might be making Rs. 24,000 a month in Year 7. With it, he might make Rs. 76,000 a month in Year 7.

Though his payback period is 5 years, should that be a reason not to do the MBA?

Think of Nandan in both cases - Rs. 24,000/month vs. Rs. 76,000/month.

Is this even a choice? Does the 5 year payback reflect the human angle?

Because life does not stop 5 years after the MBA! Most Indian MBA students have at least 35 years of work ahead of them. What on earth does ROI mean in this case?!

Effect of the quality of the MBA:

Let us say that Neeta had a choice - do an MBA from an "El Cheapo" private school with Rs. 3 lakhs as fees, vs. the more serious one with Rs. 6 lakhs as fees. Let us suppose she is so self-motivated that even with the El Cheapo school, she can get a Rs. 4 lakh job instead of the Rs. 4.5 lakhs job and she can get the same kind of annual raises in both cases. She wonders if saving Rs. 3 lakhs in fees is worth it as the final impact on the starting salary is just Rs. 50,000/year.

But the salary difference stays and is compounded in ways mathematics cannot capture. Every little thing you learn in class, how you learn to compete, how the school's brand is perceived - all this is more important. In the long run, the fees are a small component.

THE FINAL LESSON

My father, who brought up four children on a government salary, always says: "Never try to save money when you are buying books."

(And he never did. We children also went to the best schools we could manage to go to. Today, all four of us children are doctors - two of the real kind and two of the "doctor of philosophy" kind. One sister is the director of a cancer institute in the US, another is a neonatologist. My brother is a senior exec at Facebook.)

So to my father's saying, I will add, "Always get the finest education you can afford. To hell with ROI!"

Think ROI and payback period when you are buying a car. :-)


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If you listen to the customer, sales is not a dirty job!

Several of the first batch of PROTON students may end up in sales jobs. In this slow employment market, these jobs are the easiest to find. I am recounting a few stories below because perhaps they will help these students in their jobs.

*****

The first story is around two Max New York Life salespeople.

When Ekagra was born, we paid LifeCell to store the stem cells from the umblical cord. The chances of needing these stem cells are slim and the cost is high, so few people choose to do this.

To chase this juicy market segment (worriers with some money), Max New York Life has tied up with LifeCell, and two Max salespeople found their way to my apartment last weekend.

I opened the door to find these two gentlemen. Let's call them Mr. A and Mr. B. Mr. A was dressed in a suit and tie, had smart looking glasses and a firm handshake. Mr. B was dressed in a dull windcheater and wasn't particularly impressive to look at. He seemed quite invisible. I thought he was the assistant.

They came in and Mr. A started talking, while Mr. B stayed silent. First, Mr. A gave me the LifeCell papers with a big flourish, not disclosing that he and his friend were from Max. Then he tried to make senseless talk to look like an expert on stem cell storage. His knowledge was very poor and his style was quite shady. He gave me a small "gift" (a small Rs. 100 thing) and made a big show about it. Everything about him seemed insincere. I had already seen his Max bag and knew what was coming, but kept quiet.

Finally he came to the point which I had been waiting for.

"I would also like to discuss some more things. We would like to offer you some financial plans for your child. For example, some plans from Max." Then Mr. A felt that he had exposed the Max connection and wanted to hide it again. "But not necessarily Max. In fact, from anywhere, because we only care about what fits you." He looked over-eager, under-prepared, untrustworthy, very bad at what he was doing.

I said I was not interested, and said half-truthfully that HSBC does my financial planning. At this Mr. A seemed very disappointed and again tried to push me hard. "You have to plan for so many things now. Your life has changed with this child," he said. He did not realize that I would not have spent Rs. 75k on the stem cell storage if I had not been doing some planning of my own. "Can I just show you some of our plans?" he pleaded. He seemed desperate.

I said, "You can show me your plans but I must tell you I am probably not going to invest in them." I was partly trying to test him, and I was shocked when he just sighed and acted as though the meeting was over. He was not going to take the trouble if there was no guarantee of success. So he did not have patience either.

Meanwhile, I had noticed that as I was speaking, Mr. B had been nodding. I began to admire his style of listening. And then he spoke, softly and pleasantly.

"We are in fact from Max. We have a partnership with LifeCell. I'm glad you are already doing your financial planning with HSBC. HSBC offers very good financial planning. They have some software that allows you to customize your investment planning. You are in safe hands." And that was it. I waited for the bit about how Max was better than HSBC but it did not come.

I found myself falling into the classic sales trap. "HSBC is not that good either," I said. "They push too hard. For example, they have my father invested all wrong." And Mr. B and I got into a nice, fairly smart, discussion.

It turned out that Mr. B was in fact by far the senior salesperson, although of the same age. He was in charge of the entire LifeCell relationship and was based at Chennai. He had just come along to see how the sales calls were taking place. We talked for quite a bit. I asked him about his background. He also told me about how LifeCell and Max had partnered. When I complimented Max on the high average quality of salespeople, he told me a bit about the Max sales training processes ("we have nearly 900 trainers for 15,000 people"). I told him about the very impressive young Max salesperson who had earlier sold me some medical insurance (he had been so impressive that I almost offered him a job!) I talked about PROTON, Mr. B talked about his engineering background and MBA. We connected as human beings.

When they left, I found myself offering Mr. B my email address. "Keep in touch," I said, "I might have some liquidity in the future and I might change my mind."

*****

I am not an expert in sales, but I really admire those who can sell well. I thought Mr. B was a great salesperson. I tried to figure out why.

Mostly it was because he was listening to what I was saying. He had understood where I stood in life and had changed his approach accordingly. You can't sell high-end financial instruments to an educated and experienced person as though you are a hakim selling magic potions on the roadside.

And he also seemed like a complete human being, with ideas and opinions.

And he did not seem desperate.

*****

Something similar happened when I went to a store recently and asked for a hot air blower one could hang on a wall. "Aisa to kuchh abhi tak to nahin aaya," said the elderly shopkeeper. "Aap next week check kar lena, naya saamaan aa rahaa hai." This was fairly standard.

"Aur agar aap bataa dein aapko yeh kyon chaahiye, shaayad mai aapki madad kar sakta hoon." I told him that I needed it for a bathroom where I did not want to take the risk of contact with water.

I expected him to somehow scoff at my logic. Most people immediately try to sell you something else instead. Instead he surprised me. "Achchha achchhaa," he said, "phir to shaayad mai help nahin kar paaoon." Then he kept quiet.

After a good one minute, in which time my defences had come down, he said, "Perhaps you can try one of these oil heaters, they are safer than the hot air blowers and might fit your need" and he had my full attention.

*****

I almost unwittingly did the same thing recently at one manufacturing fair at Dusseldorf on behalf of Nagarro. A senior IT manager of Michelin (the French tire company) was passing by our stand when one of our salespersons caught hold of him. Though Mr. Michelin was speaking patiently and courteously - he was after all French! - I could see he was eager to move on.

"Maybe you can tell us your IT priorities" I said, "so that we can see if we can help you or not". He named some things, quite defensively and warily. As it turned out, Nagarro does not do those things.

So I said simply, "Then perhaps we can't help you!"

That shocked him! I could see him stop for a full second and digest that. He had gotten so used to being sold pushily that he loved this.

"So what CAN you help me with?" he asked warmly. And then I began.

After a few seconds he said, "Can we sit down?" We had made a connection as human beings, not as the desperate hunter and hunted.

Keep this in mind if you are ever selling!

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Zero Percentile

A senior colleague at Nagarro, Neeraj Chhibba, has surprised us all with his first book, "Zero Percentile", which is published by Rupa Publishers. It must have made it to bookstores all over the country by now and is also available online.

A lot of young Indians used to go to the Soviet Union to study. Many decades ago, my father got a PhD in geology from Moscow (he wrote his thesis in Russian). Many of my friends too went to the USSR to study engineering and medicine. But while they were there, the USSR disintegrated and everything went haywire. They saw the socialist system collapse before their eyes. Many were shunted from institute to institute and their futures were in doubt. As if that were not enough, the Medical Council of India began to raise questions about the validity of the medical degrees out of some of the ex-USSR institutes. It was a tumultous time, and the book is set in that era.

What I liked about it is that it makes you smile innocently from time to time. Although the book is semi-autobiographical (luckily I do not figure in it like my brother and I did in another friend Amitabh Bagchi's book, "Above Average") the author always seems to be making gentle fun of the story and its characters, including the protagonist, even in the most tense and violent moments.

Just BTW, the title "Zero Percentile" is a bit of a pun on www.100percentile.com, an education software company that we are also associated with.

Neeraj works long six-day weeks at Nagarro, so it is a tribute to his focus and energy that he managed to write this book. I feel motivated by this to try to publish a book of poems sometime in 2010.


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Stanley Moss in the Mint

Stanley Moss, who was recently at the Indore and Ahmedabad campuses of PROTON was next in Mumbai to receive an award at the World Brand Congress. The Mint / Wall Street Journal carried an interesting article on Stanley and some of his thoughts about Indian brands. You can read the article here.





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