SK – Page 134 – Pertinent Observations

Governments and agendas

Say what you may about the inefficiencies of the BS Yeddyurappa government in Karnataka, you must accept that the initial days were great. While the miners may have been allowed to prosper, which led to plunder and constant government instability (which led first to the BJP split and then the humiliating loss in these elections), the government did rather well in its first year of operation. Infrastructure (especially in Bangalore city) saw an improvement. I moved out of Bangalore in August 2008 (three months after Yeddy took power) and returned in June 2009, and there was a significant visible change in the city (for the better). Policing and law and order also seemed to improved (in those initial days of the Yeddy government).

It might be early days still, only four months since Siddaramaiah has taken charge, but I don’t see anything in this direction. Bangalore roads are all torn up and travel times have doubled (primarily due to potholes). Law and order seems broken (cases like this one and this one come to mind). The chief minister reportedly feigned illness and backed out of a meeting with industry captains at the last minute (heard this from two independent sources but can’t find a link). Any way, the industry in the state is not happy.

Typically, when a new government takes over, it wants to be seen gathering some “quick wins’. Typically the easiest problems to solve are to fix law and order – all it takes is to decision the police, and it typically improves whenever a new government comes to power. Another quick win is improvement of basic infrastructure – such as asphalting roads or improving water supply. Meeting industry leaders and making global statements also don’t take much effort, but go a long way in getting the support of the industry.

If it is all so easy, and the earlier government did that, why has the current dispensation not implemented any of it? I blame it on the Re. 1 per kg rice scheme. The problem with the current government is that it has a specific agenda – as soon as he came to power, Siddaramaiah announced this cheap rice scheme and promised to implement it in a month or two. This has resulted in two things. Firstly, the statement meant that most of the management bandwidth of the government bureaucracy went in managing and implementing this cheap rice scheme. Since the CM wanted this to be done in a certain number of days, officers probably scrambled to meet the deadline, thus not being able to pay attention to other issues.

More importantly, the government saw this cheap rice scheme as a quick win. The people will be generally happy with the government if this is implemented, they might have reasoned, thanks to which other potential quick wins (policing, basic infra) took a backseat. I’m not a beneficiary of the Re. 1 per kg rice scheme so I can’t comment objectively but I’m not sure if the recipients of the scheme are happy that the scheme has been implemented or unhappy that other developments have taken a backseat.

The point with the Yeddy government is that it didn’t have a specific agenda – no “global” quick win scheme, thanks to which the government had to push on several fronts to try and score a win. And so they pushed on all fronts where quick wins were possible and managed to get them. (It is another matter, of course, that in the longer run they ran an increasingly unsteady ship and messed things up right royally, because of which they were (rightly) voted out in the next elections).

It is similar to the NDA government of 1999. There were no grand quick win plans, and that gave the government the bandwidth to push on several long-term fronts, including infrastructure projects such as the Golden Quadrilateral and the Pradhan Mantri Gram Sadak Yojana, further disinvestment and the new Electricity Acts. UPA1 on the other hand quickly came up with schemes such as the NREGA which served as a good vote-catching quick win (and it probably did its job given the enhanced majority the UPA got in 2009).

Thus, from the point of view of sustainable development and investment in public goods, it is possibly better off to have a government which has no specific idea. If not, the specific ideas might come in the way of other development.

Indigo’s Food Policy

My last few flights on Indigo Airlines have not been pleasant, at least from a food perspective. It is said about the airline that they put a great amount of thought into each of their processes, but while it might have been working earlier (I used to positively prefer Indigo’s food experience a while back) of late it doesn’t seem to be doing too well.

Firstly, I don’t have a problem with the food itself. I most definitely prefer Indigo’s cold sandwiches and Real Activ fruit juice to the reheated omelette/pulao that Jet Airways serves. It is much lighter on the stomach and feels healthier, and doesn’t give you that usual bad aftertaste of “airline food”. I also understand that it makes sense from the company’s perspective, since the lack of hot food reduces their cost of serving it and also makes the plane easier to clean.

The problem, however, is with the process. Firstly, Indigo has these “corporate program customers” (I’ve never understood how to get into one of these), whose meal is pre-paid. So you have stewardesses walking around with printouts to know who is eligible for a free meal. I’ve also noticed some kind of priority in terms of service – that the corporate program customers are served before others (which is logical, since they’ve already paid), which disrupts the flow.

Then there is the problem of cash management. For whatever reasons the price points are not in multiples of 50 (sandwiches cost Rs. 170, fruit juice Rs. 70), so change management (!!) is a huge problem. While they have credit card machines they don’t work uniformly, and end up causing further delays.

The biggest issue, however, is the choice! For probably good reason Indigo serves a variety of meals, enough variety that the menu runs up to a full page in their in flight “retail therapy magazine”. There are two problems that result from this – firstly, there is a problem of inventory. When you offer so much choice, how much of each type do you carry? I know there must be some science going into how many packets of ready-to-make Uppit they carry and how many chicken sandwiches. However, on days when I’m (unfortunately from a food perspective) seated in the vicinity of Row 14 or Row 30, it is reasonably unlikely that I don’t end up getting my preferred choice.

The second problem with the variety in food is the time lost in decision-making. “Give me a chicken sandwich. Oh, it isn’t there? Then give me biryani! Oh, but that’s a Ramen kind of thing? No I don’t want that. Give me cashew nuts. Not pepper flavour, give me chilli”. The amount of time it takes for a passenger on Indigo to decide on what to eat is significantly more than the corresponding time it takes for a passenger in a so-called full-service carrier (veg/non-veg). Again, it doesn’t help (from this perspective), that an Indigo flight operates with four stewards, as opposed to six in a “full-service” carrier of the same size.

Overall, it makes the entire process of ordering for, paying and getting a meal rather unpleasant for significant proportions of passengers. My solution to this would be two-fold. Firstly, include the cost of the meal in every ticket. The current cost of an Indigo meal is Rs. 240 (170 for sandwich, 70 for juice). With economies of scale (everyone ordering a meal) I’m sure this can be brought down to about Rs. 200. When I’m paying Rs. 5000 for a flight, I wouldn’t mind the extra Rs. 200. I may not eat (note that half the time I fly Jet I don’t eat), but the point here is that given the brand Indigo has built I may not change my decision on flying Indigo because it costs Rs. 200 more.

The second idea is to drastically reduce the choice. Yes, I know that might end up pissing off some customers who have their own favourites from the Indigo menu (mine is spinach-corn-cheese sandwich) but it makes the logistics much easier to handle. Imagine having just two choices of sandwich and two choices of juice (and no more, maybe less) and you think of how much quicker the service will get then. Going even more drastic is also an option (this is something Jetlite used to do in 2008, and I’ve noticed the same with Turkish Airline’s low-cost brand Anadolujet). Give absolutely no choice and just deposit one sandwich and one can of juice on every single tray-table. They could even.

The point of this post is that uncertainty hurts, and sometimes even those that it is intended to benefit. The choice in the Indigo menu is meant to be a boon for the passengers, but it has significant costs attached – in terms of availability and timeliness.

PS: There are no good food stalls in the airport terminal (Mumbai 1B) also that one can peacefully carry on to flights. Last two times I carried muffins from Cafe Coffee Day and Cafeccino respectively and both were downright horrible. I miss Delhi’s terminal 1D and the double chocolate chip muffin at the Costa there.

Investing

I made some money in the markets last week. I bought the Nifty (September futures) at around 5190 on the 28th of August and cashed out at 5660 on the 6th of September. A fair trade I think, considering that so far in my life I’ve been a fairly poor investor (despite having worked as a quant at an investment bank and a hedge fund). This trade, however, raised more questions than answers.

Firstly, the markets have gone up significantly after I sold out. I exited at 5660. The Nifty closed today at well over 5900. Last couple of days I’ve been wondering if I panicked and cashed out too early. I must admit that when I entered I had a target price of 6000. However, given the rather choppy nature of the Indian markets, I decided that the 10% appreciation in 10 days was enough and cashed out. To that extent, I didn’t stay honest to the strategy I entered the trade in.

However, the reason I decided to cash out when I did was that I thought the market was going to top out and a steep fall was imminent. From that perspective, it made sense to cash out when I did. Yes, I might have made more money had I hung on for another two trading days, but there was no guarantee that the markets would continue to rise. In that sense I was happy pulling out.

More importantly when I cashed out, I realized that I’m still an amateur at investing. When you are a professional investor, you look at investment vehicles in terms of opportunity cost. If you wanted to pull out of the Nifty, you would do so only if you could put your money in another investment which would give you superior returns to what the Nifty would in the subsequent time period (technically hard currency is also an investment!), after accounting for the transaction cost of switching. As far as I was concerned here, though, I still invest basically for kicks (don’t invest huge amounts). So it’s basically about spotting a potential boom, riding it and then moving out. Light touch investing.

There are times when I want to get back to the world of investment (as a professional). I have some unique ideas for fund management. Perhaps I should use my next break in billable work to flesh that out. For now, check out my only other post on investing – on why you should not track your portfolio too closely.

Festivals and memes

We don’t normally celebrate festivals. We don’t particularly enjoy them. The only festival we celebrate to some degree is Dasara, when we set up dolls and invite people home to view the dolls. Of course, the last couple of years it’s been similar arrangements and there hasn’t been much innovation in what we do, but we enjoy it as a process and hence take forward the festival. Last year, we even got some fireworks during Deepavali and burst them. Again – it was a fun element. We aren’t too enthused by rituals and since most other festivals are little more than rituals we don’t celebrate them.

The wife, however, sometimes have existential doubts. “There must be a reason that our ancestors celebrated these festivals”, she pops up from time to time, “so it may not be correct on our part to simply stop celebrating. We should take forward the tradition”. This is question that comes up each time we don’t celebrate a festival (which you might guess is fairly often). Before today I hadn’t been able to give a convincing reply either way – whether it makes sense to follow our instinct or if it’s a cultural duty to take forward the tradition.

Towards the end of his classic book The Selfish Gene, Richard Dawkins introduces the concept of the meme. In fact it was Dawkins who “invented” the concept of the meme. It is meant to be a cultural analogy to the gene, and it’s a “cultural’ concept that propagates like biological concepts are taken forward through the generations via genes. Given the multitude of so-called memes that keep popping up every other day, I’m sure all of you know what meme means. I’m just providing the context here since my argument depends on the original Dawkinsian definition of the meme.

Let us say that there is a genetic attribute I inherited from my father, let’s say it’s my height (my father was 5 feet 10 inches, and I’m an inch taller than that). Now, it is not necessary that this particular gene is passed on to my progeny. It is not even necessary that the corresponding gene from my wife gets passed on – there might be a mutation there and despite the wife and I being fairly tall (by Indian standards) we cannot rule out producing a short child. The point I’m trying to make is that while genes propagate, not every trait needs to pass on from you to your offspring. Only a few traits (chosen more or less at random when your and your gene-propagating partner’s genes undergo meiosis) get passed on. Yet, through the network of you and your siblings and cousins and extended family, the family’s genetic code gets passed on.

Now, festivals and other cultural practices can be described as memes. We in the Indian society have a set of memes, which are called “Ganesh Chaturthi”, “Deepavali”, etc. That these memes have survived through the generations shows their strength – who knows about festivals that had been invented but didn’t survive. Now, the fact that we have inherited this meme doesn’t necessarily mean that we need to propagate it. Unlike genetics, the choice here is not random combination – it is our personal choice (we can’t decide what genes our offspring inherits from either of us or through a mutation).

So, just like every genetic trait doesn’t need to be propagated from a parent to an offspring, not every cultural trait needs to be passed on. If I were to pass on every cultural trait I inherit irrespective of whether it is desirable, even when circumstances change, undesirable cultural traits continue to exist. This is not efficient. As a society, we have bandwidth only for a certain number of cultural traits, and if traits are passed on without much thought, the bad ones won’t die. And will crowd out the good ones.

So if you were to look at it in terms of responsibility to society, you need to propagate only those cultural traits that you deem to be relevant and important. “So what if everyone stops celebrating Ganesh Chaturthi?” you may ask. If that would happen that would simply mean a vote of no confidence for the festival and an indication that the festival needs to be phased out. If everyone were to propagate only those cultural traits they find useful, traits that a significant proportion of society finds significant will continue to survive and thrive. For Ganesh Chaturthi to exist 30 years hence, it isn’t necessary for ALL families that have inherited it to celebrate it now. As long as a critical mass of families celebrate it, the festival will survive. If not, it probably doesn’t need to exist.

(the choice of Ganesh Chaturthi for illustration is purely driven by the fact that the festival is today).

Government data requests for Yahoo!

Yahoo! Inc. has put up online the data of the number of data requests it received from various sovereign governments. As expected, the maximum requests came from the United States. Interestingly, Germany is in second place, followed by Italy, Taiwan and France. India also has a prominent presence, with about 1500 data requests. Full report here.

So how did Yahoo! deal with the 1500 requests from India? You can find the details here. The following pie chart summarizes the responses:

How Yahoo! dealt with data requests from India

Note that the data given is restricted to those countries where Yahoo! operates a legal entity and is hence bound by local laws to disclose data.

Why Should Anyone Invade Syria?

I don’t understand why the US or the UK or any other country should invade Syria now. Yes, there are gross human rights violations in that country now, and the civil war has been raging for a while now. However, before any foreign country wants to intervene, they need to ask themselves the following questions:

1. what is the objective of the invasion?

The objective of the US invading Afghanistan in 2002 was to track down Osama bin Laden, the mastermind behind the WTC attacks of 2001. The then Afghan government (Taliban) was not cooperating with the US’s efforts in locating bin Laden, and sensing that having bin Laden on the loose for too long would be a further threat to America’s national security the US invaded. So far so good.

The objective of the US invading Iraq in 2003-04 was that Saddam Hussein was apparently harbouring “weapons of mass destruction”. The US decided that if any such weapons existed with Iraq, it would harm their national interest and so went ahead and invaded. That no such weapons were found is a different matter.

The question is what would be the objective of the US or the UK or any other invading power in Syria? Do they know what they want? Or is it just that they want to invade simply because they can? I repeat – Syrians might be dying but why is it in the national interest of any other country to intervene?

2. What does the invading country seek to achieve by invading?

This is similar to the previous point, but different. Basically what does an invading power seek to achieve in Syria? Rather, what is the event that needs to happen at which point the invader will decide to call off the invasion and return? In Afghanistan there was one such objective – get rid of bin Laden, get rid of the Taliban, put in a new government, stabilize it and go. Yet it’s taken this long. The objective in Iraq wasn’t as clear, still it’s been an extremely long invasion. What would an invading power’s objective be in Syria? Remove Assad? But what would that achieve?

3. What about the chemical weapons then?

Agreed that both the sides in Syria might possess chemical weapons, but why would the US or Western European countries want to invade because of that? If anyone would want to invade for that particular reason it would be one of Syria’s neighbours – Turkey, Iraq, Saudi Arabia, Lebanon, etc – for they are the ones that are likely to be vulnerable to collateral damage. Given that both sides are likely to have chemical weapons it is unlikely that by taking sides in the civil war the chemical weapons could come under control.

Moreover, the nature of the civil war in Syria seems rather uncivil, and I don’t think either party will care about any convention that restricts the use of a particular kind of weaponry. So hoping that one side will give up the use of chemical weapons just because you take their side is futile .

To me, the civil war in Syria is like the Battle of Kishkindha, where Vali faced off Sugriva in a one-on-one combat. There, Rama had a strategic reason to intervene, for he had 1. struck a deal with Sugriva. 2. having no army of his own, he could count on the support of the victor in his campaign against Lanka. As far as any Western nation is concerned, there is no such incentive here. There is no treaty, and it is unlikely that help in this war will lead the victor to be an ally of the invader. The reason I qualified the previous sentence with a “Western” is that it doesn’t apply to Russia. Russia (and formerly USSR) has a pact with al Assad, and they have been long-standing allies. By taking al Assad’s side in this war, Russia knows that they will have a valuable ally in the Middle East in the event of his victory.

None of the Western countries have any such agreements. The only organization which has any sort of alliance with either side in Syria is the al Qaeda, which is supposedly supporting the rebels.

That Western powers such as the US and the UK want to intervene in Syria, and that too on the side of the rebels (in alliance with al Qaeda) shows that these countries are yet to get rid of the cold war mindset. They seem to want to intervene in Syria on one side only because Russia is supporting the other side. In fact, if the US or the UK were to want to invade Syria, the only thing that might make sense is to get in on Assad’s side and take out the Islamist rebels.

Should you have an analytics team?

In an earlier post, I had talked about the importance of business people knowing numbers and numbers people knowing business, and had put in a small advertisement for my consulting services by mentioning that I know both business and numbers and work at their cusp. In this post, I take that further and analyze if it makes sense to have a dedicated analytics team.

Following the data boom, most companies have decided (rightly) that they need to do something to take advantage of all the data that they have and have created dedicated analytics teams. These teams, normally staffed with people from a quantitative or statistical background, with perhaps a few MBAs, is in charge of taking care of all the data the company has along with doing some rudimentary analysis. The question is if having such dedicated teams is effective or if it is better to have numbers-enabled people across the firm.

Having an analytics team makes sense from the point of view of economies of scale. People who are conversant with numbers are hard to come by, and when you find some, it makes sense to put them together and get them to work exclusively on numerical problems. That also ensures collaboration and knowledge sharing and that can have positive externalities.

Then, there is the data aspect. Anyone doing business analytics within a firm needs access to data from all over the firm, and if the firm doesn’t have a centralized data warehouse which houses all its data, one task of each analytics person would be to get together the data that they need for their analysis. Here again, the economies of scale of having an integrated analytics team work. The job of putting together data from multiple parts of the firm is not solved multiple times, and thus the analysts can spend more time on analyzing rather than collecting data.

So far so good. However, writing a while back I had explained that investment banks’ policies of having exclusive quant teams have doomed them to long-term failure. My contention there (including an insider view) was that an exclusive quant team whose only job is to model and which doesn’t have a view of the market can quickly get insular, and can lead to groupthink. People are more likely to solve for problems as defined by their models rather than problems posed by the market. This, I had mentioned can soon lead to a disconnect between the bank’s models and the markets, and ultimately lead to trading losses.

Extending that argument, it works the same way with non-banking firms as well. When you put together a group of numbers people and call them the analytics group, and only give them the job of building models rather than looking at actual business issues, they are likely to get similarly insular and opaque. While initially they might do well, soon they start getting disconnected from the actual business the firm is doing, and soon fall in love with their models. Soon, like the quants at big investment banks, they too will start solving for their models rather than for the actual business, and that prevents the rest of the firm from getting the best out of them.

Then there is the jargon. You say “I fitted a multinomial logistic regression and it gave me a p-value of 0.05 so this model is correct”, the business manager without much clue of numbers can be bulldozed into submission. By talking a language which most of the firm understands you are obscuring yourself, which leads to two responses from the rest. Either they deem the analytics team to be incapable (since they fail to talk the language of business, in which case the purpose of existence of the analytics team may be lost), or they assume the analytics team to be fundamentally superior (thanks to the obscurity in the language), in which case there is the risk of incorrect and possibly inappropriate models being adopted.

I can think of several solutions for this – but irrespective of what solution you ultimately adopt – whether you go completely centralized or completely distributed or a hybrid like above – the key step in getting the best out of your analytics is to have your senior and senior-middle management team conversant with numbers. By that I don’t mean that they all go for a course in statistics. What I mean is that your middle and senior management should know how to solve problems using numbers. When they see data, they should have the ability to ask the right kind of questions. Irrespective of how the analytics team is placed, as long as you ask them the right kind of questions, you are likely to benefit from their work (assuming basic levels of competence of course). This way, they can remain conversant with the analytics people, and a middle ground can be established so that insights from numbers can actually flow into business.

So here is the plug for this post – shortly I’ll be launching short (1-day) workshops for middle and senior level managers in analytics. Keep watching this space

Perceived cultural superiority and need for protection of culture

At the outset, I must admit the idea for this post is not my own. In fact, even the idea to do a scatter plot between these two variables is not mine. It’s from IESE Business School Professor Pankaj Ghemawat‘s book “World 3.0”. The original plot can be seen here:

While the graph above might be appropriate for a book (given its size, etc.) it’s not particularly well drawn. For example, circles are drawn around some countries (represents their population), which makes it harder to read. Then, there are the arrows which are not self-sufficient (without any accompanying text, which is probably there in the book, there is no way you can make sense of the arrows). Then you have some countries with a perceived need for cultural protection at over 100%.

So when Prof Ghemawat shared the data source (on twitter), I thought it might make sense to re-draw the graph. As you can see below (click for a larger version of the graph) the new graph is also far from perfect. Since I’ve used full names of countries (easier without accompanying text than three-letter codes), there is significant overlap. Yet, I think it does better in conveying the information. In place of Ghemawat’s arrows, I have a regression line!

Source: Pew Survey on Global Attitudes 2007

The insight is clear (was clear in the earlier graph also) – the greater the citizens of a country believe in the superiority of their own culture, the greater is their perceived need for “cultural protection”.

PS: Note that the data is from 2007. I’ll try to get more recent data and re-plot presently.

Market makers and executionists

There are two kinds of people in the world – market makers and executionists. Market makers are great at spotting gaps in markets, and deriving business ideas out of them. They could also be great at finding and executing solutions, but their primary skill is in identifying the gaps in the market and framing the problem.

Executionists are great at execution and problem-solving. However, they need the problem to have been defined in the first place. Their ability to spot gaps in markets and thus lay out problem statements is questionable, though.

Executionists fall under different levels. It has to do with how much ambiguity they can handle. There are some for whom the problem must be defined as well as the method to solve the problem. “here is a problem. Do a logistic regression and solve it”, you need to tell them and they will use logistic regression (assuming they are trained in the subject) to solve the problem. At the next level you have people whom you can ask to find patterns in some data, but then they will figure out that the problem can be framed as a logistic regression problem and will then proceed to solve it. Further up, you just give them a business problem, and then they will figure out what data set can be used ot solve it, figure out that doing a logistic regression will solve the problem and then they will solve it. And so forth.

Then again, the first line of this blog post is wrong. There is no real barrier between market makers and executionists. There are people who are both (good for them) and those who are good at neither. However, you realize that if you are an executionist of level i, you will need the guidance of an executionist of level i+1 or above. And that if you are a highest level executionist you will need the guidance of a market maker.

Statewise Encounters

<update>This post has nothing to do with the recent debate on fake encounters in Gujarat. The time period of the Gujarat encounters currently in focus predates the time period of the data available here. This post only covers encounters from 2009 onwards </update>

The Ministry of Home Affairs, in response to an unstarred question in the Lok Sabha, has put out statistics on the number of fake encounters per state in the last four years (HT: @offstumped). Let us look at which states have had the most encounters relative to their population.

Manipur is far far ahead of every other state, with 22 encounters in the last 4 years per million population (total of 62 encounters in the last 4 years). Andaman and Nicobar Islands follow, but that is an aberration since the islands have had one fake encounter, and that has shown up as significant thanks to their small population. Interestingly, Maharashtra, Karnataka, Andhra Pradesh and Gujarat fall towards the bottom of the table, as does Bihar.

To get a better picture of the other states, let us remove Manipur and see the same graph.

I leave it to you to form your own conclusions, but encourage you to share your conclusions in the comments section below.