10 Things To Learn From Warren Buffett’s 2017 Letter to Berkshire Hathaway Shareholders

The Oracle of Omaha’s latest letter to his Berkshire Hathaway (BH) shareholders is filled with Buffett’s typical humour, humility and cutting insight.

Below are some early reflections from his 2017 letter which was issued on the 25th of February.

1.   Always Look For The Opportunities

Buffett (and Charlie Munger, BH’s Vice Chairman) will always be “prepared mentally and financially to act fact when opportunities present themselves.”

He then goes on to add, in classic Buffett-style,

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”

2.   It’s Okay To Make Mistakes (Just Make Sure You Learn From Them)

Buffett shares his anecdotes about how he’s “made some dumb purchases, paying far too much..” and gives some examples of when he overpaid for companies such as Dexter Shoes which lost all value and for which he paid for in Berkshire shares (shares now worth $6 billion – arguably the most expensive shoe company in the world!). He then made a similar mistake buying General Reinsurance, again with shares. From that point, he explained how he has ensured that most of BH’s deals came from internally-generated cash rather than through BH shares.

“Today, I would rather prep for a colonoscopy than issue Berkshire shares,” declares Buffett. The lesson here is how it is okay for mistakes to be made, but what won’t be okay is not learning from them!

3.   The American Dream – Built By Immigrants

Buffett remains the eternal optimist. He remarks on the ‘miraculous’ achievement of the United States of America over the last 240 years through the efforts of a ‘tide of talented and ambitious immigrants’, the rule of law and human ingenuity. He explains how, since 1776, Americans have managed to amass wealth totalling $90 trillion.

He does acknowledge that the majority of the homes, cars and other assets are often borrowed but goes on to add how even if the owner defaults on the asset, it remains within American hands.

The one point he does touch on very cursorily is about how the wealth is divided but argues that it is okay as long as it belongs exclusively to Americans. The real challenge here is how less than 1% of Americans actually own the bulk of the wealth – and this inequality is arguably the biggest challenge America faces in the coming years and decades.

4.   Remaining Bullish

“Babies born in America today are the luckiest crop in history,” claims Buffett very boldly. He goes on to explain how American businesses are going to be without doubt ‘winning’ as President Trump may claim.

He then reminds investors that ‘widespread fear is your friend as an investor, because it serves up bargain purchases,’ and that ‘personal fear is your enemy.’

5.   Succession Planning and Managing Talent

Buffett speaks of Ajit Jain who manages Berkshire Hathaway Reinsurance Group and extols his virtues including how Ajit’s operation ‘combines capacity, speed, decisiveness, and most important, brains in a manner unique in the insurance business.’

Buffett talks about how when Ajit Jain first came to BH, he had no experience in insurance and went on to build one of the most successful insurance businesses. Buffett goes on to say, “I there was ever to be another Ajit and you could swap me for him, don’t hesitate. Make the trade!” providing further hints that Ajit Jain could become the next chief of BH.

Ajit Jain is also another immigrant from India who has established his roots in the US and it will be interesting to have the views of Steve Bannon who was dismayed by the fact that there were too many CEOs from South Asia.

6.   The Power of Marketing

Buffett demonstrates how you should always be unashamedly promoting the brand you represent and goes on to tell all readers of the letter to go on to GEICO (an automobile insurance firm) by providing their contact details to save money on their auto insurance! He extols the virtues of GEICO’s superior advantages driven by low costs and how they’ve grown (from making US$8 million annually in 1951 to making that same amount now every 3 hours!).

7.   The Importance Of Having Trusted Advisors Beside You

Buffett explains how he has made errors and ‘stumbled’ either in assessing the fidelity or ability of managers and also talks about how one could count on him certainly making more errors. He then touches on how he is fortunate that Charlie Munger is always around to say ‘no’ to his worst ideas! Anyone who thinks they have no need for guides or advisors is going to be sadly mistaken.

8.   Targets Drive Behaviour And Culture – The Challenge of CEOs Who “Always Make The Numbers.”

Buffett fires a shot across the bow for CEOs who tend to omit certain items or expenses in order to ‘make the numbers’ and meet analysts’ expectations. Buffett warns how CEOs who ‘overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be “helpful” as well.”

As Buffett explains, business is too unpredictable for numbers to be always met and when a CEO’s focus is driven solely by Wall Street’s expectations, he or she will be ‘tempted to make up the numbers.’

9.   What Value (Or Fees) Do Those Hedge Fund Managers Add?

Buffett has hedge fund managers plainly in his sight. He bemoans the prevailing hedge fund standard of “2 and 20” which means a 2% annual fixed fees and 20% of profits – which means hedge fund managers end up making money (simply by piling on the assets) even if the underlying fund performs badly.

Buffett argues how merely investing in an unmanaged low-cost index would do far better than through some very expensive fund managers and highlights how only one individual, a Ted Seides, from thousands of professional investment managers offered to take him up on a $500,000 bet that a low-cost S&P fund would beat (over a 10-year period) five expensive hedge funds. He goes on to explain that 1,000 monkeys are as likely to make similar market predictions as 1,000 fund managers…

Buffett’s guidance is that all large and small investors should stick with low-cost funds as it is always going to be the hedge fund managers rather than clients who reap the benefits.

He adds how he has always recommended a low-cost S&P 500 index to his friends but how wealthier investors have always only politely thanked him for the guidance and went away to listen to the ‘siren song of a high-fee manager.’ Buffett estimates that more than US$100 billion has been wasted in the past ten decades as a result of “elite superior investment guidance,” and how most of the financial damage impacted pension funds for public employees.

10. Mind the GAAP – the Woes of Warren

One final point to note about Warren’s on-going challenges with accounting standards, or Generally Accepted Accounting Principles (GAAP). He explains that amortisation is not truly an economic cost and therefore should not be reflected in the way US GAAP requires them to. He also feels that GAAP-prescribes depreciation methods also understate true economic costs which mean earnings are overstated.

Buffett highlights how the changes in BH acquisition strategy – from merely owning a portfolio of stocks to outright ownership of businesses. This meant that rather than having a balance sheet that was ‘marked to market’ (or having a balance sheet that reflected prevailing share prices for the stocks they own) they had now companies they owned or controlled and therefore had to be reflected as per current GAAP or accounting standards. This meant that they have had to write down for companies that lost value (referred to Buffett as the “losers”) but could not revalue the goodwill for the companies that performed well (or the “winners”). This is why their market-value gain was 23.4% in 2016 vs a book value gain of 10.7%.

The Wheels Are Off – the Italian Referendum Results

The majority of Italians have voted against the constitutional reforms proposed in a national referendum and Italian Premier Matteo Renzi’s “experience of government” is now over as he steps down.

The Italian economy has been like a Ferrari with its wheels slashed – its economic performance has been the worst amongst any of the Eurozone country with the exception of Greece; it’s government loans sit at 130% of GDP and unemployment exceeds 11%.

This failure of the referendum is now akin to the Ferrari with its wheels completely off the axle – and the casualties won’t just be the Italians in the Ferrari but indeed the whole of the Eurozone.

Early indicators are that the Euro has fallen sharply against the Dollar and the Asian markets are spooked by what is to come from Europe.

What does this result mean for Italy, Europe and the world?

1. Brace for a hard landing of the banking sector.

We could see the demise of a few banks in Italy, starting with the Monte dei Paschi di Siena (MPS) – the world’s oldest bank – which has already lost almost 90% of its value this year. MPS is already one of Europe’s weakest banks and they are subject to a bailout plan which may now not come to fruition.

Italian banks are struggling with about €360 billion of bad loans and are significantly undercapitalised. There will be a huge sell-off of Italian and European banking stock once the markets open.

The problem is that the scale of interconnectedness means that a hit to the Italian banking system will leave a trail of destruction across the rest of the European and global banking sector starting with the largest European lenders such as Deutsche Bank.

2. The EU and Euro are both going to go through an existentialist phase

Brexit dealt a big blow to the EU project. The rise of the Five Star Movement, a Eurosceptic opposition which has already claimed ‘victory’ in this referendum means that over time their views on EU and the Euro are going to gain even further traction. Even if the Five Star Movement do not win in any early elections called as a result of this referendum (they have a campaign promise to hold another referendum on Italy’s membership within the EU), their views are going to be, over time, become mainstream.

3. Imposition of capital controls?

In 2015 we saw capital controls applied in Greece to stop a run on the banking system and see a flood of capital out of the country. A run on the Italian banking sector will have a colossal impact and a pre-emptive series of capital controls, though damaging from a reputational perspective, may be required for reasons of survival.

4. An Italian sneeze will cause an European contagion.

This result will no doubt cause another slump in the Eurozone economy and will cause a negative investment sentiment. Unemployment will continue rising and living standards will fall, not just in Italy but across Europe.

The people have spoken and have demonstrated a willingness to face a hard landing. Whether they are prepared for a hard reset is another matter altogether and this is going to be the start of a period of extreme uncertainty, economic uncertainty and hardship.

What Italy needs now is an expert driver who is going to be able to manouvere the Ferrari with no wheels skillfully so that it causes the least damage both to the Ferrari’s passengers and other Eurozone travellers.

 

 

 

Control content, control data, control the world – the AT&T buyout of Time Warner

AT&T’s takeover of Time Warner makes strategic sense for the shareholders of AT&T. The only surprise is that early rumours of Apple buying over Time Warner did not come to pass.

AT&T are primarily a telecommunications company. They already control the data flows and analytics and understand all the little things that make people/customers tick. However, what they’ve not had is the content that their customers require and monetise the flow of content to the people who need it most.

Through the acquisition of Time Warner, it reduces AT&T’s transaction cost of providing the content to customers which is supported by superior data.

It’s akin to an infrastructure company laying pipes to bring water to households actually now providing the water along with the pipes they already have rather than have a separate company providing the water.

Why content matters

You have data on the information and content your customers require. However, you cannot act on the data yourself if you do not control the development of the content and intellectual property (IP). You can either try and create the content on your own or simply buy the largest available content provider available for sale.

This is what AT&T have done and it allows them to suddenly use the data and deliver even larger profitability to their shareholders by giving their customers the data they seek.

HBO (think Game of Thrones, Curb Your Enthusiasm, The Sopranos, etc), CNN, DC Comics (Superman, Batman, and the new UN ambassador, Wonder Woman), Hulu (Netflix’s rivals) are all now going to be under AT&T’s control.

This will allow them to control the entire spectrum of services they provide to customers and create an ecosystem (of both infrastructure and content) that may be difficult or unfeasible to leave for any customer.

Big data just gotten bigger

You know HOW your customers access information. You now know WHAT information your customers seek. Bring the two together and you create superior propositions for customers which rivals are unable to match.

The advertising potential also has now grown exponentially as AT&T monetise the data analytics and provide superior insight to advertisers.

Bringing the fight to the competition

The moment Google and Facebook moved from being search engines or networking platforms to becoming media and content companies with their own telecommunications infrastructure, the fight was on.

Facebook and Google are already providing Internet and call facilities. They also started buying or developing content facilities (Youtube acquisition by Google or Facebook Video/live).

This mean either existing telecommunications companies get into the business of content development or acquisition or they themselves get acquired. I suspect this was a major impetus for AT&T in their decision to buy Time Warner.

What next?

It’s always easy to bite, but it’s important to be able to chew and swallow. It remains to be seen how well the merger itself works. Most mergers are fraught with complications, from realising business benefits to cultural differences.

It will be interesting to examine Apple and Google’s next reactions. Google have developed their own hardware (Pixel) and Apple have long wanted to get into the business of content and IP.

Perhaps a takeover of Netflix by Apple in the offing?

e-Learning and the needs of developing countries

Having had the pleasure of speaking at the UNCTAD14: e-Learning – Leapfrogging Skills Development session on the 21st of July 2016 in Nairobi, I am enclosing below some of my thoughts on e-Learning and the needs of digital countries in terms of knowledge development and how to best address them.

Details of my fellow participants can be found here.

The full video of the session can also be found at E-learning: Leapfrogging skills development from TrainForTrade on Vimeo.

Introduction

ACCA, as the global body for professional accountants , has within its DNA embedded the notion of delivering public value and to also advance the science of accountancy.

As an organisation committed to innovation and providing opportunity, it was only apt that we became the first professional accountancy body to develop ACCA-X, a comprehensive suite of learning modules towards financial literacy, accountancy and business skills using MOOC (Massive Open Online Content) learning through an exciting partnership with edX and Epigeum .

In the 12 months since launch (from July 2015), there have been over 120,000 learners from over 210 countries who have participated and engaged with the courses and started their journey towards a better understanding of accountancy, business and finance.

 

Four key areas for developing and transition economics to consider for e-Learning knowledge development:

  1. Tackling the employability gap

  2. Building the foundations for data-led learning

  3. Capacity building for educators and policy makers

  4. The value of partnerships

 

Tackling the employability gap

  • Employability is one of the key policy issues of our times.
  • Linking education to employability and improving overall efficiency and productivity is something policy makers and politicians are grappling all over the world.
  • Interestingly, UNCTAD Secretary General Mukhisa Kituyi highlighted in a high level policy roundtable during the first day of the UNCTAD14 conference that employees in developing nations only have an output that is 10% of their counterparts in the EU.
  • It is important to note though that employability is an issue that afflicts both developing and developed nations equally. It is a problem in India (with increasing numbers of graduates unable to find relevant jobs); it is a problem in China (with the numbers of graduates increasing from 1 million in 2000 to 6.1 million in 2011); it is a problem across the EU with over a fifth of 15 – 24 year olds unable to find gainful employment. Further details can be found here.
  • Reasons for this employability gap:
    1. mismatch in skills required by industry and what they are being trained towards;
    2. lack of clarity of skills needs and dialogue between educators and industry;
    3. education and training style (focus still on role learning – does not foster mental agility and innovative flair)
  • This is where technology and e-Learning becomes an enabler to helping fill the gap between education and technology:
    1. Technology allows for learners to reflect, plan and articulate knowledge
    2. E-learning embeds amongst their learners core digital literacy skills – which is crucial
    3. Learning and assessment become more authentic through digital learning à more closely aligned to workplace
    4. For instance with ACCA-X, there is an emphasis to ensuring that the business and accounting theory is supported by interactive simulations of actual practice and with significant support in ensuring learners understand the link between the theory and how they can be expected to apply their knowledge in practice and enable them to be work-ready.
    5. E-Learning allows for students to become active agents of engagement and change and allow them to further develop their social and leadership skills. It also aids students towards becoming self-aware and independent learners which could be argued is the main purpose of education. It is this quality that should be at the heart of institutional strategy policy formulation.
      (C) zodakreza
  • E-learning allows the opportunity to establish a clear pedagogy (to cater to the different learning styles) – to the right levels of assessment – to effective monitoring and management (through data) and support a process of continuous improvement.

 

 

Building the foundations for data-led learning

  • The data allows for identification of hot spots, areas for improvement and ensure a programme of targeted support and intervention.
  • Data analytics and review is a critical component to aid both educators and learners along with policy makers.
  • The availability of data to enhance educators’ ability to better support their learners is a major component of effective e-Learning.
  • Tutors also have the tools to enhance learner management and be able to teach to scale.
  • The availability of learning data will also be instrumental in helping policy makers and researchers identify the learning gaps and hot spots and ensure there is effective capacity building taking place at appropriate levels to resolve outstanding issues.

Capacity building for educators and policy makers

  • This is often an area that is overlooked as e-learning programmes and initiatives are rolled out.
  • Whilst there is ample learning support for students to help them make the relevant transition to e-learning and blended learning, there isn’t always the same level of support of policy makers.
  • A key policy area for policy makers is to provide the right levels of support to educators as they embed e-learning within the curriculum.
  • The ACCA experience has demonstrated that there needs to be support for educators in helping develop blended learning solutions so that they are able to best leverage the opportunities offered through e-learning.
  • It is a large shift away from strictly face to face traditional’ transmit’ style learning – and training and support needs to be given to help educators adapt to e-Learning.
  • Educators and teachers also need to be given the comfort and confidence that e-learning is not designed to replace them. It is in fact designed to re-configure their role and their place in classrooms.

 

The value of partnerships

  • Developing effective partnerships will be the most effective way for countries to develop effective e-learning and knowledge platforms and solutions to meet their needs and ambitions.
  • The development of high quality e-learning (from the pedagogy to course development to platform development and delivery) can be extremely resource and investment intensive. This can be a significant deterrent for various developing and transition economies to either defer investment or worse, to develop poorly designed e-learning solutions which hinder more than they help.
  • The ACCA experience has shown that through partnerships, it is possible to develop a high-quality learning experience and allows for stakeholders in developing and transition economies to scale the learning curve much more rapidly.
  • Partnerships between policy makers, educators, industry organisations and employers is vital in developing the e-learning solutions developing nations needs.

Conclusion

E-learning solutions represent the most efficient way for nations to build the productive capacity they need to support the wider learning and development programmes to support their employability agenda, to promote social mobility and tackle the endemic problem of inequality.

The path of e-learning and digital learning that remains ahead of us is an exciting one. It is not without its challenges but a focussed and targeted approach of developing the appropriate e-learning solutions that are fit for purpose and in partnership, where possible, will ensure that much more rapid progress is made.

Opening Remarks – 4th Shared Services Centres Forum (Nairobi, Kenya)

Date                : 20th July 2016. Wednesday.

Location         : Serena Hotel, Nairobi

Topic              : 4th Shared Services Centres Forum: Sharing Experiences

 

A very good morning distinguished guests, ladies and gentlemen

It is a pleasure to present the opening remarks for the 4th Shared Service Centres Forum. We are particularly pleased to be partnering with Deloitte and Standard Chartered Bank Kenya for this crucially important business area.

Over the last decade, we have seen an increasing number of companies using shared services, outsourcing and global business services to improve efficiency, lower costs while maintaining a high level of rigour and quality. Shared services and BPOs have been one of the most instrumental pillars of financial transformation and we know that almost three quarters of a million finance personnel are employed in this sector globally.

Many organisations are looking at GBS, shared services and outsourcing as a way to help transform their finance function from a traditional cost-focused and back-office function looking mainly at historical data into a value driven, value-adding forward-looking part of the business.

Shared service organisations are ideally place to lead this change due to their global reach, visibility of data and information across the entire business (in contrast to a finance function within a single business unit), and they are also geared towards continuous  improvement and standardisation

Kenya in particular has been one of the early adopters in Africa in the space of shared services, BPOs or global business services. Given Kenya’s position as a major communications and business hub, we can only expect the sector to grow exponentially in the coming years as more business, particularly in East Africa seek to enhance efficiencies and adopt best practices in financial transformation.

A critical component of this transformation is the building of human capacity with the right set of skills and capabilities. It is to this end that ACCA has worked closely with our partners globally to develop the right set of solutions to support the process.

In the last two years, ACCA identified needs based on 12 months of consultation with over 150 multi-national companies including captive shared service centres and business process outsourcers, governments and industry bodies, in 13 countries.

Following this extensive consultation, ACC developed a suite of Global Business Services qualifications, starting a Certificate level, progressing on to Diploma and Advanced Diploma level. This also dovetails nicely with companies’ training and development frameworks and ensure there is a consistent programme of training which in turn supports staff moral and staff retention, which is traditionally a huge risk and issue for most shared services and BPO firms.

ACCA’s delivery of this training is also available completely online. To this end, I am also pleased to introduce to you ACCA-X, which is ACCA’s landmark and award-winning digital learning program which provides training up to the Diploma level. We partnered with edX (formed by Harvard and MIT) who provide the technology solutions and Epigeum, part of the Oxford University Press, to develop a high quality learning content which provides training opportunities for all finance staff. The introductory courses are also available for free for anyone, anywhere in the world.

ACCA has always strongly believed in the future of the SSO industry and continues to make significant investment in the sector. This includes development of cutting edge thought leadership and insights, development of qualifications, working with partners, such as the event today with Deloitte and Standard Chartered Kenya and working with various industry bodies to further support the growth of the sector.

We are pleased to continue this support here in Kenya today.

I look forward to an excellent forum today and hearing best practices from some of Kenya’s leading organisations and I wish you all a fruitful discussion and forum.

Thank you.

Where technology lost to tradition

Over the last few decades we have seen numerous examples where technology has usurped tradition, leading to plenty of hands wringing, worrying and eventually acceptance of technology’s dominance over the things that we previously thought were ‘the way things are done’ or tradition.

From going to a travel agency, or flagging for a taxi, or buying takeouts , we have now ditched habits and activities that were previously taken to be the de-facto way.

In the light of these changes (and some undoubtedly have had a huge benefit in people’s lives), it was interesting (and perhaps heartening) to read an example of how tradition managed to stand strong in the face of overwhelming technological progress and indeed even strike a blow and reign supreme!

This is the curious tale of the dabbawalas.  A recent Bloomberg Business article, Startups Haven’t Replaced India’s 19th Century Food Delivery Service (February 3, 2016), highlighted how over 400 technology/app driven businesses backed by over US$120 million of funding  have failed to dislodge a 120-year old, traditional food delivery enterprise. The aspiring new-age disruptors failed to make a dent whilst single-handedly decimating traditional black cab/taxi or travel industries.

Only a handful of 400 food-delivery-tech start-ups are still in business after having lost much of the VC funding and thousands of staff, despite spending millions on technology, promotion and advertising.

I thought it would be useful to take a closer look at the conditions that have led to the enduring success of these dabbawalas (from ‘dabba’ which means lunch box or tiffin carriers – the ubiquitous multi-layered carrier tins; and ‘wala’ which loosely means man or deliverer leading to ‘dabbawala’ – lunch box delivery man).

First some context and history to the humble dabbawala:mumbai-dabbawala

  • Starting from 1890, no rain nor flood nor natural disaster nor riot not terrorist strike nor weather has stopped the dabbawalas in fulfilling their duties.
  • The business model has remained exactly the same since the very first delivery: food prepared at home or community kitchens are delivered to students and workers in schools, offices, factories and depots in a lunch/tiffin carriers, and the empty containers are returned!
  • 5,000 dabbawalas now deliver about 175,000 to 200,000 meals a day (or over 50 million meals a year)
  • They have only ever gone on strike once in over a 120 years – and even then timed it on a public holiday – and in support of an anti-corruption campaign!
  • Each dabba or lunch box changes hands at least six times in transit before it reaches the final consumer – or 2.4 million transactions per day (200,000 deliveries X minimum 6 transits X 2 – to return the lunch/tiffin box back)
  • There are some claims that the dabbawalas lose only one tiffin box per 1.6 million deliveries (comfortably allowing them to be within the six-sigma standard of 3.4 defects per million transactions) – despite the absolute lack of technology or apps to support them. All that is used is a system of alphanumeric codes to identify the source and destination of each dabba.

Next, let’s consider the business and employment model used by the dabbawalas:

dabbawalas1

  • The monthly service charge for the delivery of the lunch boxes is between 400 to 1,200 rupees (or between US$6 to US$18 monthly).
  • The prices are not based on distance but on the customers’ ability to pay – deliveries from richer neighbourhoods means higher rates.
  • There are about 200 ‘managers’ who act as supervisors to teams of up to 25 dabbawalas – managing the total 5,000 dabbawalas
  • The dabbawalas age ranges from between 18 to 65 and are often poorly educated (often rarely receiving formal education beyond the age of 14 or 8th standard in Indian education terms)
  • The dabbawalas continue to be paid low wages – approximately 8000 rupees (or about US$120 monthly) but have achieved a very low attrition rate or labour turnover.
  • Each dabbawala receives the same income, irrespective of experience, age or number of customers serves.
  • Each dabbawala is not an employee, but is an entrepreneur and equal shareholder in the Dabbawallah Trust.
  • The dabbawalas employ a risk-mitigation system of a KYC (know your customer) principle to prevent the threats of contraband or bombs being delivered and implement a minimum monthly-subscription rule.

 

So how have these poorly educated, lowly paid individuals without any access to any computer or app to support their delivery system become an award-wining group of process champions?

  • The dabbawalas have been the paragons of social entrepreneurship – leading to social mobility through enterprise. They have provided employment opportunities for those who have needed it the most. The late Paul Goodman, Professor of Organisational Psychology at the Carnegie Mellon University, described it as thus: “They provide a different picture — a complicated system of working built around human ingenuity and supportive social arrangements that has long been absent from U.S. industry,” in his documentary on dabbawalas.

 

  • Uncompromising attitude to cutting out waste or preventing excesses – this has led to the dabbawalas rejecting a number of potentially lucrative marketing or sales opportunities because it was deemed that they will take up time and impact their core business of delivering on time every time.

 

  • Culture – there is an unwavering commitment to their cause.

The dabbawalas are of a view that their duty is akin to service to God. They are committed to the last man towards a single principle of delivering food on time to the right person.

As Manish Tripathi, a director of the Mumbai Dabbawalas states, “Our work revolves around a few beliefs – the most important ones of which are sticking to time and believing that work is worship. Annadan is mahadan (giving food is the greatest charity). We dabbawalas have a strong belief in god. But you don’t see god, do you? So, whom do you worship? People – after all, they are creations of god. You worship god by ensuring that people get to eat their food on time.”

Professor Stefan Thomke of Harvard Business School notes in his paper, “Culture, for example, often gets short shrift. Too few mangers seem to recognise that they should nurture their organisations as communities – not just because they care about employees but because doing so will maximise productive and creativity, and reduce risk.

 

  • Superior focus on organisational objectives and customer service

There is an absolute focus on unerring time management logistics and commitment to superior customer service through accuracy.

An interesting anecdote is when the dabbawalas were informed that Prince Charles wanted to meet with them, they allowed for the request on the condition that Prince Charles should be at Mumbai’s Churchgate station between 11.20 am and 11.40 am. The mere 20 minutes were given because “they could not take time off work” and only because that was the short period of the day when the dabbawalas had a rare moment of a break time!

Prince Charles Dabbawalas

(As an aside, it is also worth noting that of the three indians invited to Charles’ wedding – two were dabbawallahs (who presented gifts for Camilla (sari) and Charles (turban) – paid for by the dabbawallas pooling)

 

  • Effective leadership

The managers (each managing up to 25 dabbawalas) do not see themselves as leaders or supervisors. They are individuals who help to continuously improve the work-place practices and systems and empower their teams to make decisions within a clearly defined set of parameters. The individual dabbawalas make rapid decisions (modern managers may label this ‘agile’).

There are regular meetings once a month where decisions are made and issues identified and discussed. In the rare event of an error, an investigation is launched to ensure it doesn’t occur again and customers are refunded.

 

  • Adopting new practices to serve customer better

Whilst the delivery model has remained the same, the dabbawalas have introduced innovations such as delivery booking through SMS, online booking (through www.mydabbawala.com) and also introduced online customer services feedback. The customer-centric approach that has been instrumental to the success of the dabbawalas continues.

 

The secret to the dabbawalas is best described by Professor Thomke who says, “The dabbawalas have an overall system whose basic pillars – organisation, management, process and culture – are perfectly aligned and mutually reinforcing. In the corporate world, it’s uncommon for managers to strive for that kind of synergy.”

In this day and age, where the human touch is going out of fashion, the dabbawalas remain a source of inspiration and there is much to be learnt from them.

Branson dabbawalas

As Richard Branson (who spent a full day with the dabbawalas) said, “I will tell my employees: walk like a dabbawala.

Indeed!

dabbawalk

Going beyond networks and building communities

As someone who works for a leading global professional body dedicated to delivering public value to society on behalf of its members, I’ve been thinking about the notion of networks, what it means and whether the emphasis should be around going beyond the notion of mere networks and building communities with a strong sense of ownership by its constituent members supported by active engagement and dialogue.

Numerous businesses have built themselves formidable networks with their customer base but could be missing out on significant advantages in evolving those networks into communities.

Wenger, Trayer and De Laat, (2011) have provided clear definitions illustrating the differences between a network and a community:

“The network aspect refers to the set of relationships, personal interactions, and connections among participants who have personal reasons to connect. It is viewed as a set of nodes and links with affordances for learning, such as information flows, helpful linkages, joint problem solving, and knowledge creation.


“The community aspect refers to the development of a shared identity around a topic or set of challenges. It represents a collective intention – however tacit and distributed – to steward a domain of knowledge and to sustain learning about it.”

 

Distinguishing a network and a community

A network is inherently a passive set of relationships and connections (normally anonymous) between individuals, which is geared towards only information flows, and transactions across the connections. Networks tend to be primarily transactional in nature (mainly through the consumption of services and goods) with little by way of value creation.

Communities on the other hand lend themselves well to action and intervention by individuals who are connected around a shared identity, philosophy or collective intention. Communities tend to inspire a sense of camaraderie and collective action by the participants who belong to it.

 

What this means for businesses

Companies that successfully are able to develop and build on their networks and transform them into communities will be able to not only enjoy the scale afforded by networks but also improve the level of dialogue, engagement and sales which in turn improves the margins, leading to better business value.

Essentially:

Networks = High volume X Low margins (due to mainly transactional nature of mostly one way transactions)

Communities = High volume X Higher margins (due to improved dialogue, satisfaction which in turn leads to higher sales and possibly margins)

If we consider the largest companies in the world such as Amazon, they don’t merely seek to develop a large customer base who go to them to buy the products they seek. Instead they have invested significantly towards developing communities within their sales platforms, leading to improved two-way dialogue, and encouraging greater sales of a larger range of products.

Facebook has gone beyond simply creating networks and their initiatives such as “On this day” and “Friends’ Day” are all geared towards engaging their networks towards a more meaningful community, to imbue a sense of camaraderie and fellowship amongst their users. This is what will support the longevity of a social network like Facebook and ensure they avoid the mistakes made by the likes of MySpace and FriendsUnited, which did not seek to go beyond the creation of networks.

Superior organisations take the networks they have, understand the key propositions their networks seek, develop their messages further, engage them better, enhance the levels of dialogue across the participants of the network, and in the process form the basis of a community that will sustain the business towards long term value.