Trust in Banking and Business Wednesday, Jan 30 2008 

Uncategorized blahla 1:31 pm

Today, I got into a bit of a spat with one of my professors. He and I had a rather fundamental difference of opinion on the role of trust in business transactions, especially microfinance.

My argument is that in a peer pressure situation, when collateral is not available, use the peer pressure and trust the borrower to pay you back…else the whole group that acts as a guarantor gets penalised. My dear professor of course begged to disagree, and said that only an “NGO like Grameen Bank can do this”.

That had to be a rather strange argument. As long as the institution is making money…who cares what its called? Grameen Bank is profitable, and makes money based on this business model. Sure, it has its own set of issues, and repeating this business model is a challenge. But this does not imply that trusting your borrower is bad!

And this is a point that can be made in business. Trusting business partners and suppliers makes hard nosed business sense. Trusting your supplier ensures that you do not have to duplicate processes to check defects. Trusting your customers means that you spend less on fraud detection. Trusting your employees means HR is seen less as a gatekeeper, and more as an enabler.

Of course, trust is not a one way street. And the cost of betrayal of trust should be measured as well. But trust is not just one of those feel good words that business magnates use to sound nice. Trusting people can be a huge component that increases your efficiency, and the effectiveness of the organization itself.

 

Co-Operatives…Doomed to become businesses? Tuesday, Jan 29 2008 

Management , blahla 5:47 am

To start off, an explanation for that long hiatus. I know that work is such an uncool excuse, but I fear that its the only one I have! The last month has been a whirlwind of events, with moi running up and down doing various assorted events/plans/papers/presentations. Well, the reward to effort ratio was lousy, so lets not discuss that! On to today’s topic. Co-ops as business models.

The whole thing was sparked off by a Social Plan a friend of mine had come up with, where he envisaged a sewing/handloom co-op that would take on the big boys. After reading all those strategy books, I thought that it would even have competitive advantage. After all, co-ops would operate under lower margins, as they distribute salaries and wages AND profits to employees, thereby lowering costs.

But a little thinking past that got me to ask, “Would a co-op model truly be a successful model in the real world?” There have been successes, with India seeing Amul and Lijjat, while Europe had Parmalat as a co-op once upon a time. But a brief look at these companies reveals something interesting. They might have started off as co-ops but as they grew in scale, they have turned into more corporate entities, with all of the good and ills that it entails.

Why is this so? Partly I believe that it is because of the problem of decision making in a co-op. In a small institution where the trust factor is high, this would not be a problem, but a group decision making structure essentially breaks down when trying to make decisions when members are dispersed and individual interests begin to dominate. Thus, any co-operative model that succeeds and wants to scale up to dominate the industry is likely to need more than just dedicated members. It would also need to have a management team that works for the co-op…and not for themselves.

And this would make the co-op just another business…albeit one which may pay a bit more than lip service to employees.