Category: Business

Uber In India – Pivot Back to Customer Delight

When Uber first came into India it stood for great within city travel experience without the hassle of owning a car. The brand was bolstered by superlative experience driven by the accommodating behaviour of the drivers and the support on the app / on call.

Uber changed the dynamics of the buy vs rent decision making when it came to city commutes. No hassles of ownership like taking a loan, getting registrations done, looking for parking spaces, watching out alcohol consumption when you go out etc. etc. Just order an Uber whenever you want to head to a destination.

Over the years, the experience of the brand has deteriorated and this is driven by a change in behaviour both on the app and from drivers. Following are the pain points:

1. Booking a cab: Today, wait times for a cab has drastically increased with driver cancellations being a norm rather than an exception. Additionally users are charged if they cancel a ride but receive no compensation if drivers cancel.

2. In cab experience: Drivers refuse to switch the AC on. Many a times, cars are not the cleanest available thus deteriorating the experience

3. Complaint Handling: The chat feature does not put a customer in touch with a real person and is highly impersonal. Moreover there is no human touch in the customer complaint handling process.

All these factors point to business focus moving away from creating an experience for customers (to probably efficiency or effectiveness metrics) which in turn is leading to behaviours that are not favourable to customers. This in turn is leading to a deterioration in the brand perception with customers looking for other options which could hurt the business over time.

What Uber could do is the following:

1. Ensure that rides are guaranteed once booked. This could also mean reducing cabs to control the quality of experience and over time charging a premium for great service. Drivers would also need to be better incentivized to provide a great experience.

2. Ensure customer service is available on call and treat customer service as an experience rather than a cost center. This can improve customer experience over time and have a rub off impact on brand image.

Uber may have to sacrifice scale with this approach. However, by taking difficult decisions to improve user experience, the brand in the long run may benefit from better love for customers. Improved customer satisfaction levels can help command premium pricing which in turn can lead to better Life Time Value.

Wishing Uber all the very best in India!

Performance Appraisals – Normal Curve on its way out….

When I first started working, performance appraisals were closely linked with the term “normalization”. What we were told was that it was not just your absolute performance that mattered, what also mattered was relative performance vis a vis peers in the organization. You not only had to be good at your job, you also had to be better than others. To take an examination analogy, normalization is like the percentile system MBA Entrance exams in India follow as opposed to the absolute grading that say a GMAT exam follows. The idea behind normalization was that by force ranking peers and rewarding the best and in some cases penalizing / letting go of the ones at the bottom we would be rewarding our best talent and also improving the “average” performance levels in the organization. While in theory it seems logical, the implementation of normal curve brings in problems at a practical level:

  1. It forces team players to compete with each other: The normal curve works well if all the team members are independently working on their tasks with no dependency on each other. However if the work is of collaborative nature, this causes a problem. To ensure that the team does its task, it is imperative for team members to teach and learn from each other – however in an environment where the sword of normalization hangs over all team members, there will be a tendency for team members to claim credit at the expense of others which in turn brings down trust in the team. Once trust falls, collaboration suffers which in turn impacts team performance which in turn leads to a blame game where every body starts blaming others for the problem which in turn leads to a further deterioration in trust and collaboration. Basically downward spiral ad infinitum.
  2. Different skill sets may be lumped together: Normalization requires a cohort of 30 individuals. Many times smaller teams are merged into larger teams to achieve this 30 number and then a normalization is applied on this agglomeration of sub groups. The outcome in this case is never satisfactory.
  3. Talent Levels Fall and Talent Risk Rises: Because its a “winner takes all” world, individuals generally ranked in the level right below the top performers will seek out other opportunities. When this happens the pressure for taking up the workload goes to the higher performers as replacements need time to be hired and come up to the level required. This in turn increases the load on the top performers which could lead to burnout. Alternatively it could make the company more dependent on the top performers and impact them negatively if they were to leave. The logic behind normalizing is to ensure that the top 20% can take care of 80% of outcomes – but this also implies putting most of your eggs in too few baskets.

Thankfully many companies are realizing the pitfalls of the model and are moving to a model where employees are measured on absolute levels and not on a relative basis. Reviews are also being done more frequently allowing employees and organisations to do appropriate course corrections. While this does certainly solve some of the problems associated with normalization, it also requires a rigorous goal setting exercise linked to the organizational goals. If the goal setting process is too dependent on the dynamics between the manager and the reportee then there is a chance that the goals may not be aligned with the organization and one may penalize / reward employees disproportionately. Another risk is that managers may be tempted to rate all employees as the same level knowing very well that this will probably minimize heartburn levels in the team. This in turn will lead to genuine high performers leaving for better opportunities. The organization also needs to have a clear view on the competencies required for each job, with clear and comprehensive learning and development paths that the employees can undertake to ensure that they can fulfill current job roles satisfactorily. In addition to this companies will also have to ensure that they have a robust career path for their employees along with an ecosystem that can help employees grow into roles of higher / different responsibilities.

If organizations get this right then we could see more happier workplaces that foster collaboration which will result in happier customers and wealthier shareholders. I am optimistic that this will happen!

Walmart – Flipkart Deal – Are Amazon and the Bansals the real winners?

After months of speculation, Walmart on 9th May 2018 finally announced that it will be buying a 77% stake in India’s leading e-commerce company Flipkart for $ 16bn thus valuing the latter at $20 bn. Media reports seem to indicate that Amazon did put in a strong counter bid and atleast one major investor, Softbank, was interested in pursuing Amazon. However other investors and the promoters seemed to be more inclined towards Walmart for a multiple of reasons including regulatory risks and operational control. Now that the deal is done let us look at the major players/stakeholders involved and try to understand who gets to benefit from the deal.

Flipkart over the years has built market leadership in the e-commerce space in India. The company has been a strong innovator at the forefront of shifting buying behavior from traditional channels to online channels. The company has generated scintillating growth aided by funding from marquee investors such as Softbank, Tiger Global and Tencent to name a few. However this growth has come at the cost of massive burn translating into bleeding bottom lines. In addition to this Flipkart has been fiercely competing with Amazon for market share thus forcing it to sustain discounts to retain share and thus further adding to the burn. Amazon in a short period of time has given Flipkart a run for its money and every time Flipkart has announced a fund raise, Amazon has responded to it by announcing increasing capital commitments and has indicated that it is willing to further invest aggressively to attain market leadership in India. In such a scenario where Flipkart had to contend with a strong rival with deep pockets, Flipkart would have had to continue to burn and therefore would have to be in the market for a funding round more frequently than it would probably like. This potentially could have distracted the company and at some point investors would start questioning the feasibility of the model. An IPO would also not have been a lucrative choice to raise capital as its high burn would have put off more sanguine public investors. Considering this, merging into Walmart provides Flipkart with a strong parent whose management has a long term strategic view rather than a short to mid term financial view of the transaction.

For the Flipkart founders, this is an incredible deal. While they have in the past mentioned aspirations of building a $ 100 bn company and made vociferous statements about their “Indianness”, somewhere down the road they seem to have come to the conclusion that being an independent company would not help them withstand the onslaught of Amazon. By exiting now they are probably selling at peak valuations and while there is always a possibility of a further upside, the downside risks are much higher for them. ( Media reports indicate one promoter is exiting completely while the other is exiting partially – I think the former is wiser! )

For Flipkart investors too this is a good deal as it provides them an exit at probably peak valuations. Flipkart’s path to profitability is long drawn process and they would need to have been extremely patient to wait for a IPO to make an exit.

For Walmart this is a tricky deal and one that indicates that they may have been too desperate. Walmart has made investments in e-commerce firms earlier with limited success. The deal is also fraught with multiple risks for Walmart. Politically many groups in India opposed to foreign direct investment in retail would view this as a backdoor entry. If these groups whip up enough hysteria then Walmart may be bogged down in managing this rather than focusing on running and integrating the business. Secondly investor reaction to this deal has been adverse. Walmart’s share price fell ~4% post the announcement of the deal indicating investor skepticism.  Walmart will have to consolidate Flipkart into its books and this will result into a huge negative impact on its profitability. Walmart has also been exiting in developed markets and seems to be investing these proceeds in emerging markets with the hope that these will pay off in the longer run. However it remains to be seen if investors will be willing to be patient with these moves. What will most likely happen is that Walmart will continue to face investor heat for the burn in this deal and in response to that may force Flipkart to reduce burn. If it does so it risks losing leadership as Amazon may continue to spend aggressively. It will also be a tectonic shift for Flipkart employees who have been used to revenue maximization rather than profit maximization which in turn may allow Amazon to make further inroads.

For Amazon this is probably a good outcome in spite of losing out in the bidding process. If Amazon had won the bid it would still have to get regulatory clearances and probably have a long drawn integration process between the two companies. By losing the bid, Amazon can focus on growing organically – a model that has worked well for it in India. Amazon also now has a rival in India that will be more rational and one that it has had experience in competing with. As long as Flipkart was controlled by investors that gave it a licence to burn, Amazon had to also respond with burn to maintain market share. With Walmart in the driver’s seat, sooner or later profitability pressures faced by Walmart would lead to a reduced burn mandate for Flipkart which in turn allows Amazon to either curb its own burn levels or spend more to capture higher market share. Amazon has also had considerable success in previous battles with Walmart and will certainly prefer competing with a Flipkart owned by Walmart rather than Flipkart driven by a Softbank-Tiger Global combine. All in all Amazon has more patient investors as opposed to Walmart, understands the online space better than Walmart, probably has better technological edge and does not have any potential political risks that could distract it thus giving a considerable advantage over Walmart.

To summarize all of Flipkarts business model risks are now transferred to Walmart in addition to political and execution risks for $ 20 bn which only benefits the promoters and investors who will laugh their way to the bank. The deal also provides Amazon a potentially weaker competitor in the mid to long-term and increases its chances to dominate the Indian online retail space.