In Nepal: It isn’t Leadership Problem, it is Followership Problem

 

Power inserts godlessness in a lot of people. A lot of times, people who were once morally sound, start abusing their authority when they get power. Power creates a hallucination among these people of being demi-gods. This is why we see a lot of leaders abusing their power, the trust of their followers and compromising on their ethics.

When people talk about leadership problem in Nepal in all sectors, be it politics, business, bureaucracy, civilian society, I get amused. As I wrote earlier, it is human psychology to act differently when one gets power. One believes one can do anything and get away with it. So, selfishness creeps in and the responsibility towards society goes down the drain. And this happens all over the world. Be it in global superpower USA – President Nixon of Watergate case or President Clinton of Lewinsky case or ex-CEO Skilling of Enron case. Or in very unstable countries like Zimbabwe – President Mugabe. Once they attained power, they thought they could get away with any misdeeds, thus the demi-god hallucination. Leaders who can control these urges and still work towards the good of society are very few in numbers.

So, despite the global superpowers like USA having their fair share of faulting leaders, these countries have grown and remained to be the great economies while Nepal is still an underdeveloped nation? (you can call it developing, but you know that is a lie)

Is it really a leadership problem that we have in Nepal or is it something else? In the developed nations, there is so much of scrutiny from public and press when any leader sways from his responsibilities. The public and press acts as a controlling mechanism. The pressure on performance is so high that faulty leaders find it so hard to sustain their positions. This is totally opposite in Nepal. People support leaders for their own selfish agendas.

If the NC candidate in my constituency gets my drunkard, eve teaser, uneducated son into a government job, I will vote for him. If the Maoist candidate gives money for my booze, I will vote him instead. If my CEO will ever try to point fingers at me, no matter how bad my work is, I will join the union and protest to remove him. On the other hand, if I get a healthy bonus, I don’t care if my CEO is taking money from the company coffers to make personal investments.

And above all, we (public) never fight for our rights. We never protest against any misdeeds of our leaders. Our Prime Minister is always right. Our CEO is always right. Our leader is always right. A leader loses in First-Past-The-Post from three constituencies and he still gets nominated by the party. What did the other members in the party do? Nothing. Leaders of a party are exposed in an audio recording of their ill motives to capture the state. What did the public do? Nothing. A party hands over leadership only to family members but talks of being most democratic. What did the other members in the party do? Nothing.

This is how the followers are in Nepal. We do nothing when the leaders fault. We either are coward enough not to protest their decisions or lazy enough to get out of our comfort zone and ask questions. Maybe it is the selfishness in us that stops us from questioning our leaders. Maybe we have taken some benefits from the leaders in the past or intend to do so in the future. Maybe we had asked the leaders to free our crook son from prison, maybe we asked the leaders to donate healthy sum for our daughter’s marriage, maybe we asked the leaders to give us the government projects, maybe we asked them to help our nephew get a driving license without appearing for test, maybe we asked the Principal extra leaves from our duty schedule, maybe we asked the CEO to give us high appraisal rating, maybe we want the elected leaders never to audit our VAT bills so that we can evade taxes. So, who is to blame when the leaders think and act as if they are demi-gods? Of course, the followers.

So, it is not that Nepal has leadership problems. We have our fair share of faulty leaders. We do have smart, intelligent and morally sound leaders. But, our selfishness ensures that the faulty ones remain in power while the good ones just make news in the inner pages of some local newspapers. We as followers have failed to move away from short-term individual benefits towards long-term social benefits. We have only boosted the demi-god hallucination among our leaders. So, it is we – the followers- who are to be blamed for the situation Nepal is in. It is not a leadership problem, it is a followership problem.

The Asshole Effect

Image Source: http://cdn.alternet.org

Does your rich neighbor often play loud music till late night that really disturbs your sleep?

Does your boss is at unease if he has to share table with you during lunch?

We see examples such as above in our daily life where rich people behave extremely selfishly. And, we increase our hatred with them. There are times, when their behavior makes us feel so small.
In this post, I try to talk of why these people react the way they do. The answer lies in the human mind and the impulses it gets when one becomes rich. It is called the asshole effect. Coined by US psychologist Paul Piff, this effect tries to relate creation of wealth with selfishness and entitlement attitude. Through his numerous research, Paul Piff found that with growth in wealth of an individual, he/she starts believing and behaving in a more selfish way. He/She feels that he/she is entitled to the earthly bliss more than an average person. There is decrease in empathy and they start developing narcissism. They start treating people with lower wealth as inferior to them. They demand special treatment from the society, government and the nation.

For more, read at: The age of entitlement: how wealth breeds narcissism
   

Sanima Mai Hydropower Limited : Increase in project cost in Phase II

Sanima Mai Hydropower Limited issued its shares to public a little while back. As mandated by Securities Board of Nepal (SEBON), it had the public offering assessed by ICRA Nepal.

Image Source: http://theloanconsultant.com

The company had issued the offering to finance its two run-of-river hydropower projects with 22MW capacity project being built in Phase I and 7 MW capacity project being built in Phase II. The Phase II project will not require any Headworks as it is being built on cascade model, i.e. the water from tailrace of Phase I will be tapped to source the Phase II project. Cascade model have its inherent advantages in reducing environment impact as well as reducing capital investment required for the downstream project.

As per the rating by ICRA Nepal, the total project cost is estimated at NPR 4375.80 million. This converts to capital investment of NPR 150.89 million per MW. The rating further states that the project cost in Phase I (22 MW) is NPR 3119.53 million, i.e. 141.79 million per MW. The project cost for Phase II (7 MW) can be deduced from the above at NPR 1256.27 million. The per MW cost for Phase II comes out to be NPR 179.47 million, which is NPR 37.68 million additional cost per MW against the Phase I cost. The cost increment is of 26.57%. This is quite interesting, given the fact that cascade projects bring in cost advantages. The reverse is seen in the above case.

Venture Capitalists: Value addition through synergies

As an investment banker, I have had the opportunity to get the insights of two institutions that were seeking venture funding from investors. Although one of the institution was delivering service while the other was manufacturing product, there seemed to be quite a similarity in terms of their approach towards business, the way they see the market and their organization structure. Both of them were run by enthusiasts rather than professionals. Both of them had invested heavily on infrastructure but seriously lacked organizational structure to run the business profitably.

So, when they came seeking for funds, it was really hard for me at first to understand how to value these firms. What do we present to the potential investors to make them interested?

It seems venture funding has a lot to do with creating a ecosystem and getting value addition from synergies between several businesses within the portfolio of the venture capitalists. The investors are rarely interested in the company solely for the value of the company in isolation. The ventures are more appealing if the investors find a good fit in their portfolio of other investee companies. For example, a venture capitalist having IT college in its portfolio will be more interested in a IT company than someone not having IT college in its portfolio.Investor with investment in spirit manufacturing will be interested in soda manufacturing business. The reasons for these is the synergies between the businesses (in hand and in the offering). Synergies come with creating an ecosystem for a whole product/service and leveraging this ecosystem for wider product/service range. In case of the spirit manufacturing, the same distribution channel could be used for distributing soda, thereby reducing cost while increasing speed of distribution for the new products. In case of IT college case, interest alignment among the college and the company lead to value addition.

Nepal Rastra Bank : Frankly my Dear, I don't give a damn!

Disclaimer! : This isn't a sarcastic post. Just a personal frustration over the central bank behavior

First, they gave license to any business entity trying to get into Banking and Financial Sector. Their logic was that it will increase access to financial services in the nation. But, all the BFIs were urban area centric. Even their policy to make BFIs have mandatory branches in the rural areas isn't having any impact on overall access to financing. Far better are the smaller cooperatives and microfinance institutions, who are active in the grassroot level. But, impact of this sector too is corrupted by high interest rates.

After few years and few governors,  the NRB fellas found that there were too many BFIs in the nation. They brought Merger Bylaws and then Acquisition Bylaw. Their point was that the nation is too small to have so many institutions. NRB states that they have far few people to oversee so many institutions? Haven't they learnt anything from 2008 Financial crisis? Are they not creating institutions too big to fail? One Gurkha Development Bank had such big ripple effect in the economy. Imagine what would a failure of commercial bank with over 20 billion in deposits have  in the economy? Fewer institutions also means that the sector is moving towards monopolistic economy. (See for Herfindahl index). How will this further suck the consumer interests?

And, after years of downturn and consolidation, the Nepalese economy is finally coming up. The domestic and foreign investors are upbeat about the economy. Investments and investment commitments are rising. The budget has prioritized capital investments and has created favorable environment for infrastructure development. Be reminded that infrastructure projects are capital intensive. Right then NRB comes up with monetary policy to suck up the "extra- liquidity" from the market. Agreed that the market is high on liquidity, and agreed that this could lead to bubbles in stock market and real estate. But there could have been directions to avoid these bubble creations rather than just increasing the CRR, which is expected to drain the market with NPR 6 billion instantly. (This is like 60 MW hydropower project with full equity). The ripple effect of this will be swift. I don't think the government doesn't have enough expertise and resources to take on all the infrastructure projects single handed. It needs equal, if not more, participation from the public. With NRB trying to mop up " excess- liquidity", the interest rates are bound to increase, so will the costs of projects. This will further damage the investment environment.

It seems NRB is always on trial and error mode. Maybe, it is because the governors and the board changes after their tenure and are not accountable to anyone for their decisions and policies. What happens if their decisions backfires or their tests fail? Who is NRB accountable to?

Do they really care for the public or the development of Nepal or they just churn out policies and bylaws because some damn economist published these in some weird journos. I think it is time NRB is held accountable for their policies. Only, then will they see the bigger picture and analyze the impact of their policies on the overall economy. 

It isn’t Leadership Problem, it is Followership Problem

Power inserts godlessness in a lot of people. A lot of times, people who were once morally sound, start abusing their authority when they get power. Power creates a hallucination among these people of being demi-gods. This is why we see a lot of leaders abusing their power, the trust of their followers and compromising on their ethics.

When people talk about leadership problem in Nepal in all sectors, be it politics, business, bureaucracy, civilian society, I get amused. As I wrote earlier, it is human psychology to act differently when one gets power. One believes one can do anything and get away with it. So, selfishness creeps in and the responsibility towards society goes down the drain. And this happens all over the world. Be it in global superpower USA – President Nixon of Watergate case or President Clinton of Lewinsky case or ex-CEO Skilling of Enron case. Or in very unstable countries like Zimbabwe – President Mugabe. Once they attained power, they thought they could get away with any misdeeds, thus the demi-god hallucination. Leaders who can control these urges and still work towards the good of society are very few in numbers.

So, despite the global superpowers like USA having their fair share of faulting leaders, these countries have grown and remained to be the great economies while Nepal is still an underdeveloped nation? (you can call it developing, but you know that is a lie)

Is it really a leadership problem that we have in Nepal or is it something else? In the developed nations, there is so much of scrutiny from public and press when any leader sways from his responsibilities. The public and press acts as a controlling mechanism. The pressure on performance is so high that faulty leaders find it so hard to sustain their positions. This is totally opposite in Nepal. People support leaders for their own selfish agendas.

If the NC candidate in my constituency gets my drunkard, eve teaser, uneducated son into a government job, I will vote for him. If the Maoist candidate gives money for my booze, I will vote him instead. If my CEO will ever try to point fingers at me, no matter how bad my work is, I will join the union and protest to remove him. On the other hand, if I get a healthy bonus, I don’t care if my CEO is taking money from the company coffers to make personal investments.

And above all, we (public) never fight for our rights. We never protest against any misdeeds of our leaders. Our Prime Minister is always right. Our CEO is always right. Our leader is always right. A leader loses in First-Past-The-Post from three constituencies and he still gets nominated by the party. What did the other members in the party do? Nothing. Leaders of a party are exposed in an audio recording of their ill motives to capture the state. What did the public do? Nothing. A party hands over leadership only to family members but talks of being most democratic. What did the other members in the party do? Nothing.

This is how the followers are in Nepal. We do nothing when the leaders fault. We either are coward enough not to protest their decisions or lazy enough to get out of our comfort zone and ask questions. Maybe it is the selfishness in us that stops us from questioning our leaders. Maybe we have taken some benefits from the leaders in the past or intend to do so in the future. Maybe we had asked the leaders to free our crook son from prison, maybe we asked the leaders to donate healthy sum for our daughter’s marriage, maybe we asked the leaders to give us the government projects, maybe we asked them to help our nephew get a driving license without appearing for test, maybe we asked the Principal extra leaves from our duty schedule, maybe we asked the CEO to give us high appraisal rating, maybe we want the elected leaders never to audit our VAT bills so that we can evade taxes. So, who is to blame when the leaders think and act as if they are demi-gods? Of course, the followers.

So, it is not that Nepal has leadership problems. We have our fair share of faulty leaders. We do have smart, intelligent and morally sound leaders. But, our selfishness ensures that the faulty ones remain in power while the good ones just make news in the inner pages of some local newspapers. We as followers have failed to move away from short-term individual benefits towards long-term social benefits. We have only boosted the demi-god hallucination among our leaders. So, it is we – the followers- who are to be blamed for the situation Nepal is in. It is not a leadership problem, it is a followership problem.

Using Mail Merge in Microsoft Word and Excel

I was trying to do a mail merge to send a letter a list of people. I tried to Google up the steps. After few uneasy explanations, I found this site with simple and yet elegant explanation of how to use mail merge.

http://www.wikihow.com/Mail-Merge-Address-Labels-Using-Excel-and-Word

Follow the above link to understand how to use mail merge.

Generate normal random number in Excel

Using Rand() function gives you a random number between 0 and 1. If you are to generate a random number which follows the normal distribution probability curve, then you can use the following code:-

= NormInv(Rand(), Mean, Stdev)

In place of Mean and Stdev, enter mean of the distribution and standard deviation of the distribution

Converting PDF File to Microsoft Excel File

Pdf files have been a revelation for sending information across the globe. Apart from its formal look, pdf files have additional advantage of being read-only (most features) and thus establish authenticity of the information being presented in the files. But, for researchers and data enthusiasts, copying data from pdf files to excel or other format is very hard. A lot of times I see my friends logging in to online pdf to excel converters to extract the data into processable format.

Mind you, not all data in pdf file can be extracted into Excel format. Only those pdf files, which have originated from some excel forms will be able to give you exact data while conversion.

The steps are very simple.

Step 1: Open the pdf file and Save As text file.
Step 2: Open the text file and Save As Excel file.

Although the chances of getting the data in Excel file in format same as it was in pdf are minimal, this conversion is worth a try. A lot of online converters give you similar outputs.

If you want better converters, then try looking for those that involve optical character readers (OCRs). But, as a free and simple starting point, this can be a handy method.

Converting Strings to Numeric in Stata

Although quite simple, it took me some time to find this out. So, posting the method to convert strings to numeric in Stata.

A lot of times, we have data on Excel sheet, and when we copy this to Stata Data Editor, few numeric data gets copied as string variable. A lot of this happens for dummy variables. How do you convert these datasets back to numeric so that you can analyze these number?

Go to Data Editor -> Click on Data -> Click on Create or change data -> Click on Other variable-transformation commands -> Click on Convert variables from string to numeric

Then select the dataset to be changed. You can either create an entirely new dataset for the numeric variables (thereby keeping the old dataset intact) or change the original dataset.

Goodbye My Friend

I might not have much 'coz I have repeatedly sacrificed
Regret, do I not, even your smile had me satisfied
But, it has been a while since I have realized
Your lies and tantrums will no more have me terrorized

Your voice, your words had me hypnotized
Believe, I did, to your words which could never be verified
But, it has been a while since I have realized
Your lies and tantrums will no more have me terrorized

You were always the good, I was always villified
Ego, only you retained, with me having compromised
But, it has been a while since I have realized
Your lies and tantrums will no more have me terrorized

I repeatedly doubt my doubts, with your reasons critically analyzed
Alas.. Reasons, find I none, to have my doubts falsified
 It has been a while since I have realized
Your lies and tantrums will no more have me terrorized

Guilt and gratitude, until now, had me petrified
Goodbye, I shall bid you now, 'coz I refuse to be further humiliatified
It has been a while since I have realized
Your lies and tantrums will no more have me terrorized

The tale of two genders

After all the researches regarding the behavioral differences in the two genders: male and female, and after all the literature regarding this, it is so surprising that a lot of people are still unable to understand and thus cope with these differences.

Psychology has perhaps given us the best insight on being happy. By understanding each other better, it enables us to predict behaviors and react to the best interest of the other.

Perhaps the best book in the behavioral understanding of the two genders is " Men are from Mars and Women are from Venus". I have always promoted this book amongst both the young age group and the elderly ones. The insights it gives regarding the differences in perception and actions of the two genders is very interesting.

Since the 5 years that I had read the book, my understanding about the behavior of men and women has been far better. It has given me a different power to accustom to the behavior of the people near me.

Understanding the same gender behavior is not rocket science to many. But understanding the complexities of the opposite sex is a different ball game. A lot of fights between couples take place due to this misunderstanding. While female tries to talk through her problems, men try to resolve them. Many a times, it seems women just want to share their problems with others by the way of talking about it. But, men try to find solutions to these problems. And that creates friction. Women will talk about any problem in the world, be it solvable or not. When you throw an unsolvable problem at men, they find it hard to digest that they can't resolve it. When in fact, women were not trying to resolve the problem, but just trying to talk about it. By talking about it, women get a sigh of relief and feel light. But, in the mean time, the male counterpart feels bogged down for not being able to resolve the problem. He feels disgusted. When similar situations arise again, he lets his cool down and shows his frustration in the form of anger. And then the fight starts.

This is just an example of the differences between the psychologies of men and women. By not understanding each others behavior, we are constantly fighting over.

Dr Bhagwan Koirala and the change program at Shahid Gangalal National Heart Centre (SGNHC)

We try to analyze the change program at SGNHC under the leadership of Dr Bhagwan Koirala. We compare the process with the 8-step Change Management Model proposed by John P. Kotter. 

The 8-step Change Management Model and Change at SGNHC

Figure: 8-step Change Management Model and Transformation at SGNHC

The transformation at SGNHC from a small hospital catering only OPD services to an international standard heart care center was possible due to the team-spirit, capability and dedication of the employees under shrewd leadership of Dr. Koirala. Personal financial interests and nepotism were discouraged, while punctuality in service was developed.

Dr. Koirala followed majority of the 8-step change management model to bring about the transformation at SGNHC. He met with the employees and brought about the sense of urgency from Day-1. He portrayed dire situation of the hospital and generated employees drive towards change. Senior doctors were consulted to create a common agenda for the hospital. The vision was a set, which was mutually acceptable to the existing employees. The vision was communicated to the employees repeatedly through meetings.

The best way to communicate expectations is by demonstrating them. Leading by example was the motto of Dr. Koirala at SGNHC. He listened to every grievance from the employees and tried to instill service mentality among the employees. 

Doctors at SGNHC were encouraged to go for international exposure and learn best practices in the field from respected international institutes. Innovative ideas to improve the quality of operation and thus the service rendered to patients were supported. 

Change was implemented in an incremental process. Day-to-day improvement was emphasized. New improvements were initiated once the older ones were institutionalized. Systems and procedures were made more powerful than the people. Starting from selecting patients for free-care and free-services to appointing of staff to provision of resources, everything was made procedural. Accountability of actions was instigated.

The change process did have some areas of improvement too. Although the doctors were encouraged for exposure, administration team was not groomed to develop better managerial expertise. Formal trainings and development programs were not carried out to develop service mentality among employees. Similarly, succession planning at SGNHC was not developed. This led to some friction (although temporary) while building on the change process, once Dr. Koirala stepped down from the executive director post.

Overall, it seems Dr. Koirala had succeeded in his vision of developing SGNHC into an international standard facility. From just an OPD ward to a 150 bed heart care centre, the institution has served a huge population of Nepalese heart patients. Costs of heart surgeries are very minimal (basic closed heart by-pass surgery costs about 80,000 to 90,000 Rupees). Mortality rate of the operations are at par with American public hospitals. Over 1200 heart surgeries are done per year. With innovative financial operations like cross-pricing (cabin beds are priced higher so that some beds can be allocated for needy and poor for free), the institution has made heart care accessible and affordable to many. Above all, it has generated hope among Nepalese, that good things are possible in Nepal. Behind this hope is the leader – Dr. Bhagwan Koirala.

The Way Ahead for Wal-Mart

On one hand, Wal-Mart is losing its competency in price leadership in the US, while its international expansion activities are problem-rich. It suffered net loss of $15.699 billion for the year 2012. According to a report by Forbes, the products at Wal-Mart are 19% more expensive than at Amazon.

Moving forward, Wal-Mart must first try to strengthen its competency in price leadership and then expand in the international market. We thus recommend a sustainability strategy followed by growth strategy for Wal-Mart.

Sustainability

Sustainability of its price leadership competence is under fire, causing serious questions on its value proposition. The following strategies could help Wal-Mart regain its competitive edge in retail business in terms of prices:

·         E-Commerce and Mobile Presence

In 2011, online purchases from Wal-Mart website accounted to just 1.1% of total sales. At $4.9 billion sales, it lags even the likes of Apple Inc. in terms of online sales. With lower overhead costs in terms of reduced staff, rental and utility expenses, Wal-Mart would be more competitive in terms of prices if it were to expand its sales percentage through online sales.

Interactive website should be developed to handle the maximum purchase activity. Massive investments are to be put into place for successful delivery of online sales. Integration with mobile applications could help the matter further. But, the return in competitive advantage in terms of pricing means it can then sustain its value proposition.

·         Remodeling Physical Stores

Physical stores could be modified to deliver services. For products, apart from being a sales store, it could act as a showroom with focus on brand promotion and customer acquisition. Sales orders could be taken in store or via the online services, and delivery made through the distribution hubs. Similar model is being followed by the Brazilian retail chain Casas Bahia. This model would help sustain the cost competitiveness of the retail chain by reducing space required for stores, focusing on competency, i.e. SCM, and reduced staff requirements.

·         SCM Improvements

There has been news of empty shelves at Wal-Mart. This means the SCM needs further fine-tuning. In addition, to be able to provide home delivery at humongous proportions, SCM needs to be further improved. 

Ø  Relationships with Suppliers and Employees: Cases of poor working conditions at the suppliers of Wal-Mart have been the talking point for numerous pressure groups. In addition, the employee issues at Wal-Mart are creating lot of negative sentiments in the developed world. Wal-Mart should work with the suppliers and the employees to create better working conditions by creating and strictly following code of conduct. On the long run, the associated costs due to these activities would seem minimal compared to the losses in brand name and legal suits.

·         Social Media and Data Analytics

Social media should be further integrated in the marketing approaches to understand the consumer behavior and serve the customers. With the integration of this into the central MIS, efficient decisions on SCM and other operational activities would be ensured. MIS should be developed to determine demand of customers more accurately throughout its stores to achieve cost advantage by holding the correct inventory. This would further lead to optimum utilization of resources and thus reduce costs.

These activities should be integrated and should consolidate each other to create a synergy and help retain the cost competitiveness to Wal-Mart.

Growth

Major part of profits of Wal-Mart is being contributed by the market outside of US. With purchasing power of customers rising significantly in the emerging nations, Wal-Mart has no option but to expand in these markets. Nevertheless, as shown by the failure in South Korean market, Wal-Mart needs to understand that the strategy made for US will not necessarily work in other markets. Customization to cultures and customer behavior are the key; so is the relation with the government. We propose the following model for Wal-Mart in its international expansion:

·         Joint Ventures

The retail industry in the emerging nations is comprised of few organized retail chains and numerous smaller local stores. To understand the consumer behavior and supplier relations, Wal-Mart should enter these markets by joint-ventures with successful local business houses. This will reduce the risks of government intervention too. After understanding the operations and the needs, Wal-Mart can then go for maximum allowed stake (by government of concerned nations) in these partnerships.

·         Customization

As discussed earlier, understanding and customizing to diversity would be a key to success for Wal-Mart in the emerging economies. For this, apart from the local partners in JV, MIS should guide the decisions in the operations in these stores.

Wal-Mart should focus on transnational strategy where it will be able to adapt to local needs of the market like in China, leverage unique advantage of local markets to drive sales, market share and profit growth but with a central corporate facility. Knowledge of customer behavior would strengthen the validity and acceptance of actions.

·         Develop and Follow Standards

One dilemma faced by organizations headquartered in US while expanding in the emerging markets is what standards to follow? - The ones of US or those of the home country. On the short run, the latter may be beneficial, but on the long run, this will come to haunt the organization. A lot of such issues have surfaced for Wal-Mart over the years. While moving ahead, Wal-Mart should develop “code of conduct” for its global operations and comply to it strictly. This will ensure that the international expansion is sustainable and accepted by the home country government and citizens.

Even while following growth strategies, Wal-Mart should work on the sustainability strategies: - strengthening its resources for sustaining its competitiveness in price leadership.

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Envisioning the Future of Retail Market

Online Stores

Internet has brought paradigm shifts in all the industries. Internet enables companies to increase their connectivity while reducing the overall costs. In retail industry, online stores have an advantage over brick and mortar stores with their lower overhead costs. This makes players like Amazon extremely competitive in cost leadership segment. With the development of internet payment gateways and consumer acceptance over the credibility of stores, online purchases are likely to grow significantly over the coming years.

Even in emerging economies, where credit cards and internet payment gateways are not accessible to mass, “cash on delivery” services enable online stores to foster. E.g.: Flipkart in India.

According to technology and research firm Forrester, we can expect e-commerce to increase (in US) by 13 percent in the year 2013, to a whopping $262 billion.

Mobile Stores

Smartphones have presented a new market to the retailers. Enabled with rich applications[1] and QR code integration, smartphones have fostered the development and incorporation of virtual shopping screens and even robotic store displays in the retail industry[2].

Consumers have been empowered of being able to buy things online straight from their phone and being able to buy things in store with their phone[3]. Companies like Square are further pushing this trend with devices and applications to make purchases from phones a commonality.

Store within a Store

One of the major issues faced by physical retail stores like Wal-Mart is the growing staffing costs. Retailers like J.C. Penney have found innovative concept of “store within a store”. The retailer sub-lets the space to the product maker and the counter is staffed by an employee of the product maker, not the retailer. Whether it is Chanel or Lancome or some other brand, each product maker is “showcased” at its own counter[4]. 

While competing in the cost leadership segment, reduction in the overhead costs gives an improved competitive edge to the retailers. Thus, acceptance and appliance of this model in the future by more retailers is a reality.

Shopping Experience: New Types of Value for Customers

It is going to very difficult for traditional retail stores to compete with online stores in terms of price. To pull the customers from comfort of their home to the stores, retailers have to create and sell shopping experiences[5]. Strategic alliances with brands to develop retail stores as brand and product showroom could be the way ahead[6].

Online stores still lack browsing and discovery experiences that satisfy curiosity. Retail stores can work on new types of value addition for customers. Retail spaces can relax customers, offer refreshments, and provide entertainment while creating the conditions to engage in a conversation that builds brand loyalty.

Customization

As retailers expand across the globe, there will be a need to customize strategies as per the customer’s behavior. Wal-Mart accepted this fact in 2006 and developed merchandising strategy to reflect each of six demographic groups. As retailers plunge into international expansion, one-size-fits-all strategy will not work. The successful retailers in the future will incorporate customer preferences across geographies and ethnicities, and customize accordingly.

Data Analytics

As the world is becoming more and more digitized, there will be hoards of information available for retailers to analyze and better fit their strategies to the needs of the consumers. More insights on consumer behavior and strategizing accordingly will ensure better performance. Use of social media will be a key to the extraction of this information. Retailers will increasingly use omni-channel approach to track customers across all channels.

 

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[1] (Kanada, 2013)

[2] (Silverstein, 2013)

[3] (Phillips, 2012)

[4] (Ganos, 2013)

[5] (Jhonson, 2011)

[6] (Geddes, 2011)