SmartFin Services

Why I said I would not recruit him again

admin — Fri, 10 Jul 2009 08:13:20 +0000

Many a time, I get calls from independent agencies verifying facts about our ex-employees. Usually questions like period of employment, behavior etc. are asked. I don’t usually answer too many negatives, thinking “wherever an ex-employee is, let him be well and good”. Once, I got a call from an agency and they wanted to verify an ex-employee named Ganpath (name changed to protect privacy). The lady asked me if he was working here for this period and I said yes because that was true. Then the lady said “I’ll send you an email, if you can reply to that, it would be great”.
I got an email from her in a couple of hours. I answered the usual questions, but the final question was a tricky one – “Given a chance, would you recruit Ganpath again? If no, then please state reasons” I closed my eyes and thought about it. “Would I recruit him again?” The answer came to me immediately “No”. Why? The answer came immediately again. Ganpath was an undergraduate commerce, but his previous employment was as a call center support. He wanted to come to a line where he could use some of what he studied. During his interview before joining SmartFin Services, I told him “you want to come to this line because you feel this is what you have studied, I appreciate that. However, you don’t have previous experience in accounting. So I need to spend considerable time in training you. Because a lot of effort is going into training you, I expect that you stay with our company for atleast a year or a year and a half.” Ganpath agreed to that and joined. However, he left within 6 months and that really put me off. It took him about 3 months to get trained, and he was just about starting to perform to his potential when he put in his papers.
So I thought about the reply for that question. Do I just say “yes, I would recruit him again” (so that he doesn’t have any problems with his new employer). I was a bit confused and decided to reply to that email after a day.
The next day, I was clear about what needed to be done. I had a duty towards Ganpath’s new employer in communicating why I would not recruit him again. I consider it a “duty” because if was going to recruit someone tomorrow, I would definitely expect a correct feedback from the previous employer.
So I replied to that email stating that I would not recruit him again and explained the reason very clearly.

- 8th May 2009

Use the Indian Stock Market as a hedge against the fluctuating Rupee

admin — Fri, 10 Jul 2009 08:39:28 +0000

One of the greatest risks in running a BPO outfit is the currency risk. The revenue would be in USD and almost all expenses would in the Indian Rupee. I first came to grips with this risk when the Rupee touched 40 for the dollar and threatened to go below that range. Then a lot of international events happened – the US economy went into a recession, which in turn triggered a recession around the world.

The Sensex, one of the important Indian Stock Market index, was at about 21000 levels when the world economy was at the upper end of the curve and that was when the Rupee was at 40 per dollar. When the recession seemingly hit the bottom, the Sensex was at 9000 levels and the Rupee? It was an unbelievable 50 to the dollar!

In the 90s, there was a very high co-relation between the Rupee-Dollar levels and the price of oil. That was because Oil was purchased against Dollars and it was the single most significant factor. Then came the Foreign Institutional Investors in the Indian stock market. Ever since the FIIs came in, they have been the single most important factor in the Rupee-Dollar equation. The FIIs were also the single most important factors in driving the stock market – when the Sensex hit 21000, the FIIs had pumped in their maximum funds into the market. When the Sensex then hit the bottom of 9000 – the FIIs had taken a lot of money out of the market. When the FIIs bring in the money in USD, the Rupee strengthens and when they take it out, it weakens – the equation is as simple as that.

Having this in mind, I devised a strategy to evolve a unique hedge – whatever profit our operations make at Rs. 40 to the Dollar, that was considered as “normal” profit. Whatever was realized greater than that benchmark of 40, was considered as that element of profit that needs to be put into the market as a hedge when the rupee starts its movement towards 40 again. And so systematically I started investing in the market for about 8 months when the rupee breached the crucial 50 mark. Then it started appreciating again and my hedge started working. Let us say the company’s revenues are USD 100. When the rupee was 50 against the dollar, I was getting Rs. 5000. Now, in the last couple of months, the rupee has appreciated to Rs. 47 and I’m realizing Rs. 4700, an opportunity loss of Rs. 300. Now, over a period of time I had invested nearly Rs. 5000 in the market. And that opportunity loss of Rs. 300 is right now being more than offset by the gains my investments make each month – because when the rupee appreciated, it was because of the FIIs pumping in money into the market which shot up by almost 50% in the last couple of months!

So what is the caveat in this hedge? First, when the Rupee appreciates beyond a certain point, there might be no profits in the operations at all, so there may not be anything to hedge! At that point of time, the better hedge would be to have operations in another country. For example, Sri Lankan Rupee is now about 115 per dollar and it may take much longer for a Sri Lankan based operation to become unprofitable due to currency risk. This would be a cycle and a parallel that I draw is the “Nike Economic Indicator” – when Nike stops manufacturing in a country, it is because it is no longer cost effective to do so (because as a country moves up the development curve, costs also shoot up)! So pro-active companies would keep shifting their operations to more cost effective countries on a continuous basis (is that not what IBM and TCS .are doing currently?)

The second caveat to the hedge – Just like oil went out of the Rupee-Dollar equation in the 90s, there might be a day when FIIs go out of the Rupee-Dollar equation. God give me the wisdom to know that day and also give me the wisdom to find out what to do next!

The third and the last caveat – I should be a good fund manager! I’ll probably save that for another blog!!

The perfect client vendor relationship

admin — Fri, 10 Jul 2009 08:05:28 +0000

I was thinking about this for a long long time until it actually happened recently. We acquired a client by the name Regent West a few months back. Raj Makwana, the Controller at Regent West, is an unbelievably nice man – almost never gets angry, is very polite and very hands-on in his job. Right from the start, he was very clear about what he wanted from us. This is definitely one of the many reasons for that perfect relationship.
The second most important reason was our approach and the way we handled the client. We originally pitched for a full fledged offshore team handling their entire accounting end-to-end. However, Raj was clear that he wanted to offshore only certain activities which he felt would be highly conducive for offshoring. We just went with his thought process – after all, we are here to deliver what the client wants. When we started doing the work for Regent West, we only agreed on a broad pricing strategy – that our rates would be $15 per hour and that we’ll agree on a concrete pricing for each accounting function depending on the time taken for it each month.
We first took up Bank Recs and then come the third and the most important reason – our delivery capabilities. Each day, we completed the Bank Recs that were scanned over to us in the previous day and sent a daily report of the status of the Bank Recs. This really made Regent West comfortable with our approach towards work. We also made small value additions wherever possible. For example, we highlighted old deposits that were entered in Yardi but never collected in the Bank. These small things helped them take action on old items and added to the feel good factor.
After completing the Bank Recs, I shot off an email to Raj telling him that it took us seven man-days to complete them and asked him if he thought a billing of $15 per hour * 8 hours per day * 7 days = $840 a month for Bank Recs would be fair. I just got a four word reply – “Yes, fair and agreed”!
To our credit, we did a fantastic job in completing the Bank Recs in a timely fashion and to Raj’s credit, he really appreciated that it takes about 7 man-days to do the Bank Recs and didn’t negiotate! And to me, it was a great strategy – do the work first, please the client and then talk about the pricing. If client feels our process efficiencies are good and the rates are reasonable (which ought to be, given the labour arbitrage between the US and India), then it bodes well for that perfect client vendor relationship!!!!!!!!

– 10th June 2009