the past five months P. Sugavanan, the soft-spoken 59-year-old Director
(Finance) of India's only Fortune 500 company, Indian Oil Corporation
(IOC), has rarely smiled. Instead, the face of the man who winces
every time there is a jump in international crude prices now sports
a permanent worried scowl. Between December 31, 2003 and May 11,
2004, the price of crude has jumped from $29 to $37.8 a barrel.
However, with the country in throes of the elections to the 13th
Lok Sabha, the government was loath to pass on the increase to the
customer. Thus, petrol and diesel prices remained steady in the
country even as oil companies such as IOC bled. This, when the administered
pricing mechanism that gave the government the right to price petro-products
as it deemed fit was scrapped on April 1, 2002. Sugavanan has already
written off the losses, a few hundred crore of them, as the offshoot
of regulatory risks. "There is little we can do about regulatory
risks," he says simply and pragmatically. "Other risks,
market, credit, and operational, are much more manageable."
That's because IOC, like other Indian companies
that increasingly operate in a 'global' marketplace, has discovered
the science of risk management. India Inc., explains Sanjeev Singhal,
formerly a consultant with PricewaterhouseCoopers, is increasingly
turning to "risk management techniques" to avoid "losses
due to price fluctuation or a sudden fall in demand, reduce volatility
in earnings, maximise returns on investment, and meet regulatory
requirements". Sugavanan is right: market, credit and operational
risks are easily managed. The first, broadly defined as cross-border,
interest rate, or foreign exchange risk can be mitigated through
a clutch of sophisticated market-based instruments such as forward
and future contracts, swaps, and options. Credit risk, simply the
threat of non-payment by customers or dealers, can be offset by
using the services of a creditable credit rating agency. And operational
risk-losses from unexpected events such as earthquakes, floods,
even a collapse of the it infrastructure-can be managed by taking
the requisite insurance cover.
management is as complex as a company wants it to be, and as complex
as its operations. The largest foreign bank operating in India,
Standard Chartered, for instance, defines eight types of risk: cross-border,
credit, liquidity, market compliance, regulatory, business, reputation,
and that associated with meeting the laws of both the host country
and the lead country (the place where the bank is based, the UK).
"We must apply full UK anti-money laundering controls wherever
we operate in the world even if these are more stringent than the
local ones," says Robert Green, Regional Credit Officer, Standard
Chartered. The bank has also developed advanced risk management
techniques to measure annual credit losses over an economic cycle,
volatility in credit losses and market positions, the amount of
capital required to protect bank solvency (an extreme scenario),
and the risk-adjusted return on capital. All these, adds Green,
will be implemented once India adopts the standards laid down in
the Basel Capital Accord two years from now. Other banks aren't
far behind either. Kotak Mahindra Bank, one of the newest private
banks in India, recently appointed Shekar Sathe as its head of risk
management. His job, he jokes, is "that of a second driver"-staying
on high-alert, watching for danger signals or simply playing the
role of a cleaner, maintenance man, and system overhauler as the
case may be. Sathe believes the key to managing risks in a bank
lies in adequate provisioning. And IOC's Sugavanan, that it lies
in managing volatility in oil prices and refining margins. In March
2004, after lobbying the government for years, IOC was finally allowed
to hedge against rising international prices of crude, and swinging
refining margins. In one month, it managed to save Rs 2.48 crore.
|Risk management, at the end of the day, isn't
a simple exercise in fire fighting: it's as strategic as strategy
That makes risk management sound nice, easy,
and math-driven, something that it isn't. For instance, the biggest
risk facing tobacco major ITC is the zooming excise duty on tobacco
and the transplantation of stringent First World regulations concerning
the promotion of tobacco products in countries such as India. The
company's risk management solution involves "advocating moderation
in taxation as a win-win for the consumer, the company, and the
government", says K. Vaidyanath, Executive Director, ITC. However,
he adds that the company can do little about other regulations.
Exploration major ONGC has worked out an innovative risk management
solution to tackle exploration risk: joint ventures. The exploration
business involves huge capital investment and is inherently risky;
"(We address this) by entering into joint ventures with other
exploration companies," says R.S. Sarma, Director (Finance),
ONGC. For its exploration activities in Gujarat's Ravva fields,
for instance, ONGC has partnered with Cairn Energy, Petrocon India,
and Ravva Oil. Software products company i-flex buys that argument.
"The key is in joining hands with local partners," says
Makarand Padalkar, Chief of Staff (Executive Management), i-flex.
To do business in volatile Zimbabwe, the company has forged an alliance
with a Kenyan company, Fintech. And apart from taking out the requisite
forward cover to hedge its foreign exchange risks, software services
company Infosys, its Chief Financial Officer T.V. Mohandas Pai explains,
has developed country-specific strategies that have seen the European
component of its revenues increase from 17.7 per cent in 2002-03
to 19.2 per cent in 2003-04. Risk management, at the end of the
day, isn't a simple exercise in fire fighting: it's as strategic
as strategy gets.
a Learning Experience
Higher education scholarships to retain employees?
At some BPOs it more than just works..
|Back to the classroom: Wipro Spectramind
employees catch up on their higher studies during the weekend
little over three years ago, when S.V. Raja, Vice President of hr
at Wipro Spectramind, was poring over the Six Sigma reviews, he
noticed something interesting. One out of every four employees at
the BPO was leaving not to join a rival for a bigger pay packet,
but to pursue higher studies. The penny dropped and promptly Raja
got the management to approve a scheme that allowed the BPO's employees
to sign up for various long-distance courses without having to leave
their jobs. It's been 34 months since the scheme was rolled out,
and Raja says that attrition is down significantly.
Wipro, though, isn't the only to have discovered
that "earn-as-you-learn" programmes can help combat employee
attrition in an industry that in a year loses four out of every
10 employees it hires. Others like TransWorks, part of the Aditya
Birla Group, Sitel (which is part owned by the Tata Group), ICICIOneSource,
and BNKe International also offer their employees the opportunity
to continue studying even as they do their full-time jobs. The cost
of the course is borne by the employer, either partly or fully.
Some have internal "entrance tests" to shortlist the promising
employees, while some others consider past academic performance
or performance on the job.
Innovative while it is, altruism it is not.
There's sound commercial rationale behind it, apart from retention.
The average worker who joins a call centre (and possibly not those
who do more value-added work such as payroll management or filing
of tax returns) is a graduate and in his early 20s, and needs extensive
training in one skill or another. Not just the high attrition rate,
but the industry's frenetic pace of growth demands a steady pool
of workers who can take on greater responsibilities as the outfit
grows. For example, an agent may only need telephone skills and
knowledge of the client's products and services, but as a supervisor
or a manager, he would need leadership and team management skills
and the ability to interact with clients and not just their customers.
That means having to talk numbers, strategy, and make key decisions.
Says Raja of Wipro Spectramind, where 80 per cent of the managers
are from within the company: "The initiative up-skills employees,
helps us retain our A-level employees, and undoubtedly offers an
opportunity to create future industry leaders."
All Are Welcome
Since the idea is to enhance employee skills
and also retain them, the BPOs are more or less indiscriminate about
sponsoring employees. At Sitel, any employee who has been confirmed
can apply for the scholarship programme, "although preference
is given to high performers", says Shailaja Puranik, the company's
coo. At TransWorks, the applicant must have been employed for a
minimum of six months and performed well on the service level agreements
(SLAs). ICICIOneSource also insists on the six-month rule and encourages
only the top performers to apply.
What are the courses on offer? There's a variety
of post-graduate diplomas in subjects such as marketing, finance,
and management. The course content and class timings are tailored
as much as possible to the specific student's needs or the company's
requirements. Even the case studies and projects are tailored to
each BPO's specific needs. To ensure that the diplomas and degrees
are not just good but also marketable, the BPOs have tied up with
management institutes. Wipro Spectramind has roped in Symbiosis
Institute of Distance Learning and bits Pilani; TransWorks has joined
hands with Narsee Monjee Institute of Management Studies and ICFAI
of Hyderabad; and Sitel has an agreement with L.N. Welingkar Institute
of Management Development and Research. ICICIOneSource is the only
odd man out. It does not have a formal tie-up with any institute.
Instead, it allows its employees to pick a course of their liking,
and sponsors it. Mostly, the classes are virtual, offline, or held
at the institutes. But in some cases, like at Wipro Spectramind,
they are held over weekends on the BPO campus.
How much are the BPOs spending on their employees'
higher education schemes? It depends on the course and the number
of employees who qualify for the scheme. But typically, it ranges
between Rs 25,000 and Rs 1 lakh for a course stretching over 30
months. How much of the cost is actually borne by the employer varies.
Sitel only picks up half the tab, while TransWorks often reimburses
the entire course fee. ICICIOneSource has an upper limit of Rs 25,000,
and Wipro Spectramind goes by the employee's performance both on
the job and the course. Says K.P. Nair, Vice President (HR), TransWorks:
"Staggard reimbursement is done every quarter for those who
complete the course successfully and remain with us for at least
a year after that."
If the BPOs are going out of their way to educate
their employees, there must be a catch somewhere, right? There is.
Most require such employees to commit to a minimum period of employment.
At Wipro Spectramind, it is a year, while at ICICIOneSource it is
six months. BKNe, however, insists on no such commitment. Says Suresh
Menon, coo: "It's only a relationship-building measure...a
means to convey the management's concern for employees." Whatever
be the ostensible motive, the bottomline is that the scheme is working.
At Sitel, the attrition rate is down to 30 per cent from 37 per
cent in the last eight months. So, look at it whichever way you
want-from the perspective of the employer or the employee-this will
be a lesson well learnt.