Crystal Gazing on Business

Using mobiles for airport security

2011-05-18T11:27:00.000+05:30

Last weekend, I had to go to Mumbai for a business trip. And I had with me a printout of my e-ticket. Like at most Indian airports, at the Bangalore airport my e-ticket was checked by the security (along with a photo identity). However, it is quite easy to fake such an e-ticket. All it takes is a basic editor. If I recall right, there was an incident sometime in 2010 in which someone had entered Mumbai airport with a fake ticket.

It is surprising that given the dire consequences that may arise from a security breach, a more secure mechanism is not in place today. The technology exists - the ubiquitous mobile phone.

All that is needed is for the airline's system to send a barcode or a quick code to the registered mobile number of the ticket holder, and the same can be scanned for validity at the airport entrance. This will eliminate the ability to enter the airport using fake tickets. And if the system can alert the security guards if the code has already been "used", that will prevent instances wherein by forwarding the code, two or more people try to enter the premises.

Given that even the bottom of the pyramid people in India have handsets, the above solution is not just technically feasible, but also practical in terms of ability to serve the vast majority of flyers.

Outcome based pricing in IT Services

2011-02-12T11:22:00.002+05:30

Indian IT service providers have grown in scale and revenues over the past decade. However, a bulk of the outsourcing work done by Indian IT service providers is ADM (Application Development and Maintenance) and the contracts are designed on a Time & Material (T&M) basis as against being fixed price bids. Thus, revenues have been linear with scale. This is not sustainable – there are not enough employable graduates to grow at matching pace, and the economic downturn of 2008 and 2009 has made customers scrutinize their IT costs meticulously.

T&M contracts make customer needs and vendor incentives diametrically opposite – the vendor makes money on the duration of the project, which increases costs for the customer. Making contracts fixed bid aligns the incentives somewhat, and some companies, such as iGATE have taken this one step further. iGATE has evolved its iTOPS (Integrated IT & Operations) model – which is not only fixed bid, but also charges customers only for predefined outcomes. To illustrate, an insurance customer is charged based on (say), the number of policies processed by the IT system, irrespective of the time and effort incurred by iGATE in designing, developing, testing and maintaining the system. This model aligns customer and vendor incentives perfectly – the customer pays only on clearly defined and measurable outputs and provides a reason for the vendor to innovate (e.g., through code reuse, platform architecture that can be taken to multiple clients etc.) in order to maximize its profits.

The outcome based pricing model is not yet widespread, but if implemented right, it has the potential to change the game.

Milestone Series Mutual Funds: Not for Everyone

2011-01-21T21:31:00.001+05:30

In an interesting development, mutual fund houses in India are planning to launch milestone series mutual funds.

Milestone series funds are those that allocate assets across asset classes based on the time horizon for the goal to be reached. So, if you are looking at a foreign vacation in five years, you’d want to invest in a fund that allocates equity : debt : gold in say, 35 : 55 : 10. On the other hand, if you wanted to invest for your retirement in 30 years, you might go in for a fund allocation of 80 : 20 (equity : debt).

Ostensibly, the reason why mutual funds are launching such funds is to compete more effectively with insurance policies, specifically ULIPs. However, the following need to be considered by AMCs to successfully compete.

1. ULIPs provide an insurance cover along with potential capital appreciation. However, these come with “hidden charges” such as higher allocation charges in the earlier years, surrender charges etc. Mutual funds cannot have entry loads, so the capital invested is greater, and consequently, has a better scope for appreciation (ceteris paribus).

2. What is to prevent an investor from withdrawing a fund before the time horizon?

3. The ban on entry loads has resulted in MF distributors not aggressively pushing MFs and pushing insurance policies because of the higher commissions generated by insurance sales. What incentives do distributors have to push milestone series funds any more than they have for other mutual fund schemes?

4. Can different investors indicate different time horizons for the goal based on which asset allocation pattern changes and can investors have customized investment options? This is similar to the passive investment option available in the New Pension Scheme

It would appear that the key to making milestone series funds succeed is to invest in product innovation (along the lines of 4 above), coupled with investor education and aiming for a pull demand. Simultaneously, AMCs need to add adequate safeguards in the form of lock-in periods and tiered exit loads to enforce some form of investor discipline and preventing investors from prematurely withdrawing their investments. Additionally, AMFI could consider lobbying for tax benefits on some of these funds – although this may be of limited utility given the availability (although not widespread penetration, at least not yet) of the New Pension Scheme. (Personally, as a retirement tool, I think the NPS would work better than mutual funds for the naïve investor who can opt for a passive investment strategy that automatically shifts assets to less risky classes based on age. Furthermore, the annual charges on NPS are a fraction of what AMCs charge on the mutual funds)

In summary, I think milestone series funds are an excellent investment option for savvy and disciplined investors to plan and save for defined goals. However, in its current form, it is unlikely to replace or be an effective competitor to ULIPs.

Mobile Handset Recycling in India

2010-12-16T10:08:00.003+05:30

Driven by declining handset prices and increasing disposable incomes, customers are increasingly upgrading their phones, leading to an ever growing number of used mobile handsets in the second largest mobile market globally – India. Although India does not currently have a regulation similar to EU’s Waste and Electronic Equipment Directive that establishes collection, recycling, and recovery targets for all electronic product categories, the draft of E-waste (Management and Handling) Rules, 2010[1] is a step in this direction. It is reasonable to expect that over the next few years, India will mandate recycling targets for electronic product manufacturers.

With the advent of 3G, many existing users can be expected to upgrade their existing 2G handsets to 3G handsets or smart phones, leading to an increase in the number of used handsets in the country. A global survey conducted by Nokia in 2008[2] reveals that a staggering 97% of people do not recycle their old and unwanted mobile handsets. Further, three-fourths of those surveyed did not even think of recycling (the corresponding figure for India was higher at 84%) and half the respondents were not even aware that recycling of mobile handsets was possible.

Electronic waste can be an important source for raw material – reducing the need for mining and consequent greenhouse gas emissions – but if discarded improperly, e-waste causes environmental damage and can be a toxic pollutant when it makes its way into potable water or fertile soil.

The bulk of a mobile handset consists of components that are plastic, ceramic, or metals. Almost all components of a mobile handset can be either recycled or used in a way so that nothing goes into landfills as e-waste. Plastic components can be recycled into traffic cones, plastic waste for roads, benches, buckets. Metals can be recycled for use in the manufacture of musical instruments, jewelry, kitchen items. Ceramics can be recycled for use in electrical and electronic equipment. Mobile handset chargers can be recycled as well. Based on its survey results, Nokia estimated that even if each of the three billion phone users in 2008 recycled one phone each, 240,000 tons of raw materials would be saved.

Nokia’s survey further revealed that the primary reason why so few people recycle their mobile handsets is because very few of them are aware that it is possible to do so.

In India, to increase the awareness levels of mobile phone recycling among public, some handset manufacturers have initiated campaigns – Nokia’s “Planet ke Rakhwale”[3] (Guardians of the planet) and Samsung’s Takeback and Recycle[4] are cases in point. However, not all handset manufacturers have take back and recycling options and even among those who do, the campaigns have not been advertised and promoted as widely as sales and marketing campaigns.

In order to drive mobile handset recycling in India, a two-pronged campaign that increases customer awareness and motivates customers to turn-in their used handsets is recommended.

Increase Customer Awareness

The most effective method to increase customer awareness would be for handset manufacturers to jointly campaign with communication service providers (CSP) since the CSP is the primary interface to the a mobile phone user.

• Provide literature on recycling options at CSP as well as handset retailers

• Train and encourage CSP call-center employees to educate callers on recycling options

• Insert a prominent recycling logo in all advertising campaigns run by CSPs

• Label the handset with a recycling logo

• Display easily visible recycling information on the website

• Initiate educational campaigns through information on monthly billing statements, pre-paid starter-kits, text messages etc.

• Share results of recycling efforts on periodic basis

Motivate customers to turn-in used handsets

To ensure that customers recycle their mobile handsets, it is necessary to close the loop by implementing collection methods that are simple for the customer. Ensuring ease of turn-in will increase participation rates.

• Place collection boxes prominently in both, CSP and handset retail outlets

• Provide signage to clearly indicate what items (e.g., phones, charges) are to be dropped so that recycling bins are not contaminated with other material

• Provide discounts when a customer buys a new phone and simultaneously brings in an old handset

• Provide pre-paid business package envelopes in which customers can mail back old handsets to manufacturers

• Organize corporate / neighborhood collection drives and incentivize people by offering charitable donations for each phone collected

• Place collection boxes at other public locations with high-footfalls such as malls, banks, and post-offices

By getting a head start on promoting mobile handset recycling, handset manufacturers as well as communication service providers stand to improve their brand image and positioning by demonstrating that they take their responsibility to the environment and community beyond mere lip service. Minimizing environmental impact and decreasing e-waste are necessary to ensure that the India telecom growth story does not have consequences that are unintended but cause long-term irreparable damage.

References

1. http://moef.nic.in/downloads/public-information/Modified%20Draft%20E-waste.pdf

2. Global consumer survey reveals that majority of old mobile phones are lying in drawers at home and not being recycled, Nokia press release dated July 08, 2008 [http://www.nokia.com/A4136001?newsid=1234291]

3. http://www.nokia.co.in/about-nokia/environment/we-recycle/take-back-recycling-awareness-campaign

4. Samsung launches the first of its kind ‘Samsung takeback and recycle’ (star) program across all product categories dated Aug 31, 2010 [http://www.samsung.com/in/news/newsRead.do?news_seq=20315&page=1]

Ancillary Products & Services: A Win-Win for Customers and Airlines

2010-07-11T23:05:00.001+05:30

Globally, the economic downturn of 2008-09 saw a decline in the air traffic volume and declining profitability for many airlines. Airlines focused on improving profitability through cost optimization – unprofitable routes were discontinued, irrational fare wars were abandoned, and new plane deliveries were either cancelled or deferred. With the upturn in the economy over the past year, airline companies’ focus has shifted back to increasing revenue growth. A key lever for increasing revenues is ancillary products and services – defined as revenues accrued from activities linked to air passenger travel.

Research indicates that margins on ancillary revenues range between 10% to 90% and that ancillary revenue projects have a high ROI and quick payback. Hence, airlines are increasingly expected to leverage them as a source of incremental revenue. Over the last 5 years, in the North American and European markets, ancillary revenues have become increasingly important, and some low cost carriers derive almost a fifth of their total revenues from ancillary products and services.

Ancillary products and services can be derived from two categories: service unbundling and commission based cross-selling.

Service unbundling: At its core, air travel is primarily transporting a person from point A to point B. However, airlines have traditionally sold a bundle of services – food, baggage transportation, lounge access etc. – along with the transportation service at an all inclusive price as mentioned on the ticket. Service unbundling is a strategy wherein the ticket price includes only the charges for passenger transportation and other related services are charged separately. For example, in the US, the prevalent practice is to charge a fee for each piece of checked-in baggage. In India, some airlines have taken the first steps in service unbundling and charge a fee for selecting a specific seat during web check-in or have refreshments for purchase in-flight.

Commission based cross-selling: This involves charging for additional travel related value added services provided either by the airline’s partners. Our experience with airlines in other markets indicates that the most commonly commission based cross-sold products are hotel reservations, car hire, and trip insurance. In India, some airlines offer trip insurance and co-branded credit cards as part of their commission based cross-selling initiatives.

The results of a survey we conducted shows that in-flight Internet access is the most likely ancillary service to be purchased on domestic flights within India with 25% of survey respondents ranking it as their first preference (see figure 1). When asked to suggest additional ancillary services not listed as survey choices, some respondents indicated a willingness to pay for guaranteed aisle / emergency row seating, magazine of choice for in-flight reading, and foot massage after flight.

Although an attractive option to increase revenues, service unbundling and commission based cross-selling are not without potential pitfalls. Understanding which service elements can be unbundled and managing consumer sentiment can be the primary stumbling blocks in implementing an ancillary revenue strategy based on service unbundling. Implementing commission based cross-selling has a different set of challenges ranging from Identifying the right partner to negotiating the pricing and commission structures. An overarching challenge lies in devising and implementing distribution strategies so that ancillary products and services can be sold to customers across key channels.

Even today, air travel in India is considered a “luxury” by some. Consequently, many customers expect a variety of additional services that make their travel a luxurious one. Airlines need to carefully balance two contrasting customer reactions to service unbundling – some customers will be happy since they can now select and pay only for services that they will indeed use whereas other customers may feel irritation at the prospect of paying additional fees. To minimize the latter, it is important that airlines undertake marketing initiatives that clearly outline the customer benefits of service unbundling. Service unbundling must be positioned as a strategy that allows customers to select options most relevant to them and trade off other services for additional savings. Optional services that are available for purchase separately must be unambiguously highlighted during the sale and on the ticket so that the customer does not feel that there are “hidden fees”. Service unbundling must be done carefully, taking the airlines’ brand positioning into consideration so that the primary target customer segments are not alienated.

In order to provide the most relevant cross-sell opportunities, airlines must first understand the needs of their target customer segments and currently unfulfilled needs. Based on this, partnerships can be identified that will create value for the customer. A critical element in cross-selling is to ensure that information is seamlessly transferred from the airline (which front-ends the sale) to the partner because any service failure will negatively impact the customer’s perception of the airline.

Technology plays a critical role in ensuring that ancillary products and services can be sold to customers. Ancillary products and services need to be integrated into the key channels so that ancillary products and services can be sold through effective cross-sell and up-sell processes. The key lies in utilizing the web for reservation-focused services and using place-based channels (for example, airport kiosk) for day of flight products and services. Information integration between the airline and its partners, who may have different systems and are possibly not as mature on the technology adoption curve, is also important. Customer facing personnel must have a “single view of the customer” and access to not only the travel itinerary but also all ancillary products and services purchased so as to ensure a hassle-free customer experience.

As airlines increasingly look for additional sources of revenue and customers become increasingly value conscious, ancillary products and services can be effectively utilized for mutual benefit in a proverbial “win-win” situation.

Improving Customer Experience Through Multi-channel Integration

2010-05-22T14:44:00.006+05:30

(This article was co-authored with Rajesh Balaraman)

Recently, I was at the Delhi airport on my way to Mumbai. I was flying one of India’s leading full service airlines and at the check-in counter, it was pointed out to me that my ticket was for the same flight I was trying to check in, but was booked for two days later (oops!). Neither I nor the security guard at the terminal entrance had spotted that the ticket was for another date. I asked the agent at the check-in desk if she could change the date and that I was willing to pay any difference in fare. She pointed out that none of the check-in agents could make the change, and that I had to go to the airline ticket counter adjacent to the terminal. The ticketing office then pointed out to me that since the ticket was booked online via their website, I had to call the call center to get the ticket modified. The call center I called then let me know that the regular call center cannot change the ticket, and there was a separate call center number for online tickets and also that they did not have the facility to transfer my call to the online ticketing call center. The entire episode was a not so pleasant learning experience that highlighted the opportunity for airlines in India to improve customer satisfaction by ensuring multi-channel integration across customer touch-points.

The focus of most carriers in India has largely been on market share, revenue growth, network and capacity optimization, and cost management. Although these continue to remain key focus areas, as the industry evolves and matures, due consideration needs to be given to the finer aspects that deliver superior customer experience and drive customer satisfaction.

Today, there are a number of channels through which customers interact with the airline prior to the actual flight including: airline offices in the city, website, call centers, mobile applications, ticketing office outside the airport terminal, check-in desks inside the terminal, airport kiosks, travel agents, and travel agent websites. The lack of visibility and consistency in customer and transaction information across these channels leads to customers having a disconcerting experience, often having to repeat information to support personnel and then having to wait a significant time while the information is confirmed and the service request completed. The lack of multi-channel integration leads to processes that are inefficient, sometimes resulting in increased costs and almost always ensuring a customer experience that is diametrically opposite to the brand image airlines desire.

Our experience working with carriers in more mature markets (USA) shows that very few airlines have managed to score high consistently on the cross-channel experience delivered to customers. In mature markets this is typically because airlines have legacy systems and a number of these systems were designed and developed when some of these channels did not even exist. Hence, there is no seamless integration of transaction information across channels and between systems. Given that most airlines in India (with the exception of Air India and Jet) have started operations only in the past decade, they have the advantage of not being burdened with legacy systems and processes that are expensive to change or difficult to enhance.

Indian carriers can enhance their capabilities to include multi-channel integration using a four step process.

1. Create customer profiles that provide insights into how different customers (e.g. business travelers, students, retirees etc.) have different goals.

2. Understand customer goals and corresponding needs – tasks to be performed, information required to guide the customer to task completion, and the channels that may be used.

3. Create usage scenarios that outline processes customers use to satisfy their needs. Devote attention to transactions that begin in one channel and finish in another, while following different cross-channel paths. Usage scenarios should capture customer profile and channel-specific intricacies. Mapping current capabilities to usage scenarios can help identify cross-channel gaps that exist.

4. Prioritize, develop, and implement capabilities that bridge the identified gaps. Focus on enabling cross-channel information visibility and warm hand-offs between channels, providing context sensitive information, designing channel appropriate communication, and providing self-service options for customers wherever possible.

Figure 1 illustrates the transition from the existing state to an optimized state of multi-channel integration and the key design considerations for effecting the transformation.

Since superior customer experience delivery is an ongoing process, it is important to implement a voice of the customer program to understand evolving needs of target customers and make periodic refinements that incorporate customer feedback.

For airlines, implementing multi-channel integration provides multiple benefits. Firstly, delivering an enhanced customer experience across all channels can drive increased customer satisfaction. Satisfied customers are more likely to repurchase services and our experience across industries indicates that even a small increase in customer retention can often have a disproportionate effect on customer NPV. Secondly, an effective multi-channel integration strategy can reduce costs by migrating low complexity transactions from costly physical channels to cheaper self-service channels. Adoption can be driven by providing adequate training, personalization, and incentives to use self-service channels. Higher self-service by customers would reduce the load on support staff, freeing them up to focus on more critical issues and hence improving organizational productivity. Finally, superior customer experience through multi-channel integration cannot be replicated easily by competitors, given the information coordination effort and multiple parameters involved in designing and implementing multi-channel integration.

For customers, an integrated multi-channel environment provides a superior service experience and through self-service, can reduce the frustration currently experienced in executing even low complexity transactions. The Indian airline industry has experienced its best ever months in the first two months of this fiscal with passenger volumes averaging 4.4 million per month and load factors averaging 81%. As the industry continues to grow and passenger volumes increase, ensuring multi-channel integration will be one of the key levers to driving and improving customer experience.

Social Media in the Enterprise

2010-02-12T22:15:00.001+05:30

The CEO of my current firm blogs regularly – and what’s more, we get the blog update as emails. The company has also setup a youtube channel and has industry-specific blogs setup. In addition, there is a wiki site for employees to contribute and build a community created knowledge repository. While all this seems exciting, the adoption and perceived use of these social media has not been uniform.

The email update means that few probably visit the blog (who wants to read archives?) although I read every email fully. I’ve never visited the youtube channel and the last I checked, 8 months since its inception – the wiki repository doesn’t have more than a dozen articles.

So is social media relevant in enterprises?

On the one hand, social media can help create informal networks, connect employees across hierarchies and promote collaboration in more intuitive, user-friendly manner. However, on the other hand, the average worker (at least white collar ones) is inundated with enough and more email, that an additional medium of communication seems to be just noise.

It is easy to get carried away by the hype around social media and believe that it is the next big thing. But in order to create some method in this madness, I think that before companies jump onto the bandwagon, it is important to step back and take stock:

Why? Is there a business problem that can be solved easily and more effectively using social media? Not all business problems require social media and it is important to understand what capabilities social media brings to the situation at hand.

What? All forms of social media are not the some. Some are broadcast (e.g. blogs, twitter etc.), whereas others (e.g. bulletin boards) allow for group communication, and yet others (e.g. wikis) harness the power of crowd sourcing. It is important to identify what mechanism is suited for the business problem and the target audience.

How? Social media is new, and to prevent heavy investments of time and effort, it may be worthwhile to experiment adoption through pilot projects. Piloting the initiatives in select groups also allows to incorporate feedback and ensure that employees utilize this new way of working effectively.

On the whole, social media is probably going to become more prevalent in the enterprise. To use it effectively requires that a company develop a social media strategy that is tailored to its context.