The Third Foundation

The most exciting phrase to hear in science, the one that heralds new discoveries, is not Eureka!’ (I found it!) but ‘That’s funny …’
- Isaac Asimov, US science fiction novelist & scholar (1920 - 1992)

This year will go down in the history of world financial markets as an era marked by paradox. A time when new markets were being created, developing markets boomed and established players were decimated by a global crisis with its genesis in fiscal indiscipline.

The world today finds itself at an interesting intersection of risks and opportunities which have a promise of a “medician effect” inflection point. The technology centric financial markets are perhaps a microcosm of this phenomenon. The exponential growth in the hedge fund industry challenging long term investment strategies, electric growth of over-the-counter (OTC) exchanges and an increased decoupling of emerging economies are all examples of these intersections.

From a demographic standpoint I envision human society as a network of socio-economic interactions. At the spoke of each such interaction is the financial enterprise. Their role is in identifying risks and opportunities of each interaction and building systems that deliver the promise of the same. This exemplifies the need for continued innovation for bringing about change, achieve repeatable growth and create new markets. With such a need driving enterprises on an on going basis it is not surprising to see that this industry has changed the very structure of its fundamentals to mutate into its core disruptive innovation.

Disruptive Innovation and Financial Markets: A Growth Oriented Change Opportunity

There is a need for change that is growth oriented and continued innovation in financial world is critical to bringing about change, growing successfully and creating new markets. In its application to technologies, processes and business models; disruptive innovation is a form of change that creates a product or a service that disrupts the existing and established approach with a more affordable yet much simpler to use model. Genesis (read birth) is always a new beginning that is best described as a change in the status quo and a result of deliberate intent towards a desired result.

The opportunity for disruptive innovation in financial markets lies in its simplicity and power of rules-based processing. These innovations in the financial markets involve solutions which combine technology, processes and business models which are more affordable and more convenient than the existing alternative. Disruptive innovations are often megatrends; a few of which have revolutionized the financial markets include:

A continuous and unprecedented rate reduction to the tune of 25-30% in the costs of storing, transmitting and processing information – the Internet and killer apps levels the playing field.

Global dominance of specialized functions – conversion of locally dominant institutions providing a wide range of products into globally dominant specialists such as Global Brokerage Houses, Global Credit Card Processors and Custodians – it is now more about intelligence processing.

Automated Exchanges - Technology enabled trade-matching and back-office systems (T+1 settlement systems) that enable faster trade processing; electronic contract executions; and enhanced transparency and market liquidity – the making of a fully armed market maker.

Innovations in the financial markets are change opportunities which can impact everything; from cost equations, pricing structures, distribution / delivery channels, service providers, consumers, market makers to decision makers. Today’s competitive landscape forces enterprises to identify those changes that are examples of or have the potential to become disruptive innovations in financial market arena.

Disruptive Technology – Corporate DNA driving new market paradigms

Technology has played a pivotal role in enabling business and delivering products and services in the form of turnkey models. The time and speed of innovation have led to disruptive technologies that are driving new market paradigms in financial markets worldwide. Technology taking its form as corporate DNA today is bring about changes in the form of changing institutional structures, democratizing markets and new market mechanisms are positively affecting market making, regulation and execution.

However, tech centric financial markets will come face to face with their toughest test this year. In the current global environment, innovation ideas and research and development budgets in corporations are likely to see maximum scrutiny. The outcome of the mortgage led crisis might bring to the table some aggressive guidelines in compliance set in the United States and felt globally. This sets up an environment for frugality; I agree with the statement of Jeff Bezos CEO of Amazon that “frugality drives innovation, just like other constraints do”. A change to this effect is already on the horizon. This year’s Business Week list of the World’s Most Innovative companies is evidence of the same. Tata and Nintendo made their first time appearance, while cash crunched Auto maker GM received kudos for concept electric cars and a renewed focus on design.

Tech Centric financial markets are expected to weather this storm. At a macro level there are multiple examples. Technology centric financial markets have enabled a level playing field, thanks to the aggressive adoption of the latest technologies including Open Source communities. Concepts like collaboration and harnessing of collective intelligence have been an instant success. They are today channels for effective information dissemination and feedback mechanisms for new product development.

Changing the Rules of the Game: Mutually Exhaustive and Brutally Efficient

With income growth moving positively yet remaining volatile across most financial markets sectors, the overlook for technology remains hesitant with institutions choosing innovation centric IT projects that demonstrate considerable cost savings and return on investment. Institutions have realized that technology investment is vital for long-term sustainability and maintaining competitive par.

Outsourced analytics today has a sheer economy of global scale created through the disruptive innovation approach evidenced by the creation of a network of resources which deftly combines local domain expertise and technology to delivery global products and services creating the ultimate and most efficient transaction processing factories in the world. The new market paradigms driven by this approach include the following:

- Availability of exhaustive information through extensive research and data mining at near zero costs for the consumer;
- Enhanced liquidity through efficient and uniform price discovery by emerging execution specialists;
- Introduction of alternate trading networks and routes that relentlessly lower transactional costs; and
- Compliance with regulation through higher degrees of transparency though organized electronic markets

Crystal Ball Gazing: The Creation of a “Flat World”

The derivate benefit of a technology centric financial market is the “flat world” effect they bring to the table. It is fascinating to see how a Chinese citizen living in the US can invest in multiple global markets in local currencies with access to perhaps the same research as an analyst in a financial power house. Closer to home the analogy would probably be the services rendered out of our premier software houses, which once started off as support and back office teams today leading cutting edge product development to drive a company strategic position and competitive edge. In much the same way the wireless phone quickly eclipsed landlines here in India; transparent technology driven and resource markets have the potential leapfrog Western counterparts.

About The Blogger:<br />
The writer works for Karvy Global Services - a knowledge services firm that delivers insight from information. He can be reached at deepak.kuriakose@karvyglobal.com

In Chinese, the word crisis can be represented in two characters. One represents “Danger” and the other represents “Opportunity”. The fifth annual independents’ day conference gave glimpse into the Opportunity we now face. Over the past many years the Investorside Research Association(http://www.investorside.org/ ) has gathered the right set of members, tools and representations to become Wall Street’s best kept secret for independent, un-biased research to represent real “alpha” opportunities for clients. Karvy Global Services is a member of the association and we are the sole representation of the Knowledge Process Outsourcing Industry in this forum.

This year’s venue was the Bloomberg conference hall. If you need to see a bustling business house with promise of opportunity and hallmarks of growth, the Bloomberg office is the place to be. The plush office interiors, the vibrancy in the employees and the general ambience were a perfect setting for a discussion on the next generation of research on the street. The conference was divided into keynotes and interactive presentations. The session was kicked off by Rich Leggett of BIA. Rich used baseball to express his ideas on new beginnings and opportunity for IRP’s to make the perfect strikes. It’s a pity the Yankees did not get off to a great start!

The tempo continued with some great sessions which included a discussion with Gasparino of CNBC and a great panel on Expert Networks. The break out sessions focused on the relevant market topics like the future of Credit Markets and John Eade’s presentation on a great model for sourcing alternative research. John was also honored as the Chairman Emeritus of the Investorside Research Association. John, can’t thank you enough for the great work you have put in.

I met with some really interesting companies and analysts. Especially interesting was the discussion with Greenwich Consultants (a boutique IRP) that clocked 8% returns in 2008 and whose biggest concern was a lack of sales and marketing. Goes to show that some of these firms really are best kept secrets.

I came across some interesting quotes and snippets in the session. Some of them are:

• World Governments combined today own 25% of the world’s financial services market.
• IBM researcher believes that the two key factors that led to the global financial debacle are complications in “Integration” (aka bundling of economies, flat world etc) and “instrumentation” (derivatives, cdo’s etc)
• 50% of the world’s net worth has been destroyed in the current financial market turmoil.
• Its also note worthy that crises led by banks are twice as painful and twice as long as other recessions.
• A gem from Gasparino: “ Geithner does not have staff because Obama has set the ethical standards so high that he cant hire anyone from Wall Street”.
• A quote on financial services “ In this industry change happens one funeral at a time”
Overall Atul and I had a great day at this session. One individual whom we would like to specially recognize for this effort is our good friend Pat Shea. His unwavering commitment to Investorside and making this conference a success is a testament to the force he brings to the table masked behind his affable demeanor. Cheers Pat!

About The Blogger:
The writer leads the client relationships for Karvy Global Services. He can be reached at uday.kumar@karvyglobal.com

The Return of the Native- Atul Sood (atul.sood@karvyglobal.com)
Published Indian Express – January 3, 2009

The trickle started many months ago.

As Bear Stearns collapsed, so did the aspirations of Wall Street’s cadre of young professionals. Then came Lehman, Merrill, Wachovia. Hedge funds, private equity shops, mutual funds—the list continues.

The excesses of global financial markets over the last seven years redefined what it meant to be successful. It was possible, suddenly, to graduate from a top business school and immediately make upwards of a million dollars. Caught up in the hysteria have been many of India’s best—culled from top Indian and international management schools, and offered rapid riches.

Just as the boom redefined success for a generation, the bust is an opportunity to redefine India for the thousands who have left her shores for foreign comforts. The first wave of this crop returned to India in pockets over the last decade. They returned by choice and did so, in large part, to make their fortunes. It is now time to embrace the next wave.

Today, many who find themselves sitting on the sidelines and out of work were at the top of their game. Swept into an industry that rewarded aggressive risks and similar personalities, they thrived on the adrenalin and got used to the lifestyle it afforded. They were highly successful in a world that no longer exists.

Because of the nature of employment cycles, the majority of these people fall into an age demographic of between 25 and 40. They are neither young enough to be the lowest cost resources, nor old enough to have the most experience. They are the most immediately expendable.

The disappearance or devaluation of a net worth built over a decade gives pause for reflection. Was it worth it? What have I learned? Do I really want to live in New York? In London? In Dubai? My parents are getting older; my children have never lived in India; what do I want to do with my life?

What an opportunity for India to lure back our sons and daughters who left our shores at the cusp of a shifting balance of power. What an opportunity for our NRIs, PIOs, and ABCDs to return to a country that has changed while they have been away.

The crisis offers us the chance to harness a generation. They are, if academic credentials, tax papers, or world exposure are to be used as criterion for judgment, some of India’s best. They are coming back either because they want to or because they need to. They have lost visas and found perspective.

We need them. We need them to start businesses. We need them to impel social entrepreneurship. We need them to teach our students and produce groundbreaking scholarship from our universities. We need them to strengthen our government policies, audit our books, and restructure our balance sheets. We need them to apply themselves to improve our country.

But we also need to provide them with a channel. Oft-heard objections on the Indian side are that there is a culture gap, an expectation gap, a reluctance to adhere to established hierarchy. A brash Wharton MBA just won’t fit in. Corresponding complaints are heard from the brash MBA: hierarchy prevents action; business decisions are penny-wise, pound-foolish; bureaucracy and corruption are a nightmare.

Both sides of the argument can be overcome. The distressed macro environment provides a compelling reason and the returning generation provides the opportunity. Organizations – corporate, non-profit, or academic - can actively recruit and attract the newcomers and create hybrid teams to work on the most difficult problems. Infosys’s recent program to offer one-year sabbaticals for employees to do social development could be a good model to follow. The government can apply funds from the fiscal stimulus package to recruit and apply research talent for Universities and training academies. The solutions can be many; the need is clearly there.

After all, the trickle has just begun. Those being hit hardest today, from banks and hedge funds, are at the forefront of the crisis. The global recession will affect many more. And if we can – through our government, NGO’s, academic institutions, and corporations – find a way to apply this caliber of talent, then we will find a way to attract and absorb the people who will follow. Our diaspora of engineers and scientists and doctors and academics is just around the corner. The trickle could well become a flood.

Phrases such as “Customer is King” and the “Customer is Always Right” seem cliched even when product sellers and service providers appreciate the premise but restrain from being responsive to customer feedback and complaints.

Responsiveness is a critical attribute in sustaining a healthly relationship and keeping the channels of communication open, transparent and effective. Feedback in all its forms - positive or negative are always welcome. Complaints (negative feedback) from customers can well be viewed as the opportunity to efficiently handle discomforting issues and ensure appropriate service recovery.

A company is truly gifted with regard to its abilities to maintain the trust and loyalty of its customers through its responsiveness in complaint handling and customer retention. Complaints are therefore the cornerstone of customer satisfaction.

A truly customer centric company turns each adversity into an opportunity to build a longer, trusting and ensuring relationship with its customers.

Customers complain and for good reason. Handling a complaint effectively and efficiently can make a world of difference to how customers perceives business. Listed below are nine golden rules in customer complaint handling coz a stich in time saves nine

- Thank the customer for complaining
- Apologize for the problem having happened
- Emphatize with the customer
- Get the facts right
- Learn from every complaint
- Value keeping existing customers
- Be responsive at all times
- Handle complaints with the deserved priority and authority
- Listen to your staff

An abundance of oil and wealth
‘Rich’ is what defined a company’s health
A year of plenty, all around plentitudes
Reaping windfalls defined new attitudes

Real estate and oil prices touched unseen heights
Expectations and judgments took heavenly sights
The economies of the world were on a roll
But some misjudgments were to soon take its toll

In a senseless act, wealth and greed were cast
Has let upon our world a financial holocaust
A lost sense of balance with no humility
Has now everyone making efforts with all futility

The world best men and bureaucrats have lost their face
Not a little did they ponder that this would be the case
Opportunities pursued with ardent haste
Has led to this uncomprehending waste

Now we see a frenzy of animated action
Do we call this a knee jerk reaction?
The world is smoldered and is running for cover
Will all the King’s men help us recover?

Have we learnt our lesson from what should never have happened?
The future is as bright or dim as we make it or end
Universal well being and prosperity will regain
Before man and its kind will again reign

About The Blogger:
The writer works for Karvy Global Services - a knowledge services firm that delivers insight from information. He can be reached at deepak.kuriakose@karvyglobal.com