e-Nagar

A lot of people had difficulty in understanding the practical implications of the nut and bolt puzzle I had asked 2 weeks ago. Hence this detailed mail is my attempt to bring some context into the whole issue.

Take the case of Nintendo. Like any merchandise manufacturer the company has to work in tandem with the retail and distribution network to be able to sell and make profits. However the organized retail chains like Walmart would dictate terms, offer ridiculous discounts and do arm twisting of the manufacturers.

Hence Nintendo deliberately created shortage by producing far less number of video games than the demand. (destroying bolts in order to gain bargaining power). Now unless a store stocks the latest of the Nintendo games,
it will not be able to attract the kids to buy other related toys also. Hence instead of pressurizing Nintendo to offer them favourable terms and margins, the stores starting offering Nintendo concessions (in form of in-store advertizements, shelf space, displays etc.)

The hype created by the shortage also helped the company to get attention, generate curiosity and get prime-time PR. The company was also able to push sales of some of the not so popular games and get better prices for their goods.

Continuing the discussion of the various tactics one can use in business/professional dealings to maximize the benefit, today we shall talk about Face Saving.

Many theories, rules and books try for think that human beings are rational creature. In reality not everyone indulges in complicated modelling techniques to calculate the probabilities and do a sensitivity analysis under different scenarios.

Face saving is a long term relationship building exercise. The idea is that if you have won, you don’t necessarily have to rub it on your opponents face. Give the counterparty a chance to formulate the words of the press release, or what ever you share to the public/his superiors in a language that shows him in a better light.

After all, having an upper hand today does not mean you will continue to enjoy the same position tomorrow.

Ideally the Management and the Board has a fiduciary responsibility of serving the best interest of the stockholders (Stakeholders). The promter and the management gets paid to increase the shareholder wealth. And shareholder reward them in return via salary and profit share. However its often seen that the realationship is far from ideal.

One of the biggest problem faced by today’s companies is not competition, sales, economic downturn… but Agency Problems. Often the shareholders are not proactive enough to demand transparency and question the action and the though behind the management’s decision. Sometimes the reward structure is skewed and complicated. As a result what is best for the company is not necessarily best of the individual.

The 2 most debated topic under this head are:
1. Satyam: Since the promoter holding was single digit, Promoter tried to mmaximize his personal gains at the cost of the company.

2. Stock Options: In the USA bulk of the management compensation is paid via stock options. This encourages a high risk taking behaviour almost equivalent to gambling. After all if the bets work out, the stock price zoom and these executives make a killing. If not, then the downside risk is low.

Ever wondered why USA could never pull out of Vietnam War even years after it realized it was a lost cause.
Why India is unable to make the LoC as the official Border even though both sides know they won’t be able to achieve anything more than that.

Its called the power of commitment. Most people hate to see their efforts, time and resources go waste and desperately want to bring a logical conclusion to their pursuits. Many novice traders are known to throw good money after bad by continuing to hold/increase positions rather than cut losses. Infact the common observation is that the more the person has committed/wasted for a cause, the more desperate he/she becomes to win.

If you are a smart person, then you can
1. Prolong the crisis/issue resolution and make the person desperate
2. Then when you realize that the person is all desperate show them a small window of opportunity where they could salvage their pride and get on with their lives.

“Badh acha par Badnaam Bura”
It is ok to be bad, but if you are infamous for being bad, then you are screwed.

Lately I have come to a realization that:
1. Most people inherently feel a compulsion to do good. If they have morally/ethically wronged you, then harping about it, could make them feel guilty. And a guilty person often ends up yielding more than he/she should.

2. Satyawadi Harishchandra was a fool and could never be successful in real life. The question about whether one should be ethical or not is entirely dependent on “What kind of public image you want?” and “What implication would that public image have on you?”
eg: A loan shark who is humane and considerate is more likely to go out of business than the one who beats the defaulters into a pulp.

PS: This post is going to be very controversial. however I am just distilling the learnings I got by interacting with some successful people whom I admire. It maybe because I am picking up the wrong role models.

Ever wondered how much you can communicate by remaining silent.
Try this:
1. Walk up to a friend (works better with girls) and talk about a common friend.. then say these words “You know what sometimes I feel that this guy is …….”
More often than not the pause you will introduce will compel the other person to complete the sentence. Hence revealing what they feel about him/her.
This Projective strategy can be effectively used to test the waters. Even communicate by projecting an image without actually saying those words

2. Many people esp the extroverts are really uncomfortable with silence, esp during a formal business meeting. Hence by using silence, you can force them to fill those long pauses with words. Say things or give commitment that they would not ordinarily give.
This strategy is often very successfully used by Japanese against Americans.