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Saturday, March 25, 2017

Pennsylvania restaurant offers discount for families who have phone-free meals 03-25






What would it take to get you to put down your phone during a meal?

Sarah’s Corner Café in Stroudsburg, Pennsylvania, is offering a deal for people who want to enjoy a meal, and each other, unplugged.

They’ve set up so-called “family recharging stations” at tables where you drop your phone into a basket.

“They let the server know and the server will bring over a basket with old fashioned Hangman and Tic Tac Toe and pencils because those games are interactive instead of coloring, which is solitary,” owner Barry Lynch told ABC News of how the restaurant's phone-free meals discount works.
If families make it through the meal without looking at their phones, they’re rewarded 10 percent off their bill.

“A lot of people are starting to do it and it’s taken on a life of its own,” said Lynch. “I get huge feedback. Massive feedback.”

The idea for the “family recharging time” came to Lynch after observing many of his customers.

“There’s one particular family I knew used to come in on Sunday for breakfast after church. I knew the dad and the mom and two kids and we’d always say ‘hi,’” he recalled. “Every time I went over, one or two of the kids and sometimes the parents would be on the phone. I also knew the dad would commute to New York for work every day, which takes a lot of time. I asked him about that and he said, ‘Yeah, I still do it. It’s so nice to be together and these breakfasts are rare.’ And when he said that, I thought, ‘Oh wow. Something is going on here. I need to do something.’”

Lynch is thrilled by the positive response his phone-free meals have gotten and hopes they continue to enrich his customers’ family time.

“I just thought it was such a shame not to have more time together just to talk,” he said. “Look at my eyes. I’m here with you. How was your day?”

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Friday, March 24, 2017

Creating a Pension to Fit the Needs of the Rural Poor 03-25






Pensions are, in a sense, a necessary by-product of a rich economy. But what will it take to sell the idea to the rural poor? Especially when their income (never particularly substantial) is seasonal, increasing at harvest time and with demand in the cities for construction-related labor. What are the inducements that can convince them to invest for a future forced upon them by the changing social structure?

Olivia S. Mitchell, a Wharton professor of business economics and public policy and executive director of the Pension Research Council, and Anita Mukherjee, a professor at the Wisconsin School of Business at the University of Wisconsin-Madison, set out to answer these questions in a research paper titled, “Assessing the Demand for Micropensions among India’s Poor.” They chose India as the subject country because it is an ideal setting to study the market for micropensions, or pension plans designed for low-income individuals; the country’s new pension system is designed to reach informal sector workers. A micropension product — Swavalamban — has been applicable to all citizens in the unorganized sector who have joined the National Pension Scheme since 2011.

This scheme was funded by grants from the government. It has been replaced with the Atal Pension Yojana, in which all subscribing workers below the age of 40 are eligible for pension of up to Rs. 5,000 ($74) per month after turning 60. In the Atal Pension Yojana, for every contribution made to the pension fund, the central government also co-contributes 50% of the total contribution or Rs. 1,000 per annum, whichever is lower, to each eligible subscriber account, for a period of five years. The minimum age of joining the Atal Pension is 18 and the maximum is 40. The age of exit and the start of the pension is 60.

There was a significant need for a pension system in India. “According to the government of India’s Planning Commission (2014), nearly 30% of the country’s 1.2 billion population lives below the poverty line (BPL),” the researchers write. “At the same time, according to the Population Research Bureau, the share of India’s BPL population age 60 or older is expected to increase from 8% in 2010 to 19% in 2050. Many of these older persons work in the unorganized sector and, as such, lack the identification and proof of employment documents required for accessing basic financial services. Nevertheless, current research estimates that about 80 million of these workers are capable of saving for retirement and the untapped savings are in the order of $2 billion.” 

There are other systemic pressures at work. “In India, as in many developing countries, younger adults are moving from rural to urban areas for economic opportunity,” Mitchell and Mukherjee tell Knowledge@Wharton. “Often this means that parents are left behind in the rural areas and, though they may receive financial support from their children, this revolution in traditional family structure can make older people more vulnerable. As a result, older cohorts today may be more interested in a micropension product than they were in the past.”
“Our research shows that individuals broadly preferred a micropension plan that offers withdrawals starting at age 60, as well as partial withdrawals beforehand, to other variants that had different access features.”
Micropension Options

The experiment was conducted in two of the 71 districts in the central Indian state of Uttar Pradesh — Fatehpur and Siddharthnagar. Overall, the statistics are comparable to those of BPL populations. The average survey respondent was 43 years old, owned land, was illiterate and had minimal schooling. The two most common livelihood activities that the respondents engaged in were farming via cultivation of one’s own land (37%), and agricultural labor supplied to non-owned farms (34%). With respect to educational attainment, more than 60% had never attended school, while 21% had five to 10 years of formal schooling. Insurance access among the respondents was low, at 20% of the total sample population. But 66% held a life insurance policy. Saving penetration was relatively high, with 55% having access to a formal saving account. Respondents who had saved had an average balance of Rs. 3,000 in their accounts. 

The study placed the existing pension plan as the baseline. An appropriate information and educational scheme was unfolded for the respondents. They were then asked two sets of questions.

Group 1 was asked about variants 1B, 1C and 1D, and Group 2 was asked about variants 2B, 2C and 2D. The first variant (A) is the basic micropension product that was then being offered by the Indian government. The other variants included early withdrawal (1B), where the eligibility age was 55 instead of 60; a lower matching rate of 50% instead of 100% (1C); no early withdrawal (1D); delayed withdrawal, where the eligibility age was 65 instead of 60 (2B); a higher matching rate of 150% instead of 100% (2C), and option for full withdrawal at age 60 (2D).

“Our research shows that individuals broadly preferred a micropension plan that offers withdrawals starting at age 60, as well as partial withdrawals beforehand, to other variants that had different access features,” say the authors. “This is similar to the micropension currently on offer in India. One exception to this, not surprisingly, is that our respondents preferred an option that boosted government matches to their plan contributions.”
“Previous studies on the financial lives of the poor have documented that their incomes are irregular and highly seasonal. As a result, requiring them to pay significant sums in just a few payments could significantly reduce demand for the pension product.”
The study results included a few small surprises. Respondents were asked to rank their levels of trust in six institutions on a scale of one to five, with a level of one indicating a complete lack of trust and a level of five representing a very high level of trust. Banks topped the list with a score of 4.49. The government clocked in with 4.22, while non-governmental organizations (NGOs) at 2.55 and village councils (3.34) were regarded as relatively less trustworthy. “We do not know for certain why NGOs were less trusted relative to government entities, but it could be because they had a smaller presence in the areas we studied,” say the authors.

These results are informative about whether microfinance institutions or local governments are likely to be successful intermediaries in the micropension product. Since the government was viewed as a trusted entity, having government support for micropensions may have helped boost adoption and contributions, the researchers note.

The faith put in banks is understandable. “For some time, there has been a growing awareness of the benefits of secure banking, even in remote areas of India,” say the authors. “Moreover, technological improvements using audio cues and fingerprinting have helped expand banking to those who cannot read or write. The Jan Dhan Yojana plan was an important vehicle used to include many rural Indian families in the formal banking system. The Indian government’s demonetization policy has also spurred an interest in enhancing poor peoples’ access to banking, as it created cash constraints throughout the economy.”

Pointing out that India’s recent effort to eliminate larger banknotes was intended to crack down on the “shadow” economy,” the authors add: “It has prompted even poor and rural communities to take up mobile payment services. One example is Paytm, a phone-based system for transferring payments from a bank account to cover people’s everyday liquidity needs.”

Growing the Appeal

The paper has some advice for governments or other entities that are developing micropension products. The researchers write that an effective retirement savings device for the poor must take into account cash-flow needs, income seasonality, competing spending priorities and alternative investment options. They note that respondents to the study were among the poorest in their communities and relied heavily on income from agriculture.

“Previous studies on the financial lives of the poor have documented that their incomes are irregular and highly seasonal. As a result, requiring them to pay significant sums in just a few payments could significantly reduce demand for the pension product,” the researchers write. “For this reason, offering frequent opportunities for such individuals to contribute can be critical to the scheme’s success.”
“To grow [the appeal of micropensions], the focus should be on proper investments (inflation is currently around 10%) and policyholder retention.”
The ability to contribute frequently to an agent who makes door-to-door visits could also help explain why people were interested in micropensions even when making fixed deposits at an Indian bank would offer them high annual returns. “Our initial hypothesis in designing this survey experiment was that some respondents would exhibit a preference between early or late eligibility for withdrawal, and that we would be able to identify the heterogeneity driving these decisions,” the researchers write. “Instead, we found that with the exception of the high match variant, respondents were less willing to adopt or contribute to the alternatives to the baseline micropension product.”

Regarding the faith in the government, the authors elaborate: “In our study setting of rural Uttar Pradesh, one of India’s poorest states, individuals receive many benefits from the government such as ration cards for discounted groceries and free health care. We believe that this repeated and positive interaction with the government has engendered the high level of trust we found.” In addition, the country’s largest life insurance company, the Life Insurance Corporation of India, is also state-owned and enjoys a high level of trust. The authors note that the low levels of education and financial literacy found in the communities they studied highlight the need to provide a financial literacy program in conjunction with the micropension. 

“We believe that the move toward digitized finance can facilitate automatic contributions to enhance the appeal of the micropension product in India,” the authors say. “Yet for a micropension plan to work for India’s poor, it must allow policyholders to contribute according to the seasonal incomes they earn while encouraging savings sufficient to provide meaningful support in old age.”

The paper finds that the Indian government’s current micropension product is appealing to the audience it is meant to reach, Mitchell and Mukherjee say. “To grow that appeal, the focus should be on proper investments (inflation is currently around 10%) and policyholder retention,” they add. “The Gates Foundation is also pushing innovations in digital finance [in India] and elsewhere in the developing world, as a means to help the poor do more to save, invest, borrow and mitigate financial risks.”


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Monday, March 20, 2017

Case of Digital Reinvention 4



As executives assess the scope of their investments, they should ask themselves if they have taken only a few steps forward in a given dimension—by digitizing their existing customer touchpoints, say. Others might find that they have acted more significantly by digitizing nearly all of their business processes and introducing new ones, where needed, to connect suppliers and users.
To that end, it may be useful to take a closer look at Exhibit 6, which comprises six smaller charts. The last of them totals up actions companies take in each dimension of digitization. Here we can see that the most assertive players will be able to restore more than 11 percent of the 12 percent loss in projected revenue growth, as well as 7.3 percent of the 10.4 percent reduction in profit growth. Such results will require action across all dimensions, not just one or two—a tall order for any management team, even those at today’s digital leaders.

Looking at the digital winners

To understand what today’s leaders are doing, we identified the companies in our survey that achieved top-quartile rankings in each of three measures: revenue growth, EBIT growth, and return on digital investment.

We found that more than twice as many leading companies closely tie their digital and corporate strategies than don’t. What’s more, winners tend to respond to digitization by changing their corporate strategies significantly. This makes intuitive sense: many digital disruptions require fundamental changes to business models. Further, 49 percent of leading companies are investing in digital more than their counterparts do, compared with only 5 percent of the laggards, 90 percent of which invest less than their counterparts. It’s unclear which way the causation runs, of course, but it does appear that heavy digital investment is a differentiator.

Leading companies not only invested more but also did so across all of the dimensions we studied. In other words, winners exceed laggards in both the magnitude and the scope of their digital investments (Exhibit 7). This is a critical element of success, given the different rates at which these dimensions are digitizing and their varying effect on economic performance. 





Strengths in organizational culture underpin these bolder actions. Winners were less likely to be hindered by siloed mind-sets and behavior or by a fragmented view of their customers. A strong organizational culture is important for several reasons: it enhances the ability to perceive digital threats and opportunities, bolsters the scope of actions companies can take in response to digitization, and supports the coordinated execution of those actions across functions, departments, and business units.

Bold strategies win

So we found a mismatch between today’s digital investments and the dimensions in which digitization is most significantly affecting revenue and profit growth. We also confirmed that winners invest more, and more broadly and boldly, than other companies do. Then we tested two paths to growth as industries reach full digitization.

The first path emphasizes strategies that change a business’s scope, including the kind of pure-play disruptions the hyperscale businesses discussed earlier generate. As Exhibit 8 shows, a great strategy can by itself retrieve all of the revenue growth lost, on average, to full digitization—at least in the aggregate industry view. Combining this kind of superior strategy with median performance in the nonstrategy dimensions of McKinsey’s digital-quotient framework—including agile operations, organization, culture, and talent—yields total projected growth of 4.3 percent in annual revenues. (For more about how we arrived at these conclusions, see sidebar “About the research.”).







Most executives would fancy the kind of ecosystem play that Alibaba, Amazon, Google, and Tencent have made on their respective platforms. Yet many recognize that few companies can mount disruptive strategies, at least at the ecosystem level. With that in mind, we tested a second path to revenue growth (Exhibit 9).






In the quest for coherent responses to a digitizing world, companies must assess how far digitization has progressed along multiple dimensions in their industries and the impact that this evolution is having—and will have—on economic performance. And they must act on each of these dimensions with bold, tightly integrated strategies. Only then will their investments match the context in which they compete.

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The case for digital reinvention 5



The case for digital reinvention 3









Instead, the survey indicates that distribution channels and marketing are the primary focus of digital strategies (and thus investments) at 49 percent of companies. That focus is sensible, given the extraordinary impact digitization has already had on customer interactions and the power of digital tools to target marketing investments precisely. By now, in fact, this critical dimension has become “table stakes” for staying in the game. Standing pat is not an option.

The question, it seems, looking at exhibits 4 and 5 in combination, is whether companies are overlooking emerging opportunities, such as those in supply chains, that are likely to have a major influence on future revenues and profits. That may call for resource reallocation. In general, companies that strategically shift resources create more value and deliver higher returns to shareholders. This general finding could be even more true as digitization progresses.

Our survey results also suggest companies are not sufficiently bold in the magnitude and scope of their investments (see sidebar “Structuring your digital reinvention”). Our research (Exhibit 6) suggests that the more aggressively they respond to the digitization of their industries—up to and including initiating digital disruption—the better the effect on their projected revenue and profit growth. The one exception is the ecosystem dimension: an overactive response to new hyperscale competitors actually lowers projected growth, perhaps because many incumbents lack the assets and capabilities necessary for platform strategies.



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The case for digital reinvention 2



This finding confirms what many executives may already suspect: by reducing economic friction, digitization enables competition that pressures revenue and profit growth. Current levels of digitization have already taken out, on average, up to six points of annual revenue and 4.5 points of growth in earnings before interest and taxes (EBIT). And there’s more pressure ahead, our research suggests, as digital penetration deepens (Exhibit 2).







While the prospect of declining growth rates is hardly encouraging, executives should bear in mind that these are average declines across all industries. Beyond the averages, we find that performance is distributed unequally, as digital further separates the high performers from the also-rans. This finding is consistent with a separate McKinsey research stream, which also shows that economic performance is extremely unequal. Strongly performing industries, according to that research, are three times more likely than others to generate market-beating economic profit. Poorly performing companies probably won’t thrive no matter which industry they compete in.

At the current level of digitization, median companies, which secure three additional points of revenue and EBIT growth, do better than average ones, presumably because the long tail of companies hit hard by digitization pulls down the mean. But our survey results suggest that as digital increases economic pressure, all companies, no matter what their position on the performance curve may be, will be affected.

Uneven returns on investment

That economic pressure will make it increasingly critical for executives to pay careful heed to where—and not just how—they compete and to monitor closely the return on their digital investments. So far, the results are uneven. Exhibit 3 shows returns distributed unequally: some players in every industry are earning outsized returns, while many others in the same industries are experiencing returns below the cost of capital. 





These findings suggest that some companies are investing in the wrong places or investing too much (or too little) in the right ones—or simply that their returns on digital investments are being competed away or transferred to consumers. On the other hand, the fact that high performers exist in every industry (as we’ll discuss further in a moment) indicates that some companies are getting it right—benefiting, for example, from cross-industry transfers, as when technology companies capture value in the media sector.

Where to make your digital investments

Improving the ROI of digital investments requires precise targeting along the dimensions where digitization is proceeding. Digital has widely expanded the number of available investment options, and simply spreading the same amount of resources across them is a losing proposition. In our research, we measured five separate dimensions of digitization’s advance into industries: products and services, marketing and distribution channels, business processes, supply chains, and new entrants acting in ecosystems.

How fully each of these dimensions has advanced, and the actions companies are taking in response, differ according to the dimension in question. And there appear to be mismatches between opportunities and investments. Those mismatches reflect advancing digitization’s uneven effect on revenue and profit growth, because of differences among dimensions as well as among industries. Exhibit 4 describes the rate of change in revenue and EBIT growth that appears to be occurring as industries progress toward full digitization. This picture, combining the data for all of the industries we studied, reveals that today’s average level of digitization, shown by the dotted vertical line, differs for each dimension. Products and services are more digitized, supply chains less so. 




To model the potential effects of full digitization on economic performance, we linked the revenue and EBIT growth of companies to a given dimension’s digitization rate, leaving everything else equal. The results confirm that digitization’s effects depend on where you look. Some dimensions take a bigger bite out of revenue and profit growth, while others are digitizing faster. This makes intuitive sense. As platforms transform industry ecosystems, for example, revenues grow—even as platform-based competitors put pressure on profits. As companies digitize business processes, profits increase, even though little momentum in top-line growth accompanies them.

The biggest future impact on revenue and EBIT growth, as Exhibit 4 shows, is set to occur through the digitization of supply chains. In this dimension, full digitization contributes two-thirds (6.8 percentage points of 10.2 percent) of the total projected hit to annual revenue growth and more than 75 percent (9.4 out of 12 percent) to annual EBIT growth.

Despite the supply chain’s potential impact on the growth of revenues and profits, survey respondents say that their companies aren’t yet investing heavily in this dimension. Only 2 percent, in fact, report that supply chains are the focus of their forward-looking digital strategies (Exhibit 5), though headlining examples such as Airbnb and Uber demonstrate the power of tapping previously inaccessible sources of supply (sharing rides or rooms, respectively) and bringing them to market. Similarly, there is little investment in the ecosystems dimension, where hyperscale businesses such as Alibaba, Amazon, Google, and Tencent are pushing digitization most radically, often entering one industry and leveraging platforms to create collateral damage in others. 

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The case for digital reinvention 03-21


Digital technology, despite its seeming ubiquity, has only begun to penetrate industries. As it continues its advance, the implications for revenues, profits, and opportunities will be dramatic.







Image credit : Shyam's Imagination Library



As new markets emerge, profit pools shift, and digital technologies pervade more of everyday life, it’s easy to assume that the economy’s digitization is already far advanced. According to our latest research, however, the forces of digital have yet to become fully mainstream. On average, industries are less than 40 percent digitized, despite the relatively deep penetration of these technologies in media, retail, and high tech.

As digitization penetrates more fully, it will dampen revenue and profit growth for some, particularly the bottom quartile of companies, according to our research, while the top quartile captures disproportionate gains. Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions. Fast-followers with operational excellence and superior organizational health won’t be far behind.

The case for digital reinvention 


As digitization penetrates more fully, it will dampen revenue and profit growth for some, particularly the bottom quartile of companies, according to our research, while the top quartile captures disproportionate gains. Bold, tightly integrated digital strategies will be the biggest differentiator between companies that win and companies that don’t, and the biggest payouts will go to those that initiate digital disruptions. Fast-followers with operational excellence and superior organizational health won’t be far behind.

These findings emerged from a research effort to understand the nature, extent, and top-management implications of the progress of digitization. We tailored our efforts to examine its effects along multiple dimensions: products and services, marketing and distribution channels, business processes, supply chains, and new entrants at the ecosystem level (for details, see sidebar “About the research”). We sought to understand how economic performance will change as digitization continues its advance along these different dimensions. What are the best-performing companies doing in the face of rising pressure? Which approach is more important as digitization progresses: a great strategy with average execution or an average strategy with great execution?

The research-survey findings, taken together, amount to a clear mandate to act decisively, whether through the creation of new digital businesses or by reinventing the core of today’s strategic, operational, and organizational approaches.

More digitization—and performance pressure—ahead

According to our research, digitization has only begun to transform many industries (Exhibit 1). Its impact on the economic performance of companies, while already significant, is far from complete.

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