Business Standard

T C A Srinivasa-Raghavan: The case for limiting firm size

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T C A Srinivasa-Raghavan  |  New Delhi 

People are going back to the public sector because the private sector is not much better.

An extraordinary thing is happening. It is not yet a tide, nor may it happen to the extent that the would hope for. But wherever you go, you find people slowly reverting to their old tormentors in the public sector after expressing extreme irritation with the private sector and its ways. Indeed, my worst abuse — well, not really the worst, I suppose — for the private sector used to be “you are no better than the public sector”. Now I ask public sector managers why they are behaving like the private sector — which really confuses them.

Let us take four examples, though, one each from telecoms, aviation, the media and banking, because these are the great success stories. Without exception, the service quality in each of them has plummeted. Overall, each of them has started treating the customer as a pain in the neck, just as the public sector used to. In contrast, the public sector seems to have woken up to the fact that even a little improvement in service quality goes a long way.

The mobile phone fellows have become almost as bureaucratic as, say, the DGS&D. There is no way that you can get something done in less than an hour or via a verbal instruction, even when delivered in person. Everything has to be in writing, even a disconnection. I have a dozen stories to tell because as a family we have five or six connections with one of the firms. I am waiting most anxiously for number portability.

What has happened to the premium airline is also very sad. It started out so marvellously but began to decline after about 18 months. If you take each element that contributes to this decline separately the explanations seem reasonable enough. But then isn’t that true of the public sector also? In any case, it is the overall outcome that matters, and in the case of the airline I am referring to, this is a visible increase in tawdriness and lateness. In contrast, India has become so much better now.

Then there are the banks. The biggest of the private sector ones is now no better than what used to be in the old days. The bottom line is exactly the same: irritation and aggravation when you have to deal with it, even online. The bank has simply lost it when it comes to customer service.

Last but not least is the electronic media. Scores of people I know are now turning back to and for news, for a very simple reason: there you get the news without idiotic frills. and have stuck to the old concept of news and not some claptrap that the private sector channels think will get them the eyeballs.

So what’s the problem with the private sector? My guess is this: there is a disjunction between the mad race for market share and the pressing need to keep costs down. The fellows in marketing are under pressure from above to sell more, while the fellows in finance are being told to cool it. The result is the same as for the public sector, even though the driving forces are different because in the public sector it is the procedures and the corruption that delay capital spending. There is no real pressure to keep costs down.

As long as the private sector’s customer base is small, the opposite pressures to expand market shares and keep costs down lead to greater all-round efficiency. But the moment it crosses a critical mass, which I would put at about 500,000 customers, problems start surfacing.

The reason is simple: the That is, in order to keep the same level of service, you have to add to labour and capital costs in amounts that don’t appear justified, given the rate at which market share is expanding. So you try to squeeze more out of existing resources, and soon that begins to tell on the quality of the output. There is nothing like a combination of old machines and untrained workers to really short-change the customer.

All this, I daresay, is well-known. But that really is not the point of this article. Instead the issue to focus on is whether when dealing with large numbers of customers, ownership ceases to matter. I now genuinely believe that it does. Public or private, the customer is done for.

I was once sent to interview a mathematician from Oxford and after the usual questions, I asked him if the Jupiter effect (light bends when it gets near it) applied to the management of large numbers as well, in that you need completely different rules when you serve so many customers. He said he would have to think about it but to date I have not got any answer.

That is why I suspect we in India are doomed forever to live with poor service quality. The market is so large that, by definition almost, any service provider, public or private, will fall way short of the standards you find in smaller markets. This means there is a case for a large number of small firms, rather than a large number of large firms.

But since that is not likely to happen reassure yourself, with the most famous of all Confucian thoughts.

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T C A Srinivasa-Raghavan: The case for limiting firm size

LINE & LENGTH

People are going back to the public sector because the private sector is not much better. An extraordinary thing is happening. It is not yet a tide, nor may it happen to the extent that the CPI(M)

People are going back to the public sector because the private sector is not much better.

An extraordinary thing is happening. It is not yet a tide, nor may it happen to the extent that the would hope for. But wherever you go, you find people slowly reverting to their old tormentors in the public sector after expressing extreme irritation with the private sector and its ways. Indeed, my worst abuse — well, not really the worst, I suppose — for the private sector used to be “you are no better than the public sector”. Now I ask public sector managers why they are behaving like the private sector — which really confuses them.

Let us take four examples, though, one each from telecoms, aviation, the media and banking, because these are the great success stories. Without exception, the service quality in each of them has plummeted. Overall, each of them has started treating the customer as a pain in the neck, just as the public sector used to. In contrast, the public sector seems to have woken up to the fact that even a little improvement in service quality goes a long way.

The mobile phone fellows have become almost as bureaucratic as, say, the DGS&D. There is no way that you can get something done in less than an hour or via a verbal instruction, even when delivered in person. Everything has to be in writing, even a disconnection. I have a dozen stories to tell because as a family we have five or six connections with one of the firms. I am waiting most anxiously for number portability.

What has happened to the premium airline is also very sad. It started out so marvellously but began to decline after about 18 months. If you take each element that contributes to this decline separately the explanations seem reasonable enough. But then isn’t that true of the public sector also? In any case, it is the overall outcome that matters, and in the case of the airline I am referring to, this is a visible increase in tawdriness and lateness. In contrast, India has become so much better now.

Then there are the banks. The biggest of the private sector ones is now no better than what used to be in the old days. The bottom line is exactly the same: irritation and aggravation when you have to deal with it, even online. The bank has simply lost it when it comes to customer service.

Last but not least is the electronic media. Scores of people I know are now turning back to and for news, for a very simple reason: there you get the news without idiotic frills. and have stuck to the old concept of news and not some claptrap that the private sector channels think will get them the eyeballs.

So what’s the problem with the private sector? My guess is this: there is a disjunction between the mad race for market share and the pressing need to keep costs down. The fellows in marketing are under pressure from above to sell more, while the fellows in finance are being told to cool it. The result is the same as for the public sector, even though the driving forces are different because in the public sector it is the procedures and the corruption that delay capital spending. There is no real pressure to keep costs down.

As long as the private sector’s customer base is small, the opposite pressures to expand market shares and keep costs down lead to greater all-round efficiency. But the moment it crosses a critical mass, which I would put at about 500,000 customers, problems start surfacing.

The reason is simple: the That is, in order to keep the same level of service, you have to add to labour and capital costs in amounts that don’t appear justified, given the rate at which market share is expanding. So you try to squeeze more out of existing resources, and soon that begins to tell on the quality of the output. There is nothing like a combination of old machines and untrained workers to really short-change the customer.

All this, I daresay, is well-known. But that really is not the point of this article. Instead the issue to focus on is whether when dealing with large numbers of customers, ownership ceases to matter. I now genuinely believe that it does. Public or private, the customer is done for.

I was once sent to interview a mathematician from Oxford and after the usual questions, I asked him if the Jupiter effect (light bends when it gets near it) applied to the management of large numbers as well, in that you need completely different rules when you serve so many customers. He said he would have to think about it but to date I have not got any answer.

That is why I suspect we in India are doomed forever to live with poor service quality. The market is so large that, by definition almost, any service provider, public or private, will fall way short of the standards you find in smaller markets. This means there is a case for a large number of small firms, rather than a large number of large firms.

But since that is not likely to happen reassure yourself, with the most famous of all Confucian thoughts.

image
Business Standard
177 22

T C A Srinivasa-Raghavan: The case for limiting firm size

LINE & LENGTH

People are going back to the public sector because the private sector is not much better.

An extraordinary thing is happening. It is not yet a tide, nor may it happen to the extent that the would hope for. But wherever you go, you find people slowly reverting to their old tormentors in the public sector after expressing extreme irritation with the private sector and its ways. Indeed, my worst abuse — well, not really the worst, I suppose — for the private sector used to be “you are no better than the public sector”. Now I ask public sector managers why they are behaving like the private sector — which really confuses them.

Let us take four examples, though, one each from telecoms, aviation, the media and banking, because these are the great success stories. Without exception, the service quality in each of them has plummeted. Overall, each of them has started treating the customer as a pain in the neck, just as the public sector used to. In contrast, the public sector seems to have woken up to the fact that even a little improvement in service quality goes a long way.

The mobile phone fellows have become almost as bureaucratic as, say, the DGS&D. There is no way that you can get something done in less than an hour or via a verbal instruction, even when delivered in person. Everything has to be in writing, even a disconnection. I have a dozen stories to tell because as a family we have five or six connections with one of the firms. I am waiting most anxiously for number portability.

What has happened to the premium airline is also very sad. It started out so marvellously but began to decline after about 18 months. If you take each element that contributes to this decline separately the explanations seem reasonable enough. But then isn’t that true of the public sector also? In any case, it is the overall outcome that matters, and in the case of the airline I am referring to, this is a visible increase in tawdriness and lateness. In contrast, India has become so much better now.

Then there are the banks. The biggest of the private sector ones is now no better than what used to be in the old days. The bottom line is exactly the same: irritation and aggravation when you have to deal with it, even online. The bank has simply lost it when it comes to customer service.

Last but not least is the electronic media. Scores of people I know are now turning back to and for news, for a very simple reason: there you get the news without idiotic frills. and have stuck to the old concept of news and not some claptrap that the private sector channels think will get them the eyeballs.

So what’s the problem with the private sector? My guess is this: there is a disjunction between the mad race for market share and the pressing need to keep costs down. The fellows in marketing are under pressure from above to sell more, while the fellows in finance are being told to cool it. The result is the same as for the public sector, even though the driving forces are different because in the public sector it is the procedures and the corruption that delay capital spending. There is no real pressure to keep costs down.

As long as the private sector’s customer base is small, the opposite pressures to expand market shares and keep costs down lead to greater all-round efficiency. But the moment it crosses a critical mass, which I would put at about 500,000 customers, problems start surfacing.

The reason is simple: the That is, in order to keep the same level of service, you have to add to labour and capital costs in amounts that don’t appear justified, given the rate at which market share is expanding. So you try to squeeze more out of existing resources, and soon that begins to tell on the quality of the output. There is nothing like a combination of old machines and untrained workers to really short-change the customer.

All this, I daresay, is well-known. But that really is not the point of this article. Instead the issue to focus on is whether when dealing with large numbers of customers, ownership ceases to matter. I now genuinely believe that it does. Public or private, the customer is done for.

I was once sent to interview a mathematician from Oxford and after the usual questions, I asked him if the Jupiter effect (light bends when it gets near it) applied to the management of large numbers as well, in that you need completely different rules when you serve so many customers. He said he would have to think about it but to date I have not got any answer.

That is why I suspect we in India are doomed forever to live with poor service quality. The market is so large that, by definition almost, any service provider, public or private, will fall way short of the standards you find in smaller markets. This means there is a case for a large number of small firms, rather than a large number of large firms.

But since that is not likely to happen reassure yourself, with the most famous of all Confucian thoughts.

image
Business Standard
177 22