The Coffee House Economics

After a long gap of time I have recently visited an Indian Coffee House (ICH) outlet in Kerala. Obviously one expects from the ICH excellent coffee and food items served by extremely courteous staff. Yes, I experienced all this in my latest exposure just as what I had experienced every time during my college days decades ago. Those days, I took it for granted and thought this is what to expect from any coffee shop or restaurant. Over the years, in many cities of India and abroad, I found that it is too much to expect such basics at a reasonable price. In fact, such places are fast disappearing without leaving a trace in history.

Here is a list of basics that I have experienced at the Indian Coffee House.

1. Excellent cup of hot coffee served on the table for Rs.10
2. Food and snack items are healthy and taste good
3. The waiters and staff are well groomed and in a traditional but elegant white uniform. Service is quick and with a smile.
4. Coffee and food are served in white porcelain and not in steel or paper cups or disposable plates.  
5. Clean ambience, located conveniently and with car parking space
6. The place has a brand appeal; but not meant for any particular social class. Unlike some other similar places the ICH does not detract ordinary folks with high prices and the well heeled with a dirty ambience.
7. Tipping is not a norm. No direct tipping to the waiter; tips if any can be dropped in a common box near the cashier’s desk that will be shared among the staff.

I am not suggesting here that there is no other such place n India. Sure, there will be such exceptions in different parts of the country. But this is an institution with over half a century of tradition and consistent service to the public. Even that is not probably the real differentiator. To appreciate the difference one has to look back a bit into the history of the Indian Coffee House. The ICH in its current form took shape in 1958 as a workmen’s cooperative with the immediate objective of protecting the livelihoods of workers who were fired from an earlier coffee establishment that has roots in colonial India. The leadership for such an initiative was given by the legendary communist leader A.K. Gopalan (popularly known as AKG). Yes, those were still early days of independent India when we had political leaders with integrity and social commitment across the spectrum.

Today ICH runs about 60 coffee houses from Thrissur to Thiruvananthapuram and a few in other cities like New Delhi, Bangalore and Mumbai. One can expect the same quality of coffee and service from every outlet of ICH. We need to appreciate this in the context of many cooperative societies patronized by government or by private parties in India. Most of such cooperatives are citadels of corruption, nepotism, inefficiency and vested interests. Here is a cooperative that is not supported by the Government and is capable of retaining efficiency and quality of service for decades. There is something special perpetuating an organization culture across generations.

There are many modern coffee retail chains in India and abroad that provide good ambience and a certain consistent quality of product and service. Café Coffee Day is an example in India and Starbucks is an example globally. They are run by private entrepreneurs and not comparable with the Indian Coffee House. They are run like any other businesses, build brands and serve expensive yet ‘ready-mix’ coffee or frozen snacks. They position more as meeting places than coffee shops. You need to go to the cashier to place your order and pick up your stuff when ready. In other words, you do much of the service and you pay more.

The Indian Coffee House is a place where you will be served. And you will get genuine coffee and food made instantly or without losing the freshness. Now, that is not a scalable business like Café Coffee Day. Or maybe no Venture Capitalists looked at them. And that is a good thing for now, for many people like me and for all those folks who own and serve at the Indian Coffee House.

Let’s look at the economics. Pure capitalist economics would suggest that McDonaldization adds value to stake holders. This familiar model would scale up fast, standardize fast and make the customer share the costs and efforts of running the business, run adjacent or even unrelated revenue streams, advertize to create artificial value perception and hike prices, innovate, automate and appify everything possible. And eventually, go for an IPO or sell to any buyer and move on. With the advent of stock markets businesses in a sense have became tradable products. Yet, many millions of retail participants who buy and sell company shares do not really buy and sell the companies. Only the big guys or investment houses can really force ownership control of businesses. 

Once upon a time businesses were built with the purpose of meeting one or many of the needs of a society or a community and in that process the entrepreneurs and shareholders earn some profits. That is really old and un-fascinating story for the start-uppers and VCs. For them a business is a means to make money; an asset that can be traded partly or fully anytime- the sooner the better.

In the evolution of business economics, one can’t easily make a judgment as to which model is right. In some sense, it may be wiser to leave that with the market, assuming that a free market reflects the will of the people. The only problem is the assumption of free market. Free market is more a concept than reality. So, the government comes in with regulations and lobbyists come in to protect the interests of pressure groups. And we are back in an un-free market.

In the midst of all these, where does a cooperative institution like the Indian Coffee House fit in? In the local community! There is still some space for such institutions and businesses to co-exist. Such businesses are profit sharing organizations. They share their profits not only among the shareholders but also among the larger group of daily patrons who are also called customers. When I go to the Indian Coffee House with three of my friends, buy four cups of coffee for Rs. 40 and spend 40 minutes discussing technology, literature, business or anything (using the space as a private meeting place) my friends and I are instantly sharing the unmade profits. Shall I call it the ‘opportunity profit’ to mean the ‘opportunity cost’ of say Rs. 500 that I haven’t spent at another Coffee Chain Shop?

Lot of people think good economics creates more billionaires. A few people think good economics makes life better and affordable for more people.  Time for a coffee break!

‘In economics the majority is always wrong.’ – John Kenneth Galbraith

Taxi Drivers and Soft Power

Hiring a cab is an easy task these days with competing taxi hailing apps and aggregators promoting their services aggressively in major Indian cities. This week I hired a cab from one of the major taxi aggregator companies. Though late by a few minutes I got into this taxi driven by a youngster in his mid-twenties.  As soon as I sat in the car the driver gave his smart phone to me and asked me to type the destination details on the GPS page. This, in fact, impressed me and I thought it was a good idea so that the communication gap can be avoided and the rest of the things will be handled by the device and the driver.

I sat back and started reading the day’s business newspaper. In a few minutes, I realise that the driver has taken a slightly unusual turn at a traffic junction. Some drivers do such detours to avoid a busy junction and take the next available turn to get back to the main line. Hence, I did not want to interfere with the navigation. Soon I realised that the driver drove past the next flyover and didn’t bother to take a turn under the bridge. Instead, he drove straight into one of the notorious traffic junctions beating all logic. The route was longer by five KMs and slower by at least 25 minutes at around 10.20 a.m. This is when I thought I must ask him if he really knew the route. He could not talk to me in any language familiar to me. However, on my repeated request he told me in broken English that he came from Mysore only about a month ago to Bangalore and not familiar with the city.

Though I was significantly inconvenienced by the inexperience of the driver, I appreciate the positive spirit of the youngster in moving to a larger city to build a career. Possibly, he had to take this decision to get away from a much better and liveable small town to a terribly crowded, highly polluted and more expensive city because he could not have a gainful occupation in his beautiful town. Our vision of smart cities is still a dream. Too many smart people leave their better towns and villages to add to the chaos of the bigger and dirtier cities.

Now, let me cite another taxi experience I had in 2002. On my first trip to China I landed in the Beijing airport late in the evening.  Obviously I had no knowledge of Mandarin and language seemed a bigger barrier than the Great Wall. I came out of the airport with a slip of paper in my pocket having the name and address of the hotel I was to stay. Here comes the taxi driven by a lady who was fully protected by iron grills around the driver seat. However, the lady was confident and took the destination address from me and without asking any question drove me straight to the hotel lobby (it was not nearby the airport) showed me the bill, took the cash in Yuan and drove away. Unlike my Bangalore trip, this one started with anxiety (due to my complete unfamiliarity) but ended in a pleasant experience in a totally unfamiliar place. Possibly this lady driver was an experienced professional. Despite not knowing English, her knowledge of the roads and destinations in the city helped her do her core job well- to reach her customers safely and quickly to the destination. She had the maps (printed on paper) but no smart phone, no GPS. But she knew her job.

I would not like to blame the youngster from Mysore. He has the ambition to strive and achieve his goals in life. It is just that he may have to struggle hard in an environment that is pushing people without sufficient support systems. For instance, it would have been easier for him had his company took some time to familiarise him with the city roads and ways to better navigate the traffic at different times of the day. It would have been easier for him if he had detailed printed maps of different localities of the cities with pictures of key destinations and key routes. We see these things in most of the world cities even in the days of Google maps and GPS. Giving a cheap smart phone loaded with a company App is not everything for a semi- educated migrant from a small town. In a hurry to sign up as many drivers as possible these aggregators make life miserable for these youngsters and many customers. Skilling India is not only about creating some factory technicians and software engineers. It is also about equipping millions of aspiring youth entering millions of organised and unorganised service jobs. This too is the soft power we need to develop besides Yoga, Ayurveda and Bharatanatyam. 

Feudalism in the Digital Age

Modern banking is highly digital in nature and all of us are beneficiaries of the many digitized services through ATMs, net banking or mobile banking to accomplish many banking transactions, e-commerce transactions and whole lot of money management. This surely, is a good thing compared to spending time in long queues in a bank branch or filling out physical forms or worse facing an irate or tired bank clerk (private banks call them officers or Vice Presidents).

In the midst of such a positive and uplifting story of banking services, one still finds streaks of irrational process rigidity in Indian banking. I wish to narrate couple of my recent experiences.

I pay tuition fee every month to a University in Europe where my son is doing his Masters. I have the university’s account details and fund transfer in the normal situation would have been an effortless minor transaction. However, that is not the case. Maybe because I have to pay the fee in Euros and forex is still a holy cow in India though the limits have been enhanced over these years.

I have to go the bank branch every time I have to remit the fee carrying my passport, a copy of the passport and the cheque book. I need to fill out a seven page physical form. OK, that is the process. A little bit about this intriguing form. I have to write my name six times, my address four times and signature at seven places! My bank account number has to be written five times (14 digits)I have to write the beneficiary name and address three times and beneficiary name four times. Of course, the name and address of the foreign bank and the account number (20 digits) three times!

Well, banking is a highly regulated industry and much diligence is required to avoid fraudulent transactions and money laundering activities. So, some of these painful processes may have originated from that aspect and in an era where physical forms and documents were to be kept in different offices and the information was not linked. But is that the case in the era of so called core banking software and centralized data mining and data warehousing? And everyone talks about analytics, big data and other clouded technologies!

Why all these data once collected cannot be harvested from the bank’s system every month, instead of making the hapless customer do the full rituals every month? Why is it that the data written on one page cannot be shared with all stakeholders including the RBI, if that is required? Why can’t I fill these details online and do a recheck or declaration every time instead of the seven page ordeal? That would have saved much time and I could have done 40 minutes of jogging or yoga!

Here is the second experience. I am not a fan of fixed deposits in banks. I think that is for lazy folks who do not have any other means of saving or investing money. But, my wife says cash is queen and we always need some liquid cash. In the digital era an FD is the most liquid of assets. One can book an FD online anytime from any device and liquidate online anytime from any device. So, I too became lazy and one fine morning while net-banking I pulled some money from my savings account to book an FD all in flash and I was happy. Couple of occasions, I did liquidate my FD online. It was easy and quick though I lost some part of the interest as penalty. Yet, for convenience sake and on a rainy day this is great service from my bank. Story so far looks hunky dory.

Couple of weeks ago I was in need of some cash and I counted on my FD and committed someone of a payout. This time, when I tried to liquidate the FD online the system did not allow me. I called up the relationship manager and he told me that I have to fill out a physical form and both I and my wife should sign the form.

Why is it that to book an FD online is fine but to liquidate the customer has to go offline on the road to the bank branch? Why is it that to book the FD any one of the joint account holders is enough and to liquidate both are required?

These are traces of feudalism still existing in banks. But why blame only the banks? Look into the everyday processes of many organizations-private or public. You will find such feudalistic processes. When I say feudalistic, I mean the following aspects. First, rules are made from the perspective of the more powerful party and often not considering the voice of the other party. Second, there is an element of mistrust anticipated in every process and everyone is treated as a potential cheat. And third, the master always takes decisions for you and he is always right. No questions, please!

Do you have such experiences? Stay lucky if you don’t; stay foolish if you do!

Who Cares About Care?

Corporate hospitals have become more hospitable. Hospitals too are star rated just like the hotels. There are five star hospitals that provide almost all what you can expect in a five star hotel besides oxygen from the ventilator and sundry other life-support services. Hospitals ‘treat’ patients while hotels are a place to ‘treat’ friends or family! Healthcare is what the industry is called, while most hospitals remain disease cure centres.  

In a recent blog written by Prof. Henry Mintzberg (McGill University, Montreal) he discusses the question on who should manage a hospital. In a quick analysis he says that a typical doctor is focussed on cure, the nurse is focussed on patient care and the administrator is focussed on controlling the operations. Therefore, individually none of these fit the bill to be the best CEO of a hospital, barring exceptions. However, he suggests that someone with fair knowledge and experience of the hospital operations should manage the hospital.

A large multi-speciality hospital catering to different kinds of patients is a fairly complex organization to run than a typical industrial organization focussed on one industry segment. Every moment can be critical to the life of many customers going through the hospital system. However, like other organizations, a hospital too employs a number of people of varying skill endowments performing different roles in different departments. They too deal with external vendors who provide medical, surgical and general supplies and allied services. Like other organizations a hospital tries to satisfy its customers and in the process some of them also get dissatisfied and go to other hospitals and worse, some of them are carted out as dead bodies.

In a hospital cure has limitations, care is always felt not enough and control is in many hands and at times goes out of hand! So the challenge is in maximising all the three aspects- cure, care and control. Advancement in technology and medicines tend to improve cure for increasingly large number of diseases. ERP software and management expertise tend to improve control and efficiency of hospital administration. However, care remains largely in the hands of relatively underpaid and usually less than motivated nursing staff.

While reflecting on these, I felt these three aspects in the running of a hospital probably apply equally to most other organizations. Any business has to deal with the immediate problems that need cure or corrective actions. The employees and other stake holders need care-a certain level of comfort, facilities, regular communication and recognition. A number of internal and external processes and exceptional behaviours need to be controlled.

Where does most of the management time get expended? Bulk of the management time is spent on problem solving and planning and controlling resources, processes and people. These are, no doubt, priority areas for any organization to focus. But who cares about care? Customer care has become priority for many businesses either because it is a business survival issue or it is a very profitable thing to do. In competitive industries clients can switch vendors if the service is poor. Many product businesses make most of their profits from after sale services which they control either directly or through designated channels of partners leaving very limited choice to the customers. Employee care is less so and caring for the society and environment is even far less so. Here lies the imbalance in the practice of business management. 

‘The art of medicine consists in amusing the patient while nature cures the disease.’ – Voltaire