imt case journal volum 2 no.2-libre

INSTITUTE OF MANAGEMENT TECHNOLOGY, NAGPUR

IMTCJVOLUME:2 NUMBER : 2 JAN-JUNE 2012

IMT CASE JOURNALA Bi - Annual Case Journal of IMT - Nagpur

www.imtnagpur.ac.in

EDITORIAL

SUCCESSFUL IMPLEMENTATION OF ELECTRONIC 1 - 12BILL PAYMENT AND PRESENTMENT SYSTEM A SADAD CASE STUDYMohammed A. T. Alsudairi, T. G. K. VasistaRAISING CAPITAL IN GLOBAL MARKETS: 13 - 24A CASE OF SBIInder Sekhar YadavTRIUMPH TUTORIALS SEARCH OF 25 - 38THE TRIUMPHANT STRATEGYNisarg Joshi, Narayan Baser, Harishchandra Singh Rathod& Apurv RavalSTRATEGY MAP PERSPECTIVE: 39 - 48SERVICE LEADERSHIP AT DREAM LABSAshok K. Sar

CONTENTS

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LCriteria of research, its genesis and their schemata have evolved out of historical and social practices. Interpretation of social events is guided and constrained by the prevailing rationality which itself reflects the dominant constellation of power. While each area of research (science, engineering, medicine, social science and arts and humanities) has many common features, but research in individual area has its own distinction. Although, interdisciplinary and multi-disciplinary research approaches bear a long history and heritage, these approaches enjoy the stage of marginal utility in the 21st century. But, there is no way of denying a need of interdisciplinary and multidisciplinary approaches of research. However a research manuscript/case study that is targeted to publish at the area of social science focusing on business management world should be encouraged to follow pattern, style, wording, tautology, research design and language that are universal for social science.

Recently, the case study based research has gained its momentum in the area of business management. Case studies are tailor-made for exploring new processes or behaviors or ones that are little understood (Hartley 1994). Hence, the approach is particularly useful for responding to how and why questions about a contemporary set of events (Leonard-Barton 1990). Moreover, the researchers have argued that certain kinds of information can be difficult or even impossible to tackle without qualitative approaches such as the case study methodology (Sykes 1990). Gummesson (1988) argues that an important advantage of case study methodology is the opportunity for a holistic view of the process. The detailed observations entailed in the case study method enable us to study many different aspects, examine them in relation to each other and view the process within its total environment.

Case study methodology often lacks academic rigor and are regarded as inferior to more rigorous methods, where there are more specific guidelines for collecting and analyzing data. These criticisms stress that there is a need to be very explicit about the choices one makes and the need to justify them. One reason why case studies are criticized may be that researchers disagree about the definition and the purpose of carrying out case studies. Case studies have been regarded as a design (Cook and Campbell 1979), as a qualitative methodology (Cassell and Symon 1994), as a particular data collection procedure (Andersen 1997), and as a research strategy (Yin 1989). Furthermore, the purpose for carrying out case studies is unclear. Some regard case studies as supplements to more rigorous qualitative studies to be carried out in the early stage of the research process; others claim that it can be used for multiple purposes and as a research strategy in its own right (Gummesson 1988; Yin 1989). Given this unclear status, researchers need to be very clear about their interpretation of the case study and the purpose of carrying out the study.

Whatever may be the pros and cons of the case study methodology/research, IMTCJ has always tried to publish good case studies across all the dimensions of business management. This issue of IMTCJ publishes four good quality cases from different aspects of business studies.

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LThe first case, TRIUMPH TUTORIALS SEARCH OF THE TRIUMPHANT STRATEGY by Nisarg Joshi, Narayan Baser, Harishchandra Singh Rathod & Apurv Raval narrates the real life story of a business venture in Ahmedabad city of the state of Gujarat. The case focuses on the strategy adopted by the managers of the institute & its repercussions then after. The case is meant for the marketing class of post graduate students with emphasis on Market Segmentation and Positioning strategy. It also discusses the implications of business diversification.

The second case, SUCCESSFUL IMPLEMENTATION OF ELECTRONIC BILL PAYMENT AND PRESENTMENT SYSTEM A SADAD CASE STUDY by Mohammed A. T. Alsudairi & T. G. K. Vasista provides to the students a comprehensive understanding as well as allows them to think critically from several perspectives at different abstraction levels. The case tries to give access to underlying economic and e-business models at the same time giving the students an opportunity to elicit some more perspectives such as electronic payment systems, electronic security and other underlying e-commerce and e-business models.

The principal subject matter of the third case, RAISING CAPITAL IN GLOBAL MARKETS: A CASE OF SBI by Inder Shekhar Yadav is to analyze the cost of issuing/raising capital globally. Secondary issues examined include assessing foreign exchange risk, designing appropriate hedging strategy and computing the conditional cost of a global debt issue in light of appreciation and depreciation of domestic currency.

The final case, STRATEGY MAP PERSPECTIVE: SERVICE LEADERSHIP AT DREAM LABS, written by Ashok Sar, starts with a brief overview on the concept of differentiation advantage, the strategic logic thereof and how a strategist in a typical firm goes ahead with the strategy formulation and execution thereof. Several illustrations covered in the case study would help the instructor to explain the concept of differentiation advantage. Further, during the case analysis, students may be asked to come up with their examples of differentiation strategy. This discussion should conclude with highlights on value creation and capture, customers willingness to pay (WTP), suppliers opportunity cost (SOC); and the trade off between WTP & SOC.

I duly acknowledge the support and cooperation received from IMT-Nagpur management. Sincere thanks to all the editorial board members for their extended support in timely reviewing the manuscripts. I greatly concede the scholarly contribution of all contributing authors. I also acknowledge the encouragement received from the Director, Dean (Academics), Chairperson (Research & Development) of IMT-Nagpur. Last but not the least; I acknowledge the interest and support of all the readers of IMTCJ.

Dr. R .K. Jena(Editor)

1IMT CASE JOURNAL, JAN - JUNE 2012

SUCCESSFUL IMPLEMENTATION OF ELECTRONIC BILLPAYMENT AND PRESENTMENT SYSTEM

A SADAD CASE STUDY1 2MOHAMMED A. T. ALSUDAIRI , T. G. K. VASISTA

ABSTRACTBusinesses of all sizes and industries need to evaluate their current practices and have to look for ways to increase their bottom line profits in terms of Business Process Re-engineering (BPR) by introducing electronic services to reduce the capital expenditure and operating costs. Billing as a core of the retailing business can change its business process with the advent of latest practices of ICT to compete in the business market space by focusing on delayed and error prone processes to increase the customer satisfaction. Because the ability to accurately produce bills, statements and confirmation notices, and collect payments expeditiously is fundamental to corporate success (IBM, 2000). A highly automated, rapidly deployable web-based customer self-service solution can significantly and quantifiably reduce the cost of customer service operations while giving customers faster access to the information they require. A study of 200 companies in USA that were used web-based customer self-service has revealed that there are savings of $500,000 per quarter (Vivek, Infosys).Electronic Bill Presentment and Payment (EBPP) speeds the Accounts Receivable process by getting invoices to your customers faster and by enabling them to pay the invoice and resolve disputes electronically. EBPP can also strengthen your competitive position in the marketplace by building closer relationships with your customers and delivering interactive statement inserts electronically (Anne Terrell Thomson, CCM).Saudi Arabia Monetary Agency (SAMA) is an economy agent of Kingdom of Saudi Arabia. SADAD Payment System (SADAD) was established by the Saudi Arabian Monetary Agency (SAMA) to be the national Electronic Bill Presentment and Payment (EBPP) service provider for the Kingdom of Saudi Arabia (KSA). SADAD is an electronic platform to streamline the bill payment process. This electronic platform will act as an intermediary between billers and banks for performing trusted payment process that uses leading edge technology to provide efficient and effective customer service to the people of the Kingdom of Saudi Arabia (SADAD Web site). SADAD case study helps in understanding the innovative SADAD system

Volume 2 Number 2 ISSN : 2229 - 6743

2Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study

IMT CASE JOURNAL, JAN - JUNE 2012

adopted by Saudi Arabian Monetary Agency to fix failing and fragmented cash-based bill payment and collection system in Saudi Arabia. Prior to SADAD, the payment and collection situation was fragmented and silo based. The situation was agonizing to government, consumers and private sectors firms alike. Authorities estimated about 10-15% loss of revenue annually due to human errors, fraud and delays associated with the manual, cash-based system.Electronic Service Quality plays an integral role in all aspects of management including in Electronic Payment Systems too. Delivering high quality services becomes crucial goal of a manager. The purpose of a quality management in the business organization is to ensure that all activities are successfully performed and to report those activities for which there is still room for improvement based on a scientific base line or a bench mark created for the organizational servicing objects. Since user formulates requirements and is the beneficiary of the services, the degrees in which the final services are met to the user requirements are of great concern and affect the quality of services.Evaluation is a qualitative process to analyze the degree in which requirements have been fulfilled. Measurement is a quantitative process where quality metrics are being defined and calculated to enable quantification in the quality management process (Batagan, Pocovnicu, Capisizu, 2009).So the purpose of designing this case study has been targeted to focus on electronic service quality management under enterprise environment while considering managerial perspectives relevant to SADAD EBPP and customer relationship and value aspects.Keywords : SAMA, SADAD, EPBB, UNPAN, BPR

IntroductionIt all began in 2002 by SADAD when it wanted to reach a viable organization with a feasible business model using a systematic method of conducting market research that indicated strong acceptance of the SADAD concept and provide valuable insights into market. Market research indicated that there are consumer complaints on time wastage and overall inconvenience on bill payment. The analysis by XEROXs Palo Alto Research Centre - PARC (2002) indicated that the acceptance rate of an electronic payment service (as long as key requirements are met) as 70%. SADAD business model was developed to provide a win/win proposition to both bankers and billers where banks are cornerstones in determining transaction fee. This requires SADAD to follow a component based development strategy with such components like pricing engine, compensation engine and financial engine etc. The biller transaction fee is calculated by combining up to five pricing

elements viz. Bank cost, CapEx, OpEx Reduction Premium SADAD fee, Service premium, profile Adjustment Factor and SADAD Margin. Similarly up to four pricing elements are combined to constitute Bank Compensation viz. Bank Cost (+), CapEx & OpEx Reduction premium (-), SADAD fee (-) and Service Premium (-). Overall the net effect of SADAD will be a reduction in the structural costs of billing processing in terms of CapEx and OpEx savings to Banks and Billers due to SADAD. SADAD EBPP architecture was designed to be very flexible in adding new modules so that it can provide more services. The growth of SADAD can be seen from three dimensions viz. Market growth, customer growth and portfolio growth (UNPAN). See Exhibit 1 & 2 .About SADADSADAD Payment System (SADAD) was established by the Saudi Arabian Monetary Agency (SAMA) to be the national Electronic Bill Presentment and Payment (EBPP) service provider for the Kingdom of Saudi Arabia (KSA). The core mandate for SADAD is to facilitate and streamline bill payment transactions of end consumers through all channels of the Kingdoms Banks. SADAD was launched on October 3rd, 2004 (SADAD Web site). It is the winner of the United Nations Public Service Award during the year 2008. SADAD Payment System won the first place in GCC E-Government Award in the field of E-Economy, during the First Gulf e-Government Conference which began on 21, December 2009 in Muscat, Oman (Global Arab Network, 2009). About SAMASaudi Arabia Monetary Agency (SAMA) is an economy agent of Kingdom of Saudi Arabia. It performs economic governance functions such as issuing national currency, the Saudi Riyal; Acting like a reserve bank of Kingdom of Saudi Arabia; Supervising commercial banks; Managing Kingdoms foreign exchange reserves; Conducting monetary policy for promoting price and exchange rate stability; Promoting the growth and ensuring the soundness of the financial system.SAMA has been playing a crucial role in the consolidation and development of the Saudi Financial System. At the time of its establishment, the Kingdom did not have a monetary system exclusively of its own. SAMAs preoccupation was to contain inflationary pressures in the booming economy, expansion of the banking system and manage the massive foreign exchange reserves. From mid 1980s, SAMAs priorities have been to introduce financial market reforms. Over the years, with the growth of the economy and expansion of the financial system, SAMAs responsibilities have increased several folds (SAMA Web Site).What Prompted SAMA to go for SADAD?Pre-SADAD economics of bill payment placed an unduly large burden on banks, it was inefficient and slow. Banks also recovered a small portion of the cost through keeping the collected money for varying periods of 7-30 days after the bill was paid. What is the real work done in the case? The real work done in this case study is to identify a case study for Graduate Management students, provide the description of the case, conduct research and literature study relevant to the case, its underlying theories and models related to economics and business studies broadly and electronics service quality and eCRM in particular. Though studies on

Mohammed A. T. Alsudairi, T. G. K. Vasista3



Electronic Payment Systems, Electronic Commerce and Electronic Security can also be brought into the picture of the case study, our scope of the study is limited to elicit areas of electronic service quality and customer relationship management. The data source is primarily the web sites of SADAD and SAMA organizations; journals like Emerald, Science Direct; UNPAN reports; conference papers, presentations and books listed in the reference section have made a great contribution. Once the purpose of the organization under consideration for the case study is understood, the knowledge gathering has started towards indentifying and extracting the knowledge relevant to it, its underlying theories and models. Case preparation guidelines and templates from IMT Nagpur, India are found very useful for organizing the Case Knowledge. Most of the data has been drawn from the UNPAN reports and SADAD and SAMA web sites.What are the past related works?Earlier work on SADAD case study is done by Harvard's research and consulting team, which is headed by Dr. Khalid O. Al-Yahya, Fellow and Advisor at Harvard University and Assistant Professor of Comparative Management and Strategic Human Resources and Organizational Development at Arizona State University and Dr. Stephen Goldsmith, Professor of Government and the Director of the Innovations in American Government Program (SADAD web site).This case is used for experts and students at Harvard Universitys Kennedy School of Government and Business School and other educational institutions as well as for practitioners participating in Executive Sessions, and most specifically will be used for international executive teaching in programs held worldwide.The purpose of the study is to share and disseminate knowledge about bill payment problems in Saudi Arabia and the innovative approaches used to affect them. The case study discusses the problems faced by the Saudi Arabian Monetary Agency (SAMA) and the rationale for its initiative to tackle the electronic bill payment problems in Saudi Arabia. This include the origins of bill payment problems, burdens on banks and governmental and private sector billers and citizens, and SADAD effects on economy and overall economic and institutional modernization.Earlier work by Al Yahya, Khalid on SADAD case study is done from the perspective view government-led innovation in service delivery in Saudi Arabia. The case describes the process of establishing SADAD, the difficulties associated with its implementation especially convincing government and private sector billers to change their old ways of doing business, SADADs impact on streamlining bill payment transactions, and the reasons for the government decision to lead this reform effort.What improvements you see in this case relative to past works?Though our case study matches with the abstract description of Harvard Universitys School of Government and Business School, the purpose is targeted to focus on bringing out the underlying economic theories, models and service quality management aspects from the customer relation management perspective. For this purpose, four questions are designed and directions for fetching the answers are given in the last section of this case study. Various perspectives are brought in this connection while giving the directions. Attempts are made to provide relevant literature especially from journals and books. Thus it becomes a rigorous and comprehensive study to both teaching and student community from the perspective of not only the academics but also towards conducting research that

Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study4



spans multiple disciplines such as: Managerial Economics, Service Marketing, Customer Relationship Management, Electronic Service Quality, Information Systems, Systems Management and Electronic Resources and Planning. It also enable management faculty to study and bring out the various perspectives and interlink them to better realize the comprehensive understanding of the contemporary business studies.How SADAD works and Data RequiredSADAD Payment System was built to benefit many parties like Billers and Banks, Billers can expect to improve customer services and streamline bill collection/ reconciliation processes. Banks on the other hand, will particularly benefit from lower integration and transaction processing costs.BillersBillers can expect to improve customer services and streamline bill collection/ reconciliation processes.SADAD will benefit billers in many ways; some of those benefits are listed below:Cost Reduction Lower CapEx due to reduced investments in infrastructure and software development

Lower OpEx due to fewer resources required to build, operate and support outsourced EBPP.

Faster collection of bills, leading to lower working capital. Single interface point no need to link separately with multiple banks. Lower reconciliation processing costs. Reduced disconnections due to delay in bill processing. Reduced CSRs through fewer customers paying at Biller sites.Revenue Generation Improved cash availability resulting in increased interest revenue. Potential for cross-selling and up-selling using available CSRs. Increased ARPU due to fewer disconnections. Potential to leverage SADAD infrastructure to sell new services.Intangibles Improved customer satisfaction and image. Increased opportunity to communicate with customers. Ability to tailor marketing messages per customer segment. Guaranteed bill presentment independent of customer address. Constantly updated bill status information across all channels. Pre-notification to upload new bills to SADAD. Flexibility to consistently apply business rules across all channels.SADAD will benefit banks in many ways; some of those benefits are listed below:




Cost Reduction Lower costs due to:

i) Reduced transaction volumes at branches.ii) Reduced processing costs per transaction.

Decreased reconciliation costs and exception handling. Fewer biller interfaces to develop and maintain. Fewer tellers / CSRs required handling customer payments and bill inquiries. New costs to be partially offset through revenue sharing schemes with SADAD.Revenue Generation Compensation from SADAD Opportunity to cross-sell and up-sell:

i) Using freed up tellers and CSRs.ii) Greater concentration on high-value customers.

Potential to offer new value added services through bundling and packaging. More attraction to potential consumers allowing them one-stop bill payment through

SADAD network.Intangibles Early positioning for e-Gov and e-Commerce initiatives. Improved customer services through:

i) Increasing face-time with customers.ii) Less congestion at branches.

Enhance image by being at the forefront of leading technology.Bankers and Billers join SADAD by performing On-boarding activities.In order to join SADAD, banks and billers should go through SADADs on-boarding process, which includes eight key activities. All on-boarding activities are performed by the Biller with on-going support from SADAD's Integration Unit (SIU):1. Detailed Impact Analysis2. Business Rules Assessment3. Integration Planning4. Integration & Development5. Testing6. On-boarding Migration Planning7. Training8. Go-Live Linking with SADAD will enable billers to collect their payment electronically

through all the banking channels in the kingdom, which include 9,435 ATM and 1,442 Bank branch (and soon will include point of sale terminals) in addition to Phone Banking and Online Banking offered by all Saudi banks in the kingdom. This will enable any person to use SADAD system without pre-registration, anywhere in the world.

Billers can use one or both prepaid services (e.g. prepaid mobile phones) and regular postpaid payment services.

Billers can also choose between real-time and batch bill payment notification based on




the biller business requirements. There is no need to open bank accounts with different banks, because SADAD will

collect the money from all banks and then transfer it to the biller bank account at any Saudi bank in one business day only.

Provide periodical reports to Billers about all activities through SADAD. Provide On-boarding support through a dedicated integration team to billers joining

SADAD. Provide access to SADAD Portal for biller which contains real-time data of all

transactions, and allows them to send complaints or inquiries. Provide a helpdesk dedicated for serving Billers 24/7.DataA market research has been conducted on behalf of the SADAD team by Pan Arab Research Center on a sample of 522 consumers in KSA. It showed that customers main concerns were about time wastage, inconvenience of bill collection, bills past due and service cuts due to delay in bill processing. See Exhibit 4, 5 & 6.Goals of Business CaseThe Goal of the Kingdom of Saudi Arabia is to provide the best possible quality services to its residents while balancing the sub goals of:

Achieving economic goals set by SAMA (the economic and financial agent of KSA) and

Ensuring the achievement of business goals to the B2B customers and Providing and satisfying B2C customer goals.

Goals of Case from the Academic Perspective

To achieve comprehensive understanding on the management approach and considerations in business environment

To orient students to adopt an enterprise approach in problem solving To extract and formulate theoretical models and basic principles (from knowledge

economy and e-business perspective) To work rigorously on how to finalize the scope of the problem while producing the

solution. To learn how to focus on the problem and frame the problem statement.

DeliverablesIn this section authors effort of problem statement, approach, pictorial depiction of the business scenario for enterprise electronic service quality management and electronic customer relation management aspects are to be delivered.Problems and ChallengesThe challenge is to explore and extract the relevant factors and their correlation to electronic service quality under Enterprise based Electronic Service Integration and the problem is to identify an aligning path.




ApproachAn enterprise electronic service integration approach to electronic service quality management is considered to address the problem. This approach allows working on multi disciplines at macro level for exhibiting the whole scenario under which the focused problem of electronic service quality is to be addressed. These multi-disciplines form the Key Areas to be addressed in Service Quality according to the principles of service quality that are given in the documentation of Service Quality dealt by SEI CMM process guidelines. Thus the Exhibit 7 brings out the Government-Agency-Business-Customer Scenario (G2A2B2C).Things we would do differentlyWe tend to follow the Gen-Spec Research Methodology (TGK Vasista, 2011), which focuses on working towards generic trends and patterns of multi-disciplines and bringing them on to a common platform called systems engineering and management and then focusing on the specific problem domain at hand to deal it as a plug-in.Thus the electronic service quality management will act as a horizontal domain representing the generic level and electronic bill payment and presentment as the specific vertical.Conclusion and Scope of the future researchThough, this case study has a potential to draw inferences on multiple aspects, our efforts are limited to the domain of bringing the underlying economic theory and underlying enterprise approaches. However students and faculty can put efforts in brining cost models and can propose their structural elements from the finance management perspective (Refer to First Paragraph of Introduction section).References1. Al-Sudairy, Md. (2010). A multi-disciplinary profile of IS/IT outsourcing research.

Journal of Enterprise Information Management, Vol. 23, No. 2, pp215-258, Emerald Group Publishing Ltd.

2. Al-Turki, Umar, M., Andijani AbduBasit, A., Siddiqui Atiq, W., (2006). ERP Implementation Trends and Practices in Saudi Arabia. King Fahd University of Petroleum & Minerals, Dhahran, Saudi Arabia

3. Anne Terrell (A.T.) Thompson, CCM. How to Prepare and Evaluate an EBPP RFI-A Presentation, Wachovia Treasury Consulting, Atlanta, USA

4. Baldwin, Christopher. Integration Patterns Overview. Microsoft.5. BankCardTerminals.com, Electronic Bill Presentment and Payment (EBPP): The

future of Invoicing.6. Berry, T (1985). Management control in an area of the NCB: rationales of accounting

practices in a public enterprise from Organisations and Society. Elsevier Publications7. Eisenhardt, M. Kathleen (1989). Agency Theory: An Assessment and Review.

Academy of Management Review, vol. 14, No. 1, p57-74.9. Harrigan, Paul, Ramsey, Elaine, Ibbotson, Patrick, Qureshi, Israr, Meister, Darren,

Fang, Yulin and Schroeder, Andreas (2008). eCRM technologies, capabilities and SME performance benefits. In, Pacific Asia Conference on Information Systems (PACIS 2008).




10. Suzhou, China,Forshey (2010). EBPP, EIP, Electronic Account Presentment: The Financial Supply Chain. SAP AG, Germany

12. Hackman, J R. and Wageman, R. (1995). Total Quality management: Empirical, conceptual and practical issues. Administrative Science Quarterly, Qestia.com

14. Electronic Bill Presentment and Payment A strategic advantage, IBM Global Services, Somers, NY, USA

15. Issa, R. R. A., Flood, I., Caglasin, G., 2003, A Survey of E-Business Implementation In The US Construction Industry, ITcon Vol. 8 (2003), pg. 15-28

16. Koch, Bruno (2006). The European E-Invoicing & Electronic Bill Presentment & Payment trends and the role of the Financial Services Industry. Billentis, Europe.

17. Lam, W. (2005). Barriers to e-government integration, Journal of Enterprise Information published by Emerald insight

16. Lee C., Zhang, Lee P. and Au (2009). Using ERP Systems to Transform Business Processes: A Case Study at a Precession Engineering Company. International Journal of Engineering Business Management, Vol. 1, No. 1, pp. 19-24.

17. RTIP Report (2007), the Information Technology Investment Board, USA18. Seth, N., Deshmukh, S. G. and Vrat, P. (2005), Service quality models: a review,

International Journal of Quality & Reliability Management, Vol. 22: 9, pp. 913-949.19. Shang, S. and Seddon, P.B. (2000, August). A Comprehensive Framework for

Classifying Benefits of ERP Systems. Proceedings of the 2000 Americas Conference on Information Systems, Long Beach California.

20. TGK Vasista (2011), Gen-Spec Research Methodology Design For Semantic And Quality Research Studies, Proceedings of First International Conference on Business Research Paradigms, MiddleSex University, Dubai, Nov 22-24, 2011.

21. Themistoleous, M. and Irani, Z. (2001). Benchmarking the benefits and barriers of application integration. Emerald insight Publication.

22. Vernadat, FB (2002). Enterprise modeling and integration (EMI): current status and research perspectives. Annual Reviews in Control, Elsevier Publications.

23. Vivek (2001). Business Process Exception Management Business Benefits of Technology Led BPR with Billing as an Illustration. Infosys Technologies.

24. William, A. Estrem (2003). An evaluation framework for deploying Web Services in the next generation manufacturing enterprise. Robotics and Computer-Integrated Manufacturing. Volume 19, Issue 6, December 2003, Pages 509-519.

25. Altinkemer, Kemal., Tomak, Kerem. (2002). Chapter VI: Pricing and Service quality in Electronic Commerce in Aryya Gangopadhyay (Ed.). Managing business with electronic commerce: issues and trends. P100, Idea Group Publishing.

26. Pollock, J. T. and Hodgson, R. (2007). Adaptive information: improving business through semantic interoperability, grid computing, and enterprise integration. Information Resources Management, igi-online.com publishing.

27. Bieerstein N, Fiammante M, Jones K and Shah R (2006). Service-oriented architecture compass: business value, planning, and enterprise roadmap. IBM Press.Schaltegger S and Burritt R (2000). Contemporary environmental accounting: issues, concepts and practice, Green Leaf Publishing.

28. William (2004). APPENDIX: Analyzing Business Situations The customer value funnel approach (cvf) in William Charles Johnson, Art Weinstein (Eds.). Superior customer value in the new economy: concepts and cases, p12-18, 434 pages, CRC Press.

29. SADAD , 2010,http://www.zawya.com/Story.cfm/sidZAWYA20100110075029/SR%2043%20Billion%20transactions%20Through%20SADAD%20

30. SADAD , 2010,http://unpan1.un.org/intradoc/groups/public/documents/unpan/unpan030928.pdf




Mohammed A. T. Alsudairi, T. G. K. VasistaVolume 2 Number 2 ISSN : 2229 - 6743

EXHIBITSExhibit 1 : Role of SADAD as an Intermediary

Source: SADAD Web siteExhibit 2 : Functional Architecture

Source: UNPANExhibit 3 : Outline of how SADAD works

Source: SADAD

ConsumerEBPP VisionPre-SADAD Bill Payment Network

Biller ABiller BBiller CBiller D

Bank ABank BBank CBank D

Biller ABiller B

Biller N

Consumer

SADAD

Bank ABank B

Bank N

Customer Facing FunctionsCustomer InfoManagement Bill Presentment &Formatting Customer Alerts &Notification

Biller FacingFunctions Bill InformationMgmt Functions Business SupportFunctionsBill Gathering &CoversionBiller Info MgmtBiller Notification

Bill Aggreg.Business RulesBill Status Mgmt

AccountingReconciliationHelp Desk

MISWorkflow Management, Security and Encryption

Transaction Routing and AuditIntegration and Messaging Layer


SADAD

Walk-inCustomer

Biller

Biller ChannelCollection Center Website

Website

ATM

Phone Banking

Branch

Bank Channels

Customer

Customer isauthenticated bythe bank priorto queryingSADAD

Bankscommunicateswith SADADthrough existinginfrastructure Billers communicate withSADAD to upload new

bills, exchange bill status& reconcillation reports

Bank

SADAD providesinformation, update duestatus accordingly andinitiate thesettlement process

10

Mohammed A. T. Alsudairi1, T. G. K. Vasista11Volume 2 Number 2 ISSN : 2229 - 6743

Exhibit 4 : Customer Concerns vs No. of Customer mentionsSome statistical facts & figures of SADAD

Source: SADADExhibit 5 : a: For the years 2003 & 2008; b: For Bill Query and Bill Payment during 2008

Exhibit 6 : SADAD Market Share Trends in 2007-2008

Time consumingDelays/Loss in postage/

inconvenience of bill collectionMissing/overlooking payment dates

Disconnection of service dueto delays in bill processingInconvenient - have to go to Bank andBillers collection centre to pay bills

handling large amounts of cashHaving to keep track of multiple bills

Overcoming mistakes while depositingmoney for bill settlementCustomer treatment by Bank staff

10072676363

5552

32

0 20 40 60 80 100Number of mentions,

Channel Usage TrendsSl. No. Channel 2003 2008

1. Web Site 1% 19%2. Phone 7% 27%3. ATM 19% 42%4. Branch 73% 12%

Channel Usage Trends as on 2008Sl. No. Channel Bill Query Bill Payment1. Web Site 50% 15%2. Phone 28% 26%3. ATM 16% 47%4. Branch 6% 12%

S.No. Month-Year SADADMarket Share Volume ofTransactionsOtherChannels Value of Transactions(SR,000,000)1. Feb-07 21% 79% 659 2612. Mar-07 25% 75% 870 3823. Apr-07 27% 73% 935 3824. May-07 29% 71% 1037 4365. Jun-07 31% 69% 1018 4266. Jul-07 35% 65% 1256 5807. Aug-07 43% 57% 1586 8238. Sep-07 51% 49% 1963 10239. Oct-07 64% 36% 2377 120010 Nov-07 72% 28% 3171 160211. Dec-07 79% 21% 3505 160912. Jan-08 82% 18% 5319 2324


Source: UNPAN030928

Source: UNPAN030928

Exhibit 7 : Depicting the business case : Components and Integration of ElectronicService Quality Management

Banks(BusinessFirms)

Web Portal

Billers (Customers)

E-Business

KSAGovernment

SAMA(Economic Agent)

SADAD(E-Business Agent)EBPP

Author(s) Information1 Associate Professor, College of Business Administration, King Saud University,

Riyadh, KSA, [email protected] Researcher, King Saud University, Riyadh, KSA

[email protected]/[email protected]

12 Volume 2 Number 2 ISSN : 2229 - 6743Successful Implementation of Electronic Bill Payment and Presentment System - A Sadad Case Study


RAISING CAPITAL IN GLOBAL MARKETS: A CASE OF SBI1 INDER SEKHAR YADAV

ABSTRACTThe growing linkage between domestic and external markets has widened domestic access to international capital. As a result of which most of the corporations borrowing from external capital market have to either make or receive payments in foreign currencies. In this context, the principal subject matter of the present case is to analyze the cost of issuing/raising capital globally. Secondary issues examined include assessing foreign exchange risk, designing appropriate hedging strategy and computing the conditional cost of a global debt issue in light of appreciation and depreciation of domestic currency.Keywords: All-in-cost, foreign exchange risk, hedging, external commercial borrowing, international/ external capital market



IntroductionSBI chairman, O. P Bhatt who has served SBI as one of the longest Chairman in the recent past from June 2006-March 2011 in a statement on July 23, 2010, announced that it plans to issue a five-year bond with a face value of US$1 billion internationally through its London branch on July 27, 2010 from overseas market to fund its growth plans. In this context, the Chairman of SBI had to analyze and examine the cost of issuing/raising capital globally especially when alternative avenues of raising overseas capital were available. Principally, the Chairman had to decide the least expensive issue for SBI among the various bond issue options available to it.Also, since SBI is seeking to raise money from international capital market, it has to deal and manage the foreign exchange risk associated with the issuance of foreign capital. Therefore, assessing foreign exchange risk, designing appropriate hedging strategy and computing the conditional cost of a global debt issue in light of appreciation and depreciation of domestic currency was important for the Chairman to consider and decide upon.

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This is a signature deal, despite market turbulence and volatility. In terms of size, new investors, and number and quality of investors, we achieved our objectives with this issue. We believe the success of this transaction will also allow Indian issuers to more easily access the US markets.---O. P Bhatt, Chairman, SBI

SBI and the Banking Industry Indias banking system was very weak since independence until the nationalization of 19 major banks in 1969. The nationalization programme facilitated the Indian banking industry to achieve some remarkable progress in many respects. However, during 1970s and 1980s, the banking industry could not perform well under a highly regulated regime which suffered from lack of competition, low capital base, low productivity and high intermediation costs. Moreover, the role of technology was very minimal and the quality of service did not receive adequate attention (Bhole and Mahakud, 2009). Also, prudential norms were weak and there was no proper risk management system in place. All these resulted in poor assets quality. The banks were running either at a loss or on very low profits and consequently were unable to provide adequately for loan defaults and build their capital. As a result of all these, the reforms in banking industry had become imperative on account of facts that despite its impressive quantitative growth and achievements, the financial health, integrity, autonomy, flexibility and vibrancy deteriorated over the past many years (Bhole and Mahakud, 2009).Therefore, in order to overcome these operational inefficiencies, the government of India appointed a high level committee on financial system under the chairmanship of M. Narasimham to examine all aspects relating to the structure, organization, functions and procedures of the financial system in general. The Report of the Committee on the Financial System was submitted by the Narasimham committee to the government of India in November 1991. Throughout 1990s and 2000s several reforms were introduced in the Indian banking industry. The reforms focused on prudential regulation and supervision, reduction of SLR and CRR, deregulation of interest rates, phasing out of directed credit, introduction of modern technology and promoting competition from new players.In the light of the above discussion, the State Bank of India (SBI) is Indias oldest Bank and over the years SBI has attained the status of Indias premier bank and more importantly it is competing strongly with its peer members in the industry as depicted through exhibit 1 to exhibit 8 by the performance indicators of SBI vis--vis its peer members in Indian banking industry. In context of liberalization and increased global competition, SBI is going through a significant phase of transformation and change. Today, the two hundred year old public sector giant is stirring out of its public sector legacy and moving with great agility to give the private as well as foreign banks a run for their money.In order to have global presence and dominate the Indian banking industry, the bank is entering into many new businesses and products with strategic tie ups all over the world. Some of its new products include, pension funds, general insurance, custodial services, private equity, mobile banking, point of sale merchant acquisition, advisory services, structured products etc each one of these initiatives having a huge potential for growth. Further, SBI is marching ahead with modern banking technology and innovative new banking models to expand its national and international banking base. Also, SBI is looking to expand at the vast untapped potential in the vicinity of rural sector and proposes to cover nearly 100, 000 villages in near future.In order to provide Indias growing mid and large corporate sector with a complete array of products and services SBI is also focusing to expand its banking operations especially on whole sale banking capabilities. Today, SBI is combining its international treasury business and marching into derivative instruments and structured products. In India, SBI is one of

Raising Capital in Global Markets: A Case of SBI



the largest banker of infrastructure debt and the largest provider of commercial external borrowings. SBI is the only Indian bank to be listed in the Fortune 500 which is a list of 500 large companies compiled every year by US on the basis of the companys revenue declared. In order to improve SBI is changing its outdated front and back end processes to modern customer friendly processes. Most of its own branches as well as of its associate banks are networked with modern banking technology. This makes SBI to offer the largest banking network to the Indian banking customers. In order to train its staff on modern lines par with the new banking technology SBI has four national level Apex Training Colleges and 54 learning Centers spread across the country.In the current era of globalization and liberalization, the bank is looking at opportunities to grow in size both in India as well as across the globe. SBI currently has about 142 foreign offices as on March, 2010 across the globe in 32 countries. Forming a dreadful group in the Indian banking industry, SBI has several subsidiaries such as SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards. Today, the bank is in the process of raising capital for its domestic as well as global growth and business expansion. SBI is also in the process of consolidating its different holdings.Regulations Governing Foreign issue in IndiaAs per the guidelines of government of India and RBI, Indian companies can access capital from abroad through the following methods: (a) External Commercial Borrowings (ECB), (b) Foreign Currency Convertible Bonds (FCCBs), (c) Preference shares and (d) Foreign Currency Exchangeable Bond (FCEB). Capital from abroad can be raised under two routes, viz., (i) Automatic Route and (ii) Approval Route. Foreign capital for investment in real industrial sector, infrastructure sector and some specified service sectors come under automatic route which do not require either government or RBI approval.The eligible borrowers which come under automatic route are corporates, including those in the hospital, hotel, software sectors which are registered under the Companies Act, 1956 and Housing Finance Companies (HFCs), Infrastructure Finance Companies (IFCs), such as banks, financial institutions (FIs), and Non-Banking Financial Companies (NBFCs). Individuals, Trusts and Non-Profit making organizations are not eligible to raise capital from abroad. Units covered under Special Economic Zones (SEZ) are also permitted to raise foreign capital for their investment activities. Certain qualified, Non-Government Organizations (NGOs) engaged in micro finance business are eligible to raise capital from abroad under automatic route. The recognized lenders from which the eligible borrowers can borrow internationally include (a) international banks, (b) international capital markets, (c) multilateral financial institutions (such as IFC, ADB, CDC,) and or regional financial institutions and Government owned development financial institutions, (d) export credit agencies, (e) suppliers of equipments, (f) foreign collaborators and (g) foreign equity holders. Other than those in the hotel, hospital and software industry the maximum amount of foreign capital which can be borrowed by a corporate is US$500 million in a financial year. Industries falling in sectors such as, hotels, hospitals and software are allowed to avail foreign capital up to US$100 million during a financial year. Also, the proceeds of the foreign capital can not be used for acquisition of land in case of these industries. With regard to maturity, foreign borrowings up to US$20 million in a financial year should have minimum average maturity of three years. A minimum average maturity of five years is required for borrowing between US$20 million to US$500 million in a financial year. The

Inder Sekhar Yadav


Volume 2 Number 2 ISSN : 2229 - 6743 15

government lays ceilings on all-in-cost and reviews it from time to time (see exhibit 8).The end-use of foreign capital raised can be used in investments of new projects, modernization and expansion of existing production units in real sector as well as industrial sector including small and medium enterprises, infrastructure sector and some specified service sectors namely hospital, hotel, and software. Since a decade or so, Indian companies have gradually increased their borrowing overseas (see exhibit 9 and 10). The principal advantage of raising capital overseas is the lower interest rates as compared with the domestic interest rates which have harden due to tight monetary policy of the RBI in recent times.SBIs Overseas Bond Issue DetailsSBI requiring to raise capital internationally in the context of integrated global capital markets had many alternatives with it to consider. SBI to choose from various competing capital markets with the mix of risk and return the choice of the best alternative was difficult to make. In addition to choosing between proportion of equity and debt capital there was also the issue of which market to tap and how to enter the market. Amid market turbulence and volatility, State Bank of India in a statement on July 23, 2010, announced that it plans to issue a five-year bond with a face value of US$1 billion internationally through its London branch on July 27, 2010. In order to raise capital internationally, SBIs lead managers (Bank of America, Merrill Lynch, Citigroup, Deutsche Bank, HSBC, RBS and UBS) suggested that it had an opportunity to issue bonds denominated in US dollars in US market, a Eurobond or Euro/US dollar dual currencies bond. Further, it was indicated that after the successful issuance of the international bond it would be listed on the Singapore Stock Exchange. The offering, was rated Baa2/Stable by Moody's and BBB-/Stable by S&P. Its lead managers estimate that a US dollar bond issue in US would bear a 4.50% coupon paid semi-annually and other up-front fee totals 0.70% and the bond is expected to sell at Par Value. Alternatively, SBIs can issue a five-year Eurobond with a face value of US$1 billion with a coupon of 9.25% from the international capital market. The Eurobond issue has an up-front fee of 1.65% and the bond is expected to sell at 101% of Par Value. Also, SBI has an opportunity to raise money by issuing Euro/US dollar dual currencies bond with 8.75% coupon having an up-front fee of 1.75% where the bonds are expected to sell at 99% of Par Value. The repayment of all the bonds at maturity will be equal to the face value of the bond issued. The above mentioned Euro bond and the Euro/US dollar dual currencies bond issue details such as coupon rate, face value and up-front fee are assumed in the present case for illustrative purpose of all-in-cost.From the following international issue, SBI said that it would use the proceeds of the issue for financing and funding its foreign subsidiaries and operations. SBI also wants to use the proceeds to support Indian corporate with commercial external borrowings. More importantly, SBI with this international capital issue intends to broaden its debt investor base in global capital market and to enter and access vast and large capitalized global institutional investors in the private placement segment of the market.Foreign Exchange Risk and HedgingForeign exchange risk occurs because each economy has its own domestic currency which acts as a medium of exchange and the exchange rates between any two countries and




currencies fluctuate on day to day basis (see exhibit 11) resulting in a change in the value of the companys international transactions in terms of its domestic currency.Foreign exchange risk is the risk that the home currency value of cash flows denominated in foreign currency may change due to the variations in the foreign exchange rate. The exchange rate between a corporations home currency and the foreign currency may appreciate or depreciate by the time the corporation receives or pays the cash flows in the foreign currency exposing the corporation to foreign exchange risk. Mainly, there are three important foreign exchange risks that affect a corporations financial performance. Translation exposure of a corporation which has overseas presence is the accounting based changes in consolidated financial statements caused by exchange rate changes. Transaction exposure of a corporation occurs when exchange rate changes affect the actual cash flows between the time when an obligation is incurred and the time when it is settled. Economic exposure reflects the change in the present value of corporations futures cash flows because of the unpredicted variations in foreign currency rates.Therefore, hedging or mitigating foreign exchange risk is very important for the business corporations in order to protect them from the risk of loss. By using a well defined and pre-established foreign exposure management strategies corporations can hedge or manage foreign exchange risk. There are several financial instruments/contracts such as currency forward and futures contract, currency options and SWAP agreements available for a corporation to hedge against the foreign exchange risk. Also, one can use money market operations to hedge foreign exchange risk.Hedging the foreign exchange risk involves projecting or forecasting exchange rate volatility, assessing the possible impact of a hedging strategy, deciding on hedging the foreign exposure, selecting the appropriate financial instrument and designing a hedging strategy or structure.Because SBI is seeking to raise money from international capital market, it has to deal and manage the foreign exchange risk associated with the issuance of above mentioned issue. This is a clear case of transaction exposure because SBI has contractual obligations to make future coupon and principal payment (cash outflows) in foreign currency. As the exchange rate of Indian currency vis--vis US dollar and Euro (as of July, 2010, the monthly average exchange rate of Indian rupee vis--vis US$1 and 1 was approximately equal to Rs.46.84 and Rs.59.76 respectively) is expected to change now and when these transactions occur, so does the value of their associated non-domestic currency cash flows, leading to currency gains and losses which ultimately decides the total cash outlay that SBI has to pay in foreign currency for exchange of domestic currency. Thus, SBI has to face the transaction risk during the entire period of coupon payments and the final payment for the 5-year bond since two or more currencies are involved and there is a lag between the dates the bond contract is signed and the date of coupon and principal payment. Therefore, the foreign risk faced by SBI is that the Indian exchange rate will change and fluctuate before the transaction is completed and the currency exchange occurs (in this case Dollar and Euro), there by changing the amount of Indian currency to be paid over a span of 5 years of debt payment.The historical examination of the annual average of the exchange rate of the Indian rupee vis--vis US$ and Euro (see exhibit 12) reveals that the Indian currency had movements of both high and low. For example, the rupee appreciated to a ten-year high of US$39.29 in June 2008 where as it depreciated to a record low of US$52.06 in March 5, 2009. From 2008-09 onwards, Indian currency on year to year basis has depreciated against both US

Inder Sekhar Yadav



dollar and Euro. For example, the annual average of Indian exchange rate vis--vis US$ was Rs.40.241/1US$ in 2007-08 which depreciated to Rs.45.917/1US$ and Rs.47.417/1US$ in 2008-09 and 2009-10 respectively. Similarly, the annual average of Indian exchange rate vis--vis Euro was Rs. 56.99/1 in 2007-08 which depreciated to Rs. 65.135/1 and Rs.67.084/1 in 2008-09 and 2009-10 respectively. On July 27, 2010, the date of global bond issue by the SBI, the Indian exchange rate vis--vis US$ and Euro was Rs.46.658/1US$ and Rs.60.809/1 respectively. Because of global recession and uncertainty of crude oil prices there is no strong reason to believe that the value of Indian currency against US$ and Euro will increase or appreciate. Since exchange rates are notoriously difficult to predict, SBI needs to hedge the possible transaction risk associated with the future coupon and principal payments due in next 5 year form the date of issue that is from July 27, 2010 to July 26, 2015. Now the question before the management is: What hedging strategy should the bank adopt to hedge the foreign exchange risk involved?In light of above discussion, with respect to issuance of an international bond and the possible transaction exposure of coupon and principal payment, the Chairman of SBI has to take two important decisions. First, it has to raise the required capital at the least expensive issue among the various international bond issue options available to it. Second, the bank has to decide and design a hedging strategy to protect from the possible foreign exchange loss. References1. Annual Reports, SBI (Various Issues)2. Bhole, L. M and Mahakud, J. (2009), Financial Institutions and Markets: Structure,

Growth and Innovations, Tata McGraw-Hill Education Private Limited, Noida3. Indian Rupee Exchange Rate, Economy Watch, retrieved on 14th December 2010,

http://www.economywatch.com/exchange-rate/rupee.html4. SBI to go overseas with $1-bn bond issue, The Economic Times, retrieved on 8th

October 2010, from http://economictimes.indiantimes.com/markets/bond/SBI-to-go-overseas-with-1-bn-bond-issue/articleshow/5082430.cms

5. SBI raises $1 b through overseas bonds issues, The Hindu Business Line, retrieved on 8th October 2010, from stories/

6. SBI raises $1 billion through 5-year global bonds, The Economic Times, retrieved on 8th Octobe 2010 from http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/SBI-raises-1-billion-through-5-year-global-bonds/articleshow/6207808.cms

7. SBI raises USD 1 billion through bonds in US, Deccan Chronical, retrieved on 8th October 2010, from http://www.deccanchronicle.com/business/sbi-raises-usd-1-billion-through-bonds-us-875

8. SBI raises $1 bn via US bonds issue The Indian Express, retrieved on 8th October 2010, from http://www.indianexpress.com/news/sbi-raises-1-bn-via-us-bonds-issue/650715/

9. SBI raises USD 1 bn via bonds issue from US market, Deccan Herald, retrieved on 8th October 2010, from http://www.deccanherald.com/content/83274/sbi-raises-usd-1-bn.html

10. SBI raises $1 billion in bonds from US, The Indian Express, retrieved o 8th October 2010, from http://www.indianexpress.com/news/sbi-raises-1-billion-in-bonds-from-us/650925/

11. SBI raises USD 1 bn through bonds in US, Trading Markets, retrieved on 8th October 2010, from http://www.tradingmarkets.com/news/stock-alert/bkiaf_sbi-

http://www.thehindubusinessline.com/2010/07/24/




raises-usd-1-bn-through-bonds-in-us-1063335.html12. Key Business Statistics, available at http://www.iba.org.in 13. Master Circular No. 8 /2010-11, RBI/2010-11/8, July 01, 2010, RBI

Inder Sekhar Yadav



SBITotal Associates of SBI

2009 2010 2011Interest Income Other Income Total Income

2009 2010 2011 2009 2010 2011

Total Nationalised BanksPrivate Sectore BanksForeign Banks

63788 70994 81394 12691 14968 15825 76479 85962 9721925407 26960 28434 3382 3425 3415 28789 30385 31849172347 192768 237889 24917 28198 26542 197264 220965 26443185071 82807 96827 17860 20422 20726 102932 103229 11755330322 23392 28530 14894 9951 10973 45216 36343 39503

EXHIBITSExhibit 1 : Commercial Banks in India : Deposits/Investments/Advances as onMarch 31 (Rs Crore)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and KeyBusiness Statistics, IBAExhibit 2 : Commercial Banks in India : Assets/Gross and Net Non Performing Assets as on March 31 (Rs Crore)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key Business Statistics, IBAExhibit 3: Commercial Banks in India : Income as on March 31 (Rs Crore)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key Business Statistics, IBA





2009 2010 2011742073 804116 933933

Deposits Investments Advances

275954 295785 295601 542503 631914 756719264968 303969 311930 81670 91688 90096 196947 226023 237434

2009 2010 2011 2009 2010 2011

Total Nationalised Banks 1993305 2416267 2946636 605333 756760 877326 14168811704880 2154380Private Sectore Banks 736378 822801 1002759 306531 354117 422020 575328 632441 797934Foreign Banks 214076 232099 240692 130354 159291 165499 165385 163260 195538


2009 2010 2011Total Assets Gross NPA Net NPA

2009 2010 2011 2009 2010 2011


964432 1053414 1223736 15714 19535 25326 9677 10870 12347315623 358886 373948 2733 3998 5066 1192 1960 24442313299 27950013442756 25108 34265 40304 9337 15407 196051027756 11507361398176 16927 17638 18243 7412 6506 4574445129 435636 492794 6445 7134 5071 2997 2976 1283

Inder Sekhar Yadav


Exhibit 4: Commercial Banks in India : Expenditure as on March 31 (Rs Crore)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key Business Statistics, IBAExhibit 5: Commercial Banks in India : Profit as on March 31 (Rs Crore)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and KeyBusiness Statistics, IBAExhibit 6: Commercial Banks in India : Credit and Investment Deposit Ratio as onMarch 31 (percent)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and KeyBusiness Statistics, IBA



Interest Expended Operating Expenses Total Expenditure


200942915188551213715695712819

20104732218906132706512068938

201148868181501498635711510622

2009156494439340782177912298

2010203194964389612285111111

2011230156130515652760612581

200958564232941554497873725118

2010 201167641 7188323870 24280171667 20142874057 8472220049 23203


2009 2010 2011Operating Profit Provisions andContingencies Net Profit

2009 2010 2011 2009 2010 2011


17915 18321 25336 8794 9155 17071 9121 9166 82655495 6515 7569 2721 3248 3970 2774 3267 359841816 49298 63003 20198 23506 31616 21618 25793 3138824195 29173 32831 13327 16061 15119 10868 13111 1771220099 16294 16299 12589 11560 8589 7510 4734 7710


2009 2010 2011Credit Deposit Ratio Investment DepositRatio

Spread as %of Assets

2009 2010 2011 2009 2010 2011


73.11 78.58 81.03 37.19 36.78 31.65 2.16 2.25 2.6674.33 74.36 76.12 30.82 30.16 28.88 2.08 2.24 2.7571.08 70.56 73.11 30.37 31.32 29.77 2.2 2.15 2.5678.13 76.86 79.57 41.63 43.04 42.09 2.74 2.75 2.8477.25 70.34 81.24 60.89 68.63 68.76 3.93 4.01 3.63



Exhibit 7: Commercial Banks in India : Credit and Investment Deposit Ratio as onMarch 31 (percent)

Source: Report on Trend and Progress of Banking in India, RBI (Various Issues) and Key Business Statistics, IBAExhibit 8: Average maturity and all-in-cost ceilings

Note: All-in-cost Ceilings over 6 month LIBOR is for the respective currency of borrowing or applicable benchmark (as on July, 2010), Source: Master Circular No. 8 /2010-11, RBI/2010-11/8, July 01, 2010, RBI.Exhibit 9: Data on External Commercial Borrowing (ECB) and Foreign Currency Convertible Bonds (FCCB) of Indian Companies

Source: Financial Express, Oct, 23, 2010 and Database on Indian Economy, RBI


Return of Assets Capital Adeqacy - Basel ICapital Adeqacy -

Basel II2009 2010 2011

SBITotal Associates of SBI Total Nationalised BanksPrivate Sectore BanksForeign Banks

26.72 30.04 32.02 1.04 0.88 0.71 12.3 12 10.69 14.25 13.39 11.9819.06 20.8 25.25 0.96 1.00 1.04 11.92 12.1 12.2 13.19 13.53 13.1321.92 22.7 25.6 1.00 1.00 0.99 12.1 12.2 12.07 13.22 13.2 13.527.66 30.86 32.58 1.1 0.94 1.09 15 16.7 15.1 15.2 17.4 16.548.96 55.42 54.22 1.76 0.22 1.88 15 18.1 17.7 14.3 17.3 17

Opr.Exp as % toTotal Expenses

2009 2010 20112009 2010 20112009 2010 2011

Average Maturity Period All-in-cost Ceilings over 6 month LIBORThree years and up to five years

More than five years300 basis points500 basis points

Amount US$(bn)Month Month Amount US$(bn)Apr-08 1.16 Jul-09 2.01May-08 1.27 Aug-09 1.09Jun-08 1.62 Sep-09 1.51Jul-08 2.47 Oct-09 2.58Aug-08 1.6 Nov-09 2.35Sep-08 2.83 Dec-09 1.57Oct-08 1.13 Jan-10 1.32Nov-08 1.7 Feb-10 2.19Dec-08 1.67 Mar-10 4.32Jan-09 1.34 Apr-10 2.82Feb-09 0.45 May-10 0.696Mar-09 1.11 Jun-10 1.79Apr-09 0.298 Jul-10 1.64May-09 0.494 Aug-10 1.09Jun-09 1.92 Sep-10 3.09

Exhibit 10: ECB and FCCB of Indian Companies

Source: Compiled based on data from Exhibit 9Exhibit 11: Daily Exchange Rate of Indian rupee vis--vis US dollar and Euro

Source: Compiled based on the data collected from Handbook of Statistics on Indian Economy, RBI, 2010

23Volume 2 Number 2 ISSN : 2229 - 6743


Exhibit 12: Annual Average Exchange Rate of Indian rupee vis--vis US dollar and Euro

Source: Compiled based on the data collected from Handbook of Statistics on Indian Economy, RBI, 2010

Author Information1 Assistant Professor, Institute of Public Enterprise,

Osmania University Campus, Hyderabad, Andhra Pradesh, India Email Id: [email protected]

24 Volume 2 Number 2 ISSN : 2229 - 6743



TRIUMPH TUTORIALS SEARCH OF THETRIUMPHANT STRATEGY

1 2 NISARG JOSHI , NARAYAN BASER ,3 4HARISHCHANDRA SINGH RATHOD & APURV RAVAL

ABSTRACTThis case narrates the real life story of a business venture situated in the city of Ahmedabad. The case focuses on the strategy adopted by the managers of the institute & its repercussions then after. The case is meant for the marketing class of post graduate students with emphasis on Market Segmentation and Positioning strategy. It also discusses the implications of business diversification. The case also offers ample scope of analyzing the leadership qualities of the top management. The beneficiaries will be all such newly start up organizations which come across such typical situations of targeting especially in the subcontinent. The case is based on real life experience. However, it has been presented in a disguised manner so as to protect the identity of the organization. Keywords: Competitive Examinations, Diversification, Segmentation and Positioning, Market Strategy, Service Quality


IntroductionWhat can be the reason behind this worrying state of affairs? Palashkumar murmurs looking at the financial report submitted by Shikhar Sen, the business head of newly expanded venture TRIUMPH TUTORIALS - a Coaching Institute for IAS/CAT/Banking and other competitive Examinations. The enrolments have taken a southward movement in the third year by twenty one percentage points compared to last year. Is there enough market for this? he further contemplates studying the poor enrolments of the last year. It has turned into disastrous venture, which he once considered to be a revenue spinner for him. The mystery further deepens when he learns about the proliferate business of other players in the similar businesses. He further gets astonished when the business consultant hired for investigating the causes of the dire state of the business puts to his notice the fabulous performance of less promising institutes, which have mushroomed since the last advertisement of State Public Service Commission for Class-I & II cadre. The InceptionPalashkumar, a successful businessman, has experienced many of such situations and dealt with them with professional knack. Palashkumar is a businessman from a mediocre family, and has become a well-to-do businessman with his labor and contemporary management style. He has an established business of Gold Jewellery at the age of 65 years and his

25


company, TRIUMPH JEWELERS, ranks amongst the top five Jewelers of the country. The company is Head Quartered at Rajkot, a City of the Gujarat State. They are the sole provider of the Gold Bars to most of the Jewelers of the State. TRIUMPH JEWELERS, once a small Jewellery Showroom has now become the most renowned name in the field of creative crafting, carving, and designing of Gold Jewellery. The growth of TRIUMPH JEWELERS can mainly be attributed to the visionary approach of its founder Palashkumar towards the transformation of a small Jewellery shop to a famous gold Jewellery designing firm. The GrowthPalashkumar adopted the strategy of minimum margin and higher turnover initially to capture local market. He focused on purity of Jewellery and quality service. In those days (in 1980s), it was common to have the impure Jewellery being sold in the market to make money within short time. His attitude with customers made him win loyalty. This resulted into increased customer base in Rajkot city. Then onwards, he did not look back. He started advertising in radio and local news papers also. This made TRIUMPH JEWELERS, the most sought-after brand in the State of Gujarat. He did not limit his horizons and targeted the market outside the state too. To be the most favoured brand, the thrust was given on customer services and creative designs. Keeping this in mind, he made sure that his jewelry should have the design which no one else in the market could offer. For this he hired the services of the well qualified designers from the Institute of Jewellery Designing and from NID. He exhibited his jewelry in the National Jewelry Design Expo at Mumbai organized in hotel Ashoka. He contracted with one of the Bollywoods upcoming actresses in 1998, who was a established star in the film industry by then. His decision to have her face in Exhibitions and TVs had helped the brand to increase brand awareness and won him a great applause for his designer jewelry and it soon became an established Brand in the industry throughout the country. The DiversificationFor business reasons, Palashkumar maintained good relationship with many of the bank officials, which proved handy in short term financial crisis. He was having a good rapport with, Shikhar Sen who was a senior manager of a nationalized Bank. Shikhar Sen made a proposal of a joint venture for the Coaching of IAS/CAT/Banking and other competitive Examinations. Palashkumar was hesitant initially, as it would be totally dark zone for him. Moreover, an idea of going for unrelated diversification did not encourage him. He asked for some time to think over Shikhars proposal. He discussed about this new business idea with his two sons. Both of them objected it strongly and instead proposed to venture into the field of imparting of jewellery design training, which would rather make more sense. They explained to Palashkumar about the worthiness of related diversification wherein they had enough knowledge and this backward integration could ensure the continuous flow of skilled jewelry designers for their own organization. However, Palashkumar opined that even at that juncture they were getting sufficient number of quality jewelry designers and expressed his confidence on Shikhar Sens knowledge in the field of competitive examinations. Another reason for going with Shikhars idea was his fascination for coveted job since his young days and deep rooted desire to serve the society through the establishment of an educational institute. He offered Shikhar Sen a Directors post with the profit-sharing option and asked to shoulder all the responsibility pertaining to the new venture. As Palashkumar was quite impressed with Shikhar Sens approach with the customers, he had given nod to invest the funding for the same.

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The Inception of TRIUMPH TUTORIALSShikhar Sen conceptulised the idea and named the venture TRIUMPH TUTORIALS. It was established in the metro city of Ahmedabad in the state of Gujarat. It gave the hope to Palashkumar to improve the percentage of students clearing elite competitive examination from the state. This reminded him of the days of his schooling when it was a luxury to have a school above primary standard in his village. He himself could not become a government official due to the unavailability of such a dedicated institute in the state. Moreover, the drift is towards starting ones own business amongst the youngsters in the state. So, TRIUMPH TUTORIALS could be an answer to all the problems related to elite competitive examinations like IAS (Indian Administrative Service), CAT (Common Admission Test), Banking, and others. With this motive in mind, TRIUMPH TUTORIALS was established in the Ashram Road area of Ahmedabad City. Ahmedabad appeared to be the best choice for Shikhar Sen and Palashkumar, as Ahmedabad is the only city in Gujarat State where most of the young aspirants migrate from distance places with the dreams of brighter future in their eyes. They zeroed on Ashram Road area as it is developed area of the Western Ahmedabad and due to its proximity with the Eastern Ahmedabad (popularly known as Old Ahmedabad). Moreover, it has the advantage of higher frequency of bus service for internal as well as for those who commute from Central and North Gujarat. The city has the facility of boarding and lodging for the students coming from Saurashtra and Kutch Region of Gujarat State, as there are many private hostels in the surrounding areas. The AmbienceTRIUMPH TUTORIALS was set up on the first floor of the well-known Shopping Complex of Ashram Road with state of the art architecture. They emphasized on providing appropriate environment to the students as well as to the faculty members. The best of the citys architects services were hired to have the world-class infrastructure. The premise was having the built up area of 5000 square meter and it was made centrally air conditioned. It was uncommon even to have the air conditioned classes at other institutes. The air cutter system, CC Camera and LCD Projectors were installed in the institute. They took due care to create infrastructure and ambience as its USP (Unique Selling Preposition). The slow soothing music was continuously played keeping in mind the positive effects of music on the students mind. It resulted into heavy investment and perhaps none other than TRIUMPH TUTORIALS could have incurred this huge sum of money in the same industry. The physical evidence and servicescape was no less than a three star hotel in terms of facilities provided. Marching AheadShikhar Sen accepted the offer of Palashkumar to become a Director, but as a part of his career strategy postponed the idea of resigning from the bank. It made Palashkumar disturbed as he had a greater concern about his investment and philanthropic motive of delivering quality education to the youth of the society. Shikhar Sen, not having enough knowledge about UPSC and CAT Entrance Examinations except the banking, searched for a guy who was currently preparing for the above examination. It was not easy to have such a person who could have the multi faceted personality. He searched for an IAS aspirant who could be a jack of all. He wanted someone who could search for the faculties for class room teaching and prepare the study material for these competitive examinations. Fortunately, he found Tirth, an IAS aspirant himself, of 24 years of age having a post graduation degree in Management with first class from a reputed institute. He thought that Tirth could be an asset to TRIUMPH TUTORIALS. Tirth had undergone one year training for UPSC at SPIPA

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(Sardar Patel Institute of Public Administration, a Govt. of Gujarat run IAS Training Institute at Ahmedabad) after completion of his MBA. Tirth was able to design the study material in the subject of Public Administration and some areas of General Studies as well as Reasoning Abilities Section of MBA and Banking Entrance Examinations. He was successful to avail the services of some of the most successful tutors in the field of UPSC and CAT Entrance Examinations as full time faculties. The pay-package offered by him made many prominent faculty members (of different specializations viz. History, Political Science, Public Administration, etc.) tempted to relocate themselves in Ahmedabad. The appointment of Tirth relaxed Shikhar Sen of lot of strategic issues related to TRIUMPH TUTORIALS. He focused on hiring the best talent from throughout the country. He betted on the quality study material for which he contracted with the most knowledgeable faculty. He understood the significance of human resources in a true sense and opened his money bags for the same. He wanted to beat Bright Tutorials, the market leader in the country in the postal coaching for UPSC and IIT Entrance Examinations.The TeamShikhars team comprised of Tirth performing multiple roles of a faculty coordinator, an HR Manager, and of a faculty. Shikhar Sen appointed two marketing executives on the advice of Tirth for educational advertising. Tirth believed that the college-going students read news papers and are competent in analyzing any national or international event. Moreover, a focused approach should be inculcated amongst the college students. He reminded Shikhar of long gestation period in this industry, as they had to work from the scratch. Tirth appointed eight full-time faculty members from different areas and contracted with other six faculty members for study material preparation. He appointed four typists to assist the faculty members. Shikhar Sens StrategyShikhar Sen was very ambitious and decided to target the elite competitive examinations like UPSC (for IAS, IPS, IFS), CAT, and IIT in the beginning. He wanted to compete with the established players in the respective fields. He supported his decision in front of Tirth by the logic that he had the best quality tutors and the world class infrastructure. However, Tirth was not fully convinced with this strategy of targeting the upper segment (in terms of the stature of the competitive examinations, and not in terms of the target audience or pricing), as it meant battling with Bright Tutorials in IAS and IIT (Indian Institute of Technology) postal coaching, directly battling with established brand like MASTERS IAS, AIMs Coaching, etc. and many other Delhi-based coaching institutes for class room coaching in the national market and with SPIPA & SPSS (Sardar Patel Seva Samaj) in the local market. Tirth explained that the aspirants for such elite examinations would never rely on a new entrant like us, as it is a matter of their career and long cherished dream. He even resisted the strategy of offering CAT Coaching on the same grounds. He was of the opinion of going only for GCET (Gujarat Common Entrance Test for MBA and MCA), as Gujaratis (People of Gujarat) are gifted with the business acumen and are highly successful in business worldwide. This made him confident of getting enough students. The ResponseA warm response was expected considering the most hyped inaugural ceremony which showed off the strengths of TRIUMPH TUTORIALS in terms of faculty members and infrastructural facilities. However, to their dismay the enrolments were not as expected and even after three years the brand awareness was very low. The students community could


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not dare to experiment even though the efforts from every front i.e. faculty and marketing were tremendous. The aspirants rather preferred to be enrolled in the established institutes like SPIPA, SPSS for UPSC (Union Public Service Commission) and Topers Institute, Intellect Learning Center, Excellent Career Academy, Lamppost for CAT coaching. Others even migrated to Delhi for the same.The MeetingIn midst of such condition, a meeting was summoned by Palashkumar to determine the future course of action. It steamed with hot exchange of thoughts between Shikhar Sen and Tirth. Other faculty members and Marketing Executives also put up their view point about the situation.Palashkumar: It is unfortunate to have such a poor performance after the three years of inception. He has just tabled the comparative income statement (Exhibit 1) and balance sheet (Exhibit 2) in the meeting towards his team with very dissatisfactory gestures. He also handed over Exhibit 3 showing different financial ratios of last three years. He showed his concern about the declining profit margin and growth in income.We have to work on the improvement of Service Quality, Shikhar Sen added.Sir, our efforts are dedicated to offer them the best quality: a faculty member replied.There must be something wrong with the quality; otherwise the students would have definitely queued to get into our institute, Shikhar Sen responded.Sir, the students are not ready to hand over their fate in our hands. They felt trusting on the new institute meant jeopardizing the career. Marketing Executive opined showing the enrollment status across different programmes (Exhibit 4).It is not only about the Service Quality, it has a lot to do with the brand image of our institute. We have been thrown into the ocean to fight with the giants like. (He was hesitant in naming the competitors) said another Marketing Executive.It is all damn excuses of non-performers like you. One can be convinced by showing the tangibles and the reputed names of our faculty members. Shikhar Sen said angrily.Tirth: Sir, the problem lies with the strategy, not with the quality of coaching serviceShikhar Sen: What do you mean?It is as simple as you selecting the most renowned school for your kid in the first standard. You could not risk your kids career. Tirth replied calmly.But, every organization has the starting point. One has to fight hard to get noticed. Shikhar Sen put the point with confidence.You are right, sir. One has to start at some point but one can start from the grass root and obviously not with the sky scrapers as you intended. Tirth explained.To aim high is not crime, dear Shikhar replied.



Sir, with due respect to your tall aims, one has to go gradually for expansion particularly in the industry like this Tirth further elaborated.Dont you have the example of the big successes even in the service industry? Shikhar questioned doubting the logic of Tirth.It is always there, but academic service is bit different, wherein your customers decisions have a much greater impact to their lives compared to other services like restaurant, tourism, or housekeeping. Tirth explained.Then, what is the solution? Shikhar asked with confused state of mind.Sir, better we would get ourselves firmly placed in the local market first. Tirth Said.But, the response for the regular classes (located at Ahmedabad only) was not much different. Moreover, the major chunk of revenue had been targeted from the regular classes only and the postal course was the secondary business. Shikhar asked.Sir that is what I mean to convey. The local market for UPSC has not much potential and for CAT coaching, the preference is towards the more renowned institutes. The serious candidates had moved towards Delhi for better coaching. Tirth Said.Therefore, at first we should start with the GPSC (Gujarat Public Service Commission) and GCET (Gujarat Common Entrance Test for MBA and MCA) competitive examinations. GPSCs advertisement for Class-I & II officers had been announced last in 2006 and GCET has been conducted every year. Approximately 150000 aspirants appear for each. Therefore the problem of not enough students would not arise. Once we become an established name for these examinations, we could move upward and target the elite examinations like UPSC, or IIM. Tirth explained.We offered those even, but to our surprise we could not make our ground in GPSC and GCET examinations. Shikhar questioned.Sir, it was due to Success Mantra and Navyug foundations competition. Marketing Executive replied.It might be because we got more expanded than our resources allowed us. Tirth opined.Now, what is the way out? Shikhar questioned.Sir, we will have to start a fresh. Let us focus on a few courses and that too at the lower level. We can go for gradual expansion. Tirth proposed.Where is the Triumphant Strategy?Tirth is quite clear about how Shikhar Sen should pursue. He recommended targeting the GPSC, GCET, Banking examinations initially, as there were a huge number of aspirants for these examinations. Targeting the UPSC or IIM (Indian Institute of Management) aspirant could be done, once we could be an established brand in the students community. He was confident about his team and said once we deliver the successful candidates, they would spread the positive word-of-mouth. The concern here is to attract the customers to consume our services. As there could not be a trial purchase, the first time purchase should be given greater emphasis. Once some use it, others are bound to follow.


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However, Shikhar Sen blamed the marketing executives for the poor show. He feared about dilution of the brand image by opting for the state-level examinations.Shikhar Sen is not ready to wind up his venture just because of the fear of further loss. Mr. Palashkumar leaves the report and heads towards his residence with thoughts of continuing the TRIUMPH TUTORIALS with the same strategy or not.



EXHIBITSExhibit 1: Income StatementTriumph Tutorials

Source: Prepared by the authors based on inputs from Institute

INCOME 2007-08 2008-09 2010-11Operating Income Students' Fees - Regular 2,615,000 3,265,000 2,550,000Students' Fees - Fast track 969,000 997,000 815,000Students' Fees - Distance 392,000 327,000 252,500Total Operating Income

Non-Operating Income Interest Income 24,000 49,050 60,000 Career consultancy 25,000 28,000 30,000 Other 11,000 13,000 9,000 Total Non-Operating Income 60,000 90,050 99,000 Total INCOME 4036000 4679050 3716500

EXPENSES 2007-08 2008-09 2009-10Operating Expenses Accounting and Legal 3,976 4,589 3,618 Advertising and Publicity 89,460 103,253 81,394 Depreciation 750,000 750,000 750,000 Dues and Subscriptions 119,280 137,670 108,525 Faculty Development 119,280 183,560 180,875 Insurance 75,000 67,500 60,000 Interest Expense on short term loan 84,000 - 36,000 Interest Expense on long term debt 220,000 220,000 220,000 Maintenance and Repairs 37,500 33,750 30,000 Office Supplies 79,520 183,560 144,700 Postage and stamp 79,520 91,780 72,350 Salaries to Teaching staff 795,200 1,606,150 1,447,000 Salaries to Non-teaching staff 318,080 367,120 289,400 Telephone and Internet 99,400 114,725 90,438 Web Hosting and Domains 357,840 413,010 325,575 Other 39,760 91,780

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