Jack Trout and Vikram Pandit may not have a great deal in common but they enjoy the felicity of appearing on the same page of Tuesday's edition of Business Standard and for roughly the same reason. Mr Trout, the guru who gave the world of marketing the terms "positioning" and "differentiation", was being hired by SKS Microfinance, the controversy-ridden, listed micro-lending institution, for a rebranding and repositioning exercise. And Mr Pandit, the former Citibank CEO who took over at the height of the subprime crisis and was eased out in 2012, has been appointed to the Reserve Bank of India's (RBI's) advisory panel on financial inclusion.
So, two stalwarts of the world of multinational marketing and high finance will be proffering advice on an activity that is about as bottom-of-the-pyramid as you can get in the world of business. Nothing wrong with that, but it is worth wondering just how useful they will be to the institutions they are advising. There is no evidence that either of them has any experience in businesses of this nature - in fact, quite the opposite.
Consider Jack Trout first. Apart from his many formidable books on marketing (he probably comes second to Philip Kotler in the Global Marketing Guru pantheon), he runs a consultancy called Trout and Partners, which boasts A-list clients. In India, this includes Bajaj Auto and Hindustan Unilever, among others. The most out-of-the-box client here is RmKV, a Tamil Nadu-based retailer and manufacturer of silk saris. But there's no one resembling a "grassroots" business like microfinance.
Should this matter? After all, firms can and do benefit from the kind of creative "lateral thinking" (to use the term coined by another business guru, Edward de Bono) that experienced, creative consultants can bring to the table. The problem here is context. Management consultants, whether they are accredited gurus or not, gather their ideas through a combination of academic study and experience gained from working with clients, knowledge that they then distil and purvey to other clients. That is the reason good B-schools encourage their professors to consult with companies, since they offer the "live" case studies that burnish their credentials. But this also means that they mostly end up working within familiar paradigms.
SKS, however, faces a set of issues that have less to do with conventional "marketing" and "positioning" deficits and more to do with politics and, in a sense, the perils of the bottom-of-the-pyramid business model that the late C K Prahalad expounded.
Till 2010, microfinance was a booming business, with Andhra Pradesh as its epicentre. Here SKS' controversial founder Vikram Akula's McDonald's-style lending model attracted both profit and funding from venture capitalists. Together with other stalwarts like BASIX and Bandhan, microfinance earned a solid reputation as a genuinely financially inclusive model (though its poverty-alleviating powers may be hyped). Still, they were easy targets for opponents. One vulnerability was the seemingly exorbitant rates they charged at 17 per cent or more. These were the result of high delivery costs (delivering loans to remote villages) and, for respectable institutions, were significantly lower than what local moneylenders charged. At any rate, little "marketing" was required among the poor, for whom access to a relatively cheap and non-venal source of funding was invaluable.
Inevitably, perhaps, the success of the micro-lending business created an uneasy relationship with the state administration since it appeared to provide a competing poverty alleviation model. Even so, the business could well have continued ad infinitum had its high profitability not attracted fly-by-night operators whose practices were hard to distinguish from those of moneylenders.
SKS' successful IPO of 2010 tipped the balance. It turned many SKS employees holding employee stock ownership plans, or ESOPs, into crorepatis, and highlighted the raw money-making potential of the business (and the infighting in SKS' top management is purely a result of this). As the cohorts of shady operators and their strong-arm recovery tactics grew, the Andhra government cracked down, introducing regulations that were impossible to follow.
But microfinance per se did not lose its credibility. Reputed micro-lenders struggled for two years to reorient their businesses to other states and, thanks to some reasonably sensible central bank regulation, have begun to make a shaky recovery. So, at whom will the SKS repositioning exercise be aimed? The poor? The RBI? Neither of them need it. Lenders? Shareholders? Maybe, but only a stable management can help there.
Likewise, the utility of Mr Pandit's advice on financial inclusion is open to question. His work experience has been solely in the realm of the highest of high finance - Morgan Stanley, a hedge fund called Old Lane and then Citibank. Now, Citi isn't exactly noted for any financially inclusive initiatives or even low-cost operations, especially in India. It is a bank unabashedly for the rich (it recently raised the minimum balance on its non-frills accounts to Rs 25,000).
Of course, SKS and the RBI are well within their rights to take advice from whoever they choose. But the choice of consultants in relation to the businesses in question makes you wonder whether there's a real talent shortage in India or whether the foreign credentials of the advisors are an end in themselves.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
