Wednesday, February 28, 2007

The $30 motel room puzzle

Three travelers came to a motel and decide to share one room. The clerk registered them for $30. Each of the travelers pitched in $10. After a bit, the clerk realized that the special rate for that day was $25, so he gave the bellhop $5 and told him to take it to the travelers. On his way to the room, the bellhop reasoned that he couldn't split $5 three ways, so he'd just return $3 to the travelers and keep the other $2.

Therefore, each of the travelers wound up paying $9 for his room. Since 9 X 3 is 27, and the bellhop kept $2, what happened to the other dollar (27 + 2 = 29)?

You may or may not have heard this puzzle before. It is an interesting one, in the way the question is posed.

A simple cash flow and balance statement will throw a lot of light on the transactions.

Travelers ______Clerk ______Bellhop
-10x3 = -30 _____+30 ________0
-30 ___________+25 +5 ______0
-30 ___________+25 ________+5
-30 ___________+25 ________+3+2
-30+3=-27______+25 ________+3+2-3=+2

Final transaction:
-9x3=-27 _______+25 ________+2

Notice that each line balances itself. The final result is that the travelers paid $27, and the clerk kept $25 and the bellhop $2. So, everything balances.

What throws people off is the reference to the original $30 that everybody started off with.

Putting the transaction down on paper as a cash flow statement makes things a lot more clear.

Anyway, this is the way I looked at it. Let me know if you have any other ways of analyzing it.

Tuesday, February 27, 2007

Lifetime money back guarantee

A consumer walks into a store, purchases a digital still camera, walks out of the store. After two years of heavy use, the camera fails. Consumer walks back into the store and returns the camera stating that the camera doesn't meet his demand. The store gives money back to the consumer without asking a question.
The store is offering lifetime money back guarantee, no questions asked.

This is what Costco used to be. Today, they announced a change in their return policy citing losses due to abuse by customers.

I was not even aware of this return policy of Costco. I heard about this last month when somebody started gloating about how he returned his camera after two years of use. I was appalled by the fact that someone could even think of doing this. I was always under the impression that Costco had a 30 day money back guarantee.

At first, I was shocked to hear this. But, this got me thinking.
Why would a company offer such a return policy?
What makes a sensible return policy?
Should stores even have a return policy?

One thing we need to realize is that stores in most countries do not even offer a money back guarantee. It is only in some developed countries that we see such offers. This is mainly to spur impulse buying. You step into the store and you see a stunning boombox on the display shelf. Remember, you didn't walk into the store to buy a boombox. You wanted to buy milk. But, you fall in love with this boombox and think "If I decide that I shouldn't have bought it (for whatever reason), I can return it within 30 days", and you buy it on the spot (thanks to credit cards)! You take it home, set it up and after 20 days of use, you are used to the boombox (even if you didn't like it at first) and decide to keep it. Who wants to locate the receipt, and pack the thing into the box, and haul it back all the way to the store, and give an explanation to the store clerk to return it?.

That is exactly what the seller intended!

So, the 30 day guarantee works for the seller. And, in some cases allow the buyer too (the DVD player you bought fails to play VCDs, and you take it back after a few days). I can live with this.

Now, let us look at warranties.

Notice the bathtub curve above. The curve represents the failure rate of products over time. Statistically, products have a high failure rate early in their life (also called 'infant mortality' period), and then the rate falls and stays flat for most of the product's life. At the end of its life, the failure rate increases again due to ageing and failure of the components.

Initially manufacturers started running their products until the infant mortality period passed, and then the product was sold. A motor used to be run in a simulated environment until it passes this period. If any motor fails, it would be fixed and run again. So, the manufacturer was taking the burden of clearing this first phase.

Then, somebody had a bright idea and decided that instead of the manufacturer running the product through its IM phase, why not ask the customers to use it and if the product fails during this phase, gladly fix it for the customer.

Thus, warranties were born.

You take the risk for the manufacturer, and the manufacturer gives you an incentive (fixing free of charge) for sharing the risk. The bathtub curve varies for every product. Thus, one product comes with a 1 year warranty while another could be offered a 2 year warranty.

Where does Costco get its unlimited return policy? They initially came up with the idea to entice customers to buy from them. This worked real well. People bought from Costco since it offered an extra sense of security. What if my DVD player breaks down on day 32 or day 366? I will have to struggle with the manufacturer and get it fixed. But, with the Costco policy, I can just return it and get my money back. Awesome.

This works only if all the customers are honest. Looks like that has not been so. Especially with electronics, which become obsolete the moment you bring it home and take it out of its box. In a way, Costco asked for it when it announced its 'no questions asked' return policy.

I even heard stories of how some people returned empty TV dinner boxes stating that they didn't like the taste. How disgusting. Consumers need to understand how businesses work and start taking responsibility for their decisions, and understand the risks that come with buying a product. Understand that every product has a definite life. The TV that you buy today is not going to work for ever. Maybe, manufacturers should start printing an expected life for every product, like they do for some electric bulbs.

So, is this move going to hurt Costco?

I don't think so. I, for one, never went to Costco because of their return policy (I didn't even know of it until recently). Remember that Costco still stands apart from the competitors by offering 60 or 90 day money back guarantee, and a 2 year extended warranty for free. That is a great deal. People who used to misuse the policy may stop doing so. So, Costco wins in this situation. People who relied on the added security may think twice, but Costco needs to market their additional warranty in order to lure this crowd. Others who didn't care for the return policy, will continue to not care and continue to shop at Costco.

So, all in all, Costco wins with this move.

Thursday, February 22, 2007

Learning from the West

During my recent visit to Bangalore, I noticed a strange behavior. I saw trash and filth all over sidewalks, roads, and public places. People weren't thinking twice before discarding an empty coke can or spitting a piece of gum onto the sidewalk. It was not their problem, but the city's, to keep the roads and sidewalks clean. And, 'everyone is doing it, so why shouldn't I' was the attitude.

The same person enters one of the Westernized malls and suddenly his behavior changes. All the malls in Bangalore are squeaky clean (even though they are over crowded). You cannot find a piece of trash anywhere but inside the trash cans. I wondered what caused this sudden change in behavior. The most unfortunate part was that the behavior change was only temporary, and vanished as soon as the person left the mall premises.

Was it the cleanliness to start off with? Not really. Any new public place will start out clean and slowly degrade. But, the malls were different. Even two year old malls were shiny and clean.

Was it the cleaning staff at these malls? No. I did not notice anyone following people around and cleaning after them.

I could not put my finger on this strange behavior ....

Among the many things that I noticed when I first set foot in this country was the fact that people understand their civic duties and their rights. They understand how the cities function. I remember naively telling my professor that we had public hospitals in India that are free to everyone. He immediately said that it is not free. It is paid for by the tax payers. If only people realize this fact, they would demand better care from the public hospitals instead of flocking into private facilities and paying big bucks.

In another instance, I noticed the school staff wearing black ribbons as a form of protest. Again here, I drew a contrast on how we protest in India. Bundhs, strikes and riots accompanied by stoning public (and private) buildings and destroying property. People were shocked to hear that. "Don't they understand that public property is YOUR property? You are finally going to pay for fixing or replacing what you destroyed."

That is awareness, and pride. Pride in what you have achieved as a collective whole. Awareness of where your taxes go and how they are used.

These are a few incidents that were eye openers for me. I always wondered what is missing in India. And what could make people more aware of their responsibilities, and make India a better place.

I recently happened to read this speech by Narayana Murthy (Infosys) on this very same subject that hit at the heart of many issues facing India. It is a very thought provoking read. I have included it here for your reading pleasure.


I decided to speak on an important topic on which I have pondered for years - the role of Western values in contemporary Indian society. Coming from a company that is built on strong values, the topic is close to my heart. Moreover, an organization is representative of society, and some of the lessons that I have learnt are applicable in the national context. In fact, values drive progress and define quality of life in society.

The word community joins two Latin words com (”together” or “with”) and unus (”one”). A community, then, is both one and many. It is a unified multitude and not a mere group of people. As it is said in the Vedas: Man can live individually, but can survive only collectively. Hence, the challenge is to form a progressive community by balancing the interests of the individual and that of the society. To meet this, we need to develop a value system where people accept modest sacrifices for the common good.

What is a value system? It is the protocol for behavior that enhances the trust, confidence and commitment of members of the community. It goes beyond the domain of legality - it is about decent and desirable behavior. Further, it includes putting the community interests ahead of your own. Thus, our collective survival and progress is predicated on sound values.

There are two pillars of the cultural value system - loyalty to family and loyalty to community. One should not be in isolation to the other, because, successful societies are those which combine both harmoniously. It is in this context that I will discuss the role of Western values in contemporary Indian society.

Some of you here might say that most of what I am going to discuss are actually Indian values in old ages, and not Western values. I live in the present, not in the bygone era. Therefore, I have seen these values practiced primarily in the West and not in India. Hence, the title of the topic.
I am happy as long as we practice these values - whether we call it Western or old Indian values. As an Indian, I am proud to be part of a culture, which has deep-rooted family values. We have tremendous loyalty to the family. For instance, parents make enormous sacrifices for their children. They support them until they can stand on their own feet. On the other side, children consider it their duty to take care of aged parents.

We believe: Mathru devo bhava - mother is God, and pithru devo bhava - father is God. Further, brothers and sisters sacrifice for each other. In fact, the eldest brother or sister is respected by all the other siblings. As for marriage, it is held to be a sacred union - husband and wife are bonded, most often, for life. In joint families, the entire family works towards the welfare of the family. There is so much love and affection in our family life.

This is the essence of Indian values and one of our key strengths. Our families act as a critical support mechanism for us. In fact, the credit to the success of Infosys goes, as much to the founders as to their families, for supporting them through the tough times. Unfortunately, our attitude towards family life is not reflected in our attitude towards community behavior. From littering the streets to corruption to breaking of contractual obligations, we are apathetic to the common good. In the West - the US, Canada, Europe, Australia, New Zealand - individuals understand that they have to be responsible towards their community.

The primary difference between the West and us is that, there, people have a much better societal orientation. They care more for the society than we do. Further, they generally sacrifice more for the society than us. Quality of life is enhanced because of this. This is where we need to learn from the West.

I will talk about some of the lessons that we, Indians, can learn from the West.

In the West, there is respect for the public good. For instance, parks free of litter, clean streets, public toilets free of graffiti - all these are instances of care for the public good. On the contrary, in India, we keep our houses clean and water our gardens everyday - but, when we go to a park, we do not think twice before littering the place.

Corruption, as we see in India, is another example of putting the interest of oneself, and at best that of one’s family, above that of the society. Society is relatively corruption free in the West. For instance, it is very difficult to bribe a police officer into avoiding a speeding ticket.

This is because of the individual’s responsible behavior towards the community as a whole On the contrary, in India, corruption, tax evasion, cheating and bribery have eaten into our vitals. For instance, contractors bribe officials, and construct low-quality roads and bridges. The result is that society loses in the form of substandard defence equipment and infrastructure, and low-quality recruitment, just to name a few impediments. Unfortunately, this behavior is condoned by almost everyone.

Apathy in solving community matters has held us back from making progress, which is otherwise within our reach. We see serious problems around us but do not try to solve them. We behave as if the problems do not exist or is somebody else’s. On the other hand, in the West, people solve societal problems proactively. There are several examples of our apathetic attitude. For instance, all of us are aware of the problem of drought in India.

More than 40 years ago, Dr. K. L. Rao - an irrigation expert, suggested creation of a water grid connecting all the rivers in North and South India, to solve this problem. Unfortunately, nothing has been done about this. The story of power shortage in Bangalore is another instance. In 1983, it was decided to build a thermal power plant to meet Bangalore’s power requirements. Unfortunately, we have still not started it. Further, the Milan subway in Bombay is in a deplorable state for the last 40 years, and no action has been taken.

To quote another example, considering the constant travel required in the software industry; five years ago, I had suggested a 240-page passport. This would eliminate frequent visits to the passport office. In fact, we are ready to pay for it. However, I am yet to hear from the Ministry of External Affairs on this.

We, Indians, would do well to remember Thomas Hunter’s words: Idleness travels very slowly, and poverty soon overtakes it. What could be the reason for all this? We were ruled by foreigners for over thousand years. Thus, we have always believed that public issues belonged to some foreign ruler and that we have no role in solving them.

Moreover, we have lost the will to proactively solve our own problems. Thus, we have got used to just executing someone else’s orders. Borrowing Aristotle’s words: We are what we repeatedly do. Thus, having done this over the years, the decision-makers in our society are not trained for solving problems. Our decision-makers look to somebody else to take decisions. Unfortunately, there is nobody to look up to, and this is the tragedy.

Our intellectual arrogance has also not helped our society. I have traveled extensively, and in my experience, have not come across another society where people are as contemptuous of better societies as we are, with as little progress as we have achieved. Remember that arrogance breeds hypocrisy. No other society gloats so much about the past as we do, with as little current accomplishment.

Friends, this is not a new phenomenon, but at least a thousand years old. For instance, Al Barouni, the famous Arabic logician and traveler of the 10th century, who spent about 30 years in India from 997 AD to around 1027 AD, referred to this trait of Indians. According to him, during his visit, most Indian pundits considered it below their dignity even to hold arguments with him. In fact, on a few occasions when a pundit was willing to listen to hm, and found his arguments to be very sound, he invariably asked Barouni: which Indian pundit taught these smart things!

The most important attribute of a progressive society is respect for others who have accomplished more than they themselves have, and learn from them. Contrary to this, our leaders make us believe that other societies do not know anything! At the same time, everyday, in the newspapers, you will find numerous claims from our leaders that ours is the greatest nation. These people would do well to remember Thomas Carlyle’s words: The greatest of faults is to be conscious of none.

If we have to progress, we have to change this attitude, listen to people who have performed better than us, learn from them and perform better than them. Infosys is a good example of such an attitude. We continue to rationalize our failures. No other society has mastered this part as well as we have. Obviously, this is an excuse to justify our incompetence, corruption, and apathy. This attitude has to change. As Sir Josiah Stamp has said: It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.

Another interesting attribute, which we Indians can learn from the West, is their accountability. Irrespective of your position, in the West, you are held accountable for what you do. However, in India, the more ‘important’ you are, the less answerable you are. For instance, a senior politician once declared that he ‘forgot’ to file his tax returns for 10 consecutive years - and he got away with it. To quote another instance, there are over 100 loss making public sector units (central) in India. Nevertheless, I have not seen action taken for bad performance against top managers in these organizations.

Dignity of labor is an integral part of the Western value system. In the West, each person is proud about his or her labor that raises honest sweat. On the other hand, in India, we tend to overlook the significance of those who are not in professional jobs. We have a mind set that reveres only supposedly intellectual work.

For instance, I have seen many engineers, fresh from college, who only want to do cutting-edge work and not work that is of relevance to business and the country. However, be it an organization or society, there are different people performing different roles. For success, all these people are required to discharge their duties. This includes everyone from the CEO to the person who serves tea - every role is important. Hence, we need a mind set that reveres everyone who puts in honest work.

Indians become intimate even without being friendly. They ask favors of strangers without any hesitation. For instance, the other day, while I was traveling from Bangalore to Mantralaya, I met a fellow traveler on the train. Hardly 5 minutes into the conversation, he requested me to speak to his MD about removing him from the bottom 10% list in his company, earmarked for disciplinary action. I was reminded of what Rudyard Kipling once said: A westerner can be friendly without being intimate while an easterner tends to be intimate without being friendly.
Yet another lesson to be learnt from the West, is about their professionalism in dealings. The common good being more important than personal equations, people do not let personal relations interfere with their professional dealings. For instance, they don’t hesitate to chastise a colleague, even if he is a personal friend, for incompetent work.

In India, I have seen that we tend to view even work interactions from a personal perspective. Further, we are the most ‘thin-skinned’ society in the world - we see insults where none is meant. This may be because we were not free for most of the last thousand years. Further, we seem to extend this lack of professionalism to our sense of punctuality. We do not seem to respect the other person’s time.

The Indian Standard Time somehow seems to be always running late. Moreover, deadlines are typically not met. How many public projects are completed on time? The disheartening aspect is that we have accepted this as the norm rather than the exception. In the West, they show professionalism by embracing meritocracy. Meritocracy by definition means that we cannot let personal prejudices affect our evaluation of an individual’s performance. As we increasingly start to benchmark ourselves with global standards, we have to embrace meritocracy.

In the West, right from a very young age, parents teach their children to be independent in thinking. Thus, they grow up to be strong, confident individuals. In India, we still suffer from feudal thinking. I have seen people, who are otherwise bright, refusing to show independence and preferring to be told what to do by their boss. We need to overcome this attitude if we have to succeed globally.

The Western value system teaches respect to contractual obligation. In the West, contractual obligations are seldom dishonored. This is important - enforceability of legal rights and contracts is the most important factor in the enhancement of credibility of our people and nation.
In India, we consider our marriage vows as sacred. We are willing to sacrifice in order to respect our marriage vows. However, we do not extend this to the public domain. For instance, India had an unfavorable contract with Enron. Instead of punishing the people responsible for negotiating this, we reneged on the contract - this was much before we came to know about the illegal activities at Enron.

To quote another instance, I had given recommendations to several students for the national scholarship for higher studies in US universities. Most of them did not return to India even though contractually they were obliged to spend five years after their degree in India.
In fact, according to a professor at a reputed US university, the maximum default rate for student loans is among Indians - all of these students pass out in flying colors and land lucrative jobs, yet they refuse to pay back their loans. Thus, their action has made it difficult for the students after them, from India, to obtain loans. We have to change this attitude.

Further, we Indians do not display intellectual honesty. For example, our political leaders use mobile phones to tell journalists on the other side that they do not believe in technology! If we want our youngsters to progress, such hypocrisy must be stopped. We are all aware of our rights as citizens. Nevertheless, we often fail to acknowledge the duty that accompanies every right. To borrow Dwight Eisenhower’s words: People that values its privileges above its principles soon loses both. Our duty is towards the community as a whole, as much as it is towards our families.
We have to remember that fundamental social problems grow out of a lack of commitment to the common good. To quote Henry Beecher: Culture is that which helps us to work for the betterment of all. Hence, friends, I do believe that we can make our society even better by assimilating these Western values into our own culture - we will be stronger for it.

Most of our behavior comes from greed, lack of self-confidence, lack of confidence in the nation, and lack of respect for the society. To borrow Gandhi’s words: There is enough in this world for everyone’s need, but not enough for everyone’s greed. Let us work towards a society where we would do unto others what we would have others do unto us. Let us all be responsible citizens who make our country a great place to live. In the words of Churchill: Responsibility is the price of greatness. We have to extend our family values beyond the boundaries of our home.

Finally, let us work towards maximum welfare of the maximum people - Samasta janaanaam sukhino bhavantu. Thus, let us - people of this generation, conduct ourselves as great citizens rather than just good people so that we can serve as good examples for our younger generation.

--- Speech by Narayana Murthy

Sunday, February 04, 2007

Chicago Bears: Superbowl XLI champions

What do they do with all those sports merchandise (t-shirts, caps, mugs, etc) printed with the above mentioned banner?

That is what I was wondering when the Colts won the Superbowl last Sunday. As soon as the Colts won, someone came and gave Tony Dungy a cap that had the Colts insignia. Wow, that is fast delivery, I thought. Did someone print it (or embroider it) within a minute and get it onto the field? Nope.

If I were the manufacturer of those apparel, this is what my plan would be:
- Come up with a ballpark number "b" for each item. This would be derived from historic data of merchandise sales ON the day of the event.
- Manufacture that many of each of the merchandise with logo of each team in the finals as winner.
- Of course, make tonnes of generic merchandise that doesn't proclaim a winner (T-shirts that just say "Superbowl XLI winner").
- Spread this loot around for sale.
- On the night of the Superbowl work overtime (and on overdrive) and produce the actual required number of items (again, use historical sales data) for sale in the coming days. Roll this out the very next day.

Now, after the game, we end up with lots of merchandise with the loser team's name on it. What do we do with these? Discard it as trash?

Turns out that the scrap merchandise is sent to under developed countries as donation. NFL has inked a deal with Gifts-in-kind, and is donating the merchandise. Isn't that a wonderful idea! I can now see this happening in a lot other areas too.

I only hope they are not doing the same with banned/expired materials/drugs and shipping them as donations to needy countries ("Here you go. Here is some extra asbestos that you can use").