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ICICI's K.V. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge.

wharton.upenn.edu/india/article.cfm?articleid=4065)

ICICI's K.V. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain

ICICI's K.V. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain Published : July 26, 2006 in India Knowledge@Wharton

This is a single/personal use copy of India Knowledge@Wharton. For multiple copies, custom reprints, e-prints, posters or plaques, please contact PARS International: reprints@parsintl.com P. (212) 221-9595 x407. K. V. Kamath, CEO of India's second largest banking and financial services conglomerate, ICICI, is a man in a hurry. When he occupied the driver's seat at ICICI more than a decade ago, it was a financial institution hamstrung by political constraints. Kamath was a key member of the top team at ICICI, including chairman Narayanan Vaghul, that led the organization into new businesses such as insurance and banking. Kamath, who spent his early years with the Asian Development Bank in Manila, used technology effectively, including online banking, to pry open market expansion. Today, his top challenge is to retain the talent ICICI trains, which is keenly sought by other financial services players. In an interview with Michael Useem, Wharton professor of management and director of the school's Center for Leadership & Change Management, Kamath discusses ICICI's foray into rural banking and other challenges. Useem: What are two or three of the bigger challenges that ICICI faces as you look to grow globally and to hit the target of being a Top 50 or maybe even a Top 25 bank in five years? Kamath: The key challenge is to look to new horizons. Our growth so far has been based on our ability to identify opportunity horizons very early and build businesses to scale those horizons. In our case, we had to get the capital right, get the people right, get the technology right and get the processes right. We believe that to break into the top league of global banks, ICICI will have to follow a course that few banks in the world have done -- and that is, leverage the rural economy. This is something that most banks don't do because it requires hard work. Market share is not easy to achieve because you need to widen your product tree. An even greater challenge is that you need to learn to do business at a fraction of the cost that you are used to.
  All materials copyright of the Wharton School of the University of Pennsylvania.                    Page 1 of 6 

wharton.someone who is already in the village for a business purpose. the costs are unlikely to go down as much as we need to succeed in rural India. Loans operate at a similar scale. Just to put that on a scale that someone could understand. What this team had. Now can you lend to rural India without fixing this risk? What we did was to ask if this was an insurable risk. The biggest risk is the failure of the monsoon.                    Page 2 of 6  . The typical approach to rural lending has been through micro-loans. This strategy allowed us to develop a viable proposition where we could scale up the rural lending model realistically. But a large-scale rural banking model where you are ultimately trying to reach a population of 600 million people has not been done. That is our challenge -. Could we get such insurance? The answer was yes. If it is a deposit of $10.edu/india/article.V. That's where the challenge is.cfm?articleid=4065) So our challenge is to invent a new business model where we can create a distribution base effectively in 600. and even though we might try to scale things down.and also our opportunity. Agriculture here heavily depends on the monsoons or rains. The way we built this organization was to take the talent that was there in 1996 -. That is why we need to work with partners who are either already present in the local community or who need to be there. and that has certainly had some degree of success. As you look ahead. was the core skills needed to run a finance   All materials copyright of the Wharton School of the University of Pennsylvania.000 in the West. we believe that to succeed in urban India. The branch-led model would simply replicate our existing structure. with some exceptions. If we can do this -. a micro-finance agency or a company -. How can we leverage these partnerships to do business? That question drives the need for a new business model to reach out to this market.000 villages in India.I think the rewards could be enormous.and we are fairly sure that we can -.upenn. we asked if this insurance could be further reinsured outside India so that the risk was shared even more widely. how will you ensure that your top executives bring the leadership skills and capabilities to these areas and that they have the skill sets they need to do what you hope to do by 2010? Kamath: You need to go back a bit in time. The challenge is to be able to work with partners because we believe that the branch-led model will not work in this context. it will be $1. we might partner with a local financial institution.by and large. the answer was yes.000 in urban India and $100 in rural India. Could we then sell this insurance to the farmers? Again. Useem: You have already built an outstanding senior management team. The reason is that the ticket size of the banking product in India is one-tenth that in the West. I don't believe anyone has implemented this model before. Yet again. We might even partner with someone who is selling fertilizer or seed or tractors. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge. as well as the opportunity and the excitement. the answer was yes.ICICI's K. For example. We need to be able to conceptualize how to deliver value to this market at an extremely low cost. Finally. that was the talent that built the bank. at that point in time. and to learn to do that at one-tenth the cost of urban India. This talent did not have any of the core skills required to build or run a commercial bank. we need to do be able to do business at one-tenth the cost of the West. Meeting this challenge of lending to India's farmers also involves other complexities.

wharton.. two former chairmen of ICICI. In 1996.                    Page 3 of 6  .upenn.cfm?articleid=4065) business. And we as a product finance company operated in a closed. but those have been few and far between. but frankly we didn't have a choice. They need to go out into the ecosystem. Some of these things came as hard shocks. We have good HR practices.the ability to empower people and to let them grow the business. They also had something else -.edu/india/article. we formed an organization that had this great team of people. and he was followed by N.and it has taken us to where we are today with leadership in the market and a one-third share of the consumer credit market. They both believed in giving you a lot of space and allowing you degrees of freedom. This was because the whole structural business in India had been turned upside down. the ability to train and mentor people. you have to be able to pick entrepreneurs very early and get them embedded into the business. It was a bold decision.. The biggest task at that time was selling this concept to the board. and frankly. But they probably were getting caught in what I would call a time warp. You need a can-do attitude. Our organization has now learned to use this as a core skill -. but we were running short of capital. that was an important lesson. You need alignment of interests for a team and a strong belief in your ability to execute. chaired ICICI until 1985. We needed to go in a much deeper growth direction. who took over as chairman in 1985. the team never once felt that this was not doable. nurture the business and build it up. Then we realized we needed to diversify. After that. when I came back. Vaghul. regulated market and now had to deal with customers who did not know how to manage these problems. which is crucial for success in this business. Sometimes we may have made wrong calls. That is where our directional change began -. How did you learn to lead and to develop your own capacities? What do you point to as your formative experiences? Kamath: I was lucky to be mentored by two outstanding leaders. Useem: Did you seek out their mentoring. or did they volunteer it before you asked? Kamath: This was during the period when I was working with them. We had good people whom we could point in the right direction. So I guess what I learned from them was how to put my mind to good use and also to give my team space to do things. Today ICICI is an organization with a lot of other strengths. Initially we thought we would diversify within our own corporate customer arena. To build a successful business.rare intellect and entrepreneurship. and we have excellent technology capabilities. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge. our first action was a holding action.ICICI's K. demonstrate their abilities.V. We needed to enter the consumer credit market. The first thing we needed to put in place was enough capital. One . so it was learning on the job. Both were extraordinary people with outstanding intellect. Useem: In a sense you have had people learn by doing. which we saw as an emerging opportunity. when other leaders might have hesitated. but within a year I realized that this wouldn't take us very far. Surprisingly. For me. We needed to get into something that we had not tried before. you need to pick   All materials copyright of the Wharton School of the University of Pennsylvania. That will be exactly the same way we are going to build this new business. We have succeeded in doing this.

though I think you may have already answered it.cfm?articleid=4065) belief in your ability to execute. but no one doubted that we would succeed. If it did. I probably would have started to wonder.                    Page 4 of 6  . But would I do it with the same degree of fearlessness that I had back then? Probably not. and we delivered. except for one or two of my core team. I would say yes because. nobody believed that this was a terrible decision. Throughout your career at ICICI. In hindsight. Although we had no alternative. Then the entrepreneurial spirit kicked in. That's why when my colleagues say they are venturing into the unknown today I feel we are much more confident. Useem: I'm going to ask you a question. Useem: Do you lose sleep over these decisions? Kamath: No. for the second one.you called it "fearlessness" -. because it involved venturing into the unknown. you need to pick entrepreneurs who will lead businesses. For the first one. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge. frankly. The whole process began with creating confidence. and we answered them.V. I don't lose sleep. I don't think the board ever sensed a doubt in our minds.upenn. it is now clear to me that we took a huge risk. the board needed more convincing. We went out and hired people who had the skill sets we needed for production and distribution in the consumer credit market. Useem: Let me ask you about the role of the board in each of these decisions.   All materials copyright of the Wharton School of the University of Pennsylvania. Useem: What gave you the sense of confidence -. it was a frightening step that we took. we faced many unknowns and we had no skill sets. The board asked questions. The board did also. Useem: Do you look back at these decisions? Kamath: Yes. When I look back and wonder if I would do it again. The board had fewer issues when ICICI decided to go global than when we decided to enter the consumer credit market.knowing that some people on your team and many members of the board did not see the decision to go into the consumer market as wise? Kamath: My team saw it as the right decision. or most challenging. which wasn't under the most stable conditions.edu/india/article. But we did it with a lot of confidence because it was not a do-or-die sort of situation. was the decision to go global three years ago. Another decision we made. You need a can-do attitude. But other than that. After that. There again. or most consequential decision? Kamath: The one I just described. there was a healthy dialogue with the board. and then the board backed our decision in the end. when I look back sometimes I think that you truly need to believe that you have very long legs to cross that chasm. less so? Kamath: That is right. I had no choice. what has been your single biggest.wharton.ICICI's K. and then we launched our new business. Again.

ICICI's K. Useem: So a final word to the wise. You are wiser for having gone through it. but you will have to wait all day or all year if no one passes the ball to you.I think it is an important quality that I look for in people whom we pick as leaders -. I look for intellect or a high level of competence.the right mental make up and the right ability to execute it. whether this is an entrepreneurial quality or not -. In   All materials copyright of the Wharton School of the University of Pennsylvania. I have given you four or five attributes. One thing I tell people when I am mentoring them is. This is seen in the execution capability. I would ensure that I had the ability to hire the right people. First. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge. If somebody would like to know the secret of ICICI's success in the last 10 years and would like to know why you are going to succeed in the next five. the ability to run businesses seamlessly. What sort of reaction do you get when you talk to him or her about a challenge? Will he go for it or is it a problem? Fourth. focus without getting diverted from the core business. Finally. You may be an outstanding scorer. probably by sequencing a few things differently. would you do anything differently. I seek out entrepreneurial leaders who have the ability to pick the right people. not about the biggest decisions but within those decisions? Kamath: I would do a few things differently. Here is another example based on a team game like football or soccer. Third. Useem: How do you know when you have the right people working for you? What do you look for? Kamath: You need four or five key attributes. These are lessons you learn as you go along. So you need to make sure you have people who can throw the ball when you are in the right position to score. "Don't look for clones. focus. If you enter a public building where there is a doorman and there are several people you need to see. In our case they did not harm us. to live with ambiguity and yet to stay focused and do our job. what would that be? Kamath: I would say it is the ability to correct your course when things start going off track. the right people have the ability to withstand shocks without getting flustered or losing direction.cfm?articleid=4065) Useem: If you were to look back.                    Page 5 of 6  . what would you point to? Kamath: I think it's the outstanding human talent that we have and the ability to leverage that talent to enhance our value. That means looking at how the person has performed in other contexts to build teams. Useem: If there is one thing that you could point out in the field of execution that is critical. the person must have a can-do attitude.wharton. but I think the first two are really the key -.V.it is the ability to focus. I use a very simple example.upenn. the ability to learn to live with diversity.edu/india/article. you need people to unlock the doors for you. you need people who will throw the ball so that other people can score on behalf of the whole team. In these games. Anybody owning a business very quickly understands this. People who have the ability to build and manage teams are very valuable. Second." I've had to say that to a lot of very bright people.

things never happen quite the way your models may have predicted. I would say something that is unforeseen.V. they won't succeed.   All materials copyright of the Wharton School of the University of Pennsylvania. And there is a divide. or trying to reach profit or budget targets. You ought to know when to give someone space and when to push.edu/india/article. You have to be proactive in identifying what could go wrong and take preventive measures before things do go wrong. you need to fix that as well. Kamath Shapes a Business Plan in Rural India's Uncertain Financial Terrain: India Knowledge@Wharton ( http://knowledge.cfm?articleid=4065) executing any strategy. I have seen this over and over again. You need to do it yourself. like social strife. But of course no CEO can succeed by micromanagement. this is the single most important thing which could impact business. If CEOs fail to do such course correction. custom reprints. what would be the one or two features out there in the landscape that you would look at that would tell you to course correct? Kamath: For example. If you see the oil pressure doesn't look right. "I see that the budget is going wrong. A CEO basically has to keep his or her eyes on several instruments at the same time. and I need to do A.com P.ICICI's K. You can't depend on someone else down the line to do it for you. (212) 221-9595 x407. you have to pump up the oil. What do you most fear in the Indian economy and the global economy that could derail your plans? Kamath: I guess in the Indian context. posters or plaques.upenn.                    Page 6 of 6  . This is a single/personal use copy of India Knowledge@Wharton. if you look at the gas tank and you're running out of gas. please contact PARS International: reprints@parsintl. Now is this going to be something that could bother us? To me. What do you need to do to get the budget trimmed? What you need is the ability to say. B. and this could have an implication on the budget. C and D to get the budget right. You have to keep scanning the environment and your own situation and be proactive about it. e-prints. That is why you need the ability to correct your course as you go along. You need the ability to keep your eye on several things.wharton. Useem: As you look ahead over five years. because we are living in a world of haves and have nots. Useem: As you look to become a Top 50 or even a Top 25 world bank. whether you are setting up a new business unit. For multiple copies. These are critical qualities in a CEO. many things can go wrong. You need to fix the problem as you go along. let's say a particular business is not going the way it should.

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