5 things for the new YOU!!!

Did you make resolution this year? Any resolution? Losing weight, acquiring new skill, getting up early, balancing professional and personal life or anything close to heart.

We are well over a fortnight into the New Year. Do you still hold the resolution and are continuing with it? If the answer is yes, chances are that you may continue it.

If you have not done any resolution, I am with you.

I have made New Year resolutions and often seen them crumble in the first month. I have seen this with many people. Yet there are some who sustain them. We all see them. They may have a discontinuity in between but they restart and continue with the resolution.

What makes them going? What is it that gives them the strength to restart the broken chain and why is it so difficult for others?

Here are the 5 things experts say they do differently.

1.      They see the big picture :

Napoleon Hill in his famous book ‘Think and grow rich’ writes persuasively about the art of visualization. Stephen Covey in his book ‘7 habits of highly effective people’ writes about begin with the end in mind.

The people who continue with their resolution demonstrate these qualities quite often. My friend lost 17 kg and got in shape last year. She has set her target on a particular weight she wanted to achieve (end state) and visualized being their every day.

How do you visualize?  Believe that you have already succeeded. Whatever is your goal, close your eyes and see yourself achieving it. See it in as much detail as possible. Add colors, movement, smell, taste, sound, emotions – make it seem like a live memory rather than something you are imagining.

 

2.      They speak out :

 

I have often seen these people share their resolution with their near and dear ones. This to my mind gives them moral binding to continue with their resolution. There are phases in their life when they feel of giving it up, however this binding often keeps them going.

 

3.      They display consistency and commitment :

The commitment to be consistent at a particular thing comes from what Napoleon Hill calls the burning desire. And burning desire comes when we know where to go, which is the big picture or the end state visualization. You see these are so very strongly inter-connected. Distinguished professor of psychology Dr. Robert Cialdini shares this beautifully. He says there is something that lies deep within us that direct our actions. This is our obsessive desire to be (and to appear) consistent with what we have already done.

 

 

4.      They look at it as ritual :

    A ritual is a series of actions or type of behaviour regularly and invariably followed by someone.

   Once they debate it out in their mind and decide on some agenda, they try and make it a ritual. So once their mind is conditioned and starts believing it to be the ritual, their other actions get aligned relatively easily.

 

5.      They value time :

This is one of the most precious resources available with us. They understand it all the more. They prioritise things and channelize their energies to the set priorities. This allows them to allocate the requisite time to achieve their set resolutions.

 

Here is wishing you a great new year and may you and I get the strength to realise our resolutions in this year than ever before.

 

 

 

 

Translating individual knowledge into Organisational knowledge

Translating individual knowledge into Organisational knowledge

I have a few important questions.

How does one institutionalize the knowledge and expertise gained by an individual? Why is it important for the Organisation? Does sharing these insights bring insecurity to an individual?

Well, we shall try and discuss the first question. How does one institutionalize the knowledge and expertise gained by an individual?

In 1985, product developers at Osaka based Matsushita Electric Company were hard at work on a new home bread making machine.  They were having trouble in getting the machine to knead the dough correctly. The crust of the bread used to get overcooked and the inside was hardly cooked.

The gist of what was done is as follows.

The best bread making hotel was identified. An engineer from Matushita electric understood the process in detail from the master chef who was an expert in making the best bread in town. The engineer then translated the understanding to the project team responsible for making the bread home machine.

The knowledge transfer may happen in one of the four ways.

1.       Tacit to tacit: One person shares his knowledge with the other person. In the bread making example, it’s the sharing of knowledge, process and skill by the master chef with the engineer. Look at some of the skills like that of a blacksmith. One person passes on the knowledge and skill to the next generation and so on…

2.       Explicit to explicit: This is when one individual puts discrete pieces of information together to form a new whole. A project management office for example may ask for different kinds of information from various teams/department and create a new insight altogether.

3.       Tacit to explicit: When the knowledge known to one individual is shared in such a way that it can be translated into a process. In the example of bread making machine, when the engineer is able to articulate the learning from the master chef to the project team, it can be termed as tacit to explicit knowledge transfer.

4.       Explicit to tacit: The new explicit knowledge is shared across the Organisation. When this is done, the other employees begin to use it, internalize it and broaden their capabilities. This enables them to reframe their own tacit knowledge.

Today technology plays a very important role in the manner in which the knowledge is created and captured in the company. Many companies have kept innovation at the center of the strategy. This becomes one of the big differentiators for them.  

So we find Organisations using many innovation models or concepts or practices. Some of them are innovation councils, hackethons, innovation champs, Idea incubations, crowd sourcing and many more. This allows them to generate new ideas effectively, fail cheaply, get the filtered ideas and incubate them. Finally leading the chaos to a concept and scale it into a new business opportunity.

I am sure you have come across many such examples. From small process change innovations that help reduce time and better customer experience to paradigm shifting innovations like a car @ $2000 (Tata Nano) or manufacturing a portable imaging device at one-tenth of the cost that can be taken to patients for health check-ups (GE).

So does it help us as consumers and contributors to knowledge creation and innovation?

As consumers these innovation practices helps us with more and more innovative options and access on products and services.

As an Organisation citizen it allows us to participate in the process and enhance our own tacit framework.

It allows us a great opportunity to contribute and make this world an even better place to live.

 

 

 

Why people smile back?

Why people smile back?

Few years ago, a university professor tried a little experiment. He sent season’s greeting cards to a sample of people who were complete strangers.

Any guess as to what would have been the result of this experiment?

Although the professor expected some reaction, he was amazed with the response he got. Holiday cards addressed to him came pouring back from people who have never met or heard of him. Most of them never ever inquired about the identity of the unknown professor.

They received the holiday greeting card and they sent one in return.

Recollect when your little princess went for her friend’s birthday party? There was a gift and there was a return gift. I think the return gift concept would have come from parents more than children.

When someone invites us at their place, we also reciprocate by inviting them at our place.

Why do you think this happens?

Here is the reason. There is a powerful rule that is at play. Renowned psychologist Dr. Robert Cialdini calls it the ‘Rule of Reciprocation’.

The rule suggests that we should try to repay, in kind, what another person has provided us.

So when you do something for others, they have an overwhelming tendency to repay.

I am sure you have been to the sweet mart some time or the other. I have a very experience with sweet marts in two different circumstances. My re-action were different for these two different types of sweet shops. One type of sweet mart show you the displayed stuff and the other type not only shows the display, but also encourages you to taste different types of sweets.

I have always felt a sense of obligation to buy something in the sweet marts where I was coaxed into trying different sweets.

One such interesting study was done by Prof. Dennis Regan. Here is the gist of the experiment.

The set up was that of grading the paintings (‘art appreciation’). The subjects (they are the one on whom the researcher conducts the experiment) were divided into two groups.. First group 1 and then group 2 were asked to grade the paintings. In both the groups one person was common who was a research assistant with Prof. Regan. He acted as one of the participants in both the groups and behaved the same natural way except one change.

With group 1 he took a 2 minutes break, went out and got 2 cokes.  One for self and the other for fellow mates. With group 2, he did take a 2 minute break but did not bring the coke. Neither for self not for others.

Here is an interesting part of the experiment. When the grading was done and the participants waited in the other room, he told both the groups to do him a small favour.

He indicated that was selling raffle ticket @ 25 cents for a new car and that if he sold more tickets he would win fifty dollar prize.

What do you think may have happened?

People in group 1 for him he got the coke purchased twice the number of tickets compared to group 2.

The experiment through the rating scale also check the correlation between liking for the research assistant and tickets purchased.

The findings were again interesting. People who owed him something to him reacted differently. It did not matter to them whether they like him or not, they still purchased the tickets.

Give and you shall receive.

The question then is, can we use this powerful rule in sales, service, social context or for that matter any sphere that we are in?

Here are the three things we can conclude :

1.       People have a tendency to repay favours.

2.       Repaying an obligation overpowers liking for us.

3.       This can have great application in any profession that we are in.

And yes, for the same reason, if we smile the other person will smile back!!!

Wealth creation - Part 4 - Final

In the previous blog Prakash shared the following things with the group.

1.     Assured returns schemes/financial products have their benefits however number of such schemes has come down over last few years.

2.     Assured return schemes always do not give assured returns and sometimes even your principal amount also may be at stake.

3.      One must invest in equities if he/she is serious about wealth creation.

While the group understood the importance of equity investment, they were concerned with the fact that equity is a risky asset class. Prakash understood the discomfort of the group.

How many of you know Mutual funds and ULIPs (Unit linked insurance plans)? He asked.

All of us raised our hands. Some of them were investing in MFs and had ULIP policies. Others have read about them.

Prakash said if you don’t want to invest in equities directly, there are indirect ways as well. MFs is one way of indirect investments. You could look at ULIPs as well.

Hold on, Deepak said. I have two questions here. How will MF take care of the risks of equity investment and why are you clubbing ULIPs with it as an investment option?

I guess Prakash anticipated this concern. Prakash Continued. Depending upon the objective of the fund, MFs invest in different companies and hence your risk spreads. Second, they have fund managers who understand investments better than us by virtue of their expertise and experience.

With regards to ULIPs, IRDA (Insurance Regulatory and Development Authority) has taken some very important customer friendly measures since September 2010. If your investment horizon is more than 7 years you get three benefits. a. You get life Insurance cover; b. You get to choose fund basis your risk appetite; c. Since the minimum lock in for your premiums is 5 years, the fund managers are not under pressure to take un-necessary risks and d. You get tax benefits.

Wow Prakash. We have not thought about MFs and ULIPs this way. But tell us which MFs; ULIPs and Shares do we buy?

Deepak was wearing a cream colour shirt. Prakash appreciated the colour and said why are you not wearing a pink colour shirt like Sharad? Deepak said that it’s a personal choice.

Prakash said, precisely for the same reason, it is difficult to suggest the stock standard products to all.

It all boils down to the three things that we discussed earlier. Risk appetite; asset allocation and financial goals. And these things are different for different people.

The best person who can help you with specifics is your financial planner.

Prakash said we have discussed only paper assets and that too not entirely. He has asked us to take some interest in understanding about different asset classes and products.

He said knowing is important but once we know about them and take experts help, we must ACT.

We all dispersed with the resolve to engage an expert and most importantly act for the wealth creation journey.

Wealth creation - Part 3 - Where to Invest?

Welcome to part 3 of the blog series ‘Want to create wealth. But how’

In part 2, Prakash shared with us powerful mantras of wealth creation.

They are:

(a)   Understanding our risk appetite

(b)   Asset allocation basis our risk appetite

(c)   Importance of having financial goals.

Here is a link to Part 2 of the blog:

https://www.blogger.com/blogger.g?blogID=2249881988584882575#editor/target=post;postID=7051872362494185605;onPublishedMenu=posts;onClosedMenu=posts;postNum=1;src=postname

Shraddha asked Prakash the following questions.

How do I know which asset class should I invest in?

How about returns?

How about guarantee?

All of us had these questions in our mind. Most of us were aware of the different asset classes (at least by name) but Prakash showed us the slide to give a comprehensive understanding of different asset classes.

The group could relate to some of the names like real estate, cash etc. Some in the group were partially aware of commodities; collector’s items; fixed income and equities.

Prakash told the group not to get confused with the blocks. The important point he said is to know that each asset class comes with its own risk and rewards.

Do you mean higher risk, higher returns and lower risk, lower returns? asked Deepak.

Yes. You are right Deepak. This becomes an important consideration while planning your financial objectives, said Prakash.

He continued looking at the group. 'FDs and RDs form a part of fixed income assets. They give you assured returns but the returns are fixed at a certain percentage. They cannot go beyond that. Currently they are anywhere between 7.5 to 8.5 percent. The average inflation from 2004 to 2014 stands at 8.14%. This clearly shows that this investment option cannot help you beat inflation'. 

'But these are guaranteed' said Shraddhha. Yes. That’s correct. And that gives lot of comfort to all of us, right? asked Prakash. All of us nodded our heads. After long time he was talking what we wanted to hear. He also highlighted the tax related benefits for some guaranteed returns products like PPF (Public Provident Fund) and NSC (National Savings Certificate)

'However what I am going to tell you now is equally important' asserted Prakash. 

‘How many of you have heard of Unit Scheme 64 (US 64)’?

90% hands went up. After all US 64 was a long standing scheme of UTI.  People perceived this scheme to be an assured return scheme. They had every reason to think that way. The scheme religiously declared dividends every year similar to any assured returns scheme. This scheme missed giving dividends in 2001 stating shortfall in assets.

Some from the group recalled this information which they had read in the newspaper during those days. For some of us this was a news.

The point I am making said Prakash is this.

Number of assured returns options/financial products are coming down. Assured return schemes always do not give assured returns and sometimes even your principal amount also may be at stake. Prakash gave example of few NBFC (Non-banking financial company) to substantiate his point. They promised handsome guaranteed returns but did not give even the principal amount of the investors.

By now Shraddha seemed to have moved from her fixation to assured returns products.

'So Prakash are you suggesting that in addition to assured return products we should start investing in other things mentioned on the slide' asked Shraddha.

Yes. Certainly. Investing your money in different asset classes’ basis your risk appetite is called Asset Allocation. This is the best way to create wealth. And this means that you need to invest your money in Equities as well.

‘But equity is a risky asset class’ said Ashok. Others echoed.

Prakash gave a smile as if he knew something on equities that we don’t.

However since we were already over 90 minutes in this discussion, someone said that we should break away and reconvene the next weekend to discuss things further.

Prakash and the group agreed. He highlighted the following three points before we dispersed.

1.     1. Assured returns schemes/financial products have their benefits however number of such schemes has come    down over last few years.

2.   2.  Assured return schemes always do not give assured returns and sometimes even your principal amount also   may be at stake.

3.    3.  One must invest in equities if he/she is serious about wealth creation.

_

Want to create Wealth. But how? – Part 2

In part 1 we saw why health insurance/hospital cover and term insurance form the foundation of the financial planning pyramid.

If you missed reading that blog, please visit :

http://bhushankulkarni2903.blogspot.in/2014/10/want-to-create-wealth-but-how-part-1.html

The topic was interesting but get-together was more of a social gathering than figuring out answers to our personal finances. So we decided to meet the subsequent week for some time exclusively to take the discussion forward.

‘How many of you have most of your savings in fixed deposits and recurring deposits’ asked Prakash. Almost all of us raised hands. To this he made a profound statement. ‘You guys are going to have tough time building wealth’ he said. We were taken aback. Some of our friends were in FDs and RDs for good 8-10 years.

‘While we know that whatever savings we are doing may not be adequate but how can you say we will not be able to create wealth’ asked Kailash.

‘The answer is very simple. Your money (savings in FD and RD) is not earning enough to beat inflation’ said Prakash.

‘But we also have our house. Isn’t that an investment too’ said Sandeep.

Self-occupied house is not, additional house is. Prakash proclaimed.

So according to you what is the right way to create wealth asked Dhananjay who seemed visibly confused hearing all this discussion.

‘Goal based financial planning and adherence to asset allocation based on your risk appetite’ said Prakash. The tone and expressions were such as if he found a Holy Grail and is wanting to share with us.

‘Oh you are talking like a business channel anchor Prakash’, said Swati. Goal based financial planning; asset allocation and risk appetite. These words seem familiar but are difficult to understand and implement.

‘They can be as difficult or as easy as you make it’ came the philosophical salvo from Prakash.

So tell us Prakash do these 3 things assure us of wealth creation? Someone asked from the group.

The probability is much higher told Prakash.

You need to know your risk appetite; invest in different asset classes and stick to it for long time came another big mantra from Prakash.

‘All that is looking good but how do I know my risk appetite’? asked Sharad.

While your previous savings and investment pattern is a good indicator to know your risk appetite, today there are scientific methods to know about them. You need to answer some questions and your financial planner will be in a position to tell you whether you have conservative; balanced or an aggressive risk aptitude.

Once you identify your risk appetite, you may choose to follow these two things.

a.       Decide your asset allocation basis your risk appetite.

b.      Decide your financial goal and start investing towards it in different asset classes.

But how do I know which asset class I can or need to invest? How about the returns? What about the guarantee? Someone had to stop Shraddha from asking more questions in one breathe.

‘Precisely these are the questions we will try and discuss during our subsequent meetings’ said Prakash.

After one hour discussion Prakash left for some work. The group was still discussing the Holy Grail suggestions by him.

Risk appetite; Asset allocation and financial goals

What should we do?

1.      Take help from your financial planner and understand your risk appetite

2.      List down the financial goals that are most important to you in your life and the number of years left to achieve them.

Want to create Wealth. But how? - Part 1

I and a group of my friends all in their late 30s and early 40s met up for a small get-together. The topics ranged from current affairs, to politics to elections to economy. One friend popped up a question that got everybody’s attention. The question got people to think, talk, discuss and debate. I could see lot of curiosity, understanding and mis-understanding around this question,

The question was, “What is the best way to create and increase our wealth that will help us take care of all our obligations and help us lead a comfortable life?

All of us want to create wealth. Want our money to grow. However I realised one thing out of that discussion. We are either partially aware or ignorant of how to do that. Our understanding is like those blind men who were asked to describe an elephant. Their description was limited to the area of an elephant they touched.

During that intense and involved discussion we wanted to see the entire elephant. I guess for two reasons.

1.      To know whether the route(s) that we have followed is the right one with regards to our savings and investments?

2.      Will it meet our present and future needs & wants?

Prakash, who has taken help of professionals for planning his finances, started asking questions to the group.

In this blog, I will share the first 2 questions that he asked and answered.

1.      How many of you have medical insurance or hospitalisation cover plan? Some hands went up. He said with sky rocketing medical costs, if you do not have this one in place it can eat up most of your savings. This is the first thing you should have.

2.      He asked us to think of one situation. While travelling from this get-together if something happens to you and you lose your life.

Have you made provisions for the family so that they continue to get the monthly income and are able to take care of their needs and wants?

While some of us thought of this question earlier, but not as deeply as he made us think. He highlighted the importance of having a term insurance plan. The thumb rule at our age (late 30s and early 40s) he said is to have at least 10 times cover of our annual income.

Deepak who became restless by now said, you are only scaring us and asking us to put money in something that is protection against risks. The money given in the above two is not going to give any returns. And hence the wealth creation question still remains unanswered.

‘I agree’ said Prakash. The above two are crucial or else they can be show stoppers. The first point (hospitalisation cover) may turn out to be leaking buckets and can give a serious blow in wealth creation journey. The second one (term insurance plan) can severely compromise your aspiration of quality life for your family in your absence.

So what should we do?

1.      If you do not have medical insurance, check out for health/medical/hospitalisation insurance plans.

2.      Check out your term insurance cover. If you do not have an adequate cover check for : (a) Term insurance plan at competitive premiums from a good life insurance company; (b) Check their claim settlement ratio.

3.      Importantly take action and cover yourself.

Note: These are the key points I presented out of the discussion over get-together. I advise you to take a professional help while planning for your insurance and financial needs.

We started with these two questions.

1.      To know whether the route(s) that we have followed is the right one with regards to our savings and investments?

2.      Will it meet our present and future needs and wants in future?

In the subsequent blog I will share with you some interesting insights Prakash gave us on our savings & investment patterns and whether that needs a relook.