Demonetization in
India has taken people like a storm whether one horded the declared illegal
currencies or not. Only the impact has been different. The hoarders have been
facing the challenge to get their illegal wealth or black money converted while
others are struggling to convert, deposit and withdraw their legally earned
money.
I found this to be
a very interesting case of a complete collapse of service management. In this
blog I am going to cover the very basics concepts of Service Management that were
ignored.
For an analogy let
us consider a global business enterprise having presence in numerous location
within multiple countries globally. Assume that the Managing Director or head
of the conglomerate (consider a banking group) takes a decision without
consulting anyone. The decision is that within next 12 hours the existing
vendors, to whom their IT services including data centre is outsourced to, will
be replaced by his/her preferred vendor. So there is no transition time
available. What will happen to the customers of this banking group? What will
happen to functioning of various business units?
The result of such
a decision is obvious – devastation for this banking group; their stock value in
no time would be 0. Thus, such a decision would lead to winding of the entire
group’s operation.
The scenario in
India is somewhat similar – the only difference being that instead of a group
of companies it is the Government of India (GoI). In my analogy, the group is
listed in a stock exchange and the pain to its customers have an immediate
direct impact. In India, the situation is slightly different with GoI being
able to manage people’s perception by bringing in nationalistic feelings; But
the reality does not evade for long. They have more time to turnaround the
decision to show the benefit than our analogy. Unfortunately, this granted time is not everlasting, once
the stock value for the government (i.e. the people of India who are supporting
this decision as of now and their patience as well as belief in Government)
starts to fade, the result for the government could be utter devastation; the
other stock value for the government is reflected by the economic health of the
country, which for the next couple of quarters is going to take a dive and will
directly reflect on Sensex and Nifty, the Indian stock exchanges.
The above para
links directly to Strategy Management For Services – What is the value this
decision would provide to people of India – Already we have seen the GoI’s
claim on value creation has undergone quite a few changes. Thus, despite approx.
2 month I am not able to get the answer to my question ‘what is the value
creation from this service?’
Before we dive
further let us structure our assumption for the case:
1. Stakeholders:
a. GoI
- the holding company that controls the majority stake in a believed independent organization RBI
(Reservice Bank Of India) and having Income Tax Department as a key internal supplier
for driving compliance
b. RBI
– the company that owns the service and facilitates it through its sales
partners
c. Sales
Partners - Banks
d. Customer
– The income tax payers of India, payers of service tax and other taxes for related
banking operations
e. User
– The people who uses the banking services for currency withdrawal, deposits,
payments and transfer
f.
Suppliers – Both internal and external suppliers
involved in the overall service provisioning:
·
Supplier for RBI – Printing press, printing ink
providers, currency paper provider, logistics and transportation service
providers, IT service providers, etc.
·
Supplier for Banks – Business units providing
staff for banking operations, suppliers for support staffs, IT service providers,
ATM machine - maintenance & support service providers, services providers
who load the currency in ATMs, logistics and transportation service providers,
etc.
g. Key
resources related to service provisioning: Staff, paper, vehicle and IT systems
& applications
2. Service:
a. Primary
Business Service: RBI provides a Service “money” to people of India
through its various partner channels – Banks. This service constitutes of
various service packages based on the denomination of the currency. It gets these
currencies printed and sends it to banks. Various suppliers, internal or
external, are involved in moving the currencies from the printing press to the
banks. Banks then decides the ratio in which they would want to distribute the
received stock of the currencies to its various branches and ATMs. Again, it too
needs to rely on multiple suppliers.
b. Secondary
Business Services: Primary Business Service – ‘Money’
constitutes the core service on which the following Banking services are based
on:
i.
Money
Withdrawals: ATM cash withdrawal and
cash over counter
ii.
Money Exchange:
Exchange of demonetized currencies over the counter
iii.
Money
Deposits: Deposits over the counter or through deposit machines and/or ATMs
iv.
Money
Payments: Point of Sales (Credits/Debit card payment), Online payments, payment
through online transfers and Bank’s eWallet
v.
Money
Transfers - Online inter/intra bank transfers
vi.
Others
3. Change
to the Service: GoI’s decision to demonetize 500 and 1000 denomination
currency and replace them with new 500 and 2000 ones; Secondary services are impacted as the
constituent ones are changed
Strategy Management for Services:
To understand the
value creation from the change, we need to understand the Utility &
Warranty for the same.
Utility:
1. Performance
is associated with the performance of the tasks related to the desired
outcomes. So, let us see what the desired outcomes of demonetization was and
way it itself underwent a change:
a.
End to black money: This was one of the
initially projected outcomes. GoI projected that black money would not come
back to the system and will eventually lead to de-burdening RBI – This outcome has
not been realized as more that 97% of the demonetized currency has come back to
the system.
b.
End to fake currency: This was another initially
projected outcome. This seems to be realized to a significant extent. Only thing to be seen is what percentage of
fake currency has been accepted in banks by mistake. One of the key attributes
of the new denomination has been the extremely less probability of it getting
duplicated. But already fake currencies of the new denomination has started
surfacing and agencies are trying to investigate the same.
c.
End to corruption: This was another initially
projected outcome. Initially it did curb corruption since money was not there
in the system. Eventually instead of eliminating corruption, it has given
another opportunity to many individuals to build black money. Tax inspectors
have got an opportunity to earn in return for giving clearance to tax evaders;
Bankers and many others have taken commission to convert black into white; etc.
Only hope that remains here is that with digital economy the
corruption would reduce. This realization can be evident only in a longer run. Another, potential gain would be in terms of income tax and indirect taxes. These could be major gains for this initiative. This again would be evident only in next few quarters but degree of realization and attributing it to such a gain would be extremely difficult to quantify and would always be questionable.
d.
Making India a digital economy: Initially this
was not one of the expected outcomes. But as digital payments surged and benefits
from projected outcomes diminishing, GoI started projecting it as an expected
outcome. Significant push has been made to promote this (probably as a face
saving gesture). There is a significant surge in digital transactions, but
coming quarters would tell if this would sustain. Primary reason for this surge
is lack of liquidity in the market.
2. Undesired
outcomes:
a.
Pain to customer and end users: Businesses and
people have faced significant difficulty in withdrawing their hard-earned
money. Many sectors and villages are far from having the capability to be
digital and this has had a major impact.
b.
Economy is affected and this is going to reflect
in GDP as well as IIP besides the stock values of various companies in coming
weeks. Banks’ credit business has taken a hit; Manufacturing is affected due to
poor demand and in many cases production is impacted as multitude of things
were based on cash economy; etc.
3. Are
there any constraints removed due to this change? Yes, a higher denomination
currency is introduced thus the need for the same is addressed. But at the same
time a new constraint of unavailability of 1000 denomination is introduced
besides the liquidity of lower denomination notes which is critical for using
the higher one.
Thus, I am of the perspective that the
change in service overall does have some utility but not a considerable one; Most
of the desired outcomes are not achieved or offsets have happened due to
undesired outcomes.
Warranty:
1. Available
when required? – So far availability of the changed service is an area of
concern since it has not been available enough since:
a.
Replacement currencies are unavailable to the
bank
b.
Withdrawals are restricted
c.
Though ATM recalibration is complete to certain extent
but this was not well planned for
d.
Availability of the currency in the ATM
Though the
availability situation has improved, but overall the answer to this remains as “NO”.
2. Can
handle the required load (capacity) – The systems still do not have the
sufficient capacity to address the needs of the users:
a.
Sufficient new currency is not available to the
banks
b.
Printing press do not have the capacity to meet
the demand and no stock was planned for (printed) based on the demand that
would come-up post demonetization
c.
Insufficient capacity to route the currency
stock to banks, to bank’s branches and fill the ATMs
My answer to this question remains as “NO”.
3. Continuity
issues addressed? – There was no continuity of services post demonetization;
Users have suffered considerably.
My answer to this question is “NO”.
4. Security
requirements addressed? – There is no direct security implication to the
changed service. But the push for the outcome for digitization has some
security concerns as host of people who have moved to digitization are not conscious
or aware of the security implications that their device may expose them to. In
a country where netizens are victims of many online frauds, exposing them (and
many who have never even tried internet banking) to digital world directly (without
any sort of awareness campaign) is a risky proposition.
My answer is “MAYBE” (since depending on the perspective the answer would
be different)
Thus, I am of the perspective that the
change in service does not provide the desired warranty and more so most of the
warranty parameters are -ve.
Value
Creation – Thus, the changed service has not created any value for the
customers/users (citizens).
Nationalist feeling is the only thing which has
created the perceived value till now; only time will tell whether the perceived
value becomes a real value (utility and warranty is achieved) or the patience
of the customers and users gives away.
Demand Management: Demand management
has completely failed. The extent of impact of demonetization on demand is well
beyond RBI and the banks. Following are some of the key demands that went
unaddressed:
1. Demand
for new currency notes
2. Demand
for printing paper
3. Demand
for ink (for printing currency notes)
4. Demand
for ink (for marking on fingers) – temporary
as the decision to mark the fingers was rolled back but it did trigger some
corrective measures by the concerned manufacturing company
5. Demand
for logistics & manpower related to transporting notes from printing press
to RBI
6. Demand
for logistics & manpower related to transporting notes from RBI to Banks
7. Demand
for logistics & manpower related to transporting notes from Banks to their
Branches
8. Demand
for logistics & manpower related to calibrating ATM machines
9. Demand
for logistics & manpower related to loading ATM machines
10. Demand
for human resources at bank’s branches to:
a. Exchange
demonetized currency notes
b. Deposit
demonetized currency notes
c. Teller
counter (currency withdrawal)
11. Demand
for new POS machines
12. Demand
for bandwidth:
a. Telecom
providers for POS transaction
b. App/infra
layers of banks to handle quantum of transactions – Transfer to eWallets;
Transfer to other accounts, POS transaction and online transactions
c. App/infra
layers of eWallet companies to handle quantum of eWallet transactions
d. Telecom
providers’ data bandwidth for eWallet transaction
Since the change
came as a major surprise for the stakeholders, they were not prepared to handle
the surge in demand. There was no time to take any demand management related corrective
actions or have the forecast/inputs for capacity management to manage the
capacity specific demands. This thus also led to the failure of Capacity Management process as well as Availability Management process. All
aspects related to having the services available was missed, resulting in a
significant downtime for the service.
The situation
became a self-created disaster with no Service
Continuity Management process in place to handle the same. The service
levels gave way to the ones that never existed. Timelines were committed to the
customers but never really achieved.
Normalized services still elude them.
Change Management and Release &
Deployment Mgmt: All fundamentals
of the two processes were completely forgotten. Even in case of strategic
changes concerned stakeholders are involved to ensure that the release and
hence the change is successful. But unfortunately, GoI and RBI completely
forgot the key to a successful change –concerned teams including its suppliers/partners
and ones that supports the entire value chain enabling constituting and delivering
the service.
Since the entire
approach was reactive, the proactive part to eliminate incidents and to create
the proactive service delivery environment has been completely overlooked so
far.
Thus, I see demonetization
as a classic example of complete collapse of the principles of service
management.
Note: Concepts of ITIL® has been
extrapolated to Service Management. 