The COVID-19 pandemic brought about dramatic changes in the work environment. Almost 25 – 40% percent of workers in the private business sector worked primarily from home in 2019, the pandemic was the start of a huge experiment in full-time remote work for most workers and firms.

Several prominent Indian organizations have adopted remote work policies, making them known for offering work-from-home options to their employees. These include giant companies like TCS Infosys, Wipro, HCL Technologies, and Capgemini. Other notable companies include Amazon Google, Microsoft, and Myntra. One of the biggest names in the world, Amazon is a popular recruiter in India. With almost 800,000 employees, there are various roles to choose from the software developers, testers, virtual assistants, customer support, logistics, and sales.

For the Indian subcontinent, Amazon provides a separate Virtual Customer Service (VCS) making anyone with basic communication skills apply and work remotely from India. Other major high paying roles are available for virtual positions as well, depending on their vacancy.  In fact, Amazon runs a separate platform for remote work in India. If someone is  qualified, he or she could work remotely from India for Amazon. Following the pandemic, Amazon also stepped in to help people who lost their jobs, by hiring 500,000 temporary workers. This makes the future of remote work from home in India a promising model.

Remote work involves no geographical boundaries, allowing organizations to tap into a global talent pool. Employers can access a diverse range of skills without being limited by the limitations of a specific location, promoting innovation and diversity in the workforce.

Also, remote work means working from anywhere other than the office, which can be  home, cafe, a resort, or just a coworking space. Instead of coming to the office and interacting with team members face to face, remote workers use digital tools to handle tasks, complete projects, and communicate with their team.

The rise of remote work significantly impacts organizations, offering benefits like cost savings and access to a wider talent pool, but also presenting challenges in communication, team building, and maintaining organizational culture. Remote work does lead to increased productivity and engagement for some employees, while others may experience isolation and reduced morale, depression. 

Let’s look at some of the positive effects

The positive impacts are cost reduction, remote work can lead to significant savings for companies through reduced office space, utility costs, and energy, water, employee commuting expenses. It provides access to a vast talent pool. Organizations can tap into a global talent pool, hiring individuals regardless of location. It permits improved productivity in employees. Some employees report higher job satisfaction and improved work-life balance, leading to increased productivity because of flexibility and autonomy, allowing employees to manage their work and personal lives better. 

Some negative effects:

Remote communication can be challenging, potentially leading to misunderstandings and reduced nonverbal cues. Remote teams may struggle with fostering a sense of community and belonging, potentially leading to isolation and reduced confidence. Maintaining company work culture becomes difficult. Remote work can make it more difficult to maintain a shared company values and culture and sense of identity. One of the challenges can be security and data. Remote access raises concerns about cybersecurity and data security, requiring robust policies and procedures. Monitoring and control over employees are tough job. Some organizations may implement increased monitoring and control measures to ensure productivity in a remote setting. 

Some jobs are very suitable for remote working:

Many job roles are well-suited for remote work, particularly those involving digital tasks, customer service, and technology, marketing, and finance. Examples include software development, digital marketing, customer service, data analysis, and graphic design. In technology, software development, data analysis, IT management, and cybersecurity. In social media management, copywriting, marketing management, and sales representative. In finance, accounting, financial analysis etc. In customer service customer support, feedback, replacing damaged product etc. In HR  recruitment, employee engagement, training, compensation etc. In project management  leading and coordinating projects where team members work from various locations, using digital tools to facilitate communication and collaboration.

Conclusion:

The average remote job salary in India can vary significantly based on the specific role and experience level, but generally, it ranges from ₹375,833 to ₹2,105,500 per year. Entry-level positions might start around ₹375,833, while experienced professionals could earn up to ₹2,105,500 annually. With no daily commute, no excessive coffee breaks, and no long hours away from friends, family, and kids, remote work greatly improves employee experience and well-being.

Emerging out of the worst economic downturn in its history, Tolko Industries Ltd. was facing serious challenges. Tolko is one of the leading manufacturers of a wide range of forest products for customers around the world. It is a 60 years old company. Tolko’s prior strategy relied almost exclusively on sales to the U.S. and its sales dropped during the subprime crisis of US in 2007. The 3,500 employees were depressed by layoffs, and the company was challenged to retain good people.

Tolko is a privately owned forest products company based in Vernon, British Columbia. It manufactures and markets specialty forest products to world markets. Tolko’s products include timber, plywood, veneer, engineered wood products, and kraft papers. Brad Thorlakson had taken the helm as President and CEO in late 2010 and he and his team knew that the situation requires an urgent change. They realized the change needs to be such that their 3500 employees enjoy the change and get excited to work more seriously.  The leadership team has deep personal ties to the company, their fellow employees, and the communities in which Tolko operates. The ensuing strategic plan document was in-depth, but very complex. And it was clear that the documented plan was not adequately aligned to the organization’s capabilities, business lines, and leadership with the strategy. So in an attempt to align strategy to business lines and leadership, Brad asked the VP of Human Resources to update Tolko’s incentive plan to link executive performance to strategic performance.

The VP of Human Resources reached out to the Institute for assistance in determining how to measure strategic performance on Tolko’s new strategic plan. While VP of Human Resources and Brad had heard of balanced scorecard, neither had thought of it as a cohesive strategic planning and management framework. After learning more about The Institute Way, Brad realized that simply aligning incentives to a complex strategic plan was not going to re-energize the company. The employees needed to see the big picture, hence the VP Human Resources and Brad opted for implementing the Balanced Scorecard for their company.

What is ‘Balanced Scorecard’? This strategic tool was first introduced by accounting academic Dr. Robert Kaplan and business executive and theorist Dr. David Norton. It was first published in 1992 in a Harvard Business Review article. Dr. Kaplan and Dr. Norton took previous metric performance measures and adapted them to include nonfinancial information.

The balanced scorecard (BSC) is used to strengthen good behaviors in an organization by unravelling four separate areas that need to be analyzed. These four areas are also called legs; they are learning and growth of the employees, business processes, customers, and finance. The balanced scorecard is used to attain objectives, capabilities, creativities and goals that result from these four primary functions of a business. For implementing the Balanced Scorecard organizations must be in a position to easily identify factors hindering company performance and outline the strategic changes to be tracked in future. With the balanced scorecard, they look at the company as a whole when viewing company objectives. An organization may use the balanced scorecard to implement strategy mapping to see where value is added within an organization. A company also utilizes the balanced scorecard to develop strategic initiatives and strategy objectives.

The Four Legs of the Balanced Scorecard are:

Financial Perspective: Norton and Kaplan regard the financial health of the organization at the top most. Precise and timely data is a must for getting always a priority, this is paramount for managers who want to get the complete picture. With the implementation of a large corporate database, the financial leg aims at creating automated processes. The financial leg tracks the financial performance of a business and its requirements which include return on investment (ROI), cash flow, financial results (quarterly and annually) and return on capital employed.

Customer Perspective: More and more, management researchers are realizing the huge importance of customer focus and customer satisfaction. If customers are not happy with a company, they easily drift to the competitor’s firm or substitution. Hence, poor performance from the customer perspective is an indicator of decline. Some of the areas assessed by this indicator include customer retention rate, delivery aspect, timely delivery, market share enjoyed by the firm, all these pointers mark the customer satisfaction degree and quality of product delivery for customers.

Internal Business Perspective: This perspective allows to measure business process needs, and its procedures. Metrics based on this leg allows the firm to know how smoothly the business process operates, in short it points at the value chain. This metric allows the firm to know whether its products and services follow the company’s vision and mission. Some of the areas that relate to internal business processes are process automation, process blockages, duplicate activities across functions, number of activities per function and process alignment.

Employee Knowledge, Learning and Growth: This perspective emphasizes on learning and growth of employees. It concentrates on the training and development aspect. Employees are the main source who help to maintain an edge in the organization’s identified business segments or the niche. This leg deals with questions like job satisfaction, training & learning opportunities for the employees. It also measures the employee turnover and level of expertise gained by them for the job. According to Norton and Kaplan, learning is considered a much more important criterion than training. Additionally, they emphasize the importance of using high performance index by assisting the employees with technology to improve their skills in order to create a better work environment.

Mapping Strategy: is an important initial task in building a balanced scorecard approach is what the Balanced Scorecard Institute calls strategy mapping in which a company focuses on their strategic objectives and then map them to each of the four evaluation areas. Information is collected and analyzed from four aspects of a business.  This strategic tool looks beyond the traditional financial measurements of performance and examines the organization’s operations from the viewpoint of the customer, the shareholder, internal processes and organizational learning. Hence it caters of the long-term health of the organization and change management. The strategic map of company involves quantitative measurements, focused communication and employee empowerment.

The commercial vehicles business unit (CVBU) of Tata Motors was among the first Asian organizations to be initiated into the prestigious Balanced Scorecard Hall of Fame, in recognition of its exemplary success with the model. The company is one of the world’s top 10 truck manufacturers and the CVBU began deployment of Balanced Scorecard in 2000, in an attempt to cure years of poor financial performance. The focus was on achieving a turnaround, and then progressing to sustainable growth. Within 2 years of implementation, the company began to show tangible improvement in performance including a 40% growth in revenue.

The BSC is relevant to both manufacturing and service sector companies and similarly to both large and small organizations. While the U.S. army, with over one million people implements it successfully, a printing press in Sydney with hardly ten employees also can use it. Both are practitioners of the program. Similarly, governments and local bodies can benefit by implementing the balanced scorecard. For example, Mecklenburg County is the largest county in North Carolina and the most urban. The county, which includes the city of Charlotte, has approximately 969,000 residents and the population continues to grow at about 3 percent a year. Mecklenburg County has used BSC successfully for its governance, Ethiopian Health Ministry also has been successfully implemented the BSC strategy.

Most companies in 21st century use software solutions to track data related to the balance scorecard. As data is entered or collected it is computed within the balanced scorecard. The “Balanced Scorecard Institute” is quick to point out that software solutions do not create a balanced scorecard on their own. Companies have to develop their system and then use the software as part of implementation.

Gresham’s Law is a monetary principle which states that “bad money drives out good money.” In good old days i.e in 15^th, 16^th and 17^th century coins were made out of precious metal with gold, silver and other precious metals. This gave them their value. As time passed, over the years, the value of those precious metal coins increased than its face value; hence people would hoard coins and melt them and sell those coins.

Sir Thomas Gresham who was financial agent of Queen Elizabeth-1 recognized this fact; though he was not the first one to identify this monetary principle. If coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and will disappear from circulation. Sir Thomas Gresham’s illumination of 1558 was later coined by economist H.D. Macleod in 19^th century as “Gresham’s Law’.

Gresham’s law is extended to business decisions also as an analogue: in an organization when daily routine is programmed with highly amorphous and vague tasks, it only consumes time and energy of people which otherwise they could use for constructive and innovative work. The unconstructive work drives out constructive work.

The analogue is even extended to planning in organizations. When managers are forced to take string of decisions – those which are routine and monotonous in nature, the managers are hardly left with time and energy to make some considerable and meaningful decisions. This happens presumably because in as attempt of clearing their desk, managers tend to get exhausted with routine work and hardly get time to get down to serious work and unfortunately, their desks often never get cleared. In other words, you never get done the things you most want to get done, because life is a never-ending stream of disturbances.

It is so easy to get stuck in routine work; this fact makes most managers forget that there is world of possibilities out there. Organizations must therefore give time to their employees for new experiences and creativity. Only creativity can fuel business. Managers must therefore set their clear boundaries.

Carl Sagan – the man behind the popular television series “Cosmos” says “Science arouses a soaring sense of wonder. But so does pseudoscience. Sparse and poor popularizations of science abandons ecological niches that pseudoscience promptly fills. If it were widely understood that claims to knowledge require adequate evidence before they can be accepted, there would be no room for pseudoscience. But a kind of Gresham’s Law prevails in popular culture by which bad science drives out good.”

So Gresham’s law sums like this: if bad and evil is not kept under check, it will drive out good.

]]> https://drvidyahattangadi.com/greshams-law/feed/ 0 https://drvidyahattangadi.com/behavioral-finance-relates-to-investors-emotions/ https://drvidyahattangadi.com/behavioral-finance-relates-to-investors-emotions/#respond Mon, 09 Feb 2015 02:08:55 +0000 http://drvidyahattangadi.com/?p=2143 Behavioral finance relates to investor’s emotions

Behavioral finance is quite a new subject in the management realm that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions. Classical investment theories are based on the assumption that investors always act in a manner that maximizes their investments returns. Yet, a number of researches show that investors are not always so rational. The fundamental principle of the classical theory is that the economy is self‐regulating.

People get puzzled when the uncertainty regarding investment decision overwhelms them. People are not always rational and same is the case with markets. They are not always efficient. Behavioral finance explains why individual do not always make the decisions they are expected to make and why markets do not consistently behave as they are expected to behave. Many studies have shown that the average investors make decisions based on emotion, not logic; most investor’s buy high on speculations and sale low on panic mood. Most of us do that; do we? Psychological studies reveal that the pain of losing money from investment is almost three times greater than the joy of earning money. Emotions such as fear, impulse and greed often play a pivotal role in investor’s decision; there are also other causes of unreasonable behavior.

It is observed that stock prices moves up and down on a daily basis without any change in fundamental of economies. It is also observed that people in the stock market move in herds and this influence stock prices. Theoretically markets are efficient but in practice, they never move efficiently. For example, a reputed company announces a mega investment in an emerging area over next few years, the stock price of the company starts moving up immediately without looking into the prospects, return or the amount of investment to be made in this project. That is how the behavior of investor moves the stock price. Let me give hear a classical example: there is news since many years that Government o Maharashtra is planning to have another airport in Panvel, Mumbai. Immediately the property prices in Panvel shot up. Even if the Government is planning an airport in Panvel, the execution might take years, but the news itself has already augmented the property prices there.

Behavioral finance is a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economic and finance to provide explanations for why people make irrational financial decisions. It is very popular in stock market across the world for decisions related to investments. Behavioral finance is the study of psychology, sociology and anthropology on the behavior of the financial practitioners and the subsequent effect on the security market. It helps to understand why people buy or sell stock without doing fundamental analysis and study. It helps to understand why investors behave irrationally in investment decisions. Some important definitions of behavioral finance are summarized hereby.

According to Olsen (1998) behavioral finance seeks to understand and predict systematic financial market implications of psychological decision process. Belsky and Gilowich (1999) have referred to behavioral finance as a behavioral economics and further defined as combining the twin discipline. Jay R Ritter (2003) has given a brief introduction of behavioral finance published in Pacific Basin Finance Journal. In his research article, he rejected the traditional assumption of expected utility maximization with rational investors in efficient market. The two building blocks of behavioral finance are cognitive psychology (How People Think) and the limit of arbitrage (when market will be inefficient).

Behavioral finance seeks to find how investor’s emotions and psychology affect investment decisions. It is the study of how people in general and investors in particular make common investors make errors in their financial decision due to their emotions. It is nothing but the study of why otherwise rational between cognition. Leon Festinger’s theory of cognitive dissonance states that individual attempts to reduce inner conflict in one of the two ways: (i) he changes his past values, feelings or options; and (ii) he attempts to justify or rationalize his choice. This theory may apply to investors and traders in the stock market who attempt to rationalize contradictory behaviors, so that they seem to follow naturally from personal values or view point. In “Financial Cognitive Dissonance”, we change our investment styles or beliefs to support our financial decisions. For instance, investors who followed a traditional investment style (fundamental analysis) by evaluating companies using financial criteria such as, profitability measures, especially, profit/earnings ratios, started to change their investment beliefs. Many individual investors purchased retail internet companies in which these financial measures could not be applied. Since these companies have no financial track record, very little revenues and no net losses. These traditional investors rationalized the change in their investment style as per past beliefs in two ways: the first argument by many investors is the belief that we are now in a “new economy” in which the traditional financial rules no longer apply. This is usually the point and the economic cycle in which the stock market reaches its peak. The second action that displays cognitive dissonance is ignoring traditional form of investing and buying these internet stock simply based on price momentum.

In behavioral finance, Regret theory states that an individual evaluates his or her expected reactions to a future event or situations. Psychologists have found that individuals who make decision that turn out badly have more regret when that decision was more unconventional. This theory can also be applied to the area of investor psychology within the stock market, whether an investor has contemplated purchasing a stock or mutual fund which has declined or not, actually purchasing the intended security will cause the investor to experience an emotional reaction. Investors may avoid selling stocks that have declined in value in order to avoid the regret of having made a bad investment choice and the discomfort of reporting the loss.

In addition, the investor sometimes finds it easier to purchase the “hot or popular stock of the week”. In essence, the investor is just following “the crowd”. Therefore, the investor can rationalize his or her investment choice more easily if the stock or mutual fund declines substantially in value. The investor can reduce emotional reactions or feelings since a group of individual investors also lost money on the same bad investment. In investing, the fear of regret can make investor either risk averse or motivate them to take greater risk.

In behavioral finance, Prospect theory deals with the idea that people do not always behave rationally. There are different psychological factors which motivate people in investment decision under uncertainty. It considers preference as a function of “decision weights” and it assumes that these weights do not always match with probabilities. It further suggests that decision weights tend to overweigh small probabilities and under-weigh moderate and high probabilities. Prospect theory demonstrates that if investors are faced with the possibility of losing money, they often take on riskier decision at loss aversions. They tend to reverse or substantially alter their revealed disposition towards risk. People consult astrologers, tarot card readers, numerologists to seek divine interventions in their investments. This just proves how irrational investors become while choosing their investment options.

The Anchoring theory is a phenomenon in which in the absence of better information, investors assume current prices are about right. People tend to give too much weight to recent experience, extrapolating recent trends that are often at odds with long run average and probabilities.

The theory of Over and under reactions relies on the fact that market does not reflect the available information. The feelings are euphoric at times and depressing some other times. The information is most of the illusionary in character. Usually they are too pessimistic when it’s bad and too optimistic when it is good says Bill Miller. The consequences of investors putting too much weight on recent news at the expense of other data are market over or under-reaction. People show overconfidence. They tend to become more optimistic when the market goes up and more pessimistic when the market goes down. Hence, prices fall too much on bad news and rise too much on good news. And in certain circumstances, this can lead to extreme events.

Behavioral Finance builds on existing knowledge and skills. The primary focus of this subject relies on how behavioral approaches change the decisions of investors in financial markets.