The people’s advocate

Bharti AXA General Insurance was undergoing a major change last year and there was a possibility of reshuffle in shareholders. Instead of being made aware by the company, the staff came to know about it through press reports. This could have raised quite a few challenges if not handled well. The first thing we did was to communicate openly about this to the staff, giving them all the details required. In addition, we set up regular communication and meetings with the staff on a pan-India basis to address any query from them and ensured normal execution of all operations. This had a positive impact on the staff and at the end of the year we had not just managed to meet all business targets but also saw an increase in employee satisfaction that we measure every year.

During economic slowdown or market turns, it is important that HR is involved during all boardroom discussions so that they are abreast of the situation and people become the integral part during the decision-making process. As a chief people’s officer, it is his or her responsibility to ensure and lead all employee communication for the organisation, be available 24/7 for answering queries and concerns, and to motivate during times of change.Communication is one important strategy during turnarounds and it should be transparent, factual and employee centric. This will ensure that there is no ambiguity and uncertainty in the minds of the employees. Also, the HR head needs to make sure the communication is factual and pragmatic – neither alarmist nor too optimistic for the organisation to maintain credibility in the eyes of its employees. Read more..

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Time for a ‘Crude’ Landing, People!

The Current Surge in Global crude Oil Prices puts forth two basic Questions – what are The Underlying causes and what’s The Worst we can expect. While The Most Pessimistic Projections may prove untrue, The World is Indeed staring in The Face of another crude shock that could derail Global Recovery

Be it the oil shock of the 1970s or the impending oil crisis of 2011; the spike in oil prices in both cases has been the consequence of a combustible mix of geology and geopolitics; with the latter inflicting much more of the damage. The turmoil in Egypt, Tunisia, Yemen, Libya and the consequent fears of disruption of Suez Canal and SUMED pipeline have led to oil prices breaching the $100 per barrel mark (on February 24, 2011 it touched $120 per barrel, well short of the July 2008 peak of $147 per barrel). The continued political upheaval in Libya, which produces approximately 1.6 million barrels per day and accounts for close to 2% of global oil output, will further escalate prices and dampen the fragile global economic recovery.

As the ‘Day of Rage’ rules the roost throughout the Middle East and North Africa (MENA) region, oil-supply side vulnerabilities can only increase. It is to be noted that the MENA region is home to about 60% of global crude oil and 45% of the world’s natural gas reserves. Given such dynamic statistics, any disruption in the supply of resources from this region will tantamount to a significant price rise. Though Saudi Arabia and other OPEC members are bent on meeting the challenges, fear of underinvestment in the MENA region will undoubtedly push oil prices northwards.

Amidst this scenario, research houses are forecasting that oil prices could well surge to $220 per barrel (as suggested by Tokyo-based Nomura Holdings). With the bitter aftertaste of the economic crisis still lingering across the globe, the forecasts of spiralling crude oil prices is an indication that we could be in for a reversal of the global economic recovery, as if it wasn’t sluggish enough already.

Even if one assumes that the current spike is merely a result of speculation and that the dust would soon settle down; the potential loss is huge. As per estimates, the British economy would have to wipe out £45 billion in the next two years if oil prices surge to $160 per barrel this year. The economic recovery in the US too could be hurt; it is estimated that every $1 surge in oil prices would cost the consumers $1 billion over the course of a year. The entire episode of unrest has seen the West Texas Intermediate (WTI) and other crude oil spot price increase by about $15 per barrel since mid-February. The US Energy Information Administration (EIA), in its latest outlook (Short -Term Energy Outlook, published on March 8, 2011), has raised its forecasts for the average cost of crude oil to refiners to $105 per barrel in 2011, $14 higher than its previous outlook. However, EIA has raised its 2011 forecast for WTI by only $9 per barrel to $102 per barrel, because of the projected continued price discount for this type of crude. EIA has further projected a small increase in crude oil prices in 2012, with refiner acquisition cost for crude oil averaging $106 per barrel and WTI averaging $105 per barrel.

At best these projections are but optimistic in nature. BMO Capital Markets further goes on to suggest that given the lag and the cumulative 46% increase in WTI between 2009 and 2011, the oil price increase will reduce the US economic growth by 0.7% (a huge figure in their case). Substantially higher prices (as forecasted by Nomura) arising from a supply shock would also significantly heighten the risk of a renewed recession. The current political problem is more grave than the geopolitical problem of the 1970’s, since the problems have spread to the entire MENA region.

Read more....

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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