Alacrity Housing[1]

Resisting Bureaucratic Corruption: Alacrity Housing Chennai (A)

Compiled By: Radhika Vaze, Chaitanya Bhaskaruni Kavita Baeet

Agenda

1. Abstract2. Introduction to Alacrity3. Amol Karnad’s Profile4. First Consulting Company5. Alacrity Housing6. Foundation of Ethics7. Business Practices8. The Social Experiment9. Publicity Campaign10. Business Performance

11.Public Offerings (IPO) 12.The Changing Environment13. ‘Experience’ The best

teacher14. Developing New Leaders15. Challenges16. Emergence of Home Maker17.Chennai Construction

Industry -199418. 1994 – Traumatic Episode19. Chairman’s Speech20. Conclusion

Abstract

Alacrity Housing is a two part case that shows Amol Karnad’s ethical and innovative approach to launching and operating a construction business in Chennai.

Amol Karnad led the company through an IPO, creating one of the country’s top construction companies, by projecting an image of professionalism. He has also used the company as a platform to promote ethical stances which was also looked upon by people as a ‘Social Experiment’.

The case represents an example of resistance to bureaucratic corruption in an environment where corruption is widespread.

Amol Karnad

Born in 1950- Chennai

Qualification:Bachelor’s Degree in Statistics1976 – Chartered Accountant

Jobs:• Auditing firm Suri and Company (Apprentice for C. A. Course).R. Venkatraman• 1-year assignment in industry, with Ponds India • June 1976 :Hamilton Cycles in Mumbai …R. Ramakrishna• July, 1977 : B. P. Vaidya & Associates • 1978 : Return to Chennai

Inspirations:The Fountain Head – Ayn Rand

Alacrity Consultants

Private Limited Company incorporated in July 1978 (Consultancy & Trading)Founder Members:Amol K, Amol’sFather, brother, Anil K(Amol’s brother ), Ulhas (Amol’s brother in law), Amol’s Uncle and two friends Venkant & Ramakrishna.Capital – Rs 35000/- (Rs 5000/- each member)Low lights: Capital was spent and had borrowing of Rs 15000/.Projects:Secured two consultancy projects from former Employer and two uncles.Achievements: 6 months experience was equivalent to management lessons learnt in business schools for 2 years

Construction Opportunity

Construction Opportunity Emerged in 1981

Scope in Construction Company:• Consulting project for construction company brought into light the opportunities in construction company.

Need for Self Investments:•Frequent requests for rent increases from the landlord for the office premises.• Alacrity management’s needed to invest in homes for self.

Opportunity:• Construction project to develop Uncle’s ancestral property .

Alacrity Housing

Highlights :First 24 flats completed in 10 monthsPriced at Rs 150/- v/s Market rate of Rs 250/-Lowlights:Alacrity suffered a small loss of Rs 50000/-Achievements:Trust built among people who encouraged Amol

Karnad to enter Construction BusinessLessons Learnt :Realization that Construction practices could be

considerably improved.

Foundation of Ethics

•Basic goodness exists in all human beings

•Bribe robs dignity & self respect of the bribe taker.

•Corruption - ‘’ Relative Ignorance’’

•Respect for Rules & Regulations formulated by different Government department.

Alacrity’s approach in dealing with Government officials were based on

Business Practices

•Fixed prices – Protection to customers from cost escalations. •Indemnified Title – Company took full responsibility for the title of the property.•No black Money – Discarded black money by accounting every transaction. •Liquidated Damages- Offered delay charges to customers.•Tax Advice – Land owners were appraised of the tax implication on the sale of their land.•Standardization – Achieved economies in production through standardized designs.•Functional Environmental Conscious Designs – Focused on functional aspects of the building.

The Social Experiment

Alacrity’s mission Statement – ‘’To try and prove that organized business when deeply committed to values is the best equipped to lead society to a better quality of life’’.

•Long term employment to laborers with various facilities like free medical, counseling services, help for children's school fees and books .

• Employees included many people from same family.

• Remuneration policies included Age allowances, Service Allowance and Unique age based medical policy

•Narrowing Economic Disparity – Salary of the highest earner was only 6 times that of the lowest earner compared to industry norm of to earn 25 times more.

During 1988 Alacrity Publicity campaign focus changed from Business to Ethics.

“It Pays to be Honest’’

“Home is Key’’

Published Journals & booklets with titles -“How to be an Employee’’ & “Urban Housing-whose right, whose responsibility?’’ , “Business Ethics’’ and “ A business House with Social Mission’’

Publicity Campaign

•HDFC offered finance for growth in return got clients for Home Loan business.

•Targeted to increase the volume of 200,000 Sq feet of construction per annum to 1000,000 sq feet per annum in 5 years.

•Great success achieved through home service of skilled workers (Electricians, carpenters & others)

Business Performance

1991- Liberalization of Government policies lead to opportunities in Construction market. In preparation to growth prospects Alacrity Housing Limited offered 4.8 Million shares to the Public at Rs 10 each. Challenges: April 1992 -The biggest Stock market Fraud lost 50 billion of Investors money. Post fraud the market lost 13% of its value.

Steps taken:•Alacrity marched with slogan “ It Still Pays to be honest’’ in newspapers with national coverage.Alacrity's management team went on road show to the major cities of India to Market the Public Issue. The public issue documents were transparent and revealed the losses in Alacrity Foundation in the preceding 5 year period (Accumulated losses since 1982 were Rs31.9M)

Public Offerings

Press Reaction – Alacrity IPO

Leading popular business press criticized the public issue and cautioned the public against investing.

“Promoter of Alacrity Housing Limited says that he set up the business to fulfil some of his social responsibilities. Or is (he) trying to hide his business failure on the pretensions of social service?” - Investment week

“ AHL’s issue slogan reads: “You share our values. Come, share our growth.” But, the track record of the promoter-company reveals that there is no value or growth left to share.” - The Times of India “ Welcome to Scam Two. Welcome to the just-manufactured industrialists selling us a too-good-to-be-true story.”- The Economic Times

“A disappointing past performance has not deterred the company from presenting a rosy picture in the projections. ….. should you apply for the issue? If you believe in miracles, go right ahead.”- Capital Market

IPO-Results

Due to miscalculations the issue was closed only after 4 days it was opened, leading to only 84% of public issue being subscribed.Allotment:•1.6 Million shares : Alacrity Foundation for take over of Housing business•1.6 Million shares : Promoters ,their friends & relatives for cash•Remaining shares allotted to PublicResults:Net Profit of 2 Million for the period ended 31st March 1993

Alacrity’s Response

Changing Environment

•Over dependency on the leadership lead to strenuous work pressure.

•Failure to develop the people along with the organization resulted in frustrated relationships at work.

•Mixture of Personal & professional relationships added to emotional turmoil.

• Organization pressures lead to unpredictable & inconsistent behavior pattern leading to marriage crisis.

“Experience”-The Best Teacher

“ Effective Family Role is the base of Effective Organizational role’’Steps taken:•Shared personal life experience in the office.•Managers were encouraged to share personal childhood experiences, fears & insecurities.•Emphasized importance of building spousal relationship.

Results:•Post initial challenge of sharing personal feelings, managers found the exercise immensely rewarding.• Managers claimed that their relationship with their spouses improved considerably and led to better communication at work.

Selection & Developing Leaders

Amol identified leadership development as the critical factor for Alacrity’s growth. He introduced a transparent selection procedure •Committees were formed to decide the leadership criteria .

•Seven main questions were formulated by the committees for the applicants for the leadership position

•The top managers acted as Judges .

•Candidates were interviewed in presence of all the applicants

•Applicants shortlisted the names for the position based on the performance

Shortcomings

• Senior managers were insecure about the impact of the process on their own positions.• Youngsters had problems with subordinate bosses and the top managers of not concentrating in their areas of work and wasting their time in philosophical discussions respectively.• Process was taking place when organization was under pressue to cope up with growth.• Existing departments were being expanded.• New departments were being added.

Amol Karnad concluded that selection process failed in which it has challenged the intellectual dimension.

Emergence of Home Maker

In April 1994,Alacrity outlined a change in its philosophy by employing all Alacrity spouses in Alacrity.This decision was objected by Amol’s wife and the whole process got reversed.

Then came a stage where it was decided that no Alacrity wives should be employed.

Also some special allowances should be given to the non-working spouse if they stay at home.

But still the company continued to have a number of women working, although not at the level of top managers.

Chennai – Construction Industry 1994

• In 1994 NRI’s started investing in real estate in India.•Approached Alacrity and offered huge amount of funds for buying the plots.•Alacrity rejected the offer saying that they had bankers to support.•Hence, NRI’s started approaching less well known builders also asking for illegal documents.•Builders started selling their properties at much higher rate thereby resulting in market boom.•However, Alacrity still continued at no.1 position in terms of volumes managing 85 properties during the year 1994

1994 Traumatic Episode

20 employees, out of a total of approximately 200, resigned from their jobs to set up another construction company called Vibrant.

Those who left included• R.Ramakrishna, the Managing Director, • R. Venkataraman, his wife Sujatha Venkataraman,• Anil Karnad (Amol’s brother), • Senior managers, and site engineers.

They set up the Vibrant Group, which would be involved in construction and other activities.

In his Chairman’s speech to the Annual General Meeting, Amol alluded to another aspect related to the departure of so many key employees.

“Given the fact that the organization was in the process of strengthening the second line of management and like other organizations in a similar situation, was experiencing a generation change and the attendant emotional pressures, the parting of ways for some was perhaps inevitable – as inevitable as the mother-in-law and daughter-in-law in similar circumstances seeking their own separate kitchens and private spaces in adjacent Alacrity flats!”

Chairman's Speech

Conclusion

The case examines Alacrity Housing's history and how it grew to become the first listed corporation in the Indian construction industry. The company started operations as a consultancy and later entered the housing construction industry. Alacrity behaved in a strictly ethical manner and valued ethical practices over profits.

Alacrity Housing[1]

Documents

Transcript of Alacrity Housing[1]