In the past few weeks, you must have read a lot of news like this. If you read these news stories, you may find that shoppers are wandering from store to store in search of basic home supplies and accessories. On e-commerce sites, many items that used to be available with one-day shipping now have waiting periods of a week or more. To those of us of a certain age, it all sounds quite familiar – the way things used to be in India in the 1970s.
Of course, there are shortages all over the world, especially semiconductors, but nothing like the 360-degree ones that used to be considered the most brutally efficient economy in the world. So what happened, where is the source of the problem? The answer is right there – efficiency. The root cause of the problem is efficiency. Do you find this amazing? Efficiency is not only a problem, it can also be a problem in your personal financial matters. Let me explain
What is efficiency? Generally, this means getting the most output with the least amount of input. That sounds like a good thing. However, Covid has exposed the downside of efficiency. This is because being efficient also means having no spare capacity. During the past 18 months, we have learned (or at least, should have learned) the value of disability. disabled people coming out of it global pandemic Much better than highly efficient. We are so used to seeing disability as a negative trait that we sometimes don’t stop and think about what it means to someone. Business Or any system really. I remember in February 2020, when the virus was confined to China, a friend familiar with the work of private healthcare providers told me that private hospitals are likely to have very low ICU capacity when the virus begins to spread. India.
Why is it like this? Too many ICU beds lying vacant is unfeasible. All that investment in beds, rooms, equipment and people is not generating any revenue. As a business, this is undoubtedly true. Having empty beds is equivalent to having capacity in a factory for healthcare and not producing anything. If you are an investor in a company that runs a hospital, it will be in your financial best interest to have as little spare, unused ICU capacity as possible. How does it work once the pandemic takes hold? However this is just an extreme example. Many businesses are run in such a way that it is difficult to absorb even a small hiccup in revenue or supply chain. Cost, margin, debt – everything is fine but no one can shock.
“There are many people whose entire income is spoken in expenses and EMIs. They don’t have any reserve capacity.”
Unfortunately, many individuals are in a similar situation. There are many people whose entire income is spoken in expenses and Issue. They have no reserve capacity. A slight disruption in income, or an unexpected big expense, as has happened to many during the pandemic, has blown up their personal financial situations. I’m not blaming anyone here on a personal basis—many people don’t have the leeway to do anything better.
However, many savers also carry this efficiency mantra into their investments and projections of their future financial needs. I have seen people go to online calculators that do investment estimates, put exactly what they need and decide to invest in just that. A saver enters Rs 1 crore in 10 years and the calculator tells them to save Rs 44,500 in a month. Usually, such calculators are overly optimistic about the returns they will generate. Your needs may change, something drastic may happen. 44,500 is an ‘efficient’ estimate, in the sense I speak of above. This is a dangerous kind of efficiency.
Just because the exact numbers come out in a spreadsheet doesn’t make any sense. The future is uncertain, and always will be. If the pandemic has taught so much to rescuers, some goodwill has emerged from it.
(The writer is CEO, Value Research)