case surviving the recession: describes a real-life situation …€¦ · indu rao and deepti...

VIKALPA • VOLUME 34 • NO 3 • JULY - SEPTEMBER 2009 79

THE RECESSION

In November 2008, the workers of Indian diamondindustry had a tryst with destiny. An estimatedone million workers returned after a customary

five-week Diwali vacation, just to find that owners ofthe diamond processing units would not open gatesfor them. Thousands of such units in Gujarat, India,which cut and polished diamonds mainly for export,had shut down. The decades old, and now US $14.2billion Indian diamond industry, witnessed the se-verest recession in its history (Source: GJEPC). How-ever, one unit allowed all of its over 1,500 employeesto resume work.

The 61 year old Sevantibhai Shah, the founder of ‘Ve-nus Jewel’ fondly addressed by his employees as‘Kaka’ (a respectful Gujarati word for uncle), was en-grossed in his usual work in his office in Surat, in theafternoon of November 18, 2008, when a group ofemployees approached him ….

“Kaka, we have read in the newspapers this morn-ing that all the other diamond units have decidednot to reopen after Diwali due to severe recession.Will it not affect our company if we, probably theonly ones in the entire industry, work? If required,please close the factory. We will understand.”

“It is not required,”was Kaka’s brief reply. The nextday, i.e., November 19, the emotional employees cameback to Kaka in big numbers and said, “We want totell you something, but promise that you will agree withit. “I can’t promise anything without knowing your de-mand,” said Kaka.

M A N A G E M E N TC A S E Surviving the Recession:

Venus Jewel -A Case Study fromthe Indian Diamond Industry

Indu Rao and Deepti Bhatnagar

describes a real-life situationfaced, a decision or action

taken by an individualmanager or by an

organization at the strategic,functional or operational level

The Indian diamond industry witnessed asevere recession in the year 2008. Theindustry is already showing signs of recoveryin 2009 led by its large-sized firms. This casepresents facts from a study conducted in alarge-sized Indian diamond processing firmwhich has existed for the last 40 years andled the revival of the industry. It includesdescription of the company policies,management practices, innovations, theorganization structure, and other uniquesystems. It also describes the exemplarybusiness acumen and leadership qualities ofthe founder of the unit of our case. Besides,this is the first such study conducted in theIndian diamond industry which hasotherwise remained undocumented in spiteof an extraordinary global performance.

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Having failed to get an assurance in advance, theysaid, “Kindly reduce our salaries, except for those whosesalaries are in four digits.” “It is not required,” Kaka said.Several employees had tears in their eyes. “I appreci-ate your feelings for the company and the bond that hasdeveloped between us. There is no need for the company toshut down or to reduce salaries, but if you want to do some-thing for the company, I have a suggestion.” The employ-ees were intrigued, “What is it, please tell us.” Kakareplied … “Ensure that no damage is done to any stone(the diamond rough), and cooperate with the managementby giving your best.”

This is a story which will keep doing rounds in thiscity of diamonds, perhaps for decades.

“Around 6 lakh people lost their jobs from October2008, following the impact of recession and most ofthem were from Surat’s diamond and jewellery in-dustry. About 500,000 people lost their jobs in theOctober-December 2008 period, while over 100,000were shed in January this year.” The EconomicSurvey presented in the Indian Parliament onJuly 3, 2009, reported.

Reports suggest that many diamond workers whowere immigrants from Saurashtra, Bihar, and UttarPradesh, and whose families were totally dependenton their jobs in Surat, were left stranded during thecrisis; some tried to commit suicide, others who strug-gled for a few months, either switched over to otherbusinesses or withdrew their children from localschools and packed their bags for their native places.“Diamond had become as good as stone,” remembers amiddle-aged artisan. Six months later, the industryhas somewhat recovered from its lows with around aquarter million jobs added after January, followingsigns of global recovery. But it has been difficult forseveral units whose workers did not return. VenusJewel not only retained its staff, but also invested morein rough diamonds.

“Our turnover has come down from $335 millionin 2007-08 to $217 million in 2008-09, but we havesurvived. We suffered heavy losses but the efficiencyhas increased, and we are happy to have earned theenhanced loyalty and trust of our people,” said Kaka.

GLOBAL POSITIONING AND THEINDIAN DIAMOND INDUSTRY

Of the world’s total export of cut and polished dia-monds, the Indian diamond cutting and polishingindustry accounts for 95 per cent share in terms ofpieces, 80 per cent share in terms of caratage, and 57per cent in terms of value; 11 out of every 12 diamondsset in jewellery worldwide are cut and polished inIndia, 90 per cent of the work being done in Surat(Source : GJEPC). Gem and jewellery industry is oneof the most dynamic and fast growing sectors of theIndian economy and a major contributor to the coun-try’s export-led growth. The Gems and Jewellery Ex-port Promotion Council (GJEPC) is the apexgoverning body of this dynamic industry, and wasset up by the Ministry of Commerce and Industry,Government of India, in 1966.

The industry has registered a remarkable growth overthe last four decades, with exports having grown fromUS $29.35 million in 1966-67 to US $21.11 billion in2008-09 accounting for 19.1 per cent of the total In-dian exports. Export of cut and polished diamonds(CPD) accounts for 67 per cent of the export basket ofIndian Gems and Jewellery and is therefore a leadingforeign exchange earner for India. No diamond minesexist in India today, and hence the rough stone (rawmaterial) has to be entirely procured as imports. Therough diamond is mined in South Africa, Botswana,Canada, Russia, and Australia; traded mainly in Ant-werp, Belgium, and processed (cut and polished) inIndia, Israel, and now also in China; thereafter, thepolished diamond is exported across the world, USAbeing the major consumer.

How does the Indian Diamond Industry Operate?

The industry resembles a close-knit community thatthrives in the atmosphere of secrecy and informalitythat envelops the diamond trade. A majority of India’sskilled diamond workforce is employed by small fam-ily-owned firms or units that process diamonds on ajob-lot basis. In the ’80s and ’90s, the diamond indus-try was in the eye of the storm for the poor workingconditions of the hundreds of one- and two-roomunits mushrooming in Surat and nearby places. Eventoday, there exists a huge network of traders, manu-

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facturers, artisans, and brokers engaging more thanfive million people who have little or no education. Itis difficult to predict the actual number of diamondmanufacturing units or the number of people em-ployed, as the processing is done in large, medium,and small units, which are spread across the state,reaching many villages and even homes for whichthere are no records.

The trading across various levels between importers,exporters, and manufacturers is carried out throughthousands of brokers on open streets in markets called‘Heera Bazaar’ for which there is no way of tracking.The transportation of diamond packets, both roughand polished, is done through Angadias, members ofUnja Patels, a local community who have specializedin carrying diamonds safely within the industry andachieved trustworthiness of the highest order. Thereare often no written contracts; many transactions oc-cur in cash; and stones worth millions of dollars aretransported with virtually no security. The entire in-dustry seems to be working on trust. No small feat,then, that the local entrepreneurs captured a lion’sshare of the global diamond exports.

However, the global recession of 2008, meltdown ofthe US economy, and devaluation of the US dollardid not spare these diamond cutters whose lives weredependent on exports. But, Venus was different—itgrew at an astonishing rate of 47 per cent in fiscal2007-08 which was witnessed the world over as a yearof economic slowdown.

THE COMPANY

Venus Jewel was established in 1969 by Mr.Sevantibhai P Shah, and his brother, Mr. RamnikbhaiP Shah. It employs more than 1,500 persons. Theturnover of Venus grew from about Rs. 5 crore in 1988to around Rs. 1,400 crores in 2008. The company hasearned the reputation of having revolutionized thedomestic as well as international diamond cutting andpolishing industry, and redefining the concept of amodern diamond processing unit.

Venus specializes in manufacturing of premium soli-taires of sizes 0.50 to 5.00 carats and above, D to Jcolours and IF to I2 clarity, and in a variety of shapes.

The management remains under the control of thefive family members, i.e., Kaka, his elder brother, andthe nephews, Mr. Anil Shah, Mr. Rajesh Shah, andMr. Hitesh Shah, who represent the second genera-tion in the family business.

“Venus is a trusted supplier of solitaires, recognizedfor its commitment to excellence, transparent busi-ness practices, ethical values, and also considered abenchmark for providing one of the best workingenvironments in the world,” said the Chairman,GJEPC, Mumbai, during a meeting in his office inMumbai in July 2007. “We are proud of the waythis company has grown setting standards and with-out compromising on their principles,” said the Di-rector, IDI (Indian Diamond Institute), Surat,in the course of a personal discussion in De-cember 2006.

The Venus Unit

We visited several factories of the Indian diamondindustry—from the largest manufacturers to the smallfour-room operations and even the single machineunits operating in small houses in villages. But onceinside the Venus gate, following a five-minute ridefrom the Surat railway station, it was an entry into adifferent world—An 8-storey 260,000 sq. ft. centrallyair-conditioned, state-of-the-art manufacturing facil-ity, built on a 6.5 acre plot (Exhibits 1a and 1b) thatcould easily be compared to the best in the world. Itslandscaped gardens, spotless buildings, and smartly-dressed security guards extending warmth and hos-pitality, were omnipresent in this Venus campus. Oneof the security guards escorted us through the hightech security systems to the escalator, while anotherone waited on the eighth floor, to take us to Mr. Rahul,the General Manager.

Ambience

The well-designed, sparkling structure, neatly di-vided into separate, spacious, aesthetically lit-uprooms created an ambience, rarely found in the bestof corporate houses. More than a thousand workersand skilled artisans worked diligently and with dis-cipline on their respective machines using computer-ized tracking systems, cutting-edge laser technology,

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and the most modern and sophisticated diamondprocessing equipments. Contrary to the trends thatearlier prevailed in the India-based manufacturing/exporting units of the diamond industry, in Venus,there was no child labour or abuse, or polishing ofgrains of sand (small sizes of diamonds). Everythingwas bigger, brighter, and better than the world out-side their enclave; many diamonds were 2 carats up-wards on the wheel.

Business Policies

Talking about selling, Venus follows the law of non-negotiable price—Take it or leave it. It is perplexingto note that amidst thousands of units, this one workslike a monopoly. Their first offer is their final offerand is determined by a computerized system, basedon a long list of parameters which do not emphasizethe fluctuating prices and the profitability of the com-pany. Every parcel contains a single diamond pieceand carries detailed description of the diamond, apractice they were the first to start in the industry.Credits are allowed only up to nine months, whichhas become a hallmark of the industry; at Venus, theaverage receivables in 2008 were just 10 days. Initially,customers were angry and the sales went down, butthe company stuck to its policies, refined the gradingsystems, and ensured that the stones were well cut.Over time, they have developed a solid client basethat is willing to buy their stones through websitewithout physical inspection of the diamond.

General Environment

It does not end with the diamonds and their manu-facturing and selling. A tremendous sense of peaceand satisfaction pervades the campus—pick any em-ployee, and he would be willing to openly share histhoughts about the environment, work, and thefondly respected ‘Kaka.’ They have the privilege oftwo sets of vacations of three weeks each for Diwaliand summer, eight working hours per day, pensionschemes, and a system of self-supervision by theworkers themselves. Of course, closed-circuit camerasare installed in many parts of the factory for the pur-pose of monitoring.

While the company has achieved the production of

an unmatched quality of polished diamonds, the otherunits wonder how they manage to do it? Here is acompany which has not only defied all trends but hasalso succeeded in setting many new ones. Discussionswith family members, employees, and even competi-tors generated a common response: “Kaka’s name issynonymous with credibility. The diamond sells by hisname.”

The Founder

Kaka is credited for transforming diamond process-ing in India. Born in 1948, in a family of moneylend-ers in Vadgam, a remote village near Palanpur, helost his father at an early age. He imbibed the impor-tant values and lessons from his parents and eldestbrother, who were very caring and affectionate. Allhis life he treated his employees with the same em-pathy. Kaka had been a brilliant student of the firstbatch of a school in his native place, up to class 11(equivalent to SSC), beyond which he did not receiveany formal education. Out of the four brothers, hewas the most daring and had strong conviction. De-termined to pursue his beliefs and being an uncom-promising perfectionist, he has always led a simpleand disciplined lifestyle. Simple food habits, gentleand caring attitude, clear thought process, strongwillpower, dedication towards his duties to all, andhigh moral values are some of the attributes whichdistinguish him from the contemporary industrial-ists.

Technology, scientific management, and human re-source management were never learnt by this hum-ble and simple man in any management school; yethe has set an example of an exemplary businessmanby being the first to adopt and develop unmatchedworld class technology and systems, and also takingpeople along with him as he struggled to reach thetop. A firm advocate of punctuality, discipline, andcommitment, Kaka believes that ‘life without strug-gle is a life not worth living.’

Kaka came to Surat in 1965, and was in a dilemmawhether to study further or not, and ultimately de-cided to take admission in an engineering college. Buteveryone was talking about the opportunities in the

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diamond industry in those times. Even an artisancould earn 3-4 times more than what a teacher earned.He decided not to study further and switched over todiamonds.

“There were uneducated people in the business andthose who were studying stopped doing so becauseof the opportunities in diamond business, but allwere intelligent and hard working… and there wasscope for a large number of people to get employedin diamond business …I learned about diamondswhile moving in different units and was one of thefew persons trading actively on streets. In 1969, westarted our own company, Venus, named after theplanet which shines brightest in the sky.” Kaka re-vealed.

In 1978, when Kaka returned from a 50-day pilgrim-age, organized by his family for 700 persons, he wasthoroughly dissatisfied with the quality of work donein their absence— the industry was booming; manu-facturers were roping in workers from other compa-nies. Instead of allowing inferior quality, he almostdoubled the salaries so as not to compromise on qual-ity, and established a unique incentive-based wagesystem.

“Working in a manufacturing unit was consideredbelow one’s status in the business community; trad-ing was dignified. People didn’t want to have of-fices attached to the manufacturing unit. In 1982, Iwas the first person to conceptualize a unit with of-fice and production in the same premise; the con-cept was later accepted by the industry,” Kakaclarified.

Earlier, the owners operated from an office that wasat a distance of 3-4 kms from the factory. Once in thelate ’70’s, when the workers went on strike and theManager informed Kaka about the seriousness of thematter, he instructed the Manager to lock the stonesin a safe, and do nothing. After a few days, someworkers walked into Kaka’s office. he asked them tosit but did not utter a word. Ultimately, one workerhesitantly said, “What should we do?” Kaka’s reply was,“Did you consult me before going on strike, why consultnow.” They decided to resume work.

“A change was not accepted at first by the workers,but later only when it proved beneficial to all, didthey understand.” Kaka confirmed.

All these years, while growing in an industry whichlargely belonged to the unorganized sector, thefounder adhered to his principles, observing the lawof the land, providing good working conditions andalso by being the best pay provider. He was amongthe first to adopt technology and invent methodolo-gies to achieve quality which was unheard of in theIndian diamond industry.

So, what has Kaka’s Venus Jewel done over the yearsto be as successful as it is today…..

Major Innovations/Milestones

The company has been credited with several firsts inthe industry since its inception in 1969. A brief over-view is given in this section and some of them aredescribed in detail later.

“Like others, I too got opportunities to make a fastbuck, but never compromised on my principles tilldate. If you read history, it is the burden of bankinterest along with buying on long credit termswhich ultimately leads many to bankruptcy.” saidKaka.

As early as 1971, Venus decided not to borrow fromany source other than a bank. In 1994, it was decidedto buy rough only through cash, and not on credit.Both practices were otherwise very common in theindustry.

Kaka was terribly hurt by some comments made onthe poor quality of gems made in India and also aboutthe poor working conditions that existed here. Heresolved to correct that impression,” an old em-ployee said.

“I thought long and hard about how to make myemployees happy, which would automatically resultin making them loyal and dynamic,” remembersthe leader.

In 1978, Venus established a unique incentive-basedwage system wherein the efficiency of each worker is

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calculated daily, aimed at maximizing value addition,and this proved to be highly motivating. In 1986, anew diamond manufacturing unit was established,with observance of all statutory regulations, deploy-ing various staff welfare measures, good working con-ditions, and an efficient, motivating, and ethical workculture, which became a benchmark for the otherwiseunorganized diamond industry. In 1987, the companystarted computerizing, which helped in achieving in-formation technology governance, integrating allbusiness functions from manufacturing to sales. Kakarecalls,

“It was difficult to find people trained in computertechnology, then. The computer person, who waswith us from 1987-1996, knew everything about oursystems, left suddenly for the USA without inform-ing us in advance. That created a severe problem.We tried to take work from the trainees, sitting withthem, making them understand the various logicsof programmes required for our systems.”

“In February 1988, during a visit to Antwerp, Ifound that the price of large-sized polished diamondwas too high compared to the rough prices. Afterverifying this, I purchased the rough and startedmanufacturing diamonds, 2 carats and above, on alarge scale, thereby pioneering the concept of highvalue diamond processing in India. Prior to this,the world had doubts about India’s ability to proc-ess such large-sized diamonds.

I spent extra working hours to make this large-sizeddiamond business successful. The key to success inthis endeavour was strong focus on quality, atten-tion to the minutest detail, and utilization of latesttechnology as much as possible. Equally importantwas to offer to our people a healthy environmentwith social security, welfare benefits, and the bestwages in the diamond industry.”

In 1996, the company developed its own Venus Grad-ing System (VGS), which is in all likelihood, the mostdetailed grading system in existence in the industry.It specified 16 grading attributes for each diamondwith multiple checking levels and more than 400 cri-teria-specific master stones. The general trend of rat-

ing a diamond was on the basis of only 4 grading at-tributes—carat, cut, colour, and clarity, or the 4C’s asthey are popularly known (Exhibit 4).

“Our primary objective in launching this exclusivegrading system was to reinforce our customers’ con-fidence in their purchase decisions by bringing ingreater transparency. The detailed and comprehen-sive description not only offers enhanced confidenceand trust, but also peace of mind while purchasingdiamonds,” said Mr. Anil Shah, eldest of Kaka’s threenephews in the business, and a partner of the com-pany, who looked after the Sales office in Mumbai.

In 1996 again, along with VGS, Venus introduced theconcept of single piece-single parcel, providing de-tailed information of diamonds on individual pack-ets for each of them with the intention of helpingbuyers make a comfortable, well-informed, and con-fident purchase decision. Buyers were not happy be-cause earlier they were able to see many diamondsby just opening one packet, but here for each dia-mond, they had to open a packet. Naturally, they didnot realize its benefit initially, which resulted in salesdropping drastically.

In 1997, the company launched the concept of sellinghigh value diamonds through their websitewww.venusjewel.com — a first for any manufacturerin the global diamond industry.

“If you have a will, determination to do something,and if you are convinced, be ready to sacrifice. Don’tget satisfied with what is not OK. At that moment,you might want to give up, but review it with faith,determination, and belief.”

In 2001, the Superannuation Scheme (pension scheme)was started for the benefit of employees. It was avoluntary and unparalleled move in the industry, inwhich Venus operated. So far, it has been the onlycompany in the diamond industry providing thisscheme.

“If we believe in being responsible to our people, tak-ing care of them, not leaving them in tough times,and respect them, my experience is that they willput in their best,” Kaka asserted.

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In June 2002, the US $12 million state-of-the-art manu-facturing unit started functioning. It was a centrallyair-conditioned, 8-storey factory premise of 260,000sq. ft. area on a 6.5-acre plot, providing an excellentworking environment. Kaka recalls,

“I hired a fresh architect and was personally involvedin the design of this new factory; it was my dreamto provide a spacious and luxurious working placefor my employees, and change the notion that dia-monds in India were manufactured in sweat shops.Some, jokingly even commented whether I wantedto play football or manufacture diamonds when webought this property.”

Exports crossed US $100 million in 2002 on year-to-date basis. In 2003, the company introduced Con-firmed Order Requirement (COR), a revolutionarysystem of buying diamonds on specification withoutpersonal inspection. Apart from boosting consumerconfidence in the business integrity of the company,the system alone contributed to 12.31 per cent of salesin less than six months. Sales crossed the US $150 mil-lion mark in the year 2003. In fact it grew from US$67.09 million to US $174.80 million in a period ofjust three years between 2001 and 2004.

“Trust comes through experience over a period oftime. Initially, I did not succumb to pressure; peo-ple believe that if I say something, there must besome well thought of reason in the interest of all.People have been laid-off overnight in our industry;trust is lost, and will probably not come back eas-ily,” Kaka expressed concern.

In 2005, the company hosted an in-house web server,providing the entire inventory on real-time basis fortheir online buyers. Later, besides the grading details,digital images of diamonds were also made available.

Sales through the website was about 37 per cent oftotal sales in 2006, which was a reflection of customertrust and confidence given the nature of the product.During the recent terrorist attacks in Mumbai, buy-ers were scared to come to Mumbai to purchase dia-monds. In such a situation, their grading standardsas well as their online sales system became a boon forVenus. The financial data for the company has been

provided in Exhibits 5a-5e.

Informal Organization Structure

Venus operates through its manufacturing unit atSurat and a sales and marketing office in Mumbai. Itis a partnership firm, with five members—Mr. S PShah, his elder brother, and three nephews. The com-pany does not have a formal hierarchical organiza-tion structure. However, people are grouped intodifferent work areas (Exhibits 2a and 2b). A majorityof around 86 per cent of the employees are employedin manufacturing, around 7 per cent as support staffincluding the canteen attendants and security watch-men, about 5 per cent are employed at the Mumbaisales and marketing office, and the remaining for dataprocessing, audit, etc. It is easy to notice through theorganization structure that overheads are at a mini-mum.

“We aim to maximize on efficiency. What can bedone through systems should not be ignored. Fur-ther when we ensure quality in our products, weneed less marketing efforts. We have such systemsin place that each person monitors himself, so thereis little need for hierarchy,” the leader stated con-fidently.

The Manufacturing Process Flow Chart

“No two diamonds are alike just as no two humans are,”says one of the senior rough diamond planners. Thediamond cutting and polishing process includes as-sorting, planning, marking, shaping, cutting, polish-ing, grading, checking, and measuring and is alabour-intensive, highly-skilled job. The rough dia-monds are sorted and valued depending on shape,quality, colour, and size, using high-tech laser ma-chines and the unique skills of the artisans. Each ofthe diamond processing sections employs artisanswho have expertise in respective operations. The un-derlying assumption is to allow an artisan to excel inhis area of specialization instead of providing discom-fort in some other area; however, they can develop anew skill by choice. Some 1,270 skilled artisans,assorters, and graders make use of their traditionalknowledge as well as the high-tech laser technologyand machines to convert the rough stone into pol-

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ished diamond through a well-designed manufactur-ing scheme. (Exhibit 3a, 3b, and 3c).

In an attempt to discover the secret of the impeccableVenus quality, Mr. Hitesh Shah’s response was,“Every stone is graded, re-graded, and then again re-graded. Consistency is the key…..” and this is sup-ported by the wage system designed, or morecorrectly, invented by Venus.

The Unique Quality-/Incentive-Linked Wage System

“The focus here has always been on doing thingsdifferently and emphasis is laid on continuouslyoutperforming our own selves”- a master cutter says.“Quality control (QC) is not the responsibility of adepartment or group. With us it is the individualresponsibility of the artisan and employee workingon the diamond, irrespective of the department orthe part of the diamond he is forming.”

A unique wage system has been in place: If any arti-san from any department identifies a scope of im-provement in the stone, that would give better resultthan that estimated by the planners/markers, the con-cerned planner/marker would earn negative creditsfor under-estimating the stone whereas the artisanwho noticed this would earn positive credits, i.e., anincentive over and above his basic salary. Conversely,if an artisan notices an overestimation of a given stoneby a planner/marker, once proved, it would againinvite negative credits for the planner/marker andan incentive for the artisan. Also, if an artisan is know-ingly or unknowingly not able to achieve the resultson a stone as estimated by a planner/marker, the samerule would apply. Additionally, within each depart-ment, the total employee strength is sub-grouped ac-cording to their performance levels which aredynamically monitored on a day-to-day basis.

Taking the planning/marking department as an ex-ample, a stone estimated by a planner/marker in thebest performing sub-group could be randomly re-ex-amined by another planner/marker, who may notnecessarily be in the top sub-group. This method ofintra- as well as inter-department checking is appli-cable up to the final grading stage in Mumbai, beforea stone is put up for sale. A simple rule is that if one

makes more mistakes, not only is he losing money,but he also stands to be downgraded to a lower sub-group. Again, being downgraded to a lower sub-group implies that better quality or big-sized stoneswill not be given to him for processing, as the stakestherein are higher, and mistakes would result in a bigloss.

On the other hand, if one has been downgraded tothe lowest performing sub-group, and through puredetermination, he minimizes or eliminates his mis-takes, he is sure to rise up in the sub-group rankings.The better you perform, the higher is your rank, themore expensive are the goods given to you, and themore you can earn. In effect, therefore, before a pol-ished diamond finally reaches the sales department,it has been examined and re-examined by a numberof different people assessing it from a number of dif-ferent angles.

“Top class and unsurpassed product quality is thenatural outcome of the process. There is no QualityControl department in our set-up, but individualaccountability and responsibility for all, and everyaction/decision taken, inherently ensures the bestpossible quality control.” Mr. Rahul said withpride.

Transportation of Diamonds

Transporting diamonds from the manufacturing fa-cility to sales office in Mumbai relies to some extenton the trusted Angadias as described before. With theemergence of professionally managed domestic highvalue/precious courier cargo services like Brinks,Ferrari, Malca-Amit, Securicor, etc., the company alsomakes use of their services. As the goods are highlyvalued, insurance is done under the “Jewellers’ BlockInsurance Policy.” The local Angadias also cover them-selves under the same policy. However, the interna-tional couriers named above have their own insurancepolicies availed from global insurance companies.

Marketing and Sales

Humility and Simplicity are the key values of the com-pany’s principals, and are percolated into its business.Although a pioneer of many path-breaking trends in

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the Indian and global diamond industry, the companyhas been shy to talk about its own achievements. Con-ventional marketing practices have never been putto use at Venus Jewel; word-of-mouth is relied upon.The aim has been to give confidence to the end con-sumer that they are truly getting actual value for themoney they are investing.

Kaka says, “If I can give to the market a product withtransparency, customers although slow to approach, areultimately going to prefer it. We have got customers theworld over, who have confidence in buying diamonds fromus, and are even willing to pay premiums on them. Notonly that, they in turn have introduced us to other cus-tomers also, and so on.” Naturally, because of this, we donot need to spend much for various marketing measures.

Such experiences have, purely through word-of-mouth, cascaded into a very strong customer base forus, across the world, in the USA, Japan, many coun-tries in Europe, the Asia Pacific, and Asia Arabia, inaddition to Australia, Canada, New Zealand, SouthAfrica, etc.

A unique IT-driven business model (Figure 1) is inplace which seamlessly merges the manufacturing,grading, pricing, sales and marketing aspects of thebusiness. The sales and marketing personnel in theMumbai office are in direct contact with customers

across the world, receiving information on preferredchoices and consumer trends, and are thus able tokeep track of the overall market scenario. By analys-ing the data received from the market and custom-ers, the concerned personnel make suitable adjust-ments to prices of goods that are in demand. Sincethe pricing database in Mumbai and the manufactur-ing database in Surat are directly linked, the pricechanges made in Mumbai instantaneously reflect inthe database in Surat. Manufacturing decisions arebased on optimum yield attainment, which is decidedor indicated by the estimated price communicated tothe employees at the planning and marking stages.

The planners/markers take manufacturing decisionsin line with the option showing the highest value gain.As a result, the product mix changes automaticallycatering to the new market trend. Besides, if a cus-tomer has a unique demand for stones, the request isanalysed and a premium is proposed for manufac-turing to be economical. It also allows for streamlin-ing inventory, without any over-production orover-stocking. It is this very demand-led flexiblemanufacturing system that has allowed Venus to alsoassist their customers in minimizing inventories. Withthe change in product mix, customers will find onthe inventory list only those goods that are sellingfast in the market.

People-Management Practices

“We make our people aware of the dormant capa-bilities, the immense unused potential lying withineach individual of our organization. In addition, wenever ask a person to perform a task which is belowthe level of his/her potential,” Kaka informed.

The unique ‘Incentive-linked wage system’ workseffectively, motivating employees to deliver optimumperformance, while enabling them to earn higherwages and giving them job satisfaction. Complement-ing this system are HR policies emphasizing equalopportunity environment, encouragement to team ef-forts, human rights considerations, judicious griev-ance redressal systems, strictly regulated workinghours as per prescribed norms, and provision of amedical centre. Along with all statutory benefits such

Productmix changesautomatically

resulting in higherproduction ofgoods desired

Customerfeedback on

market trends andpreferences

Value-basedcomparisonsfavour mfg.

decisions forgoods in demand

Data analysedand premiums fed

into the Mfg.database, so as toreflect automati-cally at the mfg.

centre

Figure 1: IT-Driven Business Model

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as PF, ESI, Gratuity, Bonus, Leave encashment, etc.,although not mandatory, the superannuation schemehas been introduced, funded entirely by the company.Inside the company premises is a canteen whereworkers receive free lunch daily from a supervisedhygienic kitchen, every member from the owner tothe artisan or peon eats here.

Kaka clarified, “It is not free lunch, because it isonly for those who work here. If the workers arehappy, they perform better, if they perform better,our clients are happy; and if the clients are happy,so am I.”

Training/Recruitment/Salary Structure

The company prefers to recruit experienced workerswith a proven track record of honesty, diligence, anddedication in their area of work. Generally, good ref-erences of workers already employed are preferred.Initially, when a new employee is recruited, apartfrom the documentary requirements, as an addedprecaution, fingerprints (of all ten fingers) as well asboth palm-prints are taken.

“Learning comes from commitment. At Venus, eve-ryone is taught with the same feeling with which Iwould teach my nephew or niece,” the leader triedto explain how people got trained at Venus.

About the salary structure, the employees we ques-tioned were not clear; however, there was a consen-sus that in general salaries at any level were at leasttwo times those of their closest competitor.

Grievance Handling

Venus has a grievance handling system to providejustice to any employee, irrespective of rank/desig-nation, caste, creed or sex. For resolving production-related disputes, especially to account for theexecution of the incentive-based wage system, a hi-erarchical dispute handling system is in force. Thefirst level involves the concerned employees discuss-ing the issue amongst them and arriving at a suitablesolution. In doing so, if they so wish, they are free toconsider the views of their colleagues.

If the dispute is not resolved at the employees’ level,

they can approach a ‘disputer’ who is an employeehimself, but has considerable experience in diamondcutting. The ‘disputer’ reviews such cases and ex-plains his judgment to both employees, there beingno compulsion to accept his verdict. In cases whereeither of the disputing workers is not satisfied withthe ‘disputer’s’ judgment, they can approach the sen-ior-most ‘disputer’ who for now, is one of the direc-tors and has considerable knowledge of both diamondcutting and polishing technology as well as of theentire production set-up. This third level ‘disputer’first assesses the concerned stone himself and formshis own judgment. Following this, he calls both thedisputing employees, listens to their explanations ofthe logic applied, tries to convince the employee whoappears to have made the error, and then finally giveshis judgment. If required, the second level ‘disputer’can also be called in to explain his viewpoint.

For other general grievances, if required, employeesare encouraged to meet even the directors. Once thegrievance is heard, a solution is suggested by the di-rector, and if the need be some administrative staff isappointed. For employees wishing to maintain ano-nymity, and to enable hesitation-free reporting, a com-plaint box has been placed. The key to this box ispossessed by the directors; no one else can open it.

Welfare Measures

Health and Welfare Benefits include a centrally air-conditioned factory building, well-lighted and venti-lated work areas, company’s own Medical Centre,,adequate sanitary facilities, RO processed potabledrinking water, and an in-house canteen providinghygienic lunch in a spacious dining area. It also has afull-time Welfare Officer appointed, a Works Com-mittee constituted, and appropriate HR policy andpractices in place to implement these activities.

Social Security benefits include Provident Fund/Fam-ily Pension Fund, Employees State Insurance Corpo-ration scheme (ESIC), Bonus, Gratuity, Group accidentinsurance scheme, and the company’s own Super-annuation (pension) scheme.

Safety and hazard prevention features include auto-mated fire detection and prevention system, compre-

MANAGEMENT CASE


hensive surveillance system with over 350 CCTV cam-eras, smoke, gas, and heat detectors placed strategi-cally, designated emergency exits, and stringentcontrols on use of flammable and/or hazardous ma-terials. In addition, statutory building and employeesafety norms are fully complied with; adequate safetygear is provided to designated personnel; a full-timeSafety Officer is appointed; and a Safety Committeeis constituted.

Communication Channels

Since inception, founders have stressed on effectivecommunication. Any lapse in communication is notaccepted on any employee’s part irrespective of rank,job or position in the company.

“People have a tendency to send selective messages;we have meticulously tried to nullify them. When-ever a worker or artisan approaches me, I try togive him the highest priority.” Kaka affirmed.

Both written and direct verbal communication areencouraged in inter-office and intra-office communi-cations; the smallest issues are recorded/communi-cated in writing, to the best extent possible. Externalagencies like suppliers, buyers, tool manufacturers,and any other allied associations are prompted tocommunicate through e-mail. Telephone conversa-tions whether internal or external, are kept at a mini-mum. An issue might be discussed and even resolvedover phone, but it is still emphasized that the samebe communicated to all the directors via e-mail. Em-ployees in the lower ranks, who may or may not bevery conversant with computers, are free to approachthe principals either directly or through an adminis-trative staff who can assist them in communicatingtheir issues in writing.

Negative attitude has no place; people are encour-aged to think and act positively and discouraged toraise their voice during discussions. Before the vaca-tion begins, Kaka addresses all employees throughthe public address system, or in a meeting, and ad-vises them on various precautionary measures suchas driving carefully, not indulging in vices like con-suming tobacco, etc.

Adoption of Technology: Systems-OrientedManagement

Online Stock Search System

Buyers can log in to the online stock section of theVenus website using the password and username is-sued to them. The online system allows a buyer tosearch inventory, feed their preferences for the pa-rameters/characteristics of diamonds they want tobuy, review the proforma, and confirm order. If thereare any queries regarding a particular stone whichthey want to buy, they can request a hold on that stoneand post their queries on the website itself. As soonas a ‘hold request’ with a query or an order confirma-tion is received, the sales staff in Mumbai gets a noti-fication and suitable procedures are initiated torespond to the request, or execute the order.

Confirmed Order Requirement (COR) System

This is another indigenously developed extension ofthe online stock selection feature. This system basi-cally assists buyers in two ways, one, for initiating anauto search for desired goods which are not currentlyon stock and second, for requesting specialized manu-facturing requirements (also known as Premium CORsystem).

Online Goods Tracking Feature

This system has been devised to ease the hassles ofmanually keeping track of parcels that have been dis-patched to customers across the globe. Apart frommaking management of extensive data easier, thissystem has almost eliminated the chances of errorsoccurring at the various manual data entry points.

When export parcels are dispatched from office, theconcerned courier/agent sends copies of the AirwayBill No., Invoice No. as well as other relevant data tothe Accounts Department. Upon receipt of these docu-ments, the Accounts Department in Mumbai feeds inthe relevant information for their records.

When these entries are committed to the databasesystem, an e-mail is triggered to the concerned buy-ers informing them of the Airway Bill No., ShipmentBill No., Invoice No., etc. Simultaneously, the dataalso gets uploaded onto the website. Buyers wishing

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to know the status of their parcels, simply have tolog on to the website and access the required datausing the Airway Bill No. or Reference No. that hasbeen sent to them through e-mail. Any special com-ments that need to be included can be added here.

Contribution to the Diamond Industry

Besides leading the path to the best practices in thediamond industry as mentioned above, Venus hascontributed to other aspects of diamond trade andindustry.

Kaka has served in important positions as the firstConvener, Gem & Jewellery Export Promotion Coun-cil (GJEPC), Gujarat Region in 1987-88; the Vice Presi-dent, Gujarat Hira Bourse; a Governing BodyMember, the Indian Diamond Institute (IDI), and aConsultative Committee Member, the Surat Electric-ity Company (SEC), Surat. At present, he is a Manag-ing Committee Member of the Gujarat Hira Bourseand the Southern Gujarat Chamber of Commerce andIndustry (SGCCI). Planning of a prestigious SEZproject called the Gem & Jewellery Park that is nowcoming up in Surat is another noteworthy contribu-tion of this leader.

Kaka has never received any awards for export per-formance from the GJEPC. “An award is an honour. Idon’t think it is right to ‘apply’ to avail an honour. Theyhave all the data. If they want to honour someone, they caninvite him, instead of asking for an application,” he ex-pressed strongly.

Social Responsibility

Venus became a trendsetter by equally supportingother humanitarian activities beyond the barriers ofcaste, creed, and religion. Contribution of Rs 5 mil-lion to the Computer Engineering Faculty of a Col-lege of Engineering and Technology at Surat, whichwas baptized in the memory of Kaka’s father, LateShri Premchandbhai Ishwarlal Shah, and also gener-ous donations to the State Chief Minister’s Fund foreducating the Girl Child are just a few examples ofhis philanthropy. In order to promote education, do-nations were made to various schools and educational

institutions in the owners’ native place, Vadgam inNorth Gujarat, in the tribal belts of Dangs district inSouth Gujarat, and elsewhere.

Other philanthropic activities ranged from the devel-opment of water resources in Saurashtra, a westerndry region of Gujarat state, to the rescue and reliefoperations in earthquake-affected regions of Kutchand during the severe famines in Gujarat andRajasthan. Kaka stood by the people in need duringnatural calamities and communal tension, and con-tributed both in terms of donations and personal serv-ice towards the development of medical facilities atvarious hospitals.

During the major plague epidemic in Surat in 1994,there was a mass exodus of the city’s population. Kakadecided to stay back and assist in restructuring of thecity. There was tremendous pressure from the familyas well as his acquaintances to leave the city. Kakanot only stayed back himself, but was also instrumen-tal in curbing the panic amongst his employees whostayed back. Kaka was among the first to start thefactory again, immediately on the appeal of the thenCollector of Surat.

The plague having received attention in global me-dia at that time, Kaka was the first person from thecity to be interviewed by the BBC radio for a globaltelecast about the city’s condition and he urged peo-ple not to panic, assuring them that things would getback to normal soon. History of the city tells that af-ter the plague in 1994, it saw a turnaround from adirty and filthy place to one of the cleanest and pros-pering cities of the country, and this was supportedby contributions of people like Kaka.

ROAD TO FUTURE

Having achieved the dream of making Surat theworld’s largest diamond cutting and polishing cen-tre, most diamond cutters now want to make this citythe global trading capital for rough and polished dia-monds.

On the recent recession in the diamond industry, Kakaopines,

MANAGEMENT CASE


“What happened in 2008 was not a recession, but acorrection, for people to undo their mistakes, andrealize that it is of utmost importance to practisebusiness ethics and to take care of employees duringsuch times and not to leave them stranded.”

Reports suggest that the diamond industry is set tobounce back soon, the worst having been seeminglyover.

Indeed there are so many uncontrollable factors like

competition, availability of raw material, governmentpolicies at home and in the other competitor and/orbuyer countries, market fluctuations, changes in thetrends, tastes, and purchasing power of the peopleacross the world, which will have a bearing in theindustry’s position in future. However, the industryis reviving and will establish new avenues and scalenew heights, so will Venus. This is the general senti-ment of optimism and hope at the CPD unit of ourcase.

Exhibit 1a: The Factory Exterior and Interiors

The Rough Stone The Polished Diamond

Exhibit 1b: The Processing of Diamonds

92

Exhibit 2a: Organization Chart of Venus Jewel (Surat)

MANAGEMENT CASE

E


Exhibit 2b: Organization Structure of Venus Jewel (Mumbai)

94

Exhibit 3a: Manufacturing Process Part-1

MANAGEMENT CASE

Rough Assorting(Categorize the rough crystals imported into sub-lots on the

basis of their key characteristics)

Fancy Department(Processes fancy shaped diamondslike the Oval, Princess, Marquise,

Heart, Emerald, etc.)

Planning and Marking(Assess rough crystals to see what best can be manufactured,

keeping in mind value optimization)

Round Department(Processes the standard round

brilliant cut)

Straight Edged(Processes Emerald, Radiant,

Square Emerald, SquareRadiant, Princess)

Curved Edged(Processes Oval, Marquise,

Heart, Cushion)

Laser Sawing(Cuts a rough crystal into smallerpieces using high intensity lasers)

Machine Sawing(Cuts a rough crystal into two smaller pieces

using extremely fine metal alloy blades)

Girdle Shaping (Butting)(Forms the girdle on the rough crystal by grinding

like process)

Cross Work(Shapes the rough crystal by forming the initial 8

facets on the top and bottom of the diamond)

Girdle Faceting(Final shaping of the girdle by polishing it into

facets)

Top Double Cut(Polishing the facets on the top or

crown of the diamond)

Bottom Double Cut(Polishing the facets on the bottom

or pavilion of the diamond)

To Polished Grading Dept.


Exhibit3b: Manufacturing Process Part-2

Checks cut, symmetry, polish,internal graining, and culet

Check colour and colour hue

Checks fluorescence andfluorescence colour

Checks clarity, black inclusion,table inclusion, inclusionpattern, lustre and open

inclusion

Checks carat (weight) anddimensions of stones

Diamond View

96

Exhibit 3c: Manufacturing Process Part-3

Quality Check at Mumbai Office

The Premise

Depending on the internal characteristics like grain structure,planar alignment of rough diamond crystals, and specificallythe size and location of inclusions, every diamond is different.The VGS aims at grading and pricing each diamond uniquely.Through years of continuous research and interaction with cus-tomers, gray areas were identified and refined to offer transpar-ency to customers. This iterative process has led to the additionof 12 parameters besides the 4 C’s, each of the 16 grading at-tributes are further divided into sub-grades, thereby offering de-tailed grading.

The Grading Methodology

The 16 attributes of the VGS are classified into 4 parent groups.The grading department consists of about 35 polished diamondgraders who, according to their skill sets and expertise, are al-lotted to each parent group. Within each parent group, the grad-ers are categorized according to their individual performancesfrom 1 to 3. Utilizing extensive IT technology, a performancemonitoring programme assesses and decides a grader’s promo-tion to a higher category or demotion to a lower category, irre-spective of his present category. In order to enable accurategrading, there is a set of about 300 Master Stones which, thegraders can refer to when in doubt. To resolve differences ofopinion among graders, grading experts can be consulted. Thesegrading experts are also segregated into three categories accord-ing to their performance. When a diamond reaches the gradingdepartment, it is first issued to the CUT checkers (consisting of 3

categories CT1, CT2, and CT3) where the Cut, Symmetry, andPolish are checked and graded (Exhibit 4). Following this, thediamond progresses to the COLOUR checkers (consisting ofcategories CO1 and CO2) and then to the FLUORESCENCEcheckers. Thereafter, the diamond goes to PURITY checkers (con-sisting of categories PO1, PO2 and PO3). Finally, the diamondspass through the Final Measurement Stage wherein their dimen-sions are checked and verified one last time before being shippedto the Sales office in Mumbai. Before Final Measurement how-ever, the diamonds are checked on the Diamond Sure (an in-strument used to detect diamond types). This is done to protectagainst the threat from synthetic/cultured diamonds. Any dia-mond indicated doubtful by this instrument, is checked in fur-ther detail on the Diamond View. Both these instruments havebeen developed by the Diamond Trading Company (DTC) andexamine diamonds on the basis of their optical performancespectra under UV and normal light.

In the Sales Office in Mumbai, once again the parameters areassessed by graders, before being finally transferred to the SalesDepartment. This entire grading process is tracked via the ex-tensive IT set-up wherein records of all decisions whatsoever,on each and every diamond are recorded. As a result, the grad-ers’ salaries are also calculated on the basis of their performance.An error invites a penalty whereas performance better than ex-pected will fetch an incentive, over and above the base salary.This automatically leads to the graders being responsible for theirown pay packets, while at the same time also establishing ac-countability.

Exhibit 4: The Venus Grading System (VGS)

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Exhibit 5: Venus Statistics from 2005-2009

Exhibit 5a: The Product Mix

The Product Mix

Exhibit 5b: Purchase of Rough Diamonds

Purchase of Raw Material

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Exhibit 5c: Sale of Polished Diamonds

Sale of Polished Diamonds

Exhibit 5d: Proportion of Sale of Diamonds through Internet

Internet Sales vs Total Sales

MANAGEMENT CASE


Exhibit 5e: Average Inventory Levels in Working Days

2006 2007 2008 Till June 30, 2009

Rough Inventory 41 15 14 28

In Production 56 49 41 39

Polished Inventory 33 35 55 113

Acknowledgement. We would like to express our gratitudeto Shri Sevantibhai, the founder of Venus Jewel, Mr RahulPandey, the General Manager, and all employees of Venus

Jewel who contributed to our understanding and writing ofthis case.

Indu Rao is presently a Post Doctoral Fellow in the Organiza-tional Behaviour Area at the Indian Institute of Management,Ahmedabad (IIMA). Her recent research includes organiza-tional culture and understanding the unorganized sector whichhas been published in the working paper series at IIMA. Shehas presented research on Indian diamond industry earlier ininternational conferences which is published in respective con-ference proceedings. With an educational background ofB.E.(Electrical), MBA, and Ph.D (Management), she workedin industry from 1993-2000 in engineering, consultancy, andtraining in Mumbai and in Gujarat. Her affiliation with aca-demics since then has been as a faculty and a doctoral studentin India and at FIU in USA.

e-mail: [email protected]

Deepti Bhatnagar is Professor of Organizational Behaviour atthe Indian Institute of Management, Ahmedabad. A Fellow ofIndian Institute of Management Ahmedabad, she has alsotaught as Visiting Professor of Management at the RH SmithSchool of Management, University of Maryland at College Parkand Fairleigh Dickinson University, New Jersey. Her researchand teaching interests include work-life balance, emotions atworkplace, leadership and influence. Her work has been pub-lished in Human Relations, Sex Roles, Applied Psychology:An International Review, and Journal of Managerial Psychol-ogy.

e-mail : [email protected]

Leadership is not so much about technique and

methods as it is about opening the heart. Leadership

is about inspiration—of oneself and of others. Great

leadership is about human experiences, not processes.

Leadership is not a formula or a program, it is a human

activity that comes from the heart and considers the

hearts of others. It is an attitude, not a routine.

— Lance Secretan

case surviving the recession: describes a real-life situation …€¦ · indu rao and deepti...

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