Have you heard the term Inefficiency Inflation? Hope NOT. That's because we have coined this term. Just for the purposes of this article, I am turning from being an entrepreneur to an economist and hope you enjoy reading it.
Let's understand Inefficiency Inflation better with Tata Nano as an example. Tata was trying producing its Nano car and wanted to price it at Rs. 1 lac. When you look at that objective , what comes to your mind? I am sure you thought of cost of manufacturing and cost of procurement of spare parts. What will evade your eyes are the other costs which can also be attributed to attaining this objective. Let's say the HR now has to hire people and if the HR is not efficient, the cost of recruitment goes up, thus the cost of the car. If procurement person takes money on the side and increases the cost of a single screw, the cost of the car goes. You see the problem? This is called Inefficiency Inflation - an avoidable cost which is incurred due to bad organizational practice or lack of checks and controls.
Let's look at another industry to understand this better. In the Insurance Industry, the cost of fraud, which stands today at 10% of the revenues of insurance companies according to Economic Times, is amortised as high premiums to the good guys resulting in "Inefficiency Inflation". If the insurance company can reduce the false claims, this will lead to lower premiums. This also happens when your hospital overcharges you for your health insurance claim, that in turn is passed on back to us as higher premiums which I now term as "inefficiency inflation".
The idea of Inefficiency Inflation came to me when I asked the Chairman of Shriram Group if we can reduce the interest rates to customers and why it was tad higher than an average NBFC (in 2009). He said, the interest costs include not just the high % of bad debts but also the frauds that happens besides losses due to inefficiency in the process. So basically what he said was if a fraud happens, the cost/loss of fraud is then amortised among "good customers", after all Shriram was just a custodian of the depositors money. The question is could this have been stopped with Best Practice and Process Controls which can reduce inefficiency inflation? This is true for any Bank or NBFC after all, I used Shriram as just an example and origin of the thought.
In a real estate scenario, the cost of your apartments maybe higher because of this very reason of inefficiency inflation.
You may ask - so what? Well, imagine a scenario when an Indian company has to compete globally with players from China and other countries, this inefficiency inflation could be the reason why many Indian companies are losing contracts. In a global scenario these costs just add up and what seems to be minor cost could make or break a company in global markets. It could also be the reason, your competitors fair better in the local markets too.
TRST Score - World's Only Bureau for "Trustworthiness" of employees, agents, gig workers etc. promises to reduce your inefficiency inflation by eliminating or reducing costs of frauds, HR processes, underwriting, claims, lending etc to keep you competitive. TRST Score may not solve all your problems but, we guarantee it will reduce your inefficiency inflation to a great extent if you use the best practices.
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