• PAGE ONE
• INDEX
• HOME

Wisdom of the Os

V. Ramakrishnan

THERE is urgent need for structured thought to translate planning into action in industry. The detailed survey of the small number of private enterprises adding economic value to the country (Business India February 2000 details the pitiable state) shoul d be a call for immediate action.

The ubiquitous discussion of EVA is really about such companies sustaining their viability, about their ability to renew and stay relevant. It is not about riding waves or fads -- it is sheer hard work, with a purpose and relentless focus.

Corporate governance

Corporate governance is about accountability and about self-regulated accountability. Both are essential. Anita Roddick of Body Shop has summed it up succinctly -- ``Any business that is unregulated becomes criminal!''

It is also useful to remind ourselves that it is a lot more than the hitherto commonly associated function of governance -- the legal, statutory and fiduciary responsibilities. Anyway, these make no sense in many instances as each party covers the other and no party takes ownership, for a problem or a solution!

In another context, corporate governance can be defined as the role, structure and systems used by a board of directors to run a company.

It is also useful to view three distinct stages in the process of governance:

Corporate performance which links an appreciation of external factors as they impact the internal operations; it is about translating the strategic intent to encase emerging opportunities into a measurable set of outcomes, or end results, which, if achie ved, will meet or exceed stake holder desires.

Corporate conformance which starts with capturing this intent in an actionable plan -- usually the strategic plan -- and one which directs allocation of resources to deliver the outputs needed to drive the outcomes desired.

Corporate compliance which is activity designed to ensure and guarantee integrity between plan and actual action, between statutory needs and internal systems and between ethical norms and daily practices!

Forces driving governance

In a fast-paced world ruled by uncertainty, there is an increasingly strident note for directors to be held accountable for a company's performance. It has gone beyond just certifying that the company has worked diligently as required by law. The increas ingly hefty salaries and perks of CEOs and directors (a mutual admiration club) has contributed to such developments.

Another major pull is from companies going global, where, very often, the directors are at the deep end of ignorance as to what their chosen joint venture partner is doing 10,000 miles from head quarters. If they can convince themselves that the venture is being governed well, they tend to be more pro-active, as would any rational human being. Good systems beget trust if only because they ensure ad hoc responses do not flourish.

The third factor is that many Asian companies are going global and need to manage their overseas factories very tightly as they are still selling on cost. Their disadvantage: they have transplanted imperfect working models which are open to exploitation by sharp local and international managers -- again a very human failing!

The vital connection

The core of the governance issue is to link strategy to performance and performance to strategy and to ensure that a disconnect between plan and performance is recognised early and corrected on an ongoing basis. The world is moving too fast for annual or quarterly changes.

It is worthwhile to separate the need to lead outcomes from managing outputs. Outcomes relate to the need and interests of all stakeholders in a business -- equity holders, equity partners (banks and FIs), customers, suppliers, employees and society at l arge. The only outcome every equity holder wants is a short-term return (dividend) and a long-term benefit (growth in value of the asset.) Outputs relate to measurable parameters such as sales, revenue, costs etc.

The two Os

Outcome relates to ``The way something turns out.'' It is a result desired or consequence wanted. This definition is useful as it helps the average employee relate to an organisational need because it is expressed in relatively simple terms. If directors can define what they wish to turn out well, for whom, and by when, the basic framework for a self-regulating environment gets set. This layman approach makes for an easier explanation than ``unlocking stake holder value.''

Output is ``work done or amount produced by a person, machine, product line, or manufacturing plant over a given time.'' This is about the nuts and bolts which, when bolted together, will deliver the structured outcomes desired. They flow from the defini tion of desired outcomes. The goals, targets and milestones that an organisation has to meet and exceed must all be derived from or be traceable to the stated outputs. This creates the continuity so necessary to create a sense of ``shared'' values.

If values are defined as belief in action, then there is a full and complete dovetailing where values enshrined in the outcomes drive the company forward and drive it relentlessly. (The vision and mission statements, can and must, be linked to desires ex pressed as outcomes and outputs, respectively).

In my experience, there is a major disconnect, often in the minds of directors themselves, between the strategic outcomes needed and the practical outputs required. It is not uncommon for managers and others to state outputs when required to present outc omes. It is my submission that this disconnect is the core of the problem why so few organisations are truly self-renewing enterprises!

To be continued

The author is a consultant based in Singapore and can be contacted at v_ram@osl.com.sg

Please e-mail us at bleditor@thehindu.co.in if you have queries on computer usage or if you find an interesting way of using the computer.