Managing enterprises in the ever-changing corporate environment
Tuesday, 24 September 2013 00:10
By Shabiya Ali Ahlam
To highlight the sectors that require immediate attention on different areas of management, the Institute of Certified Professional Managers (CPM) together with the Association of Management Development Institutions in South Asia (AMDISA) organised the CPM-AMDISA International Conference 2013.
Held on 13 September 2013 under the theme ‘Managing Enterprises: Challenges and Opportunities’, the event featured 18 eminent speakers, from Sri Lanka and abroad who presented at the conference their experience in this regard.
Covering areas such as multidisciplinary management, public enterprise management, business management, and business schools-corporate interface, the conference provided an insight as to how leading companies have successfully managed their enterprises with the challenges and opportunities they face in the economic environment.
Referring to the environment in which corporate entities operate as volatile, ICFAI University Vice Chancellor Prof. Y. K. Bhushan who chaired the session on ‘Opportunities and Challenges in Multidisciplinary Management’ said complexity has become a hallmark particularly to large organisations. Opining that only those who are flexible to change will survive, he noted that sustaining growth and development are the issues that many nations are troubled with.
Stating that management as a function has not settled as yet since it has “too many” disciplines, Bushan said: “The management theory has created a jungle like theory since there are so many disciplines that seem to offer the final solution.”
To shed light on the reality of this notion, the opportunities, challenges, and value creation were explored in the key areas of management.
Emerging HR challenges and its implications on firms
Asia is noted to have a significant gap in talent development since it is perceived that the region invests in resources that matters least. While leadership is the HR domain with the highest overall impact on business performance, Commercial Bank Chairman Dinesh Weerakkody said it is imperative to maximise the people value to achieve success in an organisation.
Stressing that good HR is about putting together the best people on the field, Weerakkody during his presentation on ‘Strategic Human Resource Development’ said it was necessary for the strategies and investment of the function to be different to avoid being played out in the future.
Touching on the emerging market trends, he noted that in 2015 Sri Lanka will look very different on this regard for a number of reasons.
The first is that the country is moving towards the ageing population which will result in people delaying retirement and staying longer in the workforce.
The second is the skill gap which according to him is widening. “For many years, the number of engineers has been declining, especially in the area of civil and mechanics. The number of legal and accounting graduates has been increasing but the number of jobs available for them has been flat. This leads to an increasing number of young people working in careers for which they were never formally trained. If this continues, over the next decade nearly 30% of adults will obtain a college degree but 60% of the new jobs will require knowledge beyond a college degree,” explained Weerakkody.
The third he said was the impact of Information Technology (IT) on the workforce. Weerakkody justified this statement by saying that due to artificial intelligence automating complex but essentially repetitive and rigid jobs, the increase of computing power will continue at phase which will eventually push computers even closer to real artificial intelligence. “At very least it will mean we have enough computing power to do all sort of things we consider almost impossible. We will be able to automate many complex jobs that today must be done by highly trained professionals,” he stated.
The fourth is that this decade will see a continuing focus on not only bringing more female bodies into the workplace, but also a female influence. This according to him might be the biggest change in corporate culture in a century.
The fifth is the unprecedented youth joblessness. Weerakkody observed that in the current context, in almost every country there are more unemployed young people than ever before. These young people are noted to be burdened with the largest student loans ever recorded. “This is a perfect recipe for disaster. Expect more riots in countries where young people are prone to riot,” he said.
He also highlighted that there will be a significant increase in start-ups and small businesses. According Weerakkody, unemployed, young people, and the older generation looking for post-career alternative working option will fuel a new wave of start-up businesses. With this he said an explosive growth is expected in many emerging markets. “With the world experiencing its largest economic growth ever, probably only purchasing power will have quadrupled by 2050,” noted Weerakkody.
New perspective in strategic marketing management
Marketing departments have failed to deliver the expected performance and is noted to be lacking in accountability according to Management Development Institute India Director Dr. Mukul P. Gupta who dealt with the subject of ‘New Perspectives in Strategic Marketing Management’.
In addition to this, the function is unable to offer adequate measurement of their performance, he said.
“Marketing as we knew it until the end of the 20th century is not what it is in the first decade of the 21st. A clear sign of the crisis is in the diminishing influence of marketing on strategic decisions of the firm,” stated Gupta.
Stating that traditional marketing, which includes advertising, public relations, branding, and corporate communications, is “dead,” he opined that many people in traditional marketing roles and organisations have yet to realise that they are operating within a “dead paradigm”.
“Over the last few years, CEOs have lost all patience in believing that marketing has business credibility and the ability to generate sufficient business growth,” he asserted.
Gupta added that in the current context, where the environment is infused with social media, traditional marketing and sales not only doesn’t work well but also doesn’t make sense. “The logic of traditional marketing just doesn’t work in the world of social media,” said Gupta.
Pointing out a trend in marketing over the last few years, he said integrated marketing has been overtaken by the counter trend towards disintegration while there has been a marked fall in the influence, stature, and significance of the corporate marketing department.
“The field of marketing is in a crisis. The problem stems from the conceptual frameworks which are embedded in just about every mainstream marketing class. These frame works act as software in the minds of marketing managers and when this software code has bugs, the minds of the managers are unduly hindered,” he said.
Gupta observed that in the last two decades many broad environmental forces have battered the marketing discipline. Among them are the rapid globalisation of business, the contaminant rise in the competitive pressure, the drives towards cost cutting and downsizing, a focus on short term financial measures, competitive collaboration through outsourcing and strategic partnering, and the myriad improvements in telecommunications and information technology coupled with the rise of distributed computing.
Although marketing observers were once optimistic that such forces would reinvigorate the function, for over decade now, marketing’s leverage has continued to shrink. Gupta emphasised that the reason for this crisis could be attributed to a number of reasons which include, ambiguity in the meaning of marketing, fixation for an annual P&L account, lack of performance merits for marketing, shifting power bases in channels of distribution, new focus on CRM, sales driven marketing, and the moving of marketing from boardrooms to SBU’s or even product managers.
Observing what marketing could not manage, Gupta said: “Regardless of the industry and whether the core of an offering is a service or a physical product or something else, the interface between a firm and its customers have proliferated. The number and variety of customer touch points in that interface have grown far beyond the simplistic customer interfaces which mainstream marketing are based on.”
According to him, during the phase of evolution the marketing function could not manage productivity, the long versus short term thought and action, and innovation in processes and structures.
Stressing that it is time to rethink marketing, he said the productivity of the function cannot be improved within the existing framework and structures. “As long as marketing’s major responsibility is customer acquisition and promise making, the cost of marketing will continue to grow and its effectiveness will continue to reduce,” stated Gupta.
He elaborated that the holistic concept of marketing needs to guide the structures, systems, or else the organisations would continue to be led by engineers or finance professionals.
“Value creation through finance and engineering is based on intuition that could go wrong often. Marketing has to lead the organisation by creating value through connections with customers that are based on reality and not intuition,” noted Gupta.
Management accounting for value creation
While it has been observed that in the past two decades there are several changes in the business environment in which manufacturing and service sector organisations operate, competition has become highly intense resulting in many entities struggling for their existence.
IndSearch Postgraduate Program Associate Dean Dr. Nachiket M. Vechalekar who shared key insights to ‘Management Accounting: Creating and Managing Value’ at the CPM-AMDISA conference said for organisation to survive in such volatile situations, they can only grow through well chalked out strategies and ensuring such are implemented.
To achieve this much needed growth, he said there is a need for an accounting system which will provide timely and relevant information which will act as a guiding hand for the management to take appropriate decisions in crucial areas.
“Application of management accounting becomes of paramount importance in the ever changing corporate environment. The main thrust of management accounting is towards determining policy and formulating plans to achieve desired objectives of management as it helps in planning, controlling, and analysing the performance of the organisation to ensure that it follows the path of continuous improvements,” said Vechalekar.
Touching on strategic management accounting, he said it is the linking of accounting techniques to the strategic formulation, implementation, and evaluation of performance. According to him, strategic Management Accounting has been gaining importance in the recent past. “The role of management accountants has been enlarged and his job is not just restricted to performing control function. Some experts say that management accounting is a vehicle that provides information for supporting the strategic decision making in the organisation,” noted Vechalekar.
Moving on to strategic management accounting for va
lue creation, he stressed it is important for business organisations to be sustainable so that they are able to create value for stakeholders. With shareholder expecting higher and consistent dividend, suppliers expecting timely payment, employees expecting higher salary packages, the society expecting better products, and the Government expecting higher tax payments, a firm has to satisfy the expectation of every stakeholder even though it is an onerous task, said Vechalekar.
“The need of the hour is to recognise the supporting activities on each stage of the value chain that are value adding and those which are not,” he noted.
Vechalekar opined that techniques such as value chain costing, which involves the computation of costs and benefits arising out of each activities will be immensely beneficial in this case.
He added that various techniques used in management accounting will also help in value creation for all the stakeholders.
Vechalekar emphasised that the use of strategic management accounting techniques can help considerably in value creating and value management. “In a competitive environment, there are several challenges faced by organisations. In these turbulent times the key to survival is the effective utilisation of resources. Therefore for becoming sustainable, use of strategic management accounting has become inevitable,” he asserted.
Developing the potential of IT and BPO
Speaking at the session on ‘Business Management in Key Economic Sector’ WNS Global Service MD Dushan Soza highlighted that the IT sector has been identified by the Government as a thrust sector but making the industry US$ 1 billion worth by 2015 was certainly a challenge.
While the industry is currently at US$ 480 million, according to Soza reaching the billion dollar mark seems to be questionable for a number of reasons.
The first is that to reach that target over 75,000 employees are needed to service the industry. Although the younger generation may be willing to step into this sphere, he opined that a major drawback is the lack of space. “The country has to allocate over four million square feet of office space, which equates to about 400 floors to the size of world trade centre,” said Soza. “This is the kind of challenge that we are faced with. The IT Park in Orion city is full up. While apartments and offices are being built, nobody is investing in building office space,” he added.
Touching on the quality of talent in the IT industry, he said Sri Lanka has a large talent pool in this arena contrary to what people say.
While the country has the right skills for BPO, he noted that the IT industry could do with more development.
Soza went on to say that the lacking factor is that as service providers, IT companies “aren’t up there to take on this work”.
“Foreign firms are not going to give us work unless we can demonstrate that we can do that work here,” stressed Soza.
In addition to this he pointed out that the branding for the industry needs to be further developed. Soza observed that while there is a perception about the voice, which is the contact with the end customer, there is no perception about the data and the service, which is imperative to communicate across.
Along with this he said the industry has to be branded in the minds young professionals and parents.
“Parents need to be trained and taught on what this industry means. Students need to understand what the business is about and the knowledge required to work in it. It is also critical to educate the academia and all of the stake holders. What the industry requires is branding and an inspirational exercise,” noted Soza.
SME development and export growth in Sri Lanka
Shedding light on the issue of ‘Strategic Approach to SME Export Growth’ IPS Executive Director Dr. Saman Kelegama said that there is a lack of widespread Business Development Services (BDS) providers and constraints prevail in gaining access to finance, from both, the demand and supply side. SME owners need better managerial capabilities and more work has to be done towards strengthening entrepreneurial potential. Furthermore, improved access to markets by having better linkages with local and foreign value chain is essential for SMEs, said Kelegama.
To provide a snapshot on SMEs in Sri Lanka, he highlighted that approximately 70% of all enterprises are SME’s in the country. 91% of industrial establishments are SMEs and contributes to an average of 26% of employment.
Sharing the framework for the development of SMEs in Sri Lanka, the policies listed under the ‘Mahinda Chinthana’ 2005, include the establishment of an SME authority, the setting up of a technical development fund under the SME bank, and having Rs. 500 million allocated annually for selected SMEs so they can be developed to an international level.
Furthermore, he shared that the ‘Mahinda Chinthana Vision for the Future,’ 2010, stated the implementation of a process to upgrade 5000 small-scale enterprises to medium level, and 200 medium scale enterprises to large level every year. It also states the establishment of entrepreneurial centres to encourage small and medium scale entrepreneurs.
Emphasising the need for a coherent policy direction since the SME sector does not come within the purview of a single ministry, Kelegama said: “There is a need for better coordination to effectively and holistically support the sector and address the core constraints inhibiting SME growth. Although the National Enterprise Development Agency (NEDA) was established in 2006 for this purpose, whether it has adequate funds to play that role remains the question.”
Kelegama pointed out few recent initiatives by the Government to uplift the SME sector. The Government had incorporated in the 2011 Budget that unpaid tax liabilities up to March 2009 were written off for all enterprise with a turnover below Rs. 100 million. They were also exempted from Economic Service Charge from 1 January 2011. The provincial Turnover Tax was removed, but VAT was extended to retail level. In addition, the VAT suspension Scheme was simplified to encourage SMEs to graduate to VAT system.
Recommending the way forward for this sector, he said SME policy formulation should draw from the East. “Countries in the Asian region have been found to share similar constraints in the SME sector as Sri Lanka. However, those countries which include Thailand and Philippines have more robust SME development policies, whereas Sri Lanka does not. To uplift the sector, the nation has to learn from best practices in the region,” expressed Kelegama.
Free ports to boost regional investment and regional trades
Commending the recent introduction of the Freeport concept, how this initiative can help improve trade and investment was explored by Joint Apparel Associations Forum (JAAF) Secretary General M. P. T. Cooray via his presentation ‘Free Ports to Boost Investment and Regional Trades’.
Sharing with the audience first the areas declared, he pointed out that the free ports are the Colombo and Hambantota ports, whereas the bonded areas are the Katunayake, Kogalla, and Mirijjawila export procession zone.
With regard to the location requirements he said trade involving import, minor processing and re-export is possible within the free port and bonded areas, while trade involving manufacturing is allowed within the free port but in specified bonded area.
On the minimum investment requirement he said trade involving import; minor processing and re-export require US$ 5 million within six months with a minimum turnover of US$ 1 million. While for off shore business the requirement is US$ 1 million within six months within a turnover of US$ 1 million, logistics services such as bonded warehouses or multi country consolidation in Sri Lanka requires US$ 3 million within six months with a minimum turnover of US$ 15 million.
Cooray said with the free ports, the fiscal regime include the simple visible tax regime, the liberalised exchange rate regime, and the document process improvement.
Speaking for the private sector he said: “We should now be vibrant enough to avail ourselves of this opportunity for expansion of trade and investment. It of course will not happen overnight but clearly the visionary policy framework is in place, and will come to fruition if we start now.”
Pix by Upul Abayasekara