CORPORATE LIBERALISATION

Madhukar Shukla
XLRI, Jamshedpur

[NOTE: a modified version of this article was published as: "Empowering intrapreneurship, Business Today, 1997 (Oct 7-21), 141."]

 

Some years back, when India shifted from a socialist command economy to a free-market economy model, the change was greeted with a mixture of guarded optimism and skepticism. The industrialists and policy-makers debated and voiced their opinions about whether the change was actually good for the country, or whether it will really last. Six years later, however, the industry is almost unanimous about the virtues of a liberalised economy. It is widely appreciated now, that free-market competition encourages entrepreneurship and innovation, provides benefits to the customer and stimulates economic progress.

It is ironical, however, that most companies, while lauding the virtues of free-market mechanisms, still manage themselves as if they are tightly controlled command economies. They operate in a bureaucratic top-down manner, control and curb initiative, and provide corporate subsidies to many non-value adding activities. It is not surprising that many such companies find themselves unable to align with the turbulence of the current competitive environment.

To survive and grow in today's competitive environment, it is necessary for companies to rethink their assumptions about the business and the meaning of organisation. The free-market economy model offers numerous insights for reconstructing the organisation:

* Employees as Entrepreneurs: In the command economy, the state took decisions about what a company shall be producing, how much it should produce, and the price at which it should sell its products or services. In turn, the companies also treated their employees merely as the means of implementing the business plans which were decided by the management. In the new competitive environment, however, it is necessary to grow out of this mindset. Organisations must learn to treat the employees, not as mere implementers of decisions, but as entrepreneurs (or intrapreneurs), who can contribute to the growth of the company.

Entrepreneurial freedom, however, is more than just decentralization and delegation of work. Treating employees as entrepreneurs requires providing ownership of work, and the opportunities for self-management. Moreover, entrepreneurs don't just have more freedom; they also have greater responsibility for successful performance. Thus, to stimulate entrepreneurship, organisations must develop systems which combine rewards for creativity and risk-taking, with accountability for performance. It is possible to develop such systems if one seriously considers managerial alternatives such as treating activities and functions as profit centres, pay-for-profits, autonomous self-managing teams, etc.

* De-subsidise Support Functions: In the traditional hierarchical organisations, many staff functions (e.g., HR, Legal, R&D, Finance, etc.) are treated as cost centres, and are allowed to exist without any measurable responsibility for value-addition. They are subsidized because it is felt that they can at best support the mainstream line functions. As a result, they either become monopolies with no accountability for performance (e.g., Finance departments in many organisations) or are completely marginalized from the mainstream activities of the company (e.g., Personnel and R&D functions).

To build an entrepreneurial organisation, it is necessary to de-subsidise these monopolies and stand-alone functions. Treating the support functions as profit centres, who offer and charge for services rendered to the line functions, has at least three advantages. Firstly, it will make these functions more accountable for their performance. Secondly, since the line functions pay for their services, they will make more specific demands from these functions. And lastly, it will stir up the entrepreneurial initiative, which is often dormant in the staff functions.

* Create Accountability to Customers: Customer-orientation is the very essence of a free-market economy. In the liberalised world of Indian business, it has also become the latest buzz-word. In most organisations, however, customer-focus is limited only to the end-users of the company's products /services. The concept of internal customer-orientation is largely absent in practice.

To build a truly entrepreneurial organisation, emphasis on satisfaction of the internal customers is as important as is the focus on the external customer. In fact, if each function is seen as a profit centre, a direct corollary is to reconstruct the organisation as a network of supplier-customer relationships. Most organisations are unable to do so because they lack appropriate systems. The conventional control systems are designed to make people accountable for their performance to their bosses, rather than to their customers in other departments. These systems for vertical controls need to be replaced by systems which allow greater horizontal coordination of activities. If the aim is to promote internal customer-orientation, then it is the internal customer - and not the boss - who should have influence over the target-setting and performance evaluation activities. Cross-functional meetings for target-setting, linking of bonus to internal customer-satisfaction index, inter-departmental feedback, etc., are some of the examples of systems which promote accountability to internal customers.

* Flexible, Network Structures: Needless to say, horizontal accountability cannot be created within the confines of conventional hierarchies. The functional boundaries act as deterrents to greater interaction among people, and discourage innovative and synergistic action. To meet the competitive demands of the free-market environment, it is necessary to redesign organisations not as instruments of control, but as networks of business partnerships.

Organisations can to do so, only if they reconceptualise the very nature of work. In most organisations, work consists of segmented tasks which are done in functional isolation. For building customer accountability, work must be seen as consisting of interlinked cross-functional processes which aim to serve an identifiable set of customers. The logical implication of this perspective is to redesign the organisation around cross-functional teams and project groups, which are linked to each other in a supplier-customer relationship.

* Top Management as Venture Capitalists: The application of the free-market model to the corporate world has a critical implication for the role of the top management. In most organisations, it is unquestioningly accepted that the corporate leaders must maintain control over all organisational activities. They must, for example, set and communicate targets, regulate the performance, and monitor the progress.

This assumption, however, is one of the legacies of the controlled economy mindset. To build an empowered and entrepreneurial organisation, top management must learn to act in a more hands-off approach. In a liberalised organisation, the role of the top management is that of the venture capitalists, who support and strategise the organisational initiatives without interfering in the day-to-day management. Without this shift in the role of top management, it is impossible for an organisation to derive the full benefits of a liberalised economy.

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