Friday, January 2, 2015

Three Management Concepts for 'Better Days' [Three Ways to 'Better Days']

In 2015, the government should adopt three management concepts that will help realise its objectives.

Having heard a lot about vision and goals, how do we proceed? We have the "what", we need the "how". The objectives have been well stated, but the processes are yet to be spelt out. Three concepts that should be drawn upon are systems thinking, cash flows supported by engineering and financial management, and alignment of efforts through cooperation and coordination.

Systems Thinking

Consider the "system-mapping" diagram shown of driving a car along a road.

This chart shows the elements and processes involved: "stocks" like velocity and distance depend on past system performance; "flows" represent changes in stock, with the rate of change being captured in the speedometer, and the distance in the odometer; the accelerator and brake are "converters" that affect acceleration or deceleration (negative acceleration); "connectors" show how parts of the system influence other parts. Stocks are influenced only by flows, while flows can be influenced by stocks, other flows or by converters. Converters may be influenced by stocks, flows or other converters if they are not at the system boundary. The source and the sink are the beginning and the end of the system (go to for more details).

This is an example of "systems thinking", an approach that emphasises interrelationships instead of only linear effects and end-to-end processes instead of stand-alone events or circumstances. Traditional analyses focus on individual elements, whereas systems thinking emphasises the interactions of all discernable elements that result in outcomes under consideration. For instance, the perspective shifts from product prices, for example, for cereals, power or fuel, to life-cycle costs, including operations and maintenance. (For a brief overview, see the above website.)

Without this approach, the articulation of desirable visions is no more than rhetoric. In economics, "cheap talk" is a promise made with no penalties for non-performance, or "costless communication". "Cheap talk" has its uses, for example, in helping to create a collective vision and unite efforts to that end, but it needs to be followed up with real planning and execution with the commitment of resources to go beyond and establish credible delivery.

Take the very laudable for cleaning up one's local environs. While it's excellent that it has been forcefully voiced by the prime minister, there's no visible public evidence of systemic initiatives that address the fundamental elements like sewerage, garbage separation and composting in homes, and incineration, which includes "simply" enforcing existing laws. It's a two-fold challenge: one, of enforcing existing laws, for example, against the open burning of waste and harvest stubble, and two, of dedicating skilled, multi-disciplinary resources to work towards developing integrated solutions, including simple enforcement against acts like littering. Instead, the initiative appears to remain at a superficial level of photo-ops of sweeping waste from one place to another, instead of addressing ultimate disposal.

Process Flows & Cash Flow

A second aspect where change is urgently required is in dealing with problems of growth arising from obstructions in process flows. These may relate to material, or to the conversion of material to cash. The range covers all economic activities, for example:
  • The conversion of mineral resources through mining;
  • Administrative or regulatory impediments regarding communications in areas such as spectrum use, network access and rights-of-way;
  • Constrained cash flows from lower demand combined with high costs, as in the manufacture of durables, commodities such as sugar, or construction - not to mention manufacturing in general for the "Make in India" campaign.
The crux of this aspect relates to the conversion to cash. The reason flows are critical in this context is because, aside from "resolution" by bankruptcy, even problems of stock (or oversupply) have to be resolved through flows, that is, cash flows, whether by disposal of assets provided market conditions can support reasonable cash yields, or operating profits from higher volumes and/or lower costs, resulting in the turnaround of non-performing assets (NPAs).

Such solutions need an understanding of the underlying engineering or other processes, and of financial management, that is, the tightly coupled lockstep of profit and loss and balance sheet that leads to cash flow. This understanding is critical for effective management of any self-sustaining activity as a going concern. Much of our society, including many in politics, the executive, the judiciary, the media and lay persons, appear either to not understand these principles, or to opt for shortcuts for near-term gains, as in the distribution of sops for elections.

Cooperation on Aligned Goals

The third aspect is cooperation and alignment of efforts to achieve common goals. Credible leadership is perhaps the most important for this form of team building. Effective leadership combined with due attention to processes can help elicit team thinking and performance that aligns group outputs to common goals to achieve results that are "better than rational". Evidence from studies such as of forest management in Maharashtra show how communities cooperate to manage forests as common-pool resources through community control.
1 To paraphrase Elinor Ostrom, this requires building conditions in which reciprocity, reputation and trust overcome the strong temptations of short-run self-interest, by investing in monitoring and sanctioning each other to reduce the probability of free riding.2

However, there's a catch to this upside potential: "Experimental evidence suggests that humans have specialized circuits for understanding threats, as well as recognizing bluffs and double-crosses."
3 This loops back to two choices: rhetoric versus actual systemic coordination and reforms, and inclusive versus divisive leadership. The latter calls for a hard choice between divisive electoral strategies for winning the post but resulting in a "zero-contribution" model, versus a potentially higher yield from non-partisan leadership that inspires and persuades the majority to pull together for greater gains.

                                                                     Shyam (no space) Ponappa at gmail dot com

1. Rucha Ghate, Suresh Ghate and Elinor Ostrom:


3. Leda Cosmides and John Tooby: