Published in Upinder Dhar and Santosh Dhar (eds) Shaping Management for 21st Century, Indore Management Association,

2003

TOWARDS BUSINESS EXCELLENCE

[Postulating the New Strategic Triad]

S. JAYASHREE

Mrs. Jayashree Sadri has a Masters Degree in English Literature and who also has postgraduate Diplomas in Personnel Management and Industrial Relations as well as in Training and Development. She has written several papers published in academic journals on Human Resources Development, Business Ethics and Value-based Management. She has co-authored a book on HR and two books on Ethics. At present she is Superintendent in Charge of the Programs Division of the National Institute of Industrial Engineering (NITIE) Mumbai 400 087.

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TOWARDS BUSINESS EXCELLENCE

[Postulating the New Strategic Triad] The heights by great men reached and kept, were not attained by sudden flight. But they, while their companions slept, were toiling upward in the night. H. W. Longfellow This is paper founded on the authors study of the twin aspects of Managerial Ethics and Corporate Governance between 1995 and 2002. To an extent it could be also seen as a theoretical conclusion to our study and to the argument posited herein. The paper reiterates and expands upon the brief argument first propounded by this author (in the chapter on Governance) in Geometry of HR (2002). It was a simple one but in was given in two parts. Managerial Ethics provides the platform on which Corporate Governance rests. Together they assist the organization to achieve Business Excellence.

It is contented that Indian Corporate Houses have been concerned for too long with addressing the question of good governance from the point of view of regulators and regulations. The Adrian Cadbury Committees Report swept through Indian corporate boardrooms like a wild fire. All of a sudden good governance became a prime issue and attracted the eagle eyes of both the financial wizards and the legal brains. It began with the CII laying down norms, the Kumarmangallam Birla Committee Report highlighting these concerns and the SEBI coming out with its set of norms as a consequence thereof. Everything was reduced to finances and laws. In this climate governance became the domain of regulators who acted according to regulations. In the process they missed the wood for the trees. Without denying the importance of regulation and regulators we posit that understanding good governance depends on a clear understanding of the concepts of power in the corporate world and of organizational politics. Let us take the case of the greatest Indian epic: Mahabharata. There was Dhirthrashtra, Dronacharya, Bhismapitamah, and a galaxy of great souls present when on loosing in a (doctored) game of dice an attempt was made to strip Draupadi in public (vastraharan). What happened to the regulators and regulations then one may well inquire? If the legendary greats could not prevent the insult from being perpetrated on the dignity of an innocent lady then what chance do modern regulators have? One may ask what was the reason? Was it not power? Is the situation any different in the corporate world today? And when nobody could come to the ladys rescue in that great epic she appealed to the metaphysical power of Krishna who, sure enough, did what was needed and the rescue act was carried out successfully with lan. This means that there is something beyond the

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realms of regulation and regulators that must concern us. Time has come for managers to look within themselves for that hidden Krishna and search out the answers. Law after all is codified class relations and the class that is in power will usually make the rules that are favorable to it. As long as men with a bent mind and a corrupt mentality exist they easily circumvent the law. What happens to good governance in an unethical world? The legal system is puerile in the face of human cunning and intellectual deviance. Unless man himself improves law can never be the panacea for social peace. And how else but through ethics can man improve in the corporate arena? So using Weberian Sociology let us briefly re-examine the notions of power, authority and ethics in business and see what emerges. POWER: Management Science is concerned with the science of decision-making and the art of decision executing. The ability to either enforce or influence a decision is defined as power. On its own power is neither good nor bad. It is how it is used that makes the difference. And when official power is used for satisfying unofficial needs and meet such objectives it is transformed into politics. AUTHORITY: When power is legitimized it becomes authority. And, authority can be of any one or more types. It can be traditional as in the case of the parent, teacher, and priest. In such a case it is culture specific. It can be charismatic as in the case of populist leaders. [Charisma is defined as the ability to attract a following.] In such a case it is person specific. It can be rational-legal as in the case of bureaucracy. In this case it is structure specific since the position occupied in an organizational set up determines the level of authority. [Bureaucracy did not have a pejorative connotation for Weber. It was Alvin Gouldner who pointed out the negativity in bureaucracy. ETHICS: Why is it that some people spread happiness wherever they go while others spread happiness whenever they go? Why is it that some people retain their authority even after they have left their erstwhile positions of power? Clearly this is so because they are ethical. So what is ethics? And while ethics is the basis for governance to succeed and governance is necessary for ethics to be realized. What is ethics? Is it the same as morality? Let us address the issue of definition head on. This will lay down the basis on which the ensuing argument shall be developed develop.Academic approaches to the study of ethics and morals differ on both sides of the Atlantic and that is primarily because the root word adopted by scholars differs. The root Greek word for ethics is ethos in Europe but ethicos in America the root Latin word for morality is mores in Europe but moralis in America. Since ethos and mores both signify from a culture, the Europeans look upon ethics as a branch of moral philosophy and view morality as a variation of the theory of ethics. Hence the distinction between ethics and morals is blurred in Europe.

However, ethicos signifies right or correctness in behavior, whereas moralis signifies goodness and high mindedness. Hence, in America, ethics deals with issues that are right as

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opposed to those that are wrong. Morality is concerned with what is good as opposed to what is bad. The distinction is thus made clear between the concepts of ethics and morals. We shall be adopting the European position since the difference between morality and ethics, if accepted, leads to several kinds of confusions. We have already spoken of values and ethics as well as their causation. We shall continue to see value as a thought based concept while we continue to view ethics as an activity based concept. For us, ethics is always person specific, context specific and culture specific. There is no general or universal code of ethics as such. Schools Of Thought How ethics is viewed depends on the philosophical persuasion of the analyst. There are two separate schools or philosophical approaches to the question of corporate ethics in India. While Professor S K Chakraborty heads soul based thought Professor Sorab Sadri is at the head of mind based thought. Both Chakraborty and Sadri are economists by their parent discipline and both are concerned with the subjective perceptions of objective social reality. So, one may inquire, where lies their difference? It clearly lies in their philosophy. Soul Based Thought The philosophical underpinnings upon which this school of thought rests its views can be enumerated in bullet form as below. The trilogy of heart, soul and mind is considered basic for ethical decision making in the organizational context. The heart deals with what we like or dislike. The soul deals with what is good or bad guiding human conduct. The mind deals with the basis of our choice. This school appeals to the supernatural forces for decision aids and derives its basis from scripture. This school believes in religion and spirituality to guide ones decision making. Hence things like yoga, meditation, mind-stilling, and pranic healing enter into the calculus of o d interventions. They opine that if man is perfect the rest will follow and environment can be moderated through interventions. Understandably they look inside the human being and project that into the outer world. This is called outsidering the insider. 4
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Mind Based Thought The philosophical foundations of this school of thought can be explained in bullet form through the following observations. They are rationalists and are concerned with the mind and the heart only. They are not agnostics or atheists. They merely keep god out of the organizational calculus. Every executive decision is a choice decision between alternatives. The human being must be willing to choose an alternative: the subjective constraint. The human being must be able to choose an alternative : the objective constraint. Both constraints must be fulfilled before a choice is made. They opine that man influences the environment but the environment influences man too. this is a mutual causation that must be understood. They believe strongly in bounded rationality [being rational but acting within societal norms] Understandably they diagnose the larger environment (society) and see how man is affected by it. This is called insidering the outsider. It would be opportune to examine what was the emphasis given by each of these schools of thought. Scholars who stand in the middle are few and far between. The most notable among those who treed the path betwixt and between are Subhash Sharma of Bangalore and Ravindra Jain of Ujjain. Their Major Emphasis Soul based thinkers are more concerned with the macro picture and so concentrate on business ethics. Mind based thinkers are more concerned with the micro picture and so concentrate on managerial ethics. Soul based thinkers talk of the universality of ethics. There can and should be a general societal code of conduct and behavior. Mind based thinkers talk of the specificity of ethics. A code can exist for a specific organization or a profession but not for society in general. An extreme form of soul-based thinker is a fanatic, a religious or political fundamentalist. An extreme form of mind-based thinker is the ultimate rationalist or a materialist.

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Irrespective of the position adopted managers who find themselves on the horns of an ethical dilemma fall back on the school of thought nearest to their heart. How does one prevent a political-religious fundamentalist or a crass materialist - rationalist from taking an extreme position or one, which is at odds with the organizational interests? And it is here that Corporate Governance steps into the breach. Now let us see how Managerial Ethics and Corporate Governance impact Business Decisions in a positive and developmental manner. Ethical Problems can either be covert or overt. Covert problems are those that defy clear-cut solutions and need a lot of inquiry. This is the gray area of uncertainty where more than one opinions co-exist. Overt problems exist where the action is clearly unethical as in theft, fraud and cheating. Knowledge of how to react in the face of an ethical dilemma distinguishes a business leader from a business manager. And what we are in need of leaders and not just managers if we are to thrive on the competitive edge of globalized markets. When we are in the realm of covert behavior we need to ask questions. The answers we get depend on the questions we ask. The questions we ask depend on the values we have. The values we have depend on our ideology. When we are in the realm of overt behavior, we depend on our perception of reality. We see what we wish to see. We hear what we wish to hear. We infer on the basis of our past experience. FROM ETHICS TO GOVERNANCE: Having examined the modalities of both covert and overt managerial behavior we come to the conclusion that in either case, the treatment of ethics is rendered subjective. Corporate Governance lends a measure of objectivity to this subjective notion of Managerial Ethics and allows managers to operate within the realm of objective rationality, as we had argued in The Theory and Practice of Managerial Ethics (1999). Whereas Managerial Ethics tells us how to act in an organizational setting, Corporate Governance provides the system and method for performing such actions. Whereas Managerial Ethics gives the modus vivendi for achieving excellence, Corporate Governance provides the modus operandi for doing so. There were several high powered and high profile committees set up across the globe but in our opinion the King Committee perhaps gives the best definition of Corporate Governance when it stated thus: It is a system incorporating effective balancing of Boards, proactive role of non-executive Directors on aspects of adherence to prescribed accounting standards and code of

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conduct, effective shareholder compliance systems.

servicing

and

sound

The question of balance raised by the King Committee report of Johannesburg is very important for practicing senior executives across functions and specializations. This is especially in an economy like India where several modes of production co-exist with one another. It ensures that stability is not misunderstood for inertia. So doing, it provided the basis for Corporate Governance to move from a position of being the guardian for Compliance and Regulation to a position of being the facilitator for Development and Excellence. More importantly the concept of voluntarism evidenced first in British Industrial Relations and then in British Business Policy especially towards industry and labor was built into the system of Corporate Governance, under the King Committee Report. When corporate governance is left in the hands of Company Secretaries and Chartered Accountants, investigations revealed, it either de-generates into compliance or an extension of the internal audit function. Invariably regulations and regulators begin to occupy pride of place and the process of legislation replaces the purpose of legislation. In linking corporate governance to business excellence, we are taking governance out of its compliance and regulatory role and assigning it a developmental and strategic role. And it must be amply clear that excellence had to be desired first and worked towards later. Contrary to what the proponents of the ISO 9000 series of quality measures seem to imply, the perfect system does not ipso facto ensure a perfect outcome or product. A cynic would even go so far as to say that one could get an ISO certification of manufacturing concrete life jackets. Business Excellence has to be reduced to measurable dimensions of Quantity, Quality, Cost and Time, if it is to be really meaningful. If not, it will remain the pious wish of a wellmeaning daydreamer. It must be seen, felt, realized and enjoyed. What evolved was a basis for formulating a Business Excellence Model. It rested on the Baldridge Award Scheme of the USA and the JRD-QV Scheme in India. And without developing the Business Excellence model what we shall have is just people tooting their own trumpet and creating a lot of hot air in the process. The Oxford English Dictionary defines excellence as possessing outstanding merit or quality. We could perhaps examine the concept of Business Excellence with this definition in mind. Logically a model of Business Excellence must relate to four things: Corporate Business Objectives The External Business Environment Converting Core Competencies into Competitive Advantage. Being known through visible actions for what the organization claims to stand for. This brings us to the question of a well-envisioned and well-directed corporate strategy that enables the idea of Business Excellence to be achieved.

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How is this model actualized? More importantly, at what levels should Corporate Strategy operate? This corporate strategy should therefore operate at two levels demonstrated by two triangular relationships. Person Group Organization

Process

Product

Individual

When these two triangles are superimposed on each other we get a six-pointed star indicating the six loci where excellence must be individually and severally achieved in the first instance. The figure below explains our position. The area where both triangles cover each other is the area of commonality denoted by the existence of a value based corporate culture. Person Group Organization

Process Individual

Product

Business excellence, one must remember, is not a point but a process that is, above all else, recognizable, realistic, realizable, and result-oriented. However no person works in isolation nor is an organization an island unto itself. We can see globalized relations of business in the form of concentric circles as was shown in the discussion on Business Ethics. It included five concentric circles representing the bonding of behavior of the following through accepted values and ethics. Individual, Team,

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Organizational, National Economic and Global Business were all linked and made possible through a system of accepted values and beliefs. The figure given below will exemplify the point further. Each of these constituent elements has their own priorities and aims. What binds them together and allows them to co-exist is values and ethics on the one hand and a system of good corporate governance on the other. As explained earlier, to prevent extreme positions (rationalism and fundamentalism) from being taken up at the expense of organizational aims, good governance is called for. Corporate Governance should therefore be both robust and vibrant at the same time. It must permit and enable balancing of goals within and between various sectors of business activity on the one hand and between various loci of power with a single sector on the other.

4 3 2
1

Each concentric circle from the inner most moving outward denotes the following levels of ethical activity namely individual, group, organizational, national and global. The boundaries within which values and ethics are practiced ie., the demarcating line cutting through the circumference of the concentric circles is given through good governance practices. The Business Excellence Model that emerges then includes the following propositions: 1. Business must continually align its internal environment with the external realities through a value-based strategy. Hence it is, by nature, a journey rather than a destination. There must be a dynamic equilibrium between the expectations of all stakeholders.

2.

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3. 4.

Managerial Ethics must provide a climate for the realization of these expectations by inculcating the right values. Corporate Governance must provide a system by which this realization is perpetuated and development is brought about at the level of the person, the process and the product. Neither Managerial Ethics nor Corporate Governance can alone lead to Business Excellence. However, together they can provide the basic foundation for achieving it. Excellence will have to be built into and sustained in each of the six loci signified by the points of the six-pointed star. The organization has to work towards becoming a better social citizen each day and therefore it has to be concerned with and responsible both to and for the larger social environment. This corporate journey towards Business Excellence through Managerial Ethics and Corporate Governance is facilitated through a willingness (signified by topmanagements commitment) and an ability (signified by executives walking their talk).

5.

6. 7.

8.

The history of knowledge shows that no new thought has ever come about without dislodging the old thought. So too is true for the Business Excellence Model. We must consciously eliminate the following managerial traits before embarking upon the journey to excellence. 1. 2. 3. 4. 5. 6. 7. Absence of transparency in decision-making and feedback mechanisms. The micro-nationalism of executives (religion, clan and caste loyalty.) The macro-racism of executives (gender discrimination and creating sweetheart deals). Transfer pricing with a hidden and nefarious agenda. (Transfer pricing is internal cost sharing between departments contributing to the creation of the final product.) Conflict between stakeholder interests especially between the smaller and larger shareholders. Not selecting the nominee Directors on the Board purely on merit and not empowering them adequately. Promoting a neo-colonial ethos wherein the larger company plays the unfair big brother-bully over the smaller partners in the strategic alliance.

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8.

Being oblivious to the social responsibility of business by facilitating the parallel economy and wantonly exploiting the eco-system with not a care for what may happen tomorrow.

The above criticism must be treated with restraint and we must realize that the following caveats are kept in clear sight at all times. . Granted that thinking globally but acting locally has become a clich, it is not an idea entirely without merit. Granted that taking decisions autocratically and implementing them democratically has been our national credo, is it not high time that we changed it?

Granted that India liberalized its markets, privatized its ownership of business and globalized its competition under the undue influence of the IMF, the point is that there is no turning back for now. Let us be honest and truthful in fulfilling the role of business in this new politico-economic mandate. Herein lies the key to success and the way to realize Business Excellence. Now let us look at the purposes for developing business excellence. It is three folds: 1. Improving organizational capabilities, practices performance and results. 2. Facilitate communication and sharing best practices in the market among carious players. 3. Serve as an instrument for understanding and managing performance, guiding planning and opportunities for learning. The criteria for judging performance excellence goals are four folds. 1. 2. 3. 4. Delivery of ever improving value for the customers and contributing to market place success. Improvement of overall organizational effectiveness and capabilities. Organizational and personal learning. Developing and sustaining a robust and vibrant corporate culture.

A framework for performance excellence implies that core values and concepts are embodied in these seven categories. Leadership, Strategic Planning, Customer and Market Focus, Information and Analysis, Human Resources Focus, Process Management and Business Results. And all these finally culminate in profitability for the business venture. No matter ones socialistic sentiments may be, profit is not at all a dirty word. The reason for being in business is to make profit; it is a necessary condition. But when this becomes the only condition for remaining in business then corporations may grow but fail to develop. Business Excellence then refers to holistic, qualitative and quantitative improvement in production and productivity such that the very quality of work life also improves as a result. It is the logical culmination of strategic initiatives taken by HR to

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promote a value based corporate culture wherein managerial ethics and good governance practices co-exist. REFERENCES

Arya P L and Sadri S : Managerial Ethics : a considered sociological treatment, in BMA Review April 1999. Bonhoeffer D: Ethics, Macmillan, Munich, 1965. Chakraborty, S K: Management By Values, Oxford University Press, Bombay 1991. Frtitzsche D J: Business Ethics McGraw Hill, New York, 1997. Hartman, Laura Pincus: Perspectives in Business Ethics, Irwin McGraw Hill, Chicago, 1998. Jain, Arun K: Competitive Excellence, critical success factors, Vikas Publishing House, New Delhi, 2000 Jayashree S and Dastoor D S: Business Ethics among Finance Managers in India, MDI Management Journal, July, 1994 Jayashree S, Business Ethics: Some Conjectures and Refutations, International Journal of Value Based Management, Vol 9 No 1, 1996. Jayashree S and S Sadri: Ethical Concerns (forthcoming), 2003. Kazmi, Azhar : Business Policy, Tata McGraw Hill, New Delhi, 1992. Lukes, S: Power, Macmillan, London, 1973. Madsen, P and Shafritz J M (eds): Essentials of Business Ethics, Penguin, New York, 1997 Sadri S, Sinha A K and Bonnerjee, P, Business Ethics: Concepts and Cases, Tata McGraw Hill, New Deli, 1998

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Sadri S, Dastoor D S, and Jayashree S: The Theory and Practice of Managerial Ethics, Jaico Pub. Co. Mumbai, 1999. Sadri S, Jayashree S and Ajgaonkar M: Geometry of HR, Himalaya Publishing Co, Mumbai 2002. Sadri S and Jayashree S, Business Ethics and Corporate Governance, Himalaya Pub. Co. Mumbai 2002. Sharma Subhas, Eastern Windows Eastern Doors, New Age Publications, New Delhi,1996 Shekhar R C : Ethical Choices in Business, SAGE, New Delhi, 1997.

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APPENDIX The Baldridge Criteria for Performance Excellence Framework [A Systems Perspective] Organizational Profile: Environment, Relationships, and Challenges

Strategic Planning Business Results

Human Resource Focus

Leadership

Customer Market Focus

Process Management

Information and Analysis

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