Creating Value

On a single day in any one newspaper, (The Economic Times or The Financial Express or The Business Standard) we read about at least two different companies reporting disappointing results.  It has happened so often in 1998 that it is not even news.  But it should be!

Long-term Value
To succeed, businesses must systematically create value.  This value must be provided to at least three distinct groups - shareholders (in the form of a ROI), customers (in the form of a quality product or service at an attractive price), and employees (in the guise of personal satisfaction through-out their careers).

However, over 80 percent of the measurements used to manage a company are designed to report on annual returns to shareholders.  Most management decisions are therefore biased towards delivering short-term value to shareholders.  An income statement or balance sheet tells us almost nothing about the company’s ability to create value for customers and employees and, therefore long-term shareholder value.  Although, customers and employees are possibly the only assets of a company that appreciate in value.

Obsession with shareholder information is a hangover from early industrialization in India, when the survival of process industries such as steel and textiles depended on attracting vast capital needed to power those firms.  Those days are since gone, but the measurement systems they spawned are still with us.  It is these partial measurements, and not the stupidity of the managers, that lead to poor decisions, big surprises and lost opportunities day after day.  Can we afford this leadership inefficiency? (Or is it ineffectiveness?)  Certainly not.  As a remedy, CEO’s must define what should be measured company-wide to ensure long-term shareholder value.

Satisfaction Measurement
What can be measured, can be managed in terms of planning, control and improvement.  The corollary is that whatever escapes measurement becomes an unknown variable and ultimately wreaks havoc in a management system.  If Newton had studied what large corporations measure, he probably would have concluded that the Management Theory for Business Success is that “only short-term profits matter”.

But businesses require far more than mere short-term profits.  They require the continuous creation of value.  Only information that tells managers whether the company indeed is providing value, is critical.  All other information is secondary!  We need to remember that, ultimately, the customer pays our salary.  Market research for measuring customer satisfaction should therefore be the mandate.  And a prerequisite to customer satisfaction is employee satisfaction.  While it is important to measure satisfaction, to succeed we need to change the measures of satisfaction.

• Business Results
  A careful scrutiny of the IMC Ramkrishna Bajaj National Quality Award criteria reinforces the concept of creating value for customers, employees, the community and shareholders, in the section on Business Results.  In my personal opinion, the most important measures culled from the criteria are:
• reliability of products and services
• repeat business
• appraisal and target setting
• improvement suggestions received
• involvement in community education and training
• export earnings
• supplier performance
• process capability.                                              

Each of these measures should be examined for trends.  Each trend should be benchmarked against the relevant best-in-class.  Only then will a CEO not be embarrassed by bad results.

Without these measures, a CEO would be like a pilot, flying an aeroplane with nothing but the air speed indicator telling him how he is doing.  Without the use of an altimeter or compass, most planes would crash.  And without the right measurements, most organizations  face a similar fate.  An effective leadership compass, such as the International Quality Rating System, can transform bad results to good.

Role Models

The reality is that because of the all-absorbing challenge of a successful flight, CEO’s have little time and energy to address their real jobs, the redesign of the plane and its instrumentation.  Unless of course, if you are Suresh Krishna of Sundaram Fasteners or Chandra Mohan of Punjab Tractors.