44th WORKSHOP MEETING OF HEADS OF NPOS
10–12 February 2004, Colombo, Sri Lanka
Keynote Address
by Charitha Ratwatte
Secretary, Ministry of Finance, Sri Lanka
It is a pleasure and honor for me to be invited by
the Honorable Mahinda Samarasinghe, Minister for Employment
and Labour, to speak at today's 44th Workshop Meeting
of Heads of NPOs. The APO is an intergovernmental
regional organization established in 1961 to contribute
to the socio-economic development of its member countries
and improve the quality of life of their people through
productivity enhancement in the spirit of mutual cooperation
among its members. It is a nonpolitical, nonprofit,
and nondiscriminatory organization, with an impressive
track record of achievement in the last four decades.
Your organization seeks to realize these objectives
by playing the roles of think tank, catalyst, regional
advisor, institution builder, and clearinghouse for
information on productivity. Your Governing Body has
identified five thrust areas to be given emphasis
when planning APO activities: Knowledge Management,
Green Productivity, Strengthening Small and Medium
Enterprises, Integrated Community Development, and
Development of National Productivity Organizations.
In Sri Lanka, the NPO is the National Productivity
Secretariat, operating under the aegis of the Ministry
of Employment and Labor, whose vision is "A Prosperous
Nation through Productivity and Quality." May
I take this opportunity to congratulate the Ministry
and the Secretariat for the good work done in this
area over the last few years.
Your meeting in Colombo today is the 44th Workshop
Meeting of Heads of NPOs, and deliberations will cover
current concerns and challenges facing NPOs, their
role in improving productivity in the agriculture
sector, a review of the present thrust areas of the
APO, and consideration of new subject areas and projects
to be considered under the APO's two-year plan for
2005–2006.
Today we are obsessed with increasing productivity.
Sitting in the Ministry of Finance, in the context
of an economy that has just seen four consecutive
quarters of growth over 5.5%, one is acutely aware
of what might have been if our productivity had been
higher than it is now. Increasing productivity means
making the productive process as efficient as possible.
In an economy in which consumer demand outstrips
supply, to make profits you make more things more
cheaply, i.e., more efficiently. Productivity is heavily
influenced by employees’ ability and effort.
Employees’ abilities depend on skills developed
through education and training. The effort employees
devote to their work depends on the compensation practices
of firms. Managers therefore increasingly cultivate
productivity by investing heavily in training programs
and trying to create a competitive environment where
individuals want to contribute.
In today's hi-tech economy it is a constant struggle
to keep pace with technology changes. The pace of
change is truly revolutionary. There is an increasing
tendency to outsource functions previously done inhouse,
reflecting the necessity for the managerial freedom
to buy the latest technology and recruit persons skilled
in the application of that technology, instead of
devoting valuable resources to retooling the workforce
and existing technology.
Increasingly, it is accepted today that productivity
requires managers to compensate workers according
to individual contributions rather than according
to seniority and loyalty. This requires objective
performance appraisal systems capable of distinguishing
among individuals whose results often depend on other
team members. To avoid the negative effect of subjective
and biased assessments by supervisors, companies are
increasingly resorting to profit-sharing plans to
induce employees to identify with companywide performance.
The economist Martin Weitzman argues in his book
The Share Economy: Conquering Stagflation that paying
employees on the basis of corporate profits would
eliminate built-in pressures that push up costs and
dampen productivity. The dot.com companies in the
new economy have proved this point well, notwithstanding
the dot.com collapse, which wiped out millions of
dollars in employee share value overnight.
Most companies that participated in gain-sharing
programs have consistently reported productivity improvement.
The productivity gains from profit sharing result
partly from increased involvement in decision-making,
partly from the financial incentive, and partly from
greater perceived equity within firms. Managers concerned
with improving corporate productivity tend to manipulate
training and reward systems to encourage employee
productivity at three levels: 1) individual productivity;
2) business unit productivity; and 3) companywide
productivity.
To meet these objectives requires a complex training
program that builds technical, administrative, and
communication skills. It also requires a stratified
reward system that supports individual performance
through merit pay, business unit performance through
profit-sharing bonuses, and corporate performance
through ownership proxies such as stock options.
The prophet of efficiency is Frederick Winslow Taylor,
who approached the subject of efficiency with the
discipline of a scientist. "However simple a
task may seem, you must study it systematically to
determine the 'One best way' to do it." For this,
we must observe, measure, and record even the simplest
task. In scientific management the emphasis is on
measurement and analysis. Never assume that the best
way to do something is the way it has always been
done and never take anything for granted.
The concept of the best practice for any task or
function is the legacy of Taylor's' work for Bethlehem
Steel, owned by Joseph Wharton, founder of the first
US business school, the Wharton School of Business
at the University of Pennsylvania. Taylor's dictum
to observe, measure, and record, should not sound
strange to us hailing from the Indian subcontinent.
All three concepts can be captured in the word "reflect,"
upon what you have done or on what you are about to
undertake.
Gautama the Buddha, South Asia's greatest son, in
his sermon the Majjima Nikaya, asked his 7-year-old
son Rahula, "Rahula, what is a mirror for? Rahula
answered, " To reflect, Sir." Then the Buddha
advised Rahula thus: "Rahula, before you say
or do anything, reflect. Reflect if this thought,
speech, or action would be beneficial to others and
yourself. If when you reflect you feel that it is
not beneficial to others and yourself, then refrain
from doing it. If, however on reflection you feel
that it is not harmful to others and yourself, but
beneficial, then and only then should you perform
that act. You should then perform that act again,
again, and again."
The agrarian and trading community that existed
in the Indo-Gangetic plain of North India in the time
of Gautama the Buddha certainly did not have manufacturing
industries on the scale of Bethlehem Steel in the
time of Joseph Wharton in the USA, but the fundamental
point made by both the Gautama the Buddha and Frederick
Winslow Taylor, a couple of thousands of years apart,
is one which will hold true as long as human society
lasts: observe, measure, and record and thereby reflect
on whatever you are about to do to ascertain that
it is the best way to do it (the best practice) and
then only and only then actually get down to doing
it.
If Taylor's theories had a fault, it was its single-minded
focus on manufacturing efficiency. He assumed that
value meant "making whatever you were making
- more efficiently." This is too narrow for today's
world. Today we have to question "Are we making
the right thing?" "Could we create more
value by undertaking broader missions?" Today's
consumerism adds these aspects to productivity.
Peter F Drucker has recently raised the issue of
the productivity of key resources. How do we measure
the productivity of knowledge based and service work?
Drucker says that we need total factor productivity.
Drucker has described what he calls economic value-added
analysis (EVA). Until a business returns a profit
that is greater than its cost of capital, it operates
at a loss. Although the business may pay taxes from
what the revenue authorities define as profits, a
business does not cover its full cost unless the reported
profit exceeds the cost of capital. Until then it
does not create wealth, it destroys it. By measuring
the value added over all costs including capital,
EVA measures the productivity of all factors of production.
One recent tool to maximize productivity is benchmarking
or comparing one’s performance with the best
performance in the industry anywhere in the world.
Being at least as good as the leader is a prerequisite
to being competitive. EVA and benchmarking provide
diagnostic tools to measure total factor productivity
and methods with which to reflect on and measure it.
Drucker also believes that the basic definition
of a business and its purpose and mission has to be
translated into specific objectives, such as marketing
innovation, human resources, financial resources,
physical resources, social responsibility, and profit
requirements.
Resources must be employed more productively if
a business is to survive and grow. In today's fiercely
competitive globalized economy we cannot wish away
the competition. The only way forward is to take on
and defeat the competition. You win by benchmarking
yourself against the best of the competition, by reflecting
on the way you do things, by observing, by measuring,
by recording, and by following the best practice over
and over again, until a better process is developed
and then benchmarking yourself against that.
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