Performance Monitoring and Governance Assessments of State owned Enterprises

John Samuel

One of the good things about Kerala is that there are islands of optimism and islands of actions. As a student of governance, I am a very keen observer of Kerala politics and policy. The turnaround of State Owned Enterprises (SOEs), due to the proactive initiative and effective management, led by the Minister of Industries, is indeed positive highlight of the governance. Kerala has some inspiring stories once in a while, though many of us would like to have many more inspiring stories. This story of better performing state-owned enterprises needs to be told much beyond the confines of Kerala and the confines of India because in the present context, it is important to set a new agenda on both public sector management and SOEs. It is not only about analysis and advocacy; there is also a need to be ambitious enough to set the agenda not only for India, but also for the world. I think Kerala has a story to tell the world about innovations in public sector management, and I hope we will be able to sustain the improvement in the performance quality of many state-owned enterprises.

I would focus on two aspects; one is a general framework on performance monitoring and the second is a framework participatory governance assessment, promoted by the UNDP

Performance Monitoring
My presentation on performance-monitoring system is based on my management and leadership experience of ensuring the performance quality for large international organization for many years.

Performance monitoring is a planned and regular process used to understand, assess, evaluate, and improve the efficiency and effectiveness of an organization and its process to decide the strategic priorities and direction. Here it is very important to have quantitative measurements based on key performance indicators and qualitative methods based on the review and reflection of key stakeholders. This is what you call participatory review and refection and the indicators will say where it is going. It will not give a lot sense about why it is happening and that requires a whole of regular participatory review and reflection that is qualitative because those review and reflection help you to get what I call the business judgment.


The purpose of measuring performance is to know how an enterprise is performing and to understand the reasons for good or bad performance quality. Improving the performance of an organization is to serve its purpose, the mission, customers, employees, promoters, owners as well as stakeholders.

Principles for Assessing and Monitoring Performance
When performance indicators of an organization or an enterprise or a company are to be assessed it is important to have a clear idea about the normative principles, which guide a performance monitoring system or the corporate governance assessment system.


Accountability is the most important of the six normative principles that are most essential for such a performance monitoring system, the most important one is accountability. For an SOE, it is of immense important to have political accountability, and this is not just a technical stuff. Since millions of dollars of money, which is being invested, is from taxpayers' money and it is the money of citizen, public accountability is a must for its very legitimacy. Political accountability to the people is primary. Social accountability is also paramount and it is necessary to evaluate whether an SOE serve the community in which it operates, apart from the employees of that enterprise. Managerial accountability includes the whole range of issues of performance, capacity, product quality, marketing, customer care, finance management, research and development and overall performance in the larger market and society.

Transparency is not merely about making some information available. How far we have a system of open and transparent system of process, information, and management is a very important aspect in relation to sense of ownership.
A transparent system is all aspects of management is import to ensure accountability and to combat corruption. However, transparency in itself may not lead to accountability. Accountability is about answerability. Accountability is a function of power-relationship within the organization and the organization in relation to the larger society and the state. A effectively managed company should disclose all its policies, including the policy of recruitment, performance, financial management related information on a regular basis. It is very important to have a system where every citizen should be able to go to web-portal of a particular company or enterprise and see the performance of a company in every quarter. The quarterly report and quarterly internal audit should be published and all policies and key information of the company should be accessible and available to the people. Such an open-information policy framework and system would not only increase the credibility and performance of such enterprises, but also play as a safeguard against any practice of corruption.

Participation of the stakeholders means the sense of agency and ownership. It is very much connected to the extent employees and other key stakeholders are involved in defining and developing the strategy of the organization. It also means the extent to which other stakeholders, including media and civil society organizations, are involved in the affairs of the corporation. In an SOE it also seemed to be political, because the government keeps changing and it should not be only left to civil servants.

Integrity is about how the principles policies and strategies are translated in letter and spirit ensuring the quality, performance and overall effective management of the organization. Integrity is also about the courage of conviction not to dilute the core vision, mission and objective of the organization. An organization with a shared sense of integrity would not have any space or option for corrupt practices. It is related to the questions whether an organization serves the purpose for which it is created and whether the leadership follows the ethical business practice and systems of management.

Rights and responsibility include Corporate Social Responsibility and a respect for the rights of the community in which a company operates and responsibility towards people. A responsible and rights-based social or public enterprise should also ensure the triple bottom lines in management governance. The triple bottom lines include People, Planet and Profit

Towards the end of the day, if a monitoring system does not have the sense of ownership and agency of the employees, it will never get internalized and that is part of the problem in many organizations. Top-down policies without any sense of participation and agency of employees hardly get implemented. The term ‘agency’ means ‘who takes decision’ for whom. It is the participation and sense agency that creates a shared sense of ownership to any process or policy. And for the SOEs this is much more fundamental because there is a whole issue of political responsibility and agency is not only technical here.

Developing a Multi-dimensional Approach
Indicators can sometimes mislead you. Indicators are good, but not good enough to really take strategic direction. Performing the monitoring system enables enterprise to plan, measure, and manage its performance according to a pre-defined strategy and make the desired outcome and impact.It is a diagnostic tool; it is a report card for an organization / business that provides users with information on what is working well and what is not. How do you translate a strategy into performance? This would involve the following: translating strategy into more easily understood operational metrics and goals; aligning the organization around a single coherent strategy which everybody will know; making a strategy in everyone’s everyday’s job, from CEO to an entry level employee; making strategic improvement as a continual process; and mobilizing change through strong effective leadership. Change of management itself is an important is often important to ensure strategic performance of an organization.

When we develop a performance management and monitoring system, it is important to have a multidimensional approach. There are number of methodologies, which we call as Balance Scorecard methodology, performance prism methodology and quality management methods. Based on the Balance Score Card Methods developed by Robert Kaplan and David Norton( Harvard Business Review-September-October 1993) ,I would like to high-light five multidimensional perspectives: Financial Perspective, Customer Perspective, Internal Business Perspective, Innovation and Learning Perspective and External Environment Perspective.

Multi-dimensional Approach
1) Financial Perspective: Allocation pattern, Expenditure pattern, Quality of expenditure, Revenue pattern, Monitoring supply and demand side; Return on Capital Employed, Cash Flow, Profitability, Profit Forecast Reliability, Sales Backlog
2) Customer Perspective: Quality of products and services, changing needs, constant feedback, managing demands and supply Pricing Index, Customer Ranking Survey, Customer Satisfaction Index, Market, Share, Business Segment, Key Accounts
3) Internal Business Perspective: Employee satisfaction index Project performance index, Resource management, production-management and product quality, performance capacity and quality
4) Innovation and Learning Perspective: Review, reflection, analysis and learning cycle, Research and development, systematic bench marketing, integrating new knowledge, individual and institutional capacity development, learning objectives and incentives for innovations and experiment.
5) External Environment Perspective: competitors, community, civil society, media, political environment, policy environment, political economy



It is so important to look at the bottom line of finance performance to know allocation pattern, expenditure pattern, quality of expenditure, quality of revenue, and monitoring of supply and demand, what is the profit, what is the profit forecast, etc. It is also important to take the customer perspective and internal business perspective. Here, the employee satisfaction index, project performance index, resource management and production management index, and performance capability are very significant. But towards the end of the day, an organization gets transformed through consistent process of innovation and learning perspective. The question is whether an organization enterprise can internalize innovation within its system and that is not an easy thing and is there an incentive for innovation is also very vital point. Many a times, if there is no incentive for innovations and if there is no learning, which is being built in the system, organization never transforms. So, the transformation of an organization depend on to what extent it has the innovation and learning perspective and of course, for an SOE, external environment perspective is very crucial and this is both business as well as political environment. So, I will conclude this part by highlighting the five aspects of Performance Prism. Performance Prism( Any Neely 2000,Cranfield School of Management) is a tool derived from the Balance Score Method of Kaplan and Norton. Performance Prism focus on five aspects: stakeholder satisfaction, how the strategies which we have used, what kind of process we use to execute these strategies, and what kind of capabilities are institutionally and individually transformed into institutional capability and what are the stakeholder contribution. One of the problems of many of these organizations is that there are excellent individuals in the organization with fantastic capacities, but that has not been transformed into institutional capability, which can deliver results.

Principles of Participatory Governance Assessments

The second part of my presentation is set of principles, which we use in the United Nations on governance assessment. Most of the governance assessment is done for assessing the performance of various sectors of government and also the public sector. We stress on the aspects of national ownership, local capacity, inclusive multi-stakeholder participation and evidence-base policy change. Many of us challenge externally imposed or donor driven perspective on governance assessment. Usually, highly paid consultants fly into a country for two weeks and then they tell what is best for those countries. This not only raise issues of legitimacy and sustainability – but at the end any top-down or externally imposed assessments will not be effective. Because, change will never happen, unless people own the process of change. So, we at the UNDP, stress eight most important principles of governance assessment. These principles of participatory governance assessments can be very useful to periodically assess the governance and management of the State owned Enterprises.




In this process, agency and ownership is so crucial. If a corporate governance assessment for an SOE is being done, who owns the process is so important, because unless the members of the board do not own it, you cannot get the best of the consultants and to develop a system and it is not going to work. It has to be context-specific otherwise it would not work. What work in Kerala may not work in Maharashtra because the political culture of Kerala would be different from political culture of Maharashtra or Gujarat.So, it has to be context specific, it cannot be ‘one-size-fits all’ approach. The priorities, methodology, and choices of indicators also will have to be based on the context and it has to be multi-stakeholder process, and it has to be need-based rather than a generic framework of assessment. The question is if we have a governance assessment for a corporate, does it transform or does it maintain the status-quo. So, one of the areas in which we work is to assist governments across the world to build up the national ownership of governance assessment through multi-stakeholder process.

Capacity Development is a cumulative process. Building the capacity of an institutions also requires robust systems that can combine the institutional capacity along with individual initiatives and innovations And capacity development involves a consistent effort to bridge- knowledge-skills and practice in a cyclical and systematic manner. It is so important to produce research and knowledge products, establish and maintain high-quality and dynamic depository of knowledge and make accessibility and availability of these knowledge. But unless we translate some of this learning into knowledge, process and product, it is not going to get a long-term influence.




This is just a process of how do you do a corporate governance assessment and the steps related to it. I am not going into detail of it here. But I would say it is so important to have a political economy analysis of an enterprise in an environment to identify who are the stakeholders. It is not a technical fix although technicality is involved, but it so important to have the political economy of an enterprise in a context and then identify the stakeholders, steering committee, and all those 10 or 12 processes. These are not linear processes, it goes to and fro. Unless these works are aligned with a political and policy priority, it does not work. You may be able to turn around an SOE, but does it translate into policy alignment that can transform the whole sector? Priorities are a very important questions and the methodology will have to be rigorous, and good enough to be replicable within a given context.



I am not going to the detail of the technical aspects, such as how do you collect data, how do you develop various indicators and how do you use the indicators. It is also important to see how you identify the data producers and to see whether they are reliable and trustworthy. Whether they give evidence, whether they improve the usability of evidence, whether you would be able to effectively disseminate this data, and whether it will be able to be widely accessed by different actors , are very important questions.




Data users could be policy makers, managers, internal stakeholders, civil society organizers and citizens. Getting appropriate buy-in is very important and hence the stakeholder process is very important, and what is the incentive to use this information and data, and how do you really improve the dialogue between these two.


I will sum-up saying that many of these information would be available on the portal, called www.gapportal.org, where there is a whole set of governance indicators and performance monitoring system to fight corruptions with lots of example from across the world. Let me sum it by saying that, a performance monitoring system and a governance assessment is good as long as there is a political will to transform. You can have the best of methods and you may have the best of consultants, but towards the end of the day, the transformation of SOEs will have to be a political project because in this particular context, the politics of change and the politics of market will have to take three points in to consideration; 1) the owners of SOEs will have to be citizens and it should not to be bureaucrats, so, the political accountability is fundamental. 2) SOEs also will have to be able to compete in the market. So, it is not just to generate employment. It should be able to compete in the market with products, with quality, and with competition. Otherwise it will not be able to sustain. 3) The investment in State owned Enterprise need to be based on strategic priority at a given time within a given context. It may not be necessary to have state owned enterprises in all areas, particularly where there are already other key market actors or where there is less chance to be financially viable. Political, Economic and Financial viability and sustainability should be key factors in investing money to create State-owned enterprises. In spite of all good intention the real challenge is that often State-owned enterprises become safe haven of corrupt political-bureaucrat nexus. Hence it is of immense important to have effective Performance Monitoring and Governance Assessment to reclaim the state-owned enterprises to citizens and ensure the public accountability and effective performance of these institutions in the market place and society.

I hope that the success story of Kerala SOEs will get translated into knowledge and practices and those knowledge and practices will be able to inspire and inform and set agenda in India. India requires such kind of stories because there are new vested interest nexus , ready to sell India, retail and wholesale, to the highest bidder. There are efforts to sell off some of our best public sector enterprises for a song. We cannot afford to sell this country and the enterprises, which have been built over last 63 years, which made us what we are told.
Hence, these stories of success of State-owned enterprise in Kerala need to be told, told everywhere, told beyond India, and I hope this kind of process will inspire change across the world. And we need to learn to set agenda to change the world- to make it more just and sustainable.

(Presentation at the International Conference on State-owned Enterprises, Kovalam, India: December 10-11, 2010)

Living in Multiple worlds: global and local

March 31, 2011 By Cris Seetha DC Kochi ..
http://www.deccanchronicle.com/channels/cities/kochi/globe-trotter-rooted-kerala-048

Flashback:

John, from a Malayalam-medium school in his hometown of Thuvayoor, near Adoor, stood quietly in a corner awaiting his turn to take part in an inter-school English elocution contest, amidst English medium students looking bright and confident. John walked to centre stage, and like a tape recorder that had been switched on, he spoke animatedly on his chosen subject and walked away with the first prize.

Fast-forward to the present:

Thirty years later, John Samuel is a well-known name in media circles. Currently head of the global programme on governance assessments at the UNDP Oslo Governance Centre, Norway and Global Democratic Governance Advisor at the UNDP Headquarters, New York, he is a busy man, shuttling across the globe every few days.

John has been travelling internationally for the past 18 years, living out of the suitcase across the world. But he has never felt homesick because he makes sure he makes a trip to Kerala every other month. As he puts it, “I constantly live in multiple worlds, but my roots are very organic and active in Kerala and India.”

Inveterate traveller John has barely lived in one place for more than 10 days. He has travelled to more than 90 countries, to remote villages, big cities and is still discovering the world. He attributes his incessant journeys and avid curiosity about the world to a local library he frequented as a kid — Sathyavan Smaraka Grandha Shala.

“I discovered the world of words and words of the world — through the hundreds of books that I read there. I read a book titled Paathira Suryente Nattil (In the Land of the Midnight Sun) by S.K. Pottakkad, when I was 10 years old and always wanted to go there. Now I am responding to your question from the Land of the Midnight Sun — Norway! In a way, it was my reading of the travelogues of S.K. Pottakkad and others which fuelled my thirst to discover the world in all its colours and shades.”

John does not credit the leaders of the world for his greatest sense of recognition in life. “It came when my school (Kadmpanad High School) decided to felicitate its best students in its 80 years of history who have influenced Kerala or the world. It was a humbling experience for me to share the stage with the well-known poet Prof. K.G. Sankara Pillai and my younger friend K.R. Meera.”

Reading six Malayalam dailies and actively contributing to discussions in Kerala, John has no ‘past memories’; he has ‘living feelings’ about Kerala. And those very feelings are myriad and still very vivid.

“The festival in our local temple; the sacred grove (kaavu) where we jumped from one tree branch to another like little monkeys; splashing in its ponds, growing up on unending stories of yakshis, madan and all kinds of unseen creatures lurking in the bushes or on the top of a tree or in a village spring and the sheer taste of eating uppumavu with my gang of friends.

I had a goat and a calf of my own. And the cashewnut season made me a rich kid in the village. I used to collect kilos of cashewnuts with my group of friends, sell them, go for the matinee show and treat all of them to ice-cream, in return for their camaraderie and solidarity.”

John’s wife Bina and children live in Kerala, because he wants his kids to learn Malayalam. He doesn’t feel the need to come back. “I still have my ration card. Kerala is in me and I am in Kerala, even when I am somewhere in the Amazon forests, or a remote village in Kenya, or sitting in a UN conference in Geneva or New York. I live in Maanjali (my village junction) and Manhattan at the same time!”
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