Friday, October 29, 2010

Who will stop the buck

Karthikeyan topped the Business School upon graduation this July. He joined the world of business directly from campus with no prior experience. Many of his batch-mates had been assigned to functional departments like production, procurement, finance, marketing and so on. He was singled out to work directly with the CEO as an Executive assistant. Karthikeyan had heard that an assignment with the CEO’s office meant being used up in all ways possible with nothing concrete to show by way of his own achievement; his career growth could be at risk. Karthikeyan aired his concern to the CEO in private at an informal dinner convened for the fresh batch of incoming MBA’s by the CEO at his home.

Much to his surprise, the CEO welcomed Karthikeyan’s candid confession of anxiety and his keenness to prove himself. Expressing great confidence in Karthikeyan’s judgement, the CEO sought his help in establishing top management accountability. Karthikeyan could not believe that the CEO, of all the people, could have difficulty enforcing accountability with the top management. Equally surprising was that the top management, who should themselves be anything but accountable, being otherwise.

Problem: The company had been consistently missing to meet the monthly profit projections to the board. The shortfall had been at 50% of estimates for the last six months. If every department was doing what they had committed to do, as they claimed to, why should there be any gap? Since no one came forward to clarify, the buck eventually stopped at the desk of the CEO. Can karthikeyan investigate and report to the CEO in complete confidence?

Karthikeyan’s confidential note to the CEO:

After due study, Karthikeyan proposed an objective examination of the following six factors that could possibly contribute directly to the shortfall in profits:

Budgeting: The severity of assumptions made in the plans varied with the actuals by a large margin. Likewise the unplanned investments and expense overruns had no way of being flagged off in advance and approved before incurring them. Even though the policies provided for it to be ventilated in advance as a risk, such a practice is non existent. The CEO may like to call for monthly alerts before according approval for spend. How does he propose dealing with the defaulters?

Investments: Several projects seem to have been started but only a third of them had got off the ground. Some were false starts, while many others were either closed prematurely or left hanging midway because of unresolved disputes. Some projects were declared successful although they were still to secure the completion certificate from the clients. Does the CEO get reports on these?

Revenue capture: Poor quality of order intake, unrealistic delivery commitments and acceptance of penalties for non delivery were not made public as potential risks. In addition, delayed and error prone invoicing did not make any provisions for delays in recovery due to the rework and excessive follow up effort required to mobilize collections. Would the CEO like to call for comments?

Cost management: While the budgets where signed off for a specified number of discretely identified heads of expenditure, new heads of expenses had been included without any reason for them to be created in first. Besides a number of surprise entires of out-of-budget items, there was also considerable delays in the booking of expenses. Did the company have norms on revenue recognition and closure of accounts on time?

MIS: While the HRIS was maintained at 99.5% level of up-to-dateness and accuracy, for all the heads of business information it was at a mere 65%. The Information Management policy is silent on the standard of quality of information reported and accepted. The confidence level of decisions arising out of poor quality and out dated data is a deeper question for the top management team to examine..

Culture: Noting the gaps and anomalies between what was happening and what was meant to happen, Karthikeyan was pained by the functioning styles of the each of the individuals. They varied so widely that several questions had not been answered to his satisfaction by many of the seniors. Karthikeyan confessed at mistakenly assuming his seniors to be sympathetic to his lack of industry experience and expecting them to guide him resolve the problem. Instead they not only were unsympathetic towards his challenges at work but were equally dismissive of the importance of his assignment to the company’s future, merely testing his wits in the process.

How could an organization remain young in thinking and become adept at learning if the top management acted so difficult. If people were made to struggle to get to the facts and teased for asking elementary but significant questions, how will the CEO earn the trust of the board and the shareholders.

Young MBA’s will soon lose their enthusiasm and play safe, quite like their bosses?

Who then will have the enthusiasm to question and stop the buck?


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