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| Sunday, 10 October 2004 |
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Business |  |
| News Business Features Editorial
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The Productivity path to growth Lloyd F Yapa. Investment or creation of assets, enables society to produce a stream of goods and services for consumption. It is usually accomplished by reducing current consumption. Banks lend these savings to investors, who in the process of production for profit, create employment or income earning opportunities. Productivity improvement is no less important in this connection, but is a strategy, that is generally ignored in our society. It releases resources eg land , labour and capital for production of additional goods and services. For example suppose, that a team of ten carpenters can turn out a table and six chairs per day using hand tools. If the process is mechanized by investing additional capital, the same output can be achieved by one carpenter, thereby releasing nine workers to turn out nine additional table-chair sets. Output can be raised quantity and quality wise using lesser inputs, not only by applying capital/ technology, but also by better ways of doing things like the well known Japanese 5 S System- sorting, systemizing, smartening (cleaning up), sustaining (the pace of these processes) and showing the way to subordinates/others. The level of productivity is obtained by dividing the (value of) outputs by the amount of any type of input such as land labour and capital used. The best known measure of productivity is output per man hour. Combining related subject areas There is immense potential for improvement of productivity in Sri Lanka, mostly without incurring much expense. For example efficiency can be improved several fold and savings effected just by bringing all institutions dealing with related subject areas such as agriculture, irrigation and the environment or transport, highways and telecom or trade, industry and labour, under one ministry. If this is not possible, at least high- powered interdisciplinary teams of officials should be set up with specific targets to be achieved in a specified number of days in such areas. One obvious subject for this type of treatment is government procurement, which is notorious for causing delays in project implementation and absorption of voted funds. The infrastructure area bristles with such possibilities. For instance close co-ordination among road construction, telecom, water supply and local government agencies, could slash the enormous amount of time and money spent on Sri Lankan roads by commuters and haulers of goods by avoiding the break up of newly constructed or repaired roads for laying of water supply lines and telecom posts, facilitating removal of debris, unauthorized buildings/structures, regular cleaning/ repair of side drains etc. In the electricity supply area, such co-ordination and empowerment of officials could effect substantial savings ( to the tune of about 200 MW, as reported) by prevention of pirating of power, overcoming the shortage of meters and enhancing conservation by substantial conversion to CFL lamps etc. Collaboration Another similar method is to provide for collaboration among agencies performing similar functions to effect economies of scale by pooling of resources and information. For example the municipal councils of Colombo, Kotte and Galkissa can pool resources to set up an enterprise with private sector collaboration to convert garbage to bio gas, with fertilizer and recyclable plastic, glass and metal as by- products, since small scale activities in this area are not commercially feasible. An extension of the same concept can be adopted by small and medium scale enterprises by setting up geographical clusters of producers as well as supporting industries and services to improve their competitiveness, with planning and infrastructure provided by the State. Sticking to the core business However, if organizations and enterprises were to become large behemoths by expanding into activities not directly connected with their core business, for gaining economies of scale, like the South Korean 'chaebols' such as Samsung and Hyundai, efficiency may suffer. Then such complexes have either to be disentangled into profit centres with considerable autonomy for minimizing costs and maximizing revenue or certain activities be outsourced or completely divested to improve efficiency. The problems encountered by the Electricity Board and the Petroleum Corporation may be due to such expansion into unconnected activities. It has to be remembered, however, that in divestment, improvement of productivity through innovation, to please the customer, can be encouraged only by promoting competition and rivalry through diffusion of ownership among a few companies (not by creating monopolies). Talking about the core business of an organization, the government too should identify, what its core business is and gradually divest the rest to local governments and the private sector, as government activity is invariably very costly. This is productivity improvement at its best. Imagine the effect on the government budget by way of savings gained, the amount of red tape slashed , if it sticks as far as possible to its primary role of legislation, policy formulation, (especially for reduction of poverty), enforcement of law ,order, basic human and property rights, providing for defence/security, infrastructure, health and education. However, in addition it will have to maintain competition among firms and administer appropriate regulations to prevent the private sector from exploiting the consumer and to encourage innovation. Strategic planning Such a government needs a strategic plan consisting of specific goals/objectives, key strategies and actions with a cost and time frame to steer the economy to be able to deliver results at the least cost, in the shortest possible time. In addition it will have to communicate its key strategies among the people, so that each citizen can focus on such areas to undertake continuous improvement for the better or 'kaizen' (a method popularized by the Toyota Motor Company), to reach agreed goals. This is the best way out for a State burdened with an enormous debt burden and a long shopping list of unproductive activities (designed mainly to catch votes), for which it cannot find the funding nor the skilled personnel for implementation ; in the meantime the entire country waits for ever for something to happen, while the more practical and the least paranoid nations of the world whiz past- towards prosperity. |
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