Deprivatization? is it good or bad?

A few thoughts about deprivatization

1.      What impact will the prospect of deprivatization have on investment by managers of privatized firms?

The impact will be:

·        Loosing corporate focus;

·        Missing planned CEO turnover;

·        Affecting planned managerial objects and strategic efficiency

Obviously, normal managers invest in long-term projects, products and services, deprivatization may come up with a different strategy that not aligned with corporate goals and its profit will probably go to different parties.

Managers believe, in a privatized firm, in greater gains and therefore have different incentives to implement long-term and in many case different strategies than in a deprivatization firm. In a competitive market, manager will constantly search for better ways to sustain profits and constantly reduce the costs.

In absence of these incentives and the pressure to maximize the profits and reduce the costs, the manager of deprivatization firm will only rarely be involved in such extensive exercise and will only meet his superior requirement. 

2.      What effect will the deprivatization have on foreign investment?

Based on the answers of question 1, foreign investment is will decrease if deprivatization increases:

·        The room to maximize foreign profits will be small;

·        Long-term investment will be no longer valid as the government will have greater share in the local market and will force foreign investment to shrink;

·        Short-term investment may not be profitable enough to return the investment;

·        Renovation in technology may suffer as well;

·        Exceptional technology and knowledge will leave the country and will be expensive to attract again.

3.      Do you think that mass deprivatization is in the long run best interests?

In my opinion, I don’t think that mass deprivatization is in the best interests of the country. This step will:

·        Slow down potential growths of the country;

·        Force some important factors to vanish that motivate the existing of the firms;

·        Impact the quality of the products and services;

·        Products and services variations;

·        Impact or freeze the price negotiations and eliminate competition.

4.      Who gains from deprivatization? Who loses?

Who will gain?

·        The local government;

·        Politicians;

·        Anyone endorses the deprivatization for his/her own goals.

Politicians and wealthy businessmen will abuse their power to help them increase their power and profits.

Who will loose?

·      Foreign and local investors;

·      Local economy;

·      Current products and services (quality, variations, healthy products, etc);

·      Consumers and workers;

·      Jobs.

 

Winning strategy

What’s the big deal?

A well known company experienced in less than a decade an exceptional growth. This is thanks to the adopted strategy to maintain revenue growth while the demand for their expertise and knowledge kept rising. The founders were able to force a place in the market and attract large corporations and provide their services. The founders succeeded to maintain this strategy since the beginning and execute and monitor it well as they were close to the operations and were able to steering it according to their rules. The organizational structure was simple, the incentive systems were clear and the decisions were made very quick among the three founders without loosing time.

This “wining” strategy is no longer valid in the new set-up. The organizational structure changed, the current incentive is not tuned to achieve the desired goals. The decision making process is not aligned correctly with unwritten strategy which caused mismatching in understanding the situation clearly.  The whole process and mechanism kept as is in general.  The management failed to create processes and procedures in place to manage and control the partners and therefore the firms. At the first glance to the total picture, the founders inherited classical organizational issues and failed to create new rules to control their corporate and increase profitability and stability without imposing the autonomy at each firm. They didn’t succeed to win confidence in their management style and forge a more collaborative relationship between the firms.

What’s next?

Here are 5-steps approach that might change the firm from its passive to a more proactive attitude:

1. Understand (current) environment (internal/external);
2. Select a winning strategy or adjust the current one to the new environment and challenges;
3. Execute brilliantly;
4. Develop enhanced organizational/management team and individual capabilities;
5. Evaluate and measure.

Current environment

To understand the current situation, the management needs to recognize the following points:

• Mismatch in the strategy between executive committee and the partners;
• Mismatch in decision making and its alignment with the strategies;
• Missing expertise in other interesting profitable industries;
• Missing clear marketing and sales planning and activities;
• Resource leveling and benefit from the current expertise (increase utilization);
• Common culture and a certain organizational behavior that can be controlled;
• Missing leadership and management skills;
• Unclear incentive system that is not aligned with corporate strategy and decision making processes;
• Unclear corporate guideline to manage the firms accordingly.

A common understanding of how these factors might affect the company and its services to the customer and its future position in the current and other unknown industries is also very important at this moment. Since this can be a significant factor to influence company future strategy.

Winning strategy

The role of the founders is to select a winning strategy. Before to do so, the executive committee has to act like a corporate and focus more on the vision, mission and strategy of the company as a corporate and may move away from managing the firm at the same time as a partner. A specific training might be needed to polish and flourish the leadership style.

• Build a leadership style that fit the business purpose;
• Come with a set up of rules and regulations as a guideline for the partners. New policies to enhance the communication and minimize the mismatching with a killing effect of the entrepreneurial spirit;
• Do the founders have the leadership knowledge and experience to lead and manage as the y should be? And therefore, an appropriate training/workshop may the partner help understand how to lead according to the corporate strategy;
• Build an organizational structure that meets corporate demand and mange the partners strategy and expectations;
• The founders should come up with a few variations on the existing incentive system that it thought would satisfy the partner demands and align between their strategy and these of the corporate and decision making processes;
• Build a clear and transparent measure system;
• Train the employees to broaden the knowledge and experience;
• Develop strategies to enter other markets to minimize the risks & develop product and services offers.

Execute brilliantly

Executing brilliantly is one of the stool legs. For example:

• An incentive-related process, whereby individuals learn what kinds of behaviors are likely to be rewarded;
• Second, with regards to Angela’s idea to adopt a new sale technology within the organization might hit a cognitive and incentive barrier. Any attempt to introduce this software must be accompanied by a change in both. Yet this system has its advantages allowing smooth decision-making processes and effective implantation of strategic actions;
• Improve products and services; • Improve customer relationships;
• Improve balance sheer (revenues/expenses).

The executive committee will have to install a new team to mange and monitor the changes. A new model where the executive committee would be only responsible for the strategy and would be concerned with the questions how well the company is doing currently and which milestones reached, what are the company needs to do or enhance more to achieve future targets. Management should be concerned almost only with implementing these strategies with all firms together with the partners.

Develop enhanced organizational team and individual capabilities

The structure of the company business will have to act as the backbone and support concerning decision-making and other processes. Deciding early what type of organizational system the company want to implement will help to ease the stress of implementing other changes. If each partner knows what he or she is supposed to be doing and in a way how and which target he or she need to achieve with his firm, there is less room for confusion and poor judgment.

Perhaps setting up a management team in this case would work the best for the company, or perhaps a hierarchy of decision makers would work better. Either way, setting up a definite structure before important shots are called makes a difference.

This team should take in consideration the training of each individual (including partners and founders) in order to meet customer needs and deliver the agreed quality and therefore keep a satisfied customer for the long run.

The team needs to maximize the value of each firm in a corporate level, increase the utilization across the corporate, and optimize current and new business profitability and increase manufacturing efficiency.

Evaluate and measure

Each individual at the company should ask himself the following question each time:How we do things around here?

The organizational behavior needs to change to increase the business awareness among the employees. The company  needs to avoid any ambiguous measures in order to have the ability to respond quickly to management actions. These measures need to be innovative and not continue to rely on “old” models and problem-solving strategies, from the current executive committee.

The new management team needs to look at:

• How to influence employee behavior and change their attitude;
• How the communication should flow between executive committee, partners and employee;
• How the decision and its execution can be monitored;
• Which performance tool would work best at each firm and which one would work best on a corporate level;
• How to use these score cards to check the executed strategy and how well the employee behaved accordingly.

Current crisis and macroeconomics automatic stabilizers

The stability of microeconomics have been increased the last decade. Short-term growth performance became more important and determinant for long-term growth. In my opinion, economist and policymakers should take measurements and rules to stabilize macroeconomic activities.

For example, current macroeconomics has an issue with the following:

• High inflation;
• Weakness in the financial sector;
• Exchange rate misalignment.

The policymakers and economists should adopt policies that influence macroeconomic performance in each of these areas. The EU summit in Berlin (Sunday 22 Feb.) agreed on practical steps to strengthen supervision of financial markets. The authorities will monitor especially the speculation of the hedge fund and credit rating agencies.

Macroeconomics instability tends to generate uncertainty, and in particular, uncertainty about the relative available jobs. An area that cannot be left untouched and that will be automatically stabilizes by itself.

The downturn of an economy is measured by gross domestic Product, prices, inflation, exchange rate, etc indicators which is measured in a long term. In the short term, policymakers implement automatic stabilizers to respond to when “red” flags are raised like increase in inflation or unemployment.

Yet, the traditional automatic stabilizers are no longer working correctly to meet long term objectives. Current market and financial instability created a new macroeconomic “concept” and new automatic stabilizers need to be created that could have a positive effect on the economy and avoid recent activities like:

• Banks are involved in risky investment;
• Investors invested their money with unknown people in unknown and uncontrolled funds;
• Firms and even countries built their economy growth on unstable capital without taking efficient risk measures.

Economist and policymakers did not figure out yet how to deal with current issues and challenges and therefore not knowing how to transfer current automatic stabilizers to these that make difference and contribute to solve the current financial crisis. Greedy investors and risky bankers that seek easy money will remain.