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Role of security bank lending

by Sudam Chandima Kaluarachchi, Union Bank of Colombo Ltd.

The Oxford Dictionary of Business English defines the word 'Security' or 'collateral' as a property or an item of value (an ASSET) that can be claimed by a person, bank or other organisation if a loan granted by them is not repaid by the borrower.

In Sri Lanka the word 'security' or 'collateral' is loosely applied for any type of tangible or intangible asset of same party or third party, which is used to cover the event of an unfortunate inability of repayment of the loan. But in developed countries like Untied Kingdom the word security is used for the tangible or intangible assets which belong to the borrower. The third party guarantees or tangible assets which do not belong to the borrower are called collateral.

Good security

Taking security when granting credit facilities has become a common practice of banks or financial institutions everywhere in the world. Since all lending involves risk, banks always try to reduce and minimise the risk, though it is impossible to remove entirely, by taking some sort of good security/collateral from the borrower or third party. Though banks do not entirely depend on the security when disbursing loans and advances, if they take a security, it should be valuable and the process of valuation should be easy. Assets which tend to rise in value are preferred since the risk involved in lending increases with time. It should also be easy identifiable and the process of taking charge on the security should not be a cumbersome procedure. When it comes to realisation, if the borrower defaults security should be realisable without much effort to get back the money due by converting the asset into cash.

If any asset has more number of characteristics mentioned above it can be classified as a good security available for a bank to encourage the repayment. Some of the assets which have attractive characteristics suitable for a security are:

1. Tangibles:

1. Immoveables

- Land and buildings

- Plants and permanently fixed machinery

Movables:

- Motor vehicles

- Life insurance

- Shares

- Equipments

- Stock in trade and finished goods

- Cash deposits

II. Intangibles:

- Guarantees and indemnities

- Goodwill

- royalty, copy right and intellectual properties

Need for security

Lending involves risk. It is impossible for any person or institution to eradicate this risk. But it can be managed and reduced. The basic risk to the bank is that the loan will not be repaid wilfully or due to unavoidable circumstances. The activities of wilful defaulters or professional defaulters in any society should not be underestimated or easily forgotten by the lenders. It is said that this risk of non-payment can be reduced and the repayment can be encouraged by taking security to cover the loan or advance granted.

Advantages and disadvantages

The bank can benefited by increasing the likelihood of repayment of the loan by taking a security. Higher repayment rate will reduce the provisions for doubtful debts and the amount charged to the profit and loss account for the identified bad debts. This will result greater profits. The borrower is benefited by enjoying lower rate of interest (interest rate applicable to unsecured advances is very much higher than that of secured advances). Having an asset which can be provided as security is also a plus point for a borrower because some loans are only agreed to grant when security is provided. Anyway the borrower has to bear all the administration and legal costs, and tax, stamp duty applicable to the transaction and for establishing the charge on the security. The charge means the way of turning an asset of someone into security that can be claimed by a person, bank or other organisation upon non-payment of the loan granted.

Is security a must?

Taking security means acquiring right over an asset. Even though the banks consider the availability of any security at the last point of the evaluation process, taking a security has become a traditional banking practice. That does not mean that each and every loan or advance is secured by an asset or collateral. In practice a lot of lending is unsecured. Specially in Islamic Banking concept the security is not important at all. This concept is based on the equity participation and sharing the outcome or the result created from the financial activity which can either be a profit or a loss. On one hand, taking an asset as a security is a cumbersome procedure.

It is a time-consuming activity and costly process.

It undergoes a very complicated paper work which will always need proper care and attention with relevant skills and legal expertise. Any small mistake can lead to make everything null and void. Even if security is taken, repayment is not certain because there are frequent legal problems over realisation of the security. It is very prominent that any respectable or high net worth customers or rich corporates resent having to provide any security for their financial requirements. It is not because they do not have valuable assets to provide but willingness that the bank should admit their integrity and creditworthiness.

On the other hand realisation of security, even as the last resort, will create an adverse publicity against the bank and will damage the reputation of it.

This damage caused to the reputation might come in two ways. The first way is that the affected party can create an adverse publicity that the bank treated him/her inhuman manner.

The second and more dangerous way is that, in the minds of business community and general public, it will position an idea themselves that this particular bank or financial institution has no proper lending policy and culture, it has a disorganised credit layout and the staff who are handling lending and making lending decisions are not educated enough and they are lacking expertise, skills and common sense which will be very important tools of corporate and personal lending. Banks lend money which they obtained from the depositors. In that case banks are acting as financial intermediaries. Any adverse opinion generated among public that the banks can not safe guard the depositors' money will lead to a bank run due to panic among depositors.

Though traditional banking business is based on disbursing money against security, the security is not a must but encourages repayment, in present day lending. Bank must be risk seekers and risk takers.

Risk will make profits. The matter is how this risk is minimised without taking an asset as security. A considerable amount of money has been disbursed by banks without taking any security where they are experiencing a high recovery rate.

This entire process of reducing the importance of an asset as security for lending must consist of several steps.

1. Understanding the importance and purpose of lending and risk involved in lending

2. Application of risk reducing tools other than security

3. Implication of systematic approach of evaluation of lending proposition

4. Proper supervision and monitoring of post Sanction period

5. Make use of appropriate restructuring and rescheduling techniques to tackle the unexpected inability of repayment due to unavoidable circumstances.

Although banks always demand some sort of asset as security when lending, today, almost all banks everywhere in the world have to provide thousands million of money for doubtful and bad debts. The reasons for this unfortunate situation are the poor evaluation of credit proposal hence leading to inferior credit decisions and the complexity of the process of taking and realisation of a security which includes several stages.

1. Valuation

2. Document checking

3. Obtaining documents of title

4. Charging

5. Registration

6. Courts procedures

The complexity will create problems when taking and realising security. Therefore it is prudent that all possible precautions must be taken to minimise the credit risk before demanding an asset as security on disbursement of funds.

Socio economic development of Uva Province

by H. M. G. P. Bandara, Ex. Factory Engineer - Pelwatta Sugar Industries

The Uva Province consists of two administrative districts viz. Badulla and Moneragala as per Government's administrative structure. Of them the Moneragala district is divided into Divisional Secretary (DS) areas that consist of 319 Grama Niladari (GN) divisions.

The district's land area is 565930 hectares. The main cultivation in the district consists of sugarcane (2870 Hec), rubber (270 Hec), tea (1130 Hec), lime orange and chena cultivation. Generally the weather is dry (Annual rain fall below 2000 mm) through out the district.

District socio economic structure

District population is 403935 (in 1998) i.e. 50.8% male and 49.2% female. The total 9073 families live in 86,228 houses and only about 35% houses are electrified by national grid connection. Two-thirds of the population's monthly income is below Rs. 3,000 and 67% of families depend on Samurdhi relief. 85% of the district economy depends on agriculture and gemming and employment in the private and government sectors.

The unemployment rate is 18% in the district.

Sugar cane industries in Moneragala district

Profile

About 4% of district land (about 25000 Hec.) 15 under sugar cane cultivation and farmers have 90% used to this cultivation for more than 20 years. Sugarcane can be cultivated easily in rain fed water and about four crops can be got from one cultivation; The first after one year and there after every nine months with a yield of about 60 MT per hectare. Farmers can earn about Rs. 70,000 per hectare annually.

There are two factories operating in the Moneragala district; Pelwatta sugar industries in Buttala and the Sewanagala sugar corporation in Udawalawa. The annual sugar production is 60,000 MT (10% of total consumption of SL) from the Pelwatte factory and 20,000 MT (4% of total consumption) from the Sewanagala factory.

Pelwatte sugar industry

This factory commenced production from 1985 and about 4000 metric tons of sugar cane is crushed daily for 200 day per year. The annual sugar production is about 60,000 MT and it is 10% of Sri Lankas total sugar consumption.

The share capital of the company is Rs. 679.76 million comprising 67.97 million shares of 10 each. The major shareholders are the Government of Sri Lanka (54%) recently sold to Master Divers, Commonwealth Development Corp. (16%), Kerry Engineering (7%) and Booker Tate UK (5%).

The company was managed by Booker Tate UK from 1985 to 1994 and the management was handed over to local management by appointing executive chairman/General manager by PA government.

The company consists of four main departments; Human Resources, Finance, Agriculture and Factory department. The total work force is 1200 permanent employees, about 6,000 casual and seasonal employees with 20 senior managers and 60 junior managers. The company estate has 7,000 Hectares of sugar cane cultivation; nucleus estate 2700 Hec., settlement estate 3600 Hec. and 700 Hec. of nursery. The estate supply 20% of factory capacity and 80% of cane is supplied by about 8000 of private farmers.

Factory performances

About 4000 MT of sugar cane is crushed daily powered by two boilers; capacity 45 T/hr, 370C at 32 bars and generate 3800 KW by two steam turbo alternators for factory electricity demand, water supply (1800 Cu.meters/day), quarters and villages.

Daily output of factory:

1. 300 MT of sugar (9% of sugar cane weightage)

2. 200 MT of bagasses (5% sugar cane weightage)

3. 125 MT of filter mud (about 3.5% sugar cane weightage)

4. 150 MT of molasses (about 4% sugar cane weightage)

5. 3040 Cu.meter of water (76% sugar cane weightage)

Byproduct improvements

1. By improving power generation capacity it can be used 200 MT of bagasses as fuel for boilers to generate about 90000 K Wh (1 ton of bagasses - about 450 K Wh) per day. This excess electricity can be grid connected and earn extra income to the company.

2. 125 MT of filter mud can be converted to compose fertilizer by mixing filter mud with sludge, coming from alcohol distillation and lay on beds to open sunlight. By this process about 25000 MT of compose fertilizer can be made annually.

3. By 150 Mt of molasses about 33000 litres of alcohol can be produced daily and the effluent can be used for compose fertilizer production.

4. 3040 cu. Meter of water can be processed for factory needs and the balance for drinking water purposes. By this improvement and water management it can be reduced the water pumping from the rivers and effluent adding to the environment.

Further researches should be done for boiler ash for building materials, filter mud for biogas generation etc., and sugarcane leaves for paper production etc.

Recommendations

Referring the above considerations on sugar cane industries, socio economic development of Moneragala District can be easily achieved by considering following facts:

1. About 124,426 Hectares of barren land available for further cultivation of sugar cane.

2. Rainfall, weather conditions and soil conditions are suitable for this cultivation.

3. Much manpower available (18% unemployment) in the district for sugar cane industries.

4. Farmers are familiarized in sugar cane cultivation more than 20 years.

5. Sugar and by-product (alcohol, compose fertilizers, electricity) are easily marketable.

6. Proposed and initiated new sugar factory at Kodayana can be established for further expansion of sugar cane industry.

7. Farmers can earn about Rs. 70,000 per Hectare annually.

Commercial Bank opens 105th branch in Gampola

The Commercial Bank of Ceylon recently opened its 105th branch in Gampola, famed for tea, coffee and rubber plantations from the times of British rule.

The new branch is connected to all other Commercial Bank branches through ComNet, one of the largest computer-linked banking networks in the country and through CAT automated teller machines.

Speaking on the occasion, the Chairman of the Bank Mr. Mahendra Amarasuriya said that the management of the Bank had decided to open a branch in this fast developing area to offer the superior service which is synonymous with Commercial Bank, to the agricultural and business communities which have for many centuries contributed to the growth of the economy.

"Commercial Bank, with its state-of-the-art computer facilities, is one of the most technologically advanced banks in the country. We offer a vast array of products and services such as the Progressive Saver Account, 'Nivahana' housing loan scheme, 'Diribala' development scheme, 'Arunalu', 'Isuru', 'DotCom' accounts for minors and adolescents and CAT, ComNet and Holiday Banking facilities", he said.

The Manager of the new branch Mr. Neville Muscreen said the Commercial Bank is proud to serve the people of Gampola and assured them of the best possible service.

The Commercial Bank has won several prestigious local and international awards this year including Sri Lanka's No. 1 company by Business Today, the Bank of the Year and Best Bank in Sri Lanka by The Banker and Global Finance magazines respectively.

They were also adjudged the Winner of the Overall National Award for Human Resources Management.

The need for marketing audits

by Prasanna Perera, Chartered Marketer

The majority of persons in the business world are familiar with a financial audit, which is a statutory requirement. However, what about marketing audits? In Sri Lanka, very few organizations ever conduct marketing audits, as part of their marketing planning process.

In very simple terms, a marketing audit attempts to evaluate the effectiveness of the marketing operations of a company. Two broad aspects are audited, namely the external environment and the marketing operations of a company. Since it is an audit, it should be conducted in an unbiased, comprehensive and critical manner.

Ideally, on an annual basis. However, since marketing audits are time consuming, a good strategy to be adopted is to conduct "mini" audits once a year and "comprehensive" audits, once in 3-5 years. The important thing to note, is that whatever the type of audit, the frequency of the audit should be maintained. Who should conduct marketing audits?

There are several sources available, with varying degrees of expertise. The ideal is a marketing audit specialist, or else a market research firm, a management consultant etc. External sources are preferable due to confidentiality and seriousness of purpose.

There are several reasons as to why marketing audits should be conducted.

As stated earlier the marketing audit is a comprehensive analysis conducted on the efficiency and effectiveness of the marketing function.

Hence, through an effective marketing audit, the quality of the marketing plan can be enhanced. Basically the plan itself is very sound. Since the plan is objective, excessive controls and amendments to the plan are minimised. This results in the implementation phase being smooth.

Many organizations simply carry out 'fire fighting' and believe that they are effectively implementing marketing plans! These organizations "muddle through" from one crisis to the next. By carrying out a comprehensive marketing audit, the need for 'fire fighting' is basically minimised and the valuable energies of the organization are channelled to more productive activities.

It is widely believed that out of all management audits conducted by an organization, the marketing audit provides the greatest input to strategic planning. This is because through a marketing audit, a comprehensive environmental scan is carried out and it is this same environment that strategic planning addresses as well.

A vital component of the marketing audit is the "marketing strategy" audit. Therefore, marketing strategies are kept under constant review and guarded against the phenomenon called "strategic wear-out". If strategies are relevant and effective, it results in optimising resources and minimising wastage. Further, a sustainable competitive advantage can be achieved.

Marketing is quite regularly accused of not being "accountable" for resources. However, through the marketing productivity audit (sub audit of marketing audits), the cost efficiency and productivity of marketing operations etc examined. Areas commonly measured are selling and distribution, advertising and promotion, new product development etc. Therefore, marketing operations assume the proportions of being responsible and accountable and are treated as professional by non-marketing specialists.

Practical problems

Marketing audits are time consuming and resource draining. Many organizations simply do not have the resources to conduct marketing audits on a regular basis. The advise should be to conduct a mini-audit regularly (say once a year) and a more comprehensive audit once in three years.

In order to conduct marketing audits, update and accurate information is a requirement. Many organizations are saddled with ineffective information systems and hence, auditing activities and findings become questionable.

Marketing Managers themselves, could resist marketing audits, because its findings are a reflection of their capabilities. Hence, Marketing Managers who are inexperienced, may shy away from conducting audits. When conducting marketing audits, the "terms of reference" must be clearly laid down, in the form of an agreement.

The signatories of this agreement should be the Head of the auditing firm and the Head of the organization.

The agreement should specify the scope of the audit, the time frame, access to information etc. and should be made a working document.

Another practical difficulty is the lack of specialist marketing audit firms.

In these circumstances a compromise solution has to be worked upon, which may effect the quality of the final output.

In this article, I have attempted to highlight certain dimensions relating to Marketing Audits. A Marketing Audit is simply a MUST and not something NICE to carry out.

New ADE 1 billion Hangars to house Emirates' fleet for the future

A huge new hanger complex is to be built at Dubai International Airport-to Give Emirates engineers a facility where they can work on the airline's future fleet in safety and comfort.

The eight hangars in the ADE $1 billion (US $275m) Emirates Engineering centre, the biggest building project ever undertaken by the airline, will house every aircraft type in its fleet, including its new 575-seat Airbus A380s which will be the largest in the skies when they enter service from 2005.

As will as hangars, the complex includes an aircraft washing bay, administration block, mosque, waste treatment plant, access roads, and parking for 2000 cars. It will be developed on a site next to the exhibition centre and will be ready to use by the end of 2005.

Emirates' Chairman, His Highness Sheikh Ahmed bin Saeed al Maktoum, recently signed the project management contract with Alain le Pajolec (left), managing director of French company ADPI Aeroports de Paris International.

Sheikh Ahmed said today: "We place the highest possible importance on Keeping our aircraft safe, modern - and meticulously maintained.

"With an average age of only three years, our fleet is already one of the industry's youngest. At the Dubai Air Show in November 2001, in a move to make it more modern still, we ordered new aircraft worth US $15 billion, and will have more than 100 in operation by 2010.

"To house and care for this world-class fleet, only a world-class maintenance facility is good enough", Sheikh Ahmed said.

Ali Mubarak Al Soori, Head of Chairman's Office & Facilities Management, said: "ADPI will prepare the overall design and act as lead consultants for the new Engineering Centre.

"The sub-contractors include the Fraser Nag partnership, which is now building our new AED 100m (US $28m) Emirates Aviation College at Al Garhoud, which will include 14 bays to accommodate different aircraft simulators. This should be ready by next April.

Surveying, soil testing and clean-up work on the as-yet undeveloped hangar site starts next February. The construction work contract will be signed in June, and we expect phase 1, including some of the hangars and the admin block, to be completed by September 2004, Mr. Ali Soori said.

Once the new centre is ready for use, the present hangars at Emirates' Engineering HQ will be returned to the Department of Civil Aviation for demolition, making way for the expansion of the airport's Sheikh Rashid terminal from next year.

This will give Emirates its own dedicated passenger concourse, with 28 departure gates handling 20 million people a year. It will feature PCs and Internet access points, and enlarged catering facilities, Food Court and dining areas.

In a series of further moves to offer the best customer service both on the ground and in the air, Emirates recently opened the world's first check-in terminal exclusively for First and Business class travellers.

With demand for Business Class travel soaring, Emirates' Business Class lounge, which has been redeveloped to make it 60 per cent bigger and hold 500 people reopens soon. It will also be open to Skywards gold and silver members, and SirLankan Business class travellers.

Emirates is now making Wide-ranging improvements to its baggage handling Facilities, and will open new check-in counters exclusively for its Economy passengers.

'What really happened to our public sector - a point of view'

by T.M. Jayasekera, Management Consultant

Today, almost everyone is concerned about our public sector, which is the main machine engaged in the delivery of services essential for the survival and development of the people of our country. It is this sector that provides the public goods (mainly the services) that are needed by the society at large for its day-to-day existence. General public judge the effectiveness of any government by the way in which they get the public sector in operation as people have most of their important encounters in their day-to-day living, with the public sector.

The most essential services of a country such as Food, Water Supply, Security, Defence, Transport, Education and Health etc. are handled mainly by the public sector. That is why efficiency and effectiveness of the public sector has been a major reason for the success or failure of any government.

There have been many approaches used by the governments at different times to make the public sector to operate more effectively and efficiently, but majority of the general public who are the users of Public Service does not seem to be satisfied with the quality of services they receive. On one hand the providers of these services may be of the view that the quality of what they are providing is good enough but on the other hand the recipients of the service may be not satisfied with what they actually receive.

It is quite obvious that this discrepancy is mainly due to failure on the part of the provider to understand the needs of the user. This is nothing but poor customer orientation on the part of the public servants. That is why the need for a Total Quality approach to the public sector has become important and urgent.

Difference between public goods and private goods

The nature of the public goods provided by the public sector are very much different from the private goods that are provided mainly by the private sector. Very simply, the public goods are the most essential services necessary for the existence of the people of any country, hence those cannot be left in the hands of few individuals or groups or institutions, to be operated at their own whims and fancies or controlled by the so called market conditions. These services are so much essential to the public that they cannot be left in the hands of the private sector, purely to make a profit and should not be allowed to be provided on a single individual's ability to pay.

Unlike in the case of the private sector, the customers of the public sector have very few choices to make (only one, most of the time). Therefore,it is a standardized product or a service that goes in to the customer every time. Only one public institution is there to provide one type of a service to the public most of the time.

Every individual of the society expect from the public institutions, the best service to be provided in a fair and equitable manner as they have already paid for these services by way of taxes and other means.

Those who provide these public goods should know this well as they as well as their families are also recipients of the public service. The value and importance of providing public goods efficiently and effectively should be the prime concern of the public service as they themselves are members of the society and they too have to receive these public goods for their existence.

Yet there appears to be a lot of lethargy, inefficiency and ineffectiveness on the part of public servants in providing these public goods to the society at large. This is the actual view of the majority and that is why they are so much concerned about the public sector.

Public sector has got the best of talent as the cream of the intellectual society joined the public sector in the past. The best performed graduated from the Universities and those who had the best qualifications were selected to serve the public sector. We have seen how these best people performing at their peak in the past and we have experienced economic growth in our country during periods where the engine of growth was not the private sector as at now but it was this same public sector. Therefore it is really necessary to put the public sector under the microscope to find out what really had happened to this sector.

There is much public concern today about the manner in which the public sector performs. Some are highly critical about it whereas others have some sympathy on those who work for the public sector based on the belief that the circumstances under which they perform does not provide them with many options to choose from. Recently I had the opportunity to facilitate programs for many public sector officials and by discussing with them; I managed to get some valuable insights to the present condition of our public sector.

Public sector in other countries - a comparison

Having travelled to many countries in the east and west starting from India up to United States of America through Asia, covering many parts of the world, and having worked outside Sri Lanka, I can confidently tell you that what I saw and experienced in the public sectors of those countries is somewhat similar to what I see in Sri Lanka today. There is good news as well as the bad news in this regard.

Sri Lankan public sector today is not far different from what I have seen in any other country whether developed or undeveloped except for the technology used in the developed countries. In fact, our public sector is much more active than many of the others which I saw. That is the good news. The bad news is that the direction in which the activity is aimed is the problem.

The major difference, I saw was in the direction of actions of those people who work in the public sector. To be effective, what really matters is the direction of activity. Our officers may be far more knowledgeable than their counterparts of other countries but what our officers do and how they behave is not at all same we see in most parts of the world. In this area of direction, the differences are very large even though the superficial picture appears to be somewhat similar. Even though most of the systems and practices of the public sector that I saw in most parts of the world are the same their were to major differences that can be visible. They are:

1. Customer orientation

2. Employee attitudes

I had experience in working for the public sector of Sri Lanka as a departmental employee and as a corporation employee too. Further, I had close dealings with the government departments as well as corporations as I have been engaged in providing training and development to some of the government departments and corporations as well. What I saw in the people who represent these sectors was that they are of very good potential but they do not perform well in their jobs mainly due to frustration. That may be one of the reasons why people in the public sector behave in this manner.

Even if the potential for development is high what we can get is only to be a "problem child" status as the performance on the job of our people appears to be rather low. This is a matter of capability and motivation. As indicated earlier the talent of our public sector is very much above par. But the problem appears to be in the area of motivation and leadership.

Are we managing our human resource properly?

There is a famous saying that "what we get is what we ask" and accordingly what we have got is what we have asked. Therefore it is obvious that the situation of the public sector today may be the result of poor management of the human resource of the public sector over a long period of time. This is something that we have to investigate carefully.

As a management trainer and consultant I am very much surprised about how we are getting even this much of outputs in circumstances like what we have got today in the public sector. It can be summarized as follows.

It is a common situation in our country to day that what we practice is not what we preach and what we preach is not what we believe; what we believe is not what we have seen and what we see is not what we really want to see. This is nothing other than "management by deception". Therefore it is clear that we have been deceiving ourselves as well as others for a long period of time. My conclusion is based on following observations.

How we operate

Today, in our country we ask for innovation but penalize unsuccessful risks and reward those who go by the rulebook; We look out for creative workers but penalize those who dare to be different; We ask for better results but reward everyone in the same way or reward stooges better than others; We ask for quality work but set unreasonable deadlines; We talk about loyalty but offer no job security; We ask for simplicity but reward those who complicate matters; We ask for quick decisions but reward the non decision-maker who does not rock the boat; We talk about equity and fairness but will favour the political stooge; We talk about value of decision-making but will not make even the most easiest decision; We ask for risk but we are not prepared to accept any mistakes at all.

All these indicate truth and nothing but the truth; the truth about the way in which we manage our people. This is what I call this "management by deception". Under these circumstances it may not be possible for the public sector to do anything better than what is going on in today's society?

It has also been the view of many that bureaucratic system that is in place in the public sector is the root cause for all the ills of this country. Therefore it is the right time to have a closer look at this so-called bureaucracy.

Bureaucracy

Bureaucracy is a management system. A system that was introduced by German social Historian Max Weber in the turn of the twentieth century to improve the efficiency of organizations. Several characteristics of bureaucratic hierarchical system includes -

* Formal system of Rules and Regulations,

* Impersonality,

* Life long career commitment,

* Division of Labour,

* Hierarchical structure,

* Legal authority structure and

* Rationality

These were the governing themes of the bureaucratic model of the organization developed at that time. Weber developed this model to achieve improvements to the efficiency in the workplace. This system adapted well to the public sector to make the government machinery work.

Even though efficiency was to be achieved through the use of authority based on the manager's position in the organization, there were some negative effects that could not be avoided if the context within which the model is used does not provide any motivation for the managers of the system.

How bureaucracy works

In the public sector there are formal rules and regulations identified as administrative and financial regulations, establishment codes, treasury circulars, and administrative circulars issued from time to time to streamline, standardize, unify and operate the activities.

These rules and regulations are very rigid and cannot be deviated without the approval of hierarchical authority. Careful investigation, which is very much time consuming, is needed for such a deviation to take place. Further the decision-making authority to make any amendments to the rules and regulations lies at the topmost level of the hierarchy, which is far away from the actual operating levels.

There is bureaucracy in the private sector too. They too have many rulebooks but it is not that difficult to make changes whenever necessary as the access to the hierarchy is easier and decision-making authority is available to those who need to make decisions.

It has to be remembered that rigid rules and regulations has been introduced in the bureaucratic system to make clear the specific courses of action employees must follow as those rules and regulations help provide the order needed to reach the organizational goals.

According to Weber, adherence to rules and regulations ensures uniformity of procedures and operations regardless of the individual's personal desires. Managers may come and go but the rules and regulations ensure organization's stability over time. This was the main foundation of the bureaucratic system. Reliance to rules and regulations leads to impersonality. Impersonality refers to the idea that all managers were subjected to the same rules and regulations and thus saved workers from the personal whims of the manager.

According to Weber impersonality guarantee the manager's job security and bureaucracy makes superiors to rate their subordiantes on preformance and expertise rather than on personal and/or emotional considerations. In other words impersonality was designed to preserve obvjectivity and the indiviudality of the bureaucrat.

It is necessary to maintain impersonality in public sector than in the private sector as the numbers involved are large and so is the variety and diversity of work. Weber introduced impersonality to improve the efficiency of operations but it may sometime lose the human touch in the organizational management.

What the Division of labour means is that the actual division of a task into specialized parts. Individual under this theme must perform official duties that are assigned on the basis of specialization and expertise. This enables the organization to take advantage of individuals who are experts in a particular area. A prson acquires or reinforces these skills by repetition and practice.

When tasks are divided into more simpler and smaller elements the individals can be assigned to perform these simpler tasks which are easier to do and are more repetitive than the complex ones The individual can leran the task and necessary skills quickly. This will lead to increased efficiency by the individual and thereby the organizational efficiency is increased and personal replacements will be eased up. Both the private and public sectors in a very large-scale use division of work priciple. But, specialization is not found very much in the public sector.

The public sector of Sri Lanka like in any other country has hierarchical stuctures with number of levels. The private sector too has hierarchies but sometimes with fewer levels than the public sector. According to Weber a well-defined hierarchy controls the behaviour of employees. As the relationships between the hierarchical levels are clearly defined and as the authority attached to each level is clearly understood by everybody the operation becomes simpler and thereby the efficiency of the organization increases.

Most organizations in both sectors have a pyramid shaped hierarchical structure that will make the controls easy.

According to the Bureaucratic Model, employment is a life long career commitment. People should be appointed to positions based on their qualifications. They should regard the position as their primary occupation. Job security is guranteed as long as the individual is qualified. Entry requirements to a particular position should be on education skill and experience and not on pull or patronage.

In this model, job security, tenure of service, incremental salaries and pensions are used to ensure the devoted performance of official duties without regard to external political pressures. Promotins are guaranteed on the basis of technical competence obtained through the experience gained in the previous job. Therefore seniority and not performance was identified as the key for promotions.

The system thus created by rules, regulations impersonality, divison of labour and hierarchical structure is tied together by authority.

The right to make a decision and rationality brings order to the system of activities. It is the process of making decisions that serve to maximize the firm's goals. The organization should function on the basis of logic and science. The activities of employees should be directed towards the organizational goals.

According to Weber if activities are goal directed then financial and human resources can be used more efficintly and effectively. This is what Weber identified as bureaucracy and he used this approach to improve productivity and was successful during the 1900s. Today, the bureaucracy is rampant in both public and private sectors, but the way in which the two sectors use the bureaucratic system is totally different.

Bureaucracy for success

In the Bureaucratic Model the motivation for work could be achieved mainly by providing higher salaries to a job that is attractive and providing different patterns of career advancement. This means that both the intrinsic as well as the extrinsic motivational factors are embedded in the system.

The designer of this model, the Sociologist Max Weber regarded proper staffing and structure as essential ingredients of organizational efficiency. Efficiency was to be achieved through the use of authority based on manager's position in the organizations. Managers at higher levels were to have more authority and greater expertise than their subordinates. Each member of the organization was to occupy a positiion that has specific amounts of

* Power

* Salary and

* Expertise determined by the technical competence

According to Max Weber, if these were not visible in the system there can be many unanticipated effects that will hinder the progress of the organizations. This may be the main reason for the failure of the public service today.

Failure of bureaucracy In today's bureaucratic organizations, especially in the public sector, the motivating factors such as salary and career advancement are not apparent. Power has been curtailed or held back for many reasons. The bases of power have changed from the expertise to the influence or networking abilities. Salary structures are outdated.

The jobs are no longer attractive as was found in the past. The circumstances have changed. Private sector has been identified as the engine of growth of the country. Career advancement is not possible unless one tows the line with the political and organizational hierarchy. The public positions that were once regarded as most supreme are merely positions without the real power that is required to make decisions so as to make the wheel rotate.

This is why you and I see most of the public servants have become mere machines that are only interested in the process where they come to work on time sign in and wait until the time out signal is given. They may not rock the boat nor do they take any risk and make any decisions. They will use the path of least resistance. What else can you expert of them. They have to survive in this system.

They are not motivated to do work and show results, but have to exist in the system to work merely as a transaction - to give something to get something, or merely a way of living.

The environment is not conducive for better performance than what they are providing now. Only thing they can do is to engage in "passing to buck" or sending the files up requesting instructions.

It appears that they try to work with minimum risk so that their decisions may not lead to any mistakes that may expose them failure or for punishment.

They are mainly on the defense and guard themselves as much as possible without taking any decisions. This is why we see the non-creative, lackadaisical and negative behaviours from those who occupy most important positions in our society to day.

Today, Sri Lankan managers' confidence has been shaken, as there are many work stoppages, Strikes, Work to Rule campaigns, Industrial Disputes, Lockouts and protests by Trade Unions and other organized labour forces etc.

We have seen and heard about poor productivity, poor output and poor quality of work in every sector; whether it is the Garment manufacturing sector or the Agricultural sector, the private sector or the public sector. Our outputs are very low, our wastages are very high, corruption appears to be beyond controllable limits, quality is below par and our labour productivity is lower than ever that we are getting outdone by even by our neighbours like India, Pakistan and Bangladesh.

Even the President of Sri Lanka has many a times expressed great concern at public Forums. The situation is really alarming! Local Industry is getting affected. Factories are getting closed. Foreign Investors are moving away. Foreign goods have replaced the local goods. Public is pointing fingers almost at everybody. Our competitiveness has been questioned, investigated and discussed at many forums. What has really gone wrong? In Sri Lanka, origins of the public sector can be traced back to the British colonial era. They established this system to achieve their objectives at that time and there had been no proper plan to change the system to suit the present day condition.

These Public Sector organizations remain as replicas of colonial structures. Nowhere in the public sector these systems have changed totally. These anachronistic systems and structures persisted without change within the country instead of being adapted to the local situation and indigenous needs of the population. During the Colonial period, the main function of the bureaucracy, identified as the Civil Service, was the maintenance of law and order but this role should have changed after the political independence.

Even though the environment demands much better efficiencies and effectiveness from these systems those cannot do much about it.

Today we do not need not accomplish the objectives of the Colonial system that was designed to carry out the functions to suit the needs prevailed at that time but has to find ways to promote development of the country and to improve the quality of lives of the people of the society. This shift of objectives necessitates, inter alia, the improvement or change of basic administrative procedures, new methods and organizational structures, technology and the modernization of financial and human resource management systems. What we see in our public service is that it has not changed at all but remained a law and order maintenance institution. This has led to serious developmental consequences.

There had been number of public sector reform programmes that were carried out in our country in the recent past.

Some are in progress at the moment and some are also in the pipeline. Majority of these programmes were initiated mainly due to the pressure of the lending agencies, which are of the opinion that public sector reform is necessary to reorient the economy. The role of the state, as identified by these reforms, was only to provide an enabling environment for industry and other productive enterprises to maximize resources whereas the private sector is to play the leading role in reorienting the economy towards competitive export development.

The public sector today has lots of bureaucratic red tape and regulations, which prevents the efficiency that were sought by the bureaucratic system proposed and had prohibited the public sector organizations from functioning effectively, efficiently and economically.

Every one had been talking about the red tape and nobody wanted to change it.

In plain language it simply meant that bureaucratic system was no longer healthy, hence there are needs both for new forms of policy strategies and a new form of public service to implement the new public policies.

According to what is indicated in various forums there appears to be considerable waste in the public sector. I have observed that there are several overlaps and duplications of functions among most of the government organizations. The most serious out of everything is the mismanagement of human, financial, material and technological resources.

There is excessive centralization of decision-making and the continued use of outdated and cumbersome regulations and procedures in the government machinery.

As a management practitioner what I see in this is the strategies have changed from one system to the other but the policies have not changed accordingly. The operationalization of the strategy has to be done by formulating the right policies, which the planners have failed to establish.

They have been trying to implement new strategies with the old policies and the result can't be anything better than this.

This can be identified as the major reason for delays in decision-making and delays in responding to public needs. These are some of the factors that led to the deterioration of the image of the Sri Lankan Public Service.

The public service in the 50s, 60s and the 70s attracted the cream of the intellectuals of the country. This was true up to recently.

Over time talented people got frustrated with the way public officers were treated and this deterioration, in turn, led to the inability of the Public Service to attract and retain an adequate complement of skilled, professional, managerial and technical staff, which was necessary to ensure the delivery of quality service and to provide an enabling environment for sustainable development to take place.

Owing to these factors the State had failed to achieve the anticipated level of development and this has caused problems to the development of the country resulting in a large section of its population still living under sub-optimal conditions.

What should we do?

Some special characteristics of the new economic system that is prevailing in Sri Lanka today are;

. Open markets,

. Privatisation,

. Deregulation,

. Liberalization,

. Less government involvement.

There had been rapid technology development at the global level, which completely changed the methods of production, service, delivery and information management systems.

All these factors necessitated reforms of the Public Service to enable it to function effectively within this dynamic. Environment. Of course! There were some sort of change but the change did not match the requirements. What was found missing in change is;

. Productivity

. Transparency, and

. Accountability

These three important factors that were found missing damaged the professional identity of the public servant.

Professional identity

Like most other governments in developing countries the Sri Lankan Government, needs to promote a results oriented and customer-focused or client-centred Public Service, capable of functioning effectively and efficiently in dynamic environments in order to attain sustained economic and social development. It is not only the talent that we should look for but also the leadership potential in those whom we should recruit to the public sector.

To achieve this the country needs an effective entry system together with performance based career management system with continuous training and development introduced to the public sector which should function without adverse external influence so that we could have dynamic leadership in our public sector comprising efficient and effective people with professional identities who would provide a satisfactory service matching expectations of everyone of us.

I strongly believe that emphasis on professionalism will solve majority of the ills of the public sector. Emphasis on professionalism at this stage is not easy but definitely not unachievable.

As responsible citizens of Sri Lanka, all of us are responsible to some extent for the present state of the public sector and we should take serious note of this, if we are to achieve success of any kind.

Boardroom blues ease in Japan, but outlook is gloomy

by Deborah Haynes

Japanese business pessimism declined for the third straight quarter in December but economists said Friday the outlook is darkening with the peaking of factory production and exports.

The Bank of Japan (BoJ) said its latest Tankan survey showed the index of sentiment amongst large manufacturers rose to minus nine from minus 14 in September, compared with market expectations of no change.But the closely-watched index remained in negative territory for the eighth consecutive quarter. A minus figure means a majority of firms believe conditions are unfavorable.

"The manufacturers are still benefiting from an export pick-up so that was better than expected, but the non-manufacturers were down so it is a mixed picture overall," said Peter Morgan, senior economist at HSBC. The index of large non-manufacturers' confidence in the October-December survey fell to minus 16 from minus 13, according to the central bank.

"We have several basket case sectors there. Construction, retail and real estate are all areas where bad loans are piling up.

They are predominantly domestic and non-competitive, that's why there is negative sentiment," said Christopher Walker, senior economist at Credit Suisse First Boston.

Non-manufacturers have been pessimistic about their business for six years, with the last positive reading seen in December 1996.

"It is obvious that the government and the BoJ have to make efforts together (to tackle the tough conditions)," Financial Services and Economy Minister Heizo Takenaka told reporters.

Analysts said there was little reason to believe business prospects would pick up.

"Things have pretty much stopped improving because exports and production are weakening," said Morgan.

Industrial production in October slipped a revised 0.2 percent from the previous month, the Ministry of Economy, Trade and Industry said Friday.

"We are in a process of peaking out, it is unclear whether we are there yet but the fact that all the industries remain in negative territory means the recovery we had was a rather weak one," noted Morgan.

The companies surveyed said they planned to cut spending on factories and equipment in the year to March by an average 5.1 percent, compared with 4.5 percent cut they projected in September. They also trimmed back their expectations of improved profits.

Industry leaders such as Toshiba Corp. and Sony Corp. posted improved results in the first half to September due to restructuring and solid overseas orders. But most remained cautious about the full year due to uncertain global demand.

"Is this as good as it gets? It does appear to be. Looking ahead people do not expect the environment for Japanese firms to get better," Walker said.

In other data released Friday, the number of corporate failures in Japan fell 22.6 percent in November from a year earlier to 1,433 in the fourth straight month of decline, a research firm said.

But the drop reflected a fall in new lending by banks, which reduces the potential for firms to default, Teikoku Data Bank said.

As a detailed study of Japanese businesses and their plans for the months ahead, the quarterly Tankan survey is the central bank's key source of data for planning.

The yen rose initially on the solid headline figure but gains later disappeared. The dollar traded at 122.77-81 yen at 4:00 pm (0700 GMT) against 122.63 yen before the announcement.

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