Friday, July 08, 2011

Lessons from the ICAC conference part 2

Last week I looked at the presentation on the Singapore model, done by Professor Ghesquiere at the annual conference of Caribbean accountants. I want to now focus on the other two themes of the conference. Those of (i) Energy as a tool for success; and (ii) the role of competition in market development.

Energy

By energy I don't mean oil, gas, and electricity, but rather the effort that goes into productivity. This was the focus of a presentation done by Andrew Deutscher of the "Energy project" group. The main theme around the presentation is that it is not how long you work that is important but rather how you work. In other words, productivity does not mean long hours of work, and the fact is that the longer your hours of work is the greater the risk that you become less productive. He went on to say that not balancing your life to include exercise, time to think, and spend with family actually leads to less productivity.

I have always maintained that when you see someone working long hours then more often than not those are the more unproductive persons. If someone has to be working ten to fourteen hours a day to achieve a task then it either means that (i) the technology or human resources are insufficient for production; or (ii) the person is unproductive and not innovative. It actually costs the company more to have persons working longer than regular hours, because it means more utility bills; greater risk of errors, as people tire and productivity falls; greater risk of fraud, as the person working long hours becomes frustrated and too in control of the systems; increased risk of higher health premiums for the company; higher risk of absenteeism from fatigue and health-related issues; and other such indirect factors. The problem is that many managers are not able to see the opportunity cost of an action, and love to see persons spending all sort of hours at work.

Isn't it more efficient to have a worker who gets tasks A and B done in four hours, than one who spends eight hours doing the same tasks? If we think even further then couldn't we also see the benefit to the company of having persons work from home rather than go to the office? The company would have more productive time available to it, as the worker would always have their computer and work environment with them (as BlackBerrys have done); there would be less use of stationery and utilities for the company, so expenses would decline; the worker would be more productive, as they don't have to deal with traffic and spend time getting ready for work; and there would be less demand for employee benefits long term as worker expenses would decline. This is actually a growing trend in the US, but in Jamaica we love to physically see someone drag themselves to the office, even though when they get there they go sit around a computer and never have a conversation with anyone until they are saying goodbye when they depart for home.

So the presentation says that what we need to focus on is not the amount of time someone spends at work but rather how much value they produce. We could also extend this to the national debt, and as I have always maintained, it is not the amount of debt the country has, or the debt to GDP ratio, that is important but what value do we get from the debt.

It seems to me, therefore, that one of the main problems we have with productivity in this country (at the national and company level) is not the fact that Jamaicans don't work long hours, as some espouse, but rather that our managers and leaders do not set objectives and outcomes. The result is that people end up working long hours but really do not have a value-added outcome to match it against. So an accountant who spends seriously long hours working in many instances, do not produce the financial statements in a timely manner anyway, and more importantly the accountant does not understand the link between what he/she does and the value added for the company. So if there is a change in the value added he/she does not know what to alter to produce information that can bring it back in line.

So the energy project says create an environment that will allow greater productivity (as opposed to long hours) and have a way of measuring that productivity, because what really matters is how much energy is put into the outcome.

If we had applied this concept of "energy" and outcome to compensation for public sector workers then we would have (i) a more productive and better paid public sector; and (ii) we would not have had the recent opportunity cost of the protracted wage stand off. This is because we would have had a measurable outcome to reward persons based on and the more productive would naturally earn more, rather than everyone getting the same outcome irrespective of productivity level.

So the real take away for me was that one of our main problems with productivity is that there is not a great focus on outcomes and value added in Jamaica. This is the main reason why our productivity, and ultimately GDP per capita lags behind other countries.

Competition

The other theme is that of competition. The presenters were Michael Fairbanks, who looked at some of the benefits of competition, and yours truly, who looked at a competitive analysis of the region.

The essence of the presentations was that it is the lack of competition that has held back market development in Jamaica and the region. The fact is that there is no country that has seen sustained high levels of growth without a competitive environment. Governments cannot efficiently pick winners or drive markets efficiently. This we saw coming out of the FINSAC era, where many private companies were under the control of the government. Although some may argue that we had growth after that era, the fact is that growth was driven by increased national debt and was relatively weak compared to the region.

We saw a very good example of what competition has done for the consumer and market development when the telecommunications industry became competitive, when Digicel entered. This is a microcosm of what can happen if we encourage competition in our markets, rather than continue with protectionist policies. The Caribbean is amongst the least competitive regions worldwide, and when one removes Trinidad and Tobago from the equation is probably the least competitive.

Is it any wonder then that as a region we have lagged behind most regions of the world in terms of economic growth and GDP per capita?

There were some good lessons coming out of the conference and the accountants have managed to show their readiness to provide the leadership necessary for regional development. The hope is that they will continue to implement some of these recommendations.

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