Visionary Organizations: How To Excel in Turbulent Times
One may not be
exaggerating if one were
to assert that most
organizations in Nepal are visionless. Where vision statements do exist it’s more the founder-entrepreneur’s unique perspective on the future direction for the organization that, unfortunately, is ignored by the management when the founder is no more or is personally inactive in the affairs of the organization. Organizations become even more visionless if plagued by frequent changes in its top management, which is commonplace in Nepal these days, including conflicts among the Board of Directors.
This article, based on the works of James C. Collins and Jerry I. Porras ; “Building Your Company’s Vision” , Harvard Business Review, September-October, 1996, underscores the importance of getting to, consciously and collectively, write down one’s organization’s vision statement and how one may go about doing just that. Most likely, it needs to be facilitated by an expert consultant.
The authors have empirically found, from their extensive research of more than six years, that visionary organizations have experienced sustained excellence because they have been able to steer through uncertainty, crises, unexpected change and turbulence guided precisely by their organization vision.
In the hurly burly of the unfolding 21 st century, only visionary organizations will sail through smoothly and stably while those without vision will find themselves bruised, battered, beaten and most probably killed.
Meaning of Vision
Let us begin by saying that the term ‘vision’ is a la mode these days amidst politicians, business people, national and international civil servants, trade unions and non-government organizations.
It is as though if one does not use the term—used more liberally the better— in a meeting or speech these days, then, one is perceived to be not behaving like a leader. Alas, on closer scrutiny, most meanings attached to ‘vision’ turn out to be a rather muddled kitchiri or chosemosay of related words such a philosophy, beliefs, aspirations, purpose, mission, values and goals – often times even policies, strategies and tactics are thrown into the same cooking pot.
And thus ‘vision’ has become the most overused word. As the world enters an age of uncertainty, conflict, crises and unprecedented change in the unfolding new era of the 21 st century, one may dare say that it is likely to be the most abused word being bereft of a common meaning.
To be a ‘visionary organization’, one needs to define its vision using a structured process so that ‘vision’, like beauty, does not lie solely in the eyes of the beholder. It is precisely this ‘structured process’ for formulation of vision that helps differentiate it from organizations led purely by visionary leaders.
Simply defined ‘vision’ is a general statement of the long-range, futuristic direction or sight determined for itself by an organization. It was Peter Drucker, the father of modern management, who enlightened us with the wisdom that leadership should be a ‘mission’ duly guided by the organization vision.
More to the point, ‘vision’ guides one’s actions. As a guide or a compass it never changes. It’s constant. If it changes, then, it can’t be a vision. It’s vision that one holds on to when in despair and depression; turmoil and turbulence, or crises and conflict.
What can and should change are technology, market competition, strategy and policy to adapt to environmental change or to grab emanating opportunities. To fully comprehend what we are implying by ‘vision’, let’s examine Sony Corporation’s organization vision:
Sony Corp Organization Vision: Lessons from Japan
Sony started in 1946, doing radio repairs and with Masaru Ibuka and Akito Morita as its co-founders. Today, it is a giant TNC headquartered in Tokyo. It produces world class electronic products, communication equipments, gaming devices, films and so on. It also provides financial services. As of 2008, Sony employed 180,500 people around the world comprising of 34 % from Japan, 40 % from Asia and 14 % from North America. It is one of the great crown jewels of Japan which has taught us what the Japanese Style of Management is.
In our context, it can be recalled that during 1950s, South Asia, like elsewhere, was being flooded with cheap Japanese products— just as we are today with cheap Chinese products. The only difference was the then Japanese products were fake and shoddy which used to be sold as Made (as) in England with the ‘as’ being nearly invisible to the naked eye. Given the prevailing post-World War II, industrial scenario and the gross humiliation and deprivation that the Japanese people faced in defeat, and its sheer lack of natural resources within Japan and from the loss of its imperial territories, it is the most remarkable and admirable to see how Sony Corp went about determining its organization vision.
Core Ideology
Core Values:
(a) Elevation of the Japanese culture and national status
(b) Being a pioneer – not following others; doing the impossible
(c) Encouraging individual ability and creativity
Purpose:
To experience the sheer joy of innovation and application of technology for the benefit and pleasure of the general public
Envisioned Future
Goals
Become the company known for changing the worldwide poor quality image of Japanese products
Vivid Description
“Made in Japan” will mean something fine and not shoddy...Fifty years from now, our brand name will be as well known as any other in the world…We will create products that will become pervasive around the globe…We will be the first Japanese company to enter the US market and distribute directly…We shall succeed with innovations that US companies have failed at – such as transistor radio.
Crafting the Organization’s Vision
Based on Sony’s organization vision (OV), as shown above, we can appreciate that to build a visionary organization they needed a structured process. One notes that the structure comprises mainly two broad primary processes. One of them is the Core Ideology (CI), which itself is comprised of two sub-processes, namely: (a) Core Values (CV) and (b) Purpose (P). The second of two primary processes is Envisioned Future (EV), which itself is comprised of two more sub-processes, namely: (c) Vision BHAG (VB) and (b) Vivid Description (VD).
Collins and Porras believe that this is the ideal vision structured process.
For ease of recall, let’s say this:
OV = CI + EV
Where,
CI = CV = P and EV = VB + VD
Meaning of Core Ideology
It is the intrinsic nature of the organization. It is what holds the organization together. It is the cement that binds an organization as it traverses its life-cycle from its birth to growth, expansion, diversification, transformation, re-engineering, turnaround— or what have you. It transcends everything – wars, terrorism, insurrections, natural disasters, climate change, health pandemics, business cycles and technology breakthroughs.
It is the soul of the organization that guides, nourishes, motivates and empowers its workforce jointly and severally.
Determining Core Values
These are timeless moral, ethical and humane principles that guide our conduct and our way of thinking and decision making. It is the credo which defines what we stand for. It is independent of external events as well as management fads and theories. It must be discovered —not invented.
Normally, CV is derived from the founder’s inner core belief and, therefore, can never be justified on external criteria. CVs never change. They last till infinity. If they are bound to change because of market forces, technology, organizational structure etc., then they are definitely not fit to be described as CVs.
CVs are not subject to upheld either for comparative or for competitive advantages. If they are then they are not CVs. CVs are upheld for their intrinsic worth as the essence of its being. In order to incorporate values as CVs, we need to ask three questions: (a) will it last 100 years or more? If no, drop it. And (b) will these values change if either the external or internal organization changes? If yes, drop it and, finally, ask (c) would it be different if the founder worked for a different organization? If no, accept it as CV.
Core Values (CVs) statements, for practical purposes, usually limit themselves to a minimum of 3 and maximum of 5 CVs.
Determining Core Purpose
It is a statement that reflects “who you are” and “what you do” — the very reason or raison d’etre for an organization’s being, namely its mission. It also reflects idealism and thereby motivates and inspires.
What is attainable is said to be a goal or objective. Missions are by their very nature unattainable and thus to be pursued for ever and ever as our organization’s karma. It’s a powerful tool not propaganda, to recruit and retain the highly talented people into one’s organization.
To write a Purpose or Mission statement, firstly state what you do? And then ask the five Why’s: (a) why is this important? After you get the answer for that why, again ask (b) why is this (the answer to the first why) important? After you get the answer to that, ask again (c) why is this (answer to the second why) important? Go on doing so for at least five times. It is felt that the 5 why’s are subsidiary to the fundamentally real purpose, which happens to be the 5 th why in our process of repeated asking.
Determining the Envisioned Future
Let’s move on to the 2 nd component of the vision framework. The Envisioned Future (EF) may be defined as the process where a statement of what the organization has seen as its distant future is written down. It must be written down in vivid and not vague terms. It’s borne out of dreams, hopes, intuition, gut feeling, aspiration and insight.
Nevertheless, it must be conceived as something real although it has not yet taken place in time. Once decided, the organization commits itself to securing that envisioned future.
More specifically, EF itself comprises two sub processes namely (a) BHAG—Bold, Hairy, Audacious Goals— and Vivid Description (VD).
Hence, EF = BHAGs + VD.
Visionary organizations have bold, hairy, audacious aims. They uplift the spirit of the enterprise. They challenge the organizational leaders and staff to act. It motivates action and not thought. It must be clear, compelling, unifying and all embracing or macroscopic—as opposed to writing down meso (goals) and micro (objectives) aims, which tend to be medium term and short term respectively. These are usually the outcomes necessary towards attaining the long-run goals —BHAG.
It is, thus, that BHAG tends to catalyze the organization with holism, team spirit and harmony. True visionary leaders give us BHAG. Strategic leaders give us SMART (Specific, Measurable, Attainable, Realistic, Time-bound) – meso and micro aims and outcomes.
BHAGs must be reachable to at least 50% for it to be credible. Some experts would insist on 75% attainability for it to be credible as a BHAG. They should be dropped as BHAGs if not reachable within those probabilities.
BHAGs can be (i) quantitative, (ii) competition-oriented, (iii) role model-oriented and (iv) transformation-oriented. Here we underscore that if we speak of just ‘vision’, it is indeed long-term oriented but still lacks the definitive end results, which is what BHAGs provide.
BHAGs are usually stated for 10-30 years. Thereafter, new BHAGs are defined.
Determining Vivid Descriptions
Here the task is to, BHAGs being secured, describe the end state prevailing when goals are achieved. One is required to describe vividly such things as the euphoria, joy, accomplishment, satisfaction etc. on meeting the challenge. One is required to transcribe the image of the end state into words as though painting a picture of it. Words chosen must be passionate, emotional and ever convincing for it to garner loyalty, commitment and sacrifice by all to want to get there – the envisioned future.
BHAGs create the future through revelation. It is not based on projections, predictions and inventions. BHAGs stimulate progress from period to period and change from period to period while the core ideology of the organization is never changing or is constant.
Conclusion
This author has written vision, mission and core value statements for many organizations such as Centre For Economic Development, Tribhuwan University (1978); International Institute of Development Studies; Shaligram Apartment-Hotel Pvt Ltd; 3M Hospital Co. Ltd; Nepal Finance and Savings Co. Ltd (late 1990s). He even helped enunciate goals for these organizations as independent consultant. One glaring experience he obtained from all his consultancy service is that there is no space for inclusion of these dynamics in the Articles of Association and Memorandum of Association of companies. It is not encouraged or made necessary by the Company Registrar’s Office. This is a pity as entrepreneurs need to be encouraged to think strategically. They must not be tactically limited to financial planning. They should be encouraged towards forward looking institution building.
The other lesson he learnt is that the above exercises were done without a ‘vision framework’ and a systematic application of a ‘vision structured process’. Hence they were highly limited in their nature and scope as compared with, for example, Sony Corp of Japan.
Now, Collin and Porras have endowed us with a solid methodology for building visionary organizations that would greatly benefit all kinds of Nepali organizations— particularly those wishing to be merged and acquired or to go regional and global as TNCs.
The South Asian Institute of Management (SAIM) welcomes opportunities for applied research, consultancy and training to help organizations in Nepal to become ‘visionary organizations’ and not simply be dependent on the vision of their leaders. The world today is highly complex. Having ‘visionary organizations’ helps to understand the world better and cope with all its complexities with excellence.
(Former Finance Minister Rana is an Adjunct Professor at South Asian Institute of Management, Lalitpur, Nepal)
Transformation of the Mind
In the earlier issues, we
established the fact that negative
mind is the root of our
problems. No substitute exists for a positive mind reverberating with creative emotions. Our today is the result of yesterday’s thought patterns; same will be true with tomorrow as well. The deepest desires within us slowly convert into emotions, emotions into thoughts and thoughts into action and physical reality. This is how one form of energy is transformed into the other. But, one does not notice it easily as the whole process takes place in the dark caves of the unconscious mind.
In this issue, we will discuss few effective methods for transformation of the negative mind into a positive one.One important point to remember: only you have control over your mind. So, this process of transformation will be possible only if you are seriously committed and are ready to work in this direction. Mere reading these words will not help.
1. Right Paradigm: Most of thetimes,weare filled with negative feelings like hatred and antagonism towards our family, work, society and the entire environment. This results in anger, anxiety, fear, stress and loss of confidence within us as the negative feelings damage the very container in which they find shelter. This container is nothing but our own mind. As Mahatma Gandhi put it, “Anger is an acid that does more harm to the container it contains than to the container it is poured in." There is no substitute for developing positive feelings, which will directly benefit us by creating the right vibes for growth and excellence in life.
Work and profession: Our entire life and career is built on the foundation of our work and actions. Most of our relationships are created by the requirements of our profession. An attitude of gratitude towards our work and workplace will improve our relationship base and enhance our productive capacity and the quality of work life. The work does not any longer remain a burden or a responsibility; rather it becomes a tool for creative expressions and celebration. It also reduces the job stress significantly. The old adage 'work is worship, duty is devotion', was coined by seers who had deep insights into our work psychology. When work becomes worship and duty becomes devotion, our productivity, quality and happiness reach their apex.
Society, environment and life: We must discover reasons to appreciate our society and the entire environment. I don’t mean to say that there are no problems in our family, society and nation. Problems are there and will always remain. But the society and the nature around us have strong attributes capable of generating a sense of gratitude within us. We should be open to this dimension of existence because it is the foundation for the positive mind, a foundation that creates an ambience of peace, love, sharing, laugh and creativity. The most important gratitude is to be mesmerized with the resources given to each one of us. Jesus aptly put, “Love thyself”. Everyone is a great reservoir of unlimited energy, strength and imagination. Once we recognize it, a deep sense of self-esteem and contentment turn on-in personal life and at work.
2. Recollecting happy moments: Negative thoughts push us into a vicious circle. One such thought leads to another, and they proliferate in no time. Another effective method to transform negative thoughts whenever our mind catches them is to consciously recollect and relive past moments that brought peace, love and joy. These act as ‘emotion clickers’ and instantly replace negative feelings with positive and happy ones. Any of these – place we liked, someone we loved, pictures of babies can act as emotion clickers.
3. Vigilance over our thoughts: The methods mentioned above are very effective and helpful in most of the cases. The permanent solution to negative thoughts and feelings is to have perpetual guard over them. Although our eyes and ears are open, spiritually we are in deep slumber most of the time. We are so identified with our body and mind that all thoughts pass by unnoticed. We have completely forgotten that witnessing is our true nature, and all the fluctuations that occur in our thoughts and emotions are like shapes that appear on a white silver screen and then disappear in no time. We are beyond the tides and waves of happiness and sadness and they do not affect us in any way. This demands continuous watchfulness and attentiveness, which Buddhists call ‘mindfulness’.
The moment we are able to watch our thoughts pass by, we have transcended all negativities. We enter into the realm of pure existence or ‘being’ that is filled with ceaseless silence, joy and peace. It is the original source of all energy and is beyond time and space.
Perhaps we have been provided with this life as an opportunity to know our true nature, an entity that is nameless, formless and, undoubtedly, eternal.
Management of FOREIGN Exchange Exposure
It is widely accepted that foreign
exchange management is a form
of risk management. Some
companies permit their foreign exchange managers to take currency positions that have nothing to do with company operations as a part of their treasury function. That may be viewed to be speculation, narrowly defined, and most companies agree that losses from such speculation are avoidable while gains are low quality earnings. But the agreement ends there. There is a lack of common viewpoint on (1) identifying the foreign exchange risks – the so-called exposure problem, (2) the extent that foreign exchange risks should be hedged, (3) the choice of a hedging strategy and (4) the organization of a hedging operation, e.g. centralized vs. decentralized. The decisions on the objectives and operational methods of a company’s foreign exchange management function depends on its corporate philosophy and the structure of the business. But it is clear that a company should decide on its objectives and methods at an early stag e. It would not be advantageous to wait until there is a foreign exchange crisis and then attempt to decide what would be the company policy to deal with that.
Foreign exchange risk and the exposure problem:
One of the most controversial questions in foreign exchange management is the exact definition of what is at risk from the changes in exchange rates. When this risk is put into a quantified form, it is known as exposure. For example, if a foreign exchange manager says that he is positively exposed to $5 million Euros, it is understood that he would gain $500,000 from a 10% appreciation of the Euros and would lose $500,000 from a 10% depreciation. Thus, the consequences of the exposure are generally clear, but the measurement of exposure remains an area of debate and uncertainty.
Many of the disagreements in defining exposure arise because different companies operate with different objectives and are subject to different constraints. What is an appropriate definition of exposure for a company’s operations may be totally inapplicable for the other company.
The broadest possible alternative is to define exposure as the extent that the market value of the firm’s outstanding securities at a specified future date would be raised or lowered by future exchange rate changes. In some cases, this impact would appear in the price/earnings ratio of the company, i.e. gain or loss of one dollar’s worth of per share earnings from foreign exchange would have the same effect on the price of the stock as a dollar’s worth of any other earnings. In other cases, however, gains in per share earnings from currency changes would be considered low quality earnings and have minimum effects on the stock price.
But the above definition of exposure is not appropriate for a company that does not have widely traded securities or for a company that, as a matter of policy, is disinterested in the value of its marketed securities. A very broad definition of exposure is known as economic exposure. This can be defined as the impact of exchange rate changes on discounted cash flow of the company at a specified future date. Choosing a suitable rate of discount could be one difficulty in applying this definition of exposure.
Another variant of economic exposure is defined as the effect of exchange rate changes on the book value of the company at a specific date in the future. Under this definition exposure easily breaks down into three parts:
1. Transaction exposure
2. Translation exposure
3. Operational exposure
Transaction exposure arises when a company agrees to make a payment or to receive it at a future date and the payment is denominated in a foreign currency. A future payment or receipt that is foreign to a subsidiary (for example, pounds to a French subsidiary) is also a transaction exposure. Examples of transaction exposure arise from merchandise shipments, dividend remittances, foreign debt amortization, and settlements of foreign exchange contracts.
Translation exposure is concerned with changes in the valuation of overseas assets and liabilities as a result of exchange rate changes. For example, if a U.S. company plans to sell its output in sterling, this is transaction exposure. If there is a devaluation of sterling, the company will receive less, converted into dollars, from this sale. On the other hand, if its subsidiary has a sterling bank account, this is translation exposure. In the event of sterling devaluation, the account would be worth less in terms of dollars.
While the basic concept of translation exposure is simple, there has been widespread controversy as to what assets and liabilities are exposed to translation gains and losses. This requires a more detailed appreciation.
Operational exposure is the third element in overall economic exposure and arises from the indirect effects of exchange rate changes on revenues and expenses of operating abroad. For example, if a U.S. company is operating an export business in the UK, it may gain on translation exposure if there is a rise in the value of pound sterling. But the higher exchange rate for the pound may create economic losses because of a lower export volume as a result of stronger sterling. Likewise, if a revaluation of sterling were to lower the prices in local currency of the company’s imports of raw materials, the company might be able to cut sterling prices and expand sales. All such complex risks and opportunities from exchange rate changes that arise neither from commitments (transaction exposure) nor from valuation adjustments (translation exposure) are considered part of operational exposure.
When a large company operates abroad with a vast network of inter-connected subsidiaries, it may be giving itself gross misinformation if it does not take full economic exposure into account in its foreign exchange management. In another way, exposure data are information, and information is costly. Thus, for some companies, a broadly defined exposure definition will entail more costs than potential benefits. For other companies, however, a narrowly defined exposure definition may, by penny pinching on information costs, can deny the benefits of adequate exposure management.
What exposures should be covered?
Once exposure is defined, a company starts confronting the issue of whether or not exposure should always be covered. Here cover refers to a strategy whereby foreign exchange risk embodied in an exposed position is eliminated or reduced. It might seem self-evident that all exposures should be covered. But such action is not necessarily desirable. It is because cover costs hard cash, for example, in the form of premiums or discounts on foreign exchange contracts or in paying interest differentials on borrowing costs. In many cases, the costs of cover are too expensive when compared to the risks of likely foreign exchange losses on a particular exposed position.
There is another school of thought: apparent losses from foreign exposures are offset by gains elsewhere. Thus, according to it, much coverage of exposure is actually a redundant exercise. For example, if there is a devaluation, the apparent losses are likely to be offset by higher prices and gains on profit margins. If there are losses on long term debt, there are likely to be offsetting gains because interest rates may be lower in countries where borrowing is susceptible to this kind of foreign exchange. However, these offsets depend on market perfections that are by no means general.
Perhaps, worst of all are inconsistent company strategies that swing between policy extremes. For example, instructions may emanate from the top management to cover all exposures. Such strategy is strongly risk aversive but cannot be faulted on logical grounds. Risk aversion, however, may give way when it is discovered that the company is paying heavily because foreign exchange contracts have to be settled in cold cash while offsetting gains on exposed positions may not be immediately realized. Then a sharp strategy reversal, forbidding foreign exchange contracts, returns the company to a state of uncovered exposure.
When should exposures be covered?
If a company decides to leave selected exposed positions uncovered; it should consider three basic forecasts before implementing the decision:
1. The future value of foreign currencies.
2. The future cost of foreign exchange cover, e.g. a foreign exchange manager will want to cover an exposed position. But he expects the cost of cover to decline. He, therefore, postpones covering the exposed position for a while.
3. The company’s own exposed position. Sometimes an exposed position will be covered but then goes away because, for example, accounts receivable are paid off and converted into another currency. So it may turn out that the foreign exchange manager has unnecessarily put the company to the expense of a forward contract.
The first and second required forecasts depend on economic and statistical analysis. The third kind of forecasting depends on the company reporting accurately not only its existing financial data but also expected major changes in its currency positions.
With these three sets of forecasts, a Treasury Manager has a good beginning for covering exposures against currency risk. If exposed assets are greater than exposed liabilities, the company is vulnerable to devaluation. On the other hand, if exposed liabilities are greater than exposed assets – a short position – then the company is vulnerable to revaluation. Long positions threatened by devaluation can be protected by selling forward in the foreign exchange market. On the other hand, short positions can be protected by buying forward. In both cases, however, the extent of coverage should depend on the company’s risk aversion.
While the forward market is widely used as a hedge against currency losses, borrowing or placing money abroad may be preferable to foreign exchange contracts. In some cases, interest rate differentials may turn out to be cheaper than foreign exchange contracts. In other case, intercompany accounts can be operated as hedges. Finally, exposures per se may be avoided by restructuring balance sheets. Such methods may, however, involve serious trade-offs. For example, a company may attempt to reduce its translation exposure to devaluation by lowering its accounts receivable. But such a policy may result in loss of customers, therefore, not justifying its foreign exchange savings.
Finally, it should be stressed that every exposure management policy should be formulated with careful reference to the tax and exchange control policies of the relevant countries.
It therefore appears a good logic an international company should decides on its definition of exposure. It should then adopt and stick to the policy towards exposure risk that will accurately reflect its risk aversion. If it decides to leave some positions uncovered, the company should be willing to pay more for analytical data base. In particular, it should be prepared to forecast exchange rates, costs of cover of exposed positions and the company’s own future exposed positions.
(Mundul is the CEO of Standard Chartered Bank Nepal. This article is based on the book 'Corporate Restructuring', edited by Michael Pomerleano and William Shaw and published by World Bank Publication)
