VOL 2 ISSUE 2 March/April 2010

Recently I was reading a book by Malcolm Gladwell titled „Blink: The power of thinking without thinking‟. I commenced reading it sceptically thinking to myself how one could literally ‘think’ without ‘thinking’. But as I got engrossed in its concepts, research facts and practical examples, I realised how true Gladwell’s statement is.

You see the book is about a concept named ‘rapid cognition’, the kind of thinking that takes place in a blink of an eye. People, objects, and places create impressions in our unconscious and within a matter of seconds our mind comes to a series of conclusions. This book is about the few seconds it takes to draw powerful and sound conclusions.

For years we have been brought up in a society that vehemently believed that ‘haste is waste’, ‘you should look before leaping’, and ‘you mustn’t judge a book by its cover’ etc. If you read Gladwell’s book you would realise that in fact haste is not always waste and that you can judge a book by its cover. I must say this is a must read for any businessman. So give it a read in May.

Last but not least, my sincere appreciation goes to the article contributors of the March/April 2010 issue of The CIMA Edge. As I always say, CIMA members and partners are cordially invited to share their invaluable knowledge with fellow members by contributing an article to future issues of The CIMA Edge.

Nilushika Gunasekera

News and events

Nominations for the CIMA Annual Awards 2010

are open for 14 categories. The awards recognise the people, teams and organisations that are leading the way within the financial profession.

World congress of accountants 2010 will take

place in Kuala Lumpur, Malaysia from 8 to 11 November 2010

Technical news - Sri Lanka

Upcoming events

CIMA Technical Paper Competition 2010 is open

for members and CIMA exam completed persons. Deadline for submission of papers is 11 June.

CIMA HR Leaders’ Forum will be held on 12 May

at Cinnamon Grand Hotel. The timely theme of the forum is ‘Ethics in human resource management’.

Past

CIMA President Aubrey Joachim visited Sri Lanka in March 2010.

A CFO Forum deliberated by Aubrey Joachim, and jointly hosted by CIMA and LBO-LBR took place

on 4 March 2010. A DVD of his presentation can be borrowed from the CIMA Library.

A workshop on ‘Research techniques and analytical writing skills’ deliberated by Dr Travis

Perera was held on 27 March, to support the participants of the Technical Paper Competition 2010.

CONTENTS

1 CPC model of

performance measurement

2 Business ethics: the

pivotal factor for sustainable corporate success

3 Collaboration of the

left and the right brain in decision making

4 CIMA mid-size

business confidence monitor 2010, Sri Lanka

5 ‘Quote: unquote’

Contents: feature articles

CPC model of performance measurement (part one of two) by Baqar Hussain Bhatti

This article explains how performance measurement tools may be applied in a dynamic manner to a not-for-profit organisation to achieve the objectives of economy, efficiency and effectiveness.

Business ethics: The pivotal factor for sustainable corporate success by Jithendra Gunatilaka

Corporate skulduggery continues to be a buzz word in the business world with the rising amount of corporate scandals. So, how can business ethics and good governance be inculcated to the corporate DNA to achieve long-term success? Collaboration of the left and the right brain in decision making by N V Gunasekera

This article will focus on key factors relating to decision making, attributes of the left and right brain and how both hemispheres can be collaboratively deployed to make optimal decisions.

CIMA mid-size business confidence monitor 2010, Sri Lanka - Highlights of quarter one 2010 CIMA has now launched the CIMA mid-size business confidence survey in Sri Lanka, to determine your opinion towards the current level of ‘business confidence’ amongst medium size businesses.

‘Quote: unquote’

‘Motivation is a fire from within. If someone else tries to light that fire under you, chances are it will burn very briefly.’ Stephen R. Covey

CIMA Sri Lanka Division

feature article

CPC model of performance measurement (part one of two) by Baqar Hussain Bhatti

Baqar Hussain Bhatti is a member of the Civil Service of Pakistan. He has 20 years of work experience in important positions. Presently

he is working as controller military pensions. He also imparts accounting and financial management training to professional students

(including CIMA) and civil servants in collaboration with prominent public and private sector training establishments. He writes technical

articles for public sector magazines, and is a fellow member of CIMA with degrees in law and commerce.

The author has improvised a model of performance measurement relevant to both profit and not-for-profit organisations, applied that model to his workplace and achieved desired results. This model is given the name of ‘the CPC model of performance measurement’ to highlight three broad strands

of performance measurement focused in this model. This model is based on the assumption that every performance measurement exercise is applied with reference to a benchmark or standard which must be subsequently revised and updated at periodical intervals to achieve the objective of continuous improvement as part of Total Quality Management paradigm. It is important to note that the model conceives performance measurement as a dynamic process encompassing both short and long-run time periods. The main thrust of performance measurement in this model hinges on the concept of value creation from the public’s perspective, because in public sector organisations the ultimate objective of any organisational activity should be value creation and economic well-being of the masses. The three elements of performance measurement focused in this model include the following;

Cost efficiencies (C),

Productivity enhancement (P) and

Customer satisfaction (C).

All three elements have trade-offs if not properly coordinated in an integrated performance measurement work environment. For example, a narrow focus on achieving cost efficiencies may conflict with the objective of achieving customer satisfaction, particularly where quality is compromised in the cost efficiency exercise. Similarly cost efficiencies may be compromised in the short-run to achieve the objective of productivity enhancement by spending funds on training or a business process re-engineering exercise. Therefore it is imperative that while designing any performance measurement scheme, both short-run and long-run perspectives should be considered and the individual elements should not be viewed in isolation because each element’s spill-over may affect performance in other elements.

Looking from a different perspective, one might argue that the economy and efficiency aspects of performance measurement are important in public sector organisations but the effectiveness (i.e. public satisfaction from the outcomes of an activity) should be given an overriding consideration. This hypothesis further corroborates the notion conceived in the CPC model that all three elements of performance measurement should be well coordinated and integrated to achieve the desired results.

1. Introduction

Historically speaking, the discipline of cost and management accounting had propinquity with the manufacturing industries and that too in the private sector. This perception continued for major part of the 20

th century and management accountants also

acknowledged this fact by developing cost accounting techniques pertinent to the manufacturing sector alone. This is partly due to the fact that cost accounting emerged in support to the manufacturing industry’s demand for cost estimation, and partly due to inertia on the part of management accountants who did not take a proactive stance vis-à-vis the changing business environment. However, during the past 20 years or so the increased contribution of the service sector in economic growth brought a paradigm-shift in cost and management accounting literature and techniques. Fearing that the discipline of management accounting may be relegated to a subservient position confined to the manufacturing sector, new techniques and ideas were floated which could be relevant to the service sector also. One important contribution made by cost and management accounting is in the realm of performance measurement. This performance may be measured in terms of profitability/cost efficiencies or physical output of a production or sales process. Performance measurement may be of interest to organisations since it implicitly focuses on improving the productivity and quality of the processes/workforce and this in turn leads to cost efficiencies, improved quality of products and better profits in the long run.

In the service sector the existence of intangible output makes performance measurement somewhat different from the manufacturing sector. The public sector organisations (government organisations) particularly deal with public goods which are intangible in nature and are not produced with a profit motive. This situation makes application of traditional performance measurement tools to the public sector more difficult. In this article the author has made an attempt to explain how performance measurement tools may be applied in a dynamic manner to a not-for-profit organisation, to achieve the objectives of economy, efficiency and effectiveness.

2. Elements of performance measurement in the CPC model

In recent times the public sector organisations are also expected to undergo a change process to make their affairs more transparent, public friendly and cost efficient. This change in perception has materially altered the concept of performance measurement. Broadly speaking, a performance measurement model should focus on both short and long-run measures of performances to synchronise any trade-offs. This argument becomes more potent in the public sector organisations where the maturity period of processes is fairly longer due to the complex and cross-functional working environment.

feature article

3. The CPC model (the integrated perspective)

In this section we will discuss some of the techniques which may be applied to improve performance in an organisation. The list of management techniques mentioned in the CPC model is not exhaustive. These techniques are specifically mentioned because the author has applied some of these techniques in his workplace. The readers may prefer their own combination of management techniques to improve performance keeping in view their sphere of activity.

Figure 3.1: CPC model of performance measurement (The integrated perspective)

3.2 Productivity enhancement (P)

The primary goal of any productivity scheme should be to move from an inefficient point towards a more efficient point in the performance measurement scale. The CPC model perceives productivity enhancement as a qualitative goal which implies that processes may be designed to improve both quantity and quality of the output. Some of the techniques relevant here include the following.

Business process re-engineering (BPR): the central idea in

any BPR scheme is to innovate processes by the use of information technology to achieve the objectives of improved services and reduced costs. The CPC model assumes that productivity may be improved by deploying good information technology structure (for example a database) in an organisation to effectively manage structured and semi-structured processes.

Benchmarking: process benchmarking may play a vital role in

a productivity enhancement plan. The best processes may be used as benchmarks for enhancing productivity of the workforce in the transformation cycle. This develops a healthy competitive environment within an organisation where different functional managers may compete to develop efficient processes to achieve functional and organisational goals at competitive cost and acceptable quality.

Training and rewards: training also plays an important role in

a productivity enhancement scheme. However, it must be integrated with a reward system of performance measurement to achieve pragmatic results. Rewards act as a stimulant towards motivation of the workforce. A reward system may include both monetary and non-monetary elements.

3.3 Customer satisfaction

The outcome of an organisational activity in the public sector ought to be the satisfaction of its customers (general public). If one’s client/customer is satisfied it is a fair indicator of good performance on the part of one’s organisation.

Demand driven services: the public sector organisation needs

to focus on the demands of its existing and potential customers. Some sort of market research must be conducted to identify customers’ needs. Nowadays, many information channels and resources are available to accomplish this task at very low cost. This will ensure that one’s organisational services are in line with the expectations of one’s customers.

Competitive cost services: in the public sector the customer

may indirectly be affected by the cost of services. Least cost combination of resources would ensure that more services can be provided with the same organisational budget. The quality trade-off may be considered wherever appropriate.

Quality featured services: quality may be defined as

conformance to customers’ requirement. It is the sum total of anticipated features in a service or a product from customers’ perspective. Naturally, this list is not exhaustive and an acceptable combination of features may be focused on the basis of some ranking order (probably as per customers’ perceived preferences).

(Part two of this article will be published in May/June 2010 issue) Your feedback regards this article may be sent to zenithsc@yahoo.co.uk

CPC

model

Cost efficiency (C)

Productivity enhancement (P) Customer satisfaction (C)

Value analysis

Lean services

Training

Demand driven services

Competitive cost services

Quality featured services

Business process re-

engineering

Benchmarking

Training & rewards

3.1 Cost efficiency (C)

Cost efficiencies may be achieved by employing a variety of techniques. The management accounting literature is replete with such techniques and some of these are discussed below.

Value analysis: this technique is relevant where the

organisation is looking for economical options to produce a quality product or service. The emphasis is on creating value from user’s perspective. This technique works by examining various factors which contribute towards the cost of producing a product or service to eliminate unnecessary expenditure.

Lean services: this concept is akin to lean manufacturing

which emphasises that the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. In the service sector this technique may help in reducing cost by eliminating wasteful practices in a process.

Training: research has proved that effective training plays a

very important role in reducing cost and improving quality of a product or service. Training inculcates new work practices and transforms the workforce into a coherent body of skilled workers capable of performing complex tasks at low cost and better quality.

feature article

Business ethics: The pivotal factor for sustainable corporate success by Jithendra Gunatilaka

1. Corporate skulduggery

Corporate skulduggery is a term that has emerged as a buzz word during the past two to three years in the corporate world. This phenomenon manifested in Fortune 500 firms of the yesteryear, such as Enron, Lehman Brothers, Merrill Lynch and HBOS. The most startling fact arising out of these acts of corporate skulduggery was that the people at the heart of the crisis - from Dick Fuld at Lehman Brothers to John Thain at Merrill Lynch and Andy Hornby at HBOS were MBAs from top business schools. In fact Mr Hornby graduated top of his class at HBS. 2. Gordian knot

Anything about which there are too many books, articles and papers probably means that there is a tangled knot; a ‘Gordian knot’, with something hidden preventing the knot from unravelling. The terms ethics, integrity, morality, sincerity and legality obviously qualify to be Gordian knots. If one looks into the definition of each of these words, the level of complexity of the Gordian knots arising from the subtle differences of meaning inherent in these terms can be understood, thus emphasising the reason that conceptual clarity should prevail on what ethics really means, if the business is going to harness the value of ethical behaviour. Ethics can be defined as, ‘Connected with beliefs and principles about what is right and wrong’ (Oxford Advanced Learners Dictionary, 2005)

3. Enterprise governance and impact of ethics

Recent turbulent conditions in the world’s economic and financial markets have stimulated professional bodies like CIMA to focus more on corporate governance. These events have put boards under even greater scrutiny. They need to improve their governance practice significantly by demonstrating consistently strong leadership and high ethical standards. While there are many contributory factors to the crisis, one key theme is the ability of boards or equivalent governing bodies of organisations to oversee strategy and risk effectively

1.

The key ingredients towards restoring boardroom leadership has been illustrated in The Board Effectiveness Wheel (CIMA Edge, Nov/Dec 2009: 2), which provides a useful starting point from which any board can assess areas where they need to improve. Out of the eight segments in The Board Effectiveness Wheel, the most important segment from an ethical standpoint is the ‘right relations’ in the ‘people and behavioural’ sub-sphere. ‘Right relations’ is a term borrowed from the psychotherapeutic field, but it is fundamental in business. Once the right people are in place, it is important to consider how board members behave with each other and to its executive team. The board needs to set the right tone from the top by behaving in a professional manner. It should model ethical behaviour by articulating and living out the organisation’s values. The board and executive management need to treat each other with respect and appreciate the contribution that each seeks to make.

1 Lees, Gillian. (2009). Enterprise governance – Restoring boardroom leadership. CIMA Technical

Symposium - Reshape your Business (pp. 13-18). Colombo: CIMA Sri Lanka division.

Jithendra is employed as the DGM - finance operations at L.O.L.C. with over 15 years managerial experience in finance. He is an associate member of CIMA holding a diploma in marketing from CIM (UK) and a degree in life sciences from the University of Colombo. He was a member of the Sri Lanka division’s technical committee in 2008. The socio-cultural impact of ethics on Sri Lankan companies was the domain selected by Jithendra for his master’s research.

4. Assessing the applicability of ethics in organisations

Using a sample of 100,404 unique 10-K filings from 1994-2006, Erhard et al found a strong usage pattern relating to ethical terms. They found that firms using ‘ethics’ phrases in their 10-Ks are more likely to be ‘sin’ stocks and a defendant in a class action lawsuit. Further, these were companies with entrenched managers (i.e. poor corporate governance policies) and were likelier to discuss ethical topics than other firms. They concluded that sin stocks do not belong to virtuous firms. The same is true for the objects of class action lawsuits. Yet these two groups are the firms that are more likely to use ethics-related terms. Most notably, having poor corporate governance is not consistent with a company acting in an ethical manner to benefit its present and future shareholders. Poor governance serves only to entrench managers and enrich those who are not creating value to shareholders. Managers of firms with poor governance policies seem more likely than other managers to make ethics-related declarations in an attempt to obscure their poor governance practices

2.

False signalling, as discussed above, is consistent with firms that are willing to sacrifice integrity by making these declarations because they do not understand the connection between ethical behaviour and performance. 5. Factors affecting enterprise performance

A research on the relationship between dimensions of corporate governance and corporate performance concluded that corporate governance act as an interactive mechanism between shareholders, managers, and directors, with emphasis on strategic collaboration for the overall corporate good

3. Eight dimensions are

identified and related to overall corporate performance (Figure 5.1). Figure 5.1: Corporate governance as an interactive mechanism

Source: Relations between Dimensions of Corporate Governance and Corporate Performance: An Empirical Study among Banks in the Lebanon. International Journal of Management.

2 Erhard, Werner., Jensen, Michael., Zaffron, Steve. (2007). Integrity: Where Leadership Begins - A

New Model of Integrity . Landmark Education. 3 Chalhoub, Michel Soto. (2009). Relations between Dimensions of Corporate Governance and

Corporate Performance: An Empirical Study among Banks in the Lebanon. International Journal of Management.

feature article

The final rules for implementing SOX issued in January 2003, required compliance by reporting firms for fiscal years on or after 15 July 2003. In addition to SOX, the SEC approved in early 2003, new listing rules for the NYSE, Nasdaq, and Amex. These included a requirement that companies should adopt a code of ethics (or code of conduct and ethics). The exchange rules are broader, because, they require the code to be applicable to all directors, officers, and employees. Clearly the implementation of these new regulations impacts the likelihood that firms will use ethics-related terms in their 10-K annual reports

5.

Similar to the SOX stipulations, Sri Lanka also adopted the Code of Best Practice on Corporate Governance jointly issued by The Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka in 2008. This contains a section dedicated for enforcing a code of ethics within a company which has to be declared in the corporate governance report in the annual report of that company.

7. Association of ethics with enterprise governance

There are interesting pieces of literature published with regards to organisational ethics and its impact on the stakeholders. One intriguing articles was published by CIMA pertaining to a research study conducted by the International Federation of Accountants (IFAC) in 2002.

A particular focus of the project was to study why corporate governance often fails in companies and, more importantly, what must be done to ensure that things go right. In order to test the enterprise governance framework and to explore what goes right or wrong in companies, IFAC chose to undertake a series of 27 short international case studies. These were drawn from Australia, Canada, France, Hong Kong, Italy, Malaysia, the Netherlands, Thailand, the United Kingdom and the United States. A wide range of industries were covered including telecoms, retailing, financial services, energy and manufacturing. The aim was to provide summaries of the causes of corporate successes and failures (as defined by total collapse of the company or severe difficulties resulting in sharp declines in share price and profits, adverse publicity etc). Of the 27 case studies, 11 were ‘successes’ and 16 were ‘failures’. Each case study focused on corporate governance practices and strategic issues such as the process of strategy development and the resulting choice of strategy. Material was drawn from published sources. IFAC’s approach was to develop case studies that were sufficient to generate broad conclusions. The case studies are not intended to be detailed, rigorous pieces of academic research.

A number of key themes emerged from this study. Companies with weaker codes of ethics tended to fail in the long-term. However, no single issue dominated. It was also apparent that poorly-designed executive remuneration packages distorted behaviour in the direction of aggressive earnings management. In extreme cases, when aggressive earnings targets were not met, fraudulent accounting tended to occur such as in the cases of Enron, WorldCom, Xerox and Ahold. In the cases of success, a virtuous circle emerged based on a conscious decision to take good governance seriously because it was good for the company rather than required by law or formal codes of best practice. However, in some cases good governance did not feature strongly as a key factor of success. This does not imply that corporate governance is unimportant for success (Table 7.1). Instead, it shows that good corporate governance is a necessary, but not sufficient for success. In other words, bad governance can ruin a company, but cannot, on its own, ensure its success. 5 Loughran, Tim., McDonald, Bill., & Yun, Hayong. (2007). A Wolf in Sheep’s Clothing: The Use of

Ethics-Related Terms in 10-K Reports. Journal of Business Ethics.

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Next, the factors that influence the bank’s performance through participatory corporate governance measures were tested, as per the following framework (Figure 5.2). Figure 5.2: Practical management components that reflect corporate governance

Source: Relations between Dimensions of Corporate Governance and Corporate Performance: An Empirical Study among Banks in the Lebanon. International Journal of Management.

It was concluded that five factors out of eight were confirmed and proven to be the key drivers of performance in the Lebanese banking sector:

embedment of governance concepts into daily management

practice,

using governance experience and literacy as a prerequisite for

senior positions,

applying consistently a code of ethics,

engaging shareholders in active participation, and

emphasizing accountability.

The challenge is to execute them consistently over the long-term, as corporate governance is a driver of investor confidence and managerial decisions. Therefore, empirical evidence to support the use of ethics in catalysing positive business performance is seen from the above.

Also in a study of the distressed financial companies in China, it was identified that the presence of good corporate governance can provide guidance for distressed companies

4. Specifically, having

sufficient independent directors, were proven to assist companies in prevention as well as recovery from financial distress. Distressed companies should improve corporate governance, including centralising financial controls and more importantly it is implied, to install a robust ethical guideline. Also strengthening the supervision of managers, and developing incentive systems consistent with the company’s overall interests. Further, in the case of China, it was identified that the government should improve management in state-owned distressed companies and prevent the dissolution of managers’ powers. 6. The impact of regulation on code of ethics

The Sarbanes-Oxley Act (commonly referred to as SOX) was signed into law on 30 July 2002. Section 406 of SOX directs the SEC to issue rules requiring public companies to disclose in their annual report whether they have implemented a code of ethics for their senior financial officers, and if not, why not. 4 Hui, Huang., & Jing-Jing, Zhao.( 2008). Relationship between Corporate Governance and Financial

Distress: An Empirical Study of Distressed Companies in China. International Journal of Management.

Table 7.1: What went wrong? – Corporate governance issues

Company Ethics/ culture/ tone at the top

CEO BoD Internal control/ compliance/ risk management

Aggressive earnings management

Ahold (Netherlands)

•• ••• • ••• •••

Enron (US) ••• ••• ••• ••• •••

WorldCom (US)

••• ••• ••• ••• •••

Xerox (US) ••• ••• ••• ••• NA

Vivendi (France)

••• •• ••• NA NA

Cable & Wireless (UK)

•• ••• ••• NA NA

D Tripcovich (Italy)

••• •• NA NA

France Telecom (France)

•• •• •• •• NA

Source: IFAC (2004) Enterprise Governance. New York: IFAC

(Significance scale: ••• Major; •• Moderate; • Minor)

A case study of ethical behaviour contributing to enterprise governance is the case of Merck and Company producing a wonder drug for poverty stricken victims in the African and Latin American regions. This proved that there was no contradiction between business and ethics. When thousands of poor villagers in the most remote parts were hit by ‘river blindness’ caused by a parasite, the Merck and Company management deliberated for a long period on its economic feasibility, based on the premise that selling a drug to the poorest of the poor would not help in them boosting a sluggish financial performance during late 1970s. Moreover, the development was based on an existing veterinary product, hence selling a product for the humans at a lesser price, threatened the lucrative business of the veterinary line of business, if pilferage occurred to the established veterinary markets.

But in the late 1980s a budget was approved and after seven years of expensive research and clinical trials a pill was produced. True to the initial doubts of the Merck and Company’s management, that due to the poverty levels of the victims that there will not be a captive market, the new drug did not move. With the intervention of agencies like World Health Organisation, the company took steps to distribute to the remote villages and thus arrest the spread of blindness, which people have already considered as an un-escapable phenomenon.

The reason why Merck and Company embarked on this project at the cost of a dear budget was that its chairman firmly believed that such generous actions would strategically be important for the company in the long-term. 8. How to create an ethical environment?

In order to create an ethical environment in the workplace the most practical advice can be derived from the preaching of Benedictine Rule of Leadership. Incidentally, Benedictine monasteries were the first to offer business ethics seminars to the lay and clergy and its popularity is seen by the demand for management courses on ethics which are held in Benedictine monasteries, such as the ‘Institut Superieur des Affaires’ (ISA) business programme at the HEC School of Management at Jouy-en-Josas, and the internationally renowned business ethics seminars conducted at the tenth century French Benedictine monastery in Ganagolie are a few examples.

The cornerstone of the Benedictine framework6 in building the

environment that promotes ethical behaviour is based on the principle of equilibrium: balancing the natural desires of the individuals (i.e. the employees) and the imperatives of organisational action. To achieve this end the leader needs to manoeuvre the organisational processes related to incentives, controls, discipline, promotion and hierarchy around the four fundamental Benedictine management concepts such as ‘Stability and cohesion’, ‘Obedience and humility’, ‘Fundamental equality and respect’, and ‘Flexibility and innovation’. All the above are engrained in the ten point action plan preached by the Benedictine order, which is as follows:

Explicit: Make the ethical values of the organisation as explicit as

possible. These can be in the form of vision/mission statements,

but consistency should be maintained in the communication.

Brevity: These ethical statements should be well thought of and

short in content in order for it to be understandable and more

importantly to facilitate easy recall.

Comprehension: The ethical codes should be well understood by

the employees in order to facilitate rational choice by the reader.

‘In-your-face’ statements: Everyone in the organisation should be

well reminded of the ethical statements regularly, ideally via ‘in-

your-face’ statements.

Built into HR process: Ethical values should be integrated into

the HR process of screening, hiring and training employees. This

helps eliminate the personal biases of the management involved

in the above processes, thus bringing in consistency at source.

Role model: The leaders of the organisations should set an

example of behaving according to the laid down ethical

guidelines. This would make the subordinates adopt their leaders

as role models.

Equality in enforcement: The cornerstone of Benedictine

longevity had been the unwavering equality in enforcing the laid

down ethical rules.

Enforcement mechanism: A clearly understood enforcement

mechanism which deals with ethical violations on an incremental

basis should be in place. Discipline is considered to be consistent,

fair and evenly applied.

Benefits outweigh the punishment: The benefits of community

membership should be greater than the cost of violating them.

The benefits would be in the form of organisational stability, sense

of cohesion and a well understood common objective.

Removal: Once all aspects of discipline are exhausted, the

troublesome element should be removed, as the survival of the

organisation and the good of the community takes precedence.

Even though express statements of ethical guidelines are not common in the Benedictine rules, the principle that underscores ten action points for an establishment is the concept of stability and therefore longevity of the establishment. Benedict prescribed that sustainable economic units must compete under a stricter rule of ethics, not minimum codes and laws. Ignoring this would ensure the ‘death of their souls’. It promotes corporate cohesion against short-term profitability - Benedict was always willing to sacrifice next day’s sale for long-term sustainability. Hence, what is echoed throughout the rule is to strike the correct balance between short-term profiteering and long-term sustainability.

6 Galbraith, Craig S., Galbraith, Oliver. (2004) The Benedictine Rule of Leadership: Classic

Management Secrets You Can Use Today. Adams Media Corporation.

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feature article

Collaboration of the left and the right brain in decision making by N V Gunasekera

Did you ever wonder why you were able to precisely analyse facts and figures and enjoyed every moment of it while you were hopeless or found it utterly boring to write a poem? Well, one reason for this phenomenon could be your natural biases towards the left brain or the right brain. This article will focus on key factors relating to decision making, attributes of the left and right brain and how both hemispheres can be collaboratively deployed to make optimal decisions.

1. Decision making

„Nothing is more difficult, and therefore more precious, than to be able to decide.‟ (Napoleon Bonaparte) Decision making is an act of choice of an individual or a group of individuals. It is the exercising of one’s free will to choose a single alternative or a hierarchy of alternatives among available options.

The key facets of a decision could be named as the problem, both a problem or an opportunity is referred as the problem; the decision maker which could be an individual or a group (even an organisational decision is classified as a group decision, because these decisions are made by people representing the organisation); and the environment in which the decision is made. These three variables influence the final decision. For example the nature of the problem - its time horizon and potential impact will influence the final decision. 1.1 The decision making process

Deciding also means to move from one mind frame to another, and it means to eliminate all other options and possibilities

1. In

doing so the mind follows a certain process. The generic process of making a decision is illustrated in Figure 1.1: Generic decision making process.

Figure 1.1: Generic decision making process

1.2 Biases in decisions

Many modern day disciplines and theories are built upon the fundamental principles of economics which assumes the man to be rational in decision making. However, different individuals faced with the same problem in a similar environment make different choices, which proves that man is in fact not rational in cognition and are influenced by cognition biases, emotions, mood swings, needs for power, achievement and affiliation and numerous other factors. And in fact modern day marketers capitalise on this factor and use numerous psychological and social associations to uniquely position products and services to different segments of consumers. Some of these key cognition biases are selective search of evidence, premature termination of search for evidence, groupthink, Asch effect, wishful thinking etc. It’s important to be sensitive towards these biases to ensure that one is not drawn towards a particular choice due to the wrong reason. 1 Berens, M. (2007, May 22). A Solid Decision - Right-Brain Decision-Making Or Left-Brain Decision-Making. Retrieved March 29, 2010, from Articlesbase: http://www.articlesbase.com/self-help-articles/a-solid-decision-rightbrain-decisionmaking-or-leftbrain-decisionmaking-151783.html

1.3 Decisions and change Charles Darvin once stated „It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.‟ Change is imperative. In fact it is the only certainty in this uncertain world, and the frequency and intensity of change had risen exponentially in the past few decades. More often than not change triggers decisions to be made pertaining to what should be done, how it should be done, who should do it, when and where it should be done. So change is closely associated with decisions. 2. Introduction to the left brain and right brain

A human being is literally a dual thinking being residing in a single body. Human being is the sole living creature known to be bicameral, possessing two distinct brains the left brain and the right brain connected by millions of nerves known as the corpus collosum. The phenomenon of the left and right brain functioning was introduced by the psychologist Julian Jaynes in 1976 in his seminal work The Origin of Consciousness in the Breakdown of the Bicameral Mind, and was later researched and developed by the Nobel Laureate Roger Sperry

2.

Though empirical studies of the left and right brain commenced during the late 70s, the tacit knowledge of its existence can be traced back to many centuries. Lobo’s research (The Art in Decision Making) refers to a recording by Herodotus in 430 B.C. where important decisions by Persian’s were found to be made when drunk, and if the same decision was agreed/conceded when sober, the decision was enacted. Though this may sound imprudent to a lament’s ears, there is a strongly justifiable reasoning behind this behaviour/approach. Liquor weakens the functioning of the left brain, leaving room for the right brain to surface in generating creative solutions. When sober the left brain would dominate rationally evaluating the chosen option.

2.1 Traits of the left and right brain

The left and the right brain have unique characteristics and indicate their identities in different ways and means. The unique traits of each hemisphere of the brain are illustrated in Figure 2.1: Traits of the left and right brain.

Figure 2.1: Traits of the left and right brain

Source: Image extracted from the web-blog on Left Brainers and Nonaka‟s “Ba” on http://apintalisayon.wordpress.com/2009/05/25/left-brainers-and-nonakas-ba/

2 Eden, D. Left Brain Right Brain. Retrieved April 1, 2010 from http://mondovista.com/bicamx.html

Cause Effect

Problem Analyse Generate alternatives

Evaluate alternatives

Select an alternative

Implement Monitor and control

Objectives/ desired state

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2.2 Functions of the left and right brain

Each brain has its own role to play in shaping the life of a human being. Each brain performs an exclusive function irreplaceable by the other brain. The unique functions performed by the left and right brain are illustrated in Figure 2.2: Functions of the left and right brain.

Figure 2.2: Functions of the left and right brain

Source: Left and Right Brain Test extracted from http://www.thoughttheater.com/LeftRightBrain.jpg

2.3 Conflicting pressures of the left and right brain

It is indeed evident that the two hemispheres in the human brain pull in opposite directions and often conflict each other. For example examine the illustration depicted in Figure 2.3: Conflict between the left and the right brain. Attempt to say the colour of

each word instead of reading the word. In this exercise the left hemisphere attempts to read the word and the right hemisphere attempts to say the visual colour. Which attempt succeeds depends on the individual biases of each person. Figure 2.3: Conflict between the left and the right brain

Source: Left Brain/ Right Brain Conflict extracted from http://officespam.chattablogs.com/archives/left-brain-right-brain-conflict.jpg

2.4 Dominance of one hemisphere and repression of the other

2.4.1 Dominance by one hemisphere in an individual’s brain Each human being possesses both a right brain and a left brain. However, the dominance of each brain in decision making and application in day-to-day learning varies between each individual. Some people are predominantly left hemisphere dominant and others right hemisphere dominant. For example Albert Einstein was a strongly right brain dominant individual. He is said to have been rejected from school as a student who was incapable to learn, and taught by his mother at home. Einstein was able to instantly capture the big picture and identify the solution, but he was unable to express it in smaller steps, and supposed to have missed several steps in his math work

3. The prevalent schooling

system was built with dominance towards the left hemisphere and as such was incapable of accepting or adjusting to the learning patterns of the right hemisphere dominant individuals.

3 Pytel, B. (2006, June 23). Famous Right Brains. Retrieved March 29, 2010, from Suite101.com:

http://educationalissues.suite101.com/article.cfm/famous_right_brains#ixzz0kWDlkKIq

Leonardo Da Vinci who was an inventor, artist and a scientist was also right brain dominant. In fact, in his days he envisioned a non-existent future. He believed that man could fly, and sketched a helicopter centuries before it was actually built

3.

2.4.2 Over dominance of the left brain in the present environment Today’s world as a whole tends to be more represented by left brain dominant individuals and as such tend to be more biased towards functioning of the left brain. One reason for this being that the traits of right brain makes it more difficult to outshine the left brain. Certain traits of the right such as inclination to foresee non-existent patterns, incapability to rationalise thoughts and actions, intuitiveness, subjectivity, and lower speed of processing makes it difficult for right brain to surface over the left brain. Therefore, it is not uncommon for an individual’s right brain or an individual who is right brain dominant to be asserted as irrational in our society.

2.4.3 Consequences of over reliance on the left brain One key consequence of the over reliance on the left brain in decision making is that the decisions will rarely be holistic. The decisions will be scrutinised in terms of economic and benefits and dis-benefit at the cost of seeing the bigger impact and the bigger picture. For example, many organisations for decades made financially, operationally, and technologically viable decisions for progression but failed to see the wider impact these decisions could cause to the society and the environment at large. Thus, we pay the price for over exhaustion of natural resources, depletion of bio-diversity, pollution of soil, water and air, extinction of rare species, imbalance in the world’s ecological cycle and the list never ends. Over dominance of left brain and suppression of the right brain is one of the key reasons for the destruction of mother-nature.

The movie Avatar directed by James Cameron in 2009 gives a

strong reflection of the higher form intelligence capability of the right brain. Its use is complex and unexplainable at this juncture with limited discovery regards the functioning of the right brain. But, the movie skilfully showcases intensity of the Naavi’s right brain driven decisions and its numerous positive outcomes in contrast to decisions made by the left brain dominant human beings and the resultant outcomes. Our world is a gamut of networks. Disequilibrium in one system affects another. Over dominance of left brain could fail to see the bigger picture, and make mediocre decisions by taking a partial view.

Another disadvantage of over reliance on the left brain for decision making is the exclusion of considering the emotional impact of decisions. Though one might prefer to dissociate from emotional impacts in business decision making it is not rightful. Emotions are part and parcel of being human and business decisions will create an emotional appeal or otherwise to internal and external stakeholders impacted by the decision. For example, how many performance management systems have failed and how many well articulated change management programmes have failed due to provision of insufficient consideration towards emotional engagement of employees. It is by no means indicated that we should overplay focus on emotional association when making decisions, but in contrast the right balance should be struck depending on the circumstance.

2.5 Purpose of two brains

Our universe is a balance of opposite forces. Every action has an equal and opposite reaction. Likewise, two distinctive and opposite hemispheres exists in the human brain rich with unique traits and functionalities to support and sustain the balance of life.

In the context of decision making, the application of both hemispheres will ensure the deriving of optimal, holistic and sustainable solutions.

The constructive collaboration of both brains to make decisions will ensure that human race continues to progress in technological advancement and findings, whilst preserving its surrounding.

This collaboration could be carried out in two ways, first by the conscious effort of one individual to engage both hemispheres in decision making and secondly by ensuring the representation of a mix of people who are left brain dominant and right brain dominant in decision making. Another important point to note is that the application of each hemisphere might differ from one decision to another. Decisions pertaining to laying out a detailed execution plan, perhaps the application of the left hemisphere will be more relevant, but to devise a successful flanking attack strategy for your competitor the right hemisphere would be of more use.

In the context of an organisation, it is the right brain dominant individuals who usually present breakthrough invention. However, it is usually the left brain dominant individuals who finally take it to the pinnacle conducting the feasibility studies, laying implementation plans and paying attention to detail at execution. Therefore, collaborative co-existence of the two brains can optimise decisions and results.

On a further note, usually the victorious individuals are ones who successfully master the art of collaborating both brains within one’s self to generate novel ideas while keeping the feet firmly on the ground.

3. Effective use of left brain and right brain in decision making 3.1 Six thinking hats

Diversity of thinking increases the quality of decision making. De Bono identified the existence of six thinking patterns, which provided parallel views of the same object. Based upon one’s personality one was more inclined to follow a single perspective. The six thinking hats can be used in two basic ways. First it can be used singly to request a particular type of thinking and secondly it can be used in a sequential manner to explore a subject or solve a problem

4.

How six thinking hats can be used to make holistic decisions through the engagement of left and right brain is illustrated in Table 3.1: Six thinking hats. Use of this technique will enable an individual to integrate right and left brain triggered thinking styles and view an issue holistically.

3.2 Brain storming

Brainstorming is another popular technique that can be used to encourage free wheel thinking of the right brain in the idea generation phase where each person will contribute various ideas no matter how bizarre it may seem, and later amalgamate it with the processing of the left brain in the idea evaluation phase by evaluating each idea in terms of its feasibility and appropriateness to achieve the stated objective. This tool can easily be deployed among a group of decision makers to encourage lateral thinking and generation of creative but feasible solutions.

3.3 Edward de Bono’s four step creative model

The four step creative model is another technique that can be deployed to purposefully integrate both the left and right brain in decision making. The four steps of the model are described in the next column. 4 De Bono, E. (2000). Six Thinking Hats. Great Britain: Penguin Books.

Table 3.1: Six thinking hats

Hat Explanation

White Engage the left brain and focus on facts, figures, and what is known and unknown, bringing out the objective and factual information pertaining to a problem.

Red Engage the right brain and focus on emotions, intuitions, gut feelings and the unexplained areas pertaining to a problem, thus incorporating intuitiveness to decision making.

Black Logical, judgemental, critical and evaluative perspective. This perspective of thinking will ensure that the decisions are as close to foolproof as possible, and that obstacles are critically viewed. This will be done by heavily engaging the left brain.

Yellow Views the benefits, values, feasibility, and takes an optimistic view. This again is a task for the left brain to engage.

Green Possibilities, new ideas, creativity and new alternatives will be considered under this perspective and the right brain will be engaged heavily.

Blue This indicates the person in charge, who will direct the different perspectives of thinking, keeping control and an overview. This role/perspective will engage a balance of both brains.

Knowledge accumulation: In this phase, one would gather

explicit and tacit knowledge pertaining to the issue in concern by the engagement of the left brain. Incubation: During this phase the right brain would take

precedence and would make connections that are not explicitly visible. It is interesting to note how the right brain incubates abstract knowledge gathered during the knowledge phase to connect the explicitly un-connectable. The incubation phase presents to ones conscious mind perspectives formerly not apparent. This generally takes place when the mind is relaxed and the left brain is suppressed, as in the case of sleeping. This is one of the key reasons why individuals prefer to sleepover key decisions prior to making the ultimate choice. Ideas: In the ideas phase the right brain takes the lead by

generating creative solutions and various options. One can further enhance this phase by engaging in triple loop thinking introduced in Blue Ocean Strategy. Evaluation and implementation: Next, the left brain will analyse

and evaluate the feasibility of each option in different perspectives such as financial, marketing, operation, technological etc; develop detailed plans for implementation and delegate responsibility. 4. Conclusion

Outcome of one’s life is determined far before one encounters them. It is determined at the point one makes the decision to reach them consciously or unconsciously. Law of attraction states that one attracts what one desires. This implies that human beings are often driven by a magnitude needs and desires, and that these desires reflect in the day-to-day decisions one makes. These decisions/choices mark the course of one’s life. Therefore, it is only prudent and appropriate that one renders sufficient attention to the ultimate factors that impact decisions. 5 Kim, C., & Mouborgne, R. (2005). The Blue Ocean Strategy. Boston, Massachusetts: Havard

Business School Publishing Corporation.

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‘Quote: unquote’ „Motivation is a fire from within. If someone else tries to light that fire under you, chances are it will burn very briefly.‟ Stephen R. Covey „Unless you try to do something beyond what you have already mastered, you will never grow.‟ Ronald. E. Osborn 'Aim at perfection in everything, though in most things it is unattainable. However, they who aim at it, and persevere, will come much nearer to it than those whose laziness and despondency make them give it up as unattainable.‟ Lord Chesterfield

„It is by what we ourselves have done, and not by what others have done for us, that we shall be remembered in after ages.‟ Francis Wayland

„We all have ability. The difference is how we use it.‟ Stevie Wonder „What man's mind can create, man's character can control.‟ Thomas Edison „Thoroughness characterises all successful men. Genius is the art of taking infinite pains. All great achievement has been characterised by extreme care, infinite painstaking, even to the minutest detail.‟ Elbert Hubbard

„We are not creatures of circumstance; we are creators of circumstance.‟ Benjamin Disraeli

„To think creatively, we must be able to look afresh at what we normally take for granted.‟ George Kneller

„Trouble is only opportunity in work clothes.‟ Henry Kaiser

Survey and quotes

CIMA mid-size business confidence monitor 2010, Sri Lanka

Highlights of quarter one 2010 CIMA has now launched the CIMA mid-size business confidence survey in Sri Lanka, to determine your opinion towards the current level of ‘business confidence’ amongst medium size businesses. Presented below are the highlights of the quarter one survey completed in March 2010, with 30 Sri Lankan companies responding to an on-line questionnaire. We very much value and welcome your participation in our surveys, so please look for the next quarter survey scheduled for June 2010.

Financial highlights

Employment highlights

R&D and marketing highlights

25%

30%

29%

18%

11%

18%

50%

64%

70%

54%

32%

Decreased Stayed the same Increased

4%

16%

4%

4%

4%

60%

32%

64%

58%

58%

36%

52%

32%

39%

39%

Decreased Stayed the same Increased

4%

12%

72%

46%

24%

43%

Decreased Stayed the same Increased

Chartered Institute of Management Accountants

Sri Lanka Division

Colombo Office

356 Elvitigala Mawatha

Colombo 5

T. +94 (0) 11 250 3880

F. +94 (0) 11 250 3881

E. colombo@cimaglobal.com

www.cimaglobal.com/sl