Saturday 29 April 2023

Zero Based Budgeting


















Traditionally, when we make budgets ; the income and expenditure of the previous year is eaxmined. Some adjustments providing for inflation or other expected events are made and the new budget emerges. This is true whether it is a family budget or that of an organization or country. However, under Zero based budgeting, the new budget starts with zero for the various projects and activities. All expenditure, for each of the activity, is required to be calculated and the need for the expenditure justified. Zero-based budgeting puts the onus on managers to justify expenses. This is in contrast to the traditional budgeting wherein only new expenditures are required to be justified ( not the old, recurring expenditure). In recent years, many Fortune 500 and private equity companies have adopted this budgeting technique.

Zero-based budgeting (ZBB) was developed and implemented by Peter Phyrr. former Texas Instruments account manager in his company in the 1960s. It is a methodology that helps to align company spending with strategic goals. It requires you to verify & satisfy that all components of the annual budget are cost-effective, relevant, and drive improved savings. Every function within an organization is analyzed for its needs and costs. The budgets are then built around what is needed for the upcoming period. Zero-based budgeting helps managers to achieve lower costs in the company.

Under ZBB, Individual unit's objectives are aligned with the corporate objectives. Instant adjustments in the budget are possible if required. All the levels of the organization participate in the process of decision making. The benefits of ZBB include focused operations, lower costs, budget flexibility, and strategic execution. It helps lower costs by avoiding blanket increases or decreases to a previous period's budget. As for example, Instead of blindly increasing the budget by a certain percentage and masking the cost increase, the company can identify alternative solutions like deciding to make a part inhouse or buy the part from the external supplier for its end products, based on the comparive cost involved.

However, ZBB implementation is a time-consuming process that takes much longer than traditional, cost-based budgeting. Therefore, the costs of the process itself in terms of resources, time and effort must be weighed against the savings expected on its implementation. Further, you also dependent on the cooperation and efficacy of other departments which may not be able to adequately calculate/ measure their needs for the entire year. ZBB tends to give priority to areas that achieve direct revenues or production, since their contribution can be more easily justified unlike departments such as service or Research & Development. This could end up compromising the 'important' matters for the 'urgent' matters, with adverse implications in the long run .

In conclusion, it is to be stated that ZBB has advantages as also limitations. It is a technique used predominantly by companies, but can be used by individuals and families as well. The benefits have to be weighed by organizations to arrive at a suitable decision on implementation appropriate to the company. In India ZBB was first implemented in the Department of Science and Technology in the year 1983. GOI had introduced the concept in the state of Manipur. ZBB was promoted during the Seventh Five-Year Plan. The government had made it mandatory for all ministries to review their programs and activities and prepare expenditure estimates based on the ZBB concept. However, presently it has limited application in the country. 





Friday 28 April 2023

Year over Year











Year over year (YOY), also refered some times, as 'Year on year" is a comparitive measure that studies the financial performance of a company- Whether it is improving, is static or worsening. To properly quantify a company’s performance, it is advisable to compare revenue and profits ,YOY. As for example the third quarter revenues of a company may be compared for the last three years on a YOY basis and reach a conclusion that the revenues have increased for the quarter.

What is interesting here is that the results for one period is compared with those of 'a comparable period' on an annualized basis. This is considered more informative than a month-to-month comparison. Sales, profits, and other financial metrics change during different periods of the year because most lines of business have a peak season and a low demand season. As for example, the sale of cars increase during November, festive season such as Deepavali. Hence a YOY comparison should be made with the November sales of previous years to arrive at an acurate picture. Comparing it with the sales of May or June can be misleading.

Common YOY comparisons include annual, quarterly as well as monthly performance. YOY measurements facilitate the cross comparison of sets of data. A financial analyst or an investor can compare years of first-quarter revenue data and quickly ascertain whether a company’s revenue is increasing or decreasing. By comparing the same months in different years, it is possible to draw accurate comparisons despite the seasonal nature of consumer behavior.

If an investor looks at a retailer’s results in the fourth quarter versus the previous third quarter, it might appear that the company is undergoing unprecedented growth while in reality seasonality has played a role (peak holiday shopping season happens in the fourth quarter of the year). Similarly, a comparison of the fourth quarter with the following first quarter may give the impression of a dramatic decline, when this could also be a result of seasonality. YOY comparison gives the accurate picture and is also valuable for investment portifolios, enabling investors to see how performance changes across time. YOY is commonly used to not only compare a company's growth in terms of profits and revenue but also understand yearly changes in an economy's money supply, gross domestic product ( GDP ) and other economic parameters.

Another measurement that is used for comparison is Year to date (YTD). Here, while YOY examines a 12 month change, YTD looks at a change relative to the beginning of the year (usually Jan1st). Ofcourse, you can as per specific need, calculate month over month or quarter over quarter, in the similar way of the computing YOY.

This post is a part of #BlogchatterA2Z 2023  

Thursday 27 April 2023

X-Efficiency

 











As we are almost near the finishing line of the #Blogchatter A2Z challenge 2023, I have to deal with writing on the tough last 3 alphabets namely'X' , 'Y' and 'Z". As HR subjects do not come immediately to mind, I am writing on topics relevant from the economic or business point of view. Today for the alphabet 'X' I am writing on X- Efficiency.

Normally, in a competitive market, organizations are compelled to work as efficiently as possible in order to ensure sufficient profits and survival in the long run. However, the situation may not be the same if there is no competition with the operators being a monopoly or a duopoly. Economist Harvey Leibenstein challenged the belief of the traditional neoclassical economists who assumed that even when the markets were not efficient, companies behaved rationally and maximised production & productivity at the lowest possible costs. Leibenstein pointed out that a company that is a monopoly tends to have lower efficiency as they are assured of market even when operating inefficiently. He called the efficiency in such a scenario as 'Unknown' or X- Efficiency which is influenced by human nature.

The theory reminded me of some of the companies in the public sector in India prior to liberalization. As they were monopolies, they did not bother to work efficiently. Price was fixed at the cost of production + profit. As for example Hindustan cables Hyderabad which manufactured telephone cables was a monopoly prior to the entry of other players post liberalization. If the cost of production was Rs100, the price would be fixed at Rs100 + Rs 20 =  Rs 120 (price)If cost of production increased due to more scrap & other poor parameters , then price would be fixed thus: Rs 150 (cost of production) + 20 (profit) =  170 (price). Company is not motivated to work to its maximum potential as profit is assured, no matter how efficiently you work.

In the absence of real competition, companies are more tolerant of inefficiencies in their operations. The concept of x-efficiency is used to estimate how much more efficient a company would be in a more competitive environment. The theory suggests that in the best interests of the organization, an entrepreneur work towards filling the gap between X- Efficiency and the potential efficiency of the company in a competitive environment.

This post is a part of #BlogchatterA2Z 2023  

Wednesday 26 April 2023

Workplace Wellness


















Workplace wellness refers to an organization's health promotion initiatives, policies and activities for fostering positive employee health and behaviour. It may take various forms such as health check up screening, fitness programs, health education, providing health care memberships in gyms/ yoga institutes etc. It involves investment of not only money but also time and commitment to the cause. After all, healthy employees tend to perform better, take initiative, improve productivity, and manage time efficiently. It also boosts employee morale, enhances job satisfaction, prevents loss of time due to illness, stress or absenteeism. In short, workplace wellness is beneficial for both the company and employees.

Work place wellness is relatively a novel concept; it is yet to be taken seriously and given the importance it deserves.. In India some companies have tied up with hospitals for annual medical check up for their executive level employees. Few companies, where the union had demanded for it, have extended it to the non executive employees as well. Beyond that, nothing much has been done to view "Wellness" as an important factor that impacts not only employee welfare but also company productivity and results. In our discussion during this A2Z challenge of #Blogchatter, we have been seeing how all the topics discussed are inter-related and contribute holistically to the success of an organization.

It is when disasters like that of Covid 19 hits that we realize the importance of having a good health system in place, at the company level. Further, in the present times, the employees are under a lot more mental pressure at work than earlier times. They have to content with not only additional pressure at work but also deal with family challenges of bringing up children with both parents working, keeping up with the joneses and having to look good on social media. The wellness program of the company would be a boon helping to alleviate the pressure to a considerable extent.

Identifying the health status of employees engaged in potentially risky operations in a manufacturing plant through periodical health check up (annually for others) followed by treatment, educating employees on how to stay healthy, including avoiding unhealthy behaviours like is a good starting point for a wellness initiative. Wellness programs can include awareness programs on the ill effects of smoking/drinking, weight management, stress caused by both work and personal related factors, depression etc. as also classes for physical fitness, yoga and mindfulness.

The 9 dimensions of 'wellness' are physical, emotional, financial, spiritual, social, career, intellectual, creative and environmental. Support in each of these areas will go a long way in ensuring the wetness of employees. The bane of the modern day living is a lack of connectedness. Humans, being social animals, require opportunities to feel connected with each other. Organizations can provide opportunities for social interaction at work and also by conducting sports and cultural activities inter-departmentally on special occasions like the Foundation day of the company. Employees can be encouraged to value rest and recreation providing them time and place for relaxation and meditation ( The initiatives/practices of Ace Manufacturing Systems, Bangalore can be read here).

The 'wellness' initiative should be spearheaded by a dedicated team that includes company doctor and other members with relevant experience. The wellness team can chalk out an annual program and allotted budget for the various activities during the year. Counselling facilities is an important requirement to help employees deal with stress. The wellness team may take support of outside experts such as a life style coach or a nutritionist from time to time. The lifestyle coach can address specific issues such as depleted energy levels, sleep deprivation, lack of social life, bad personal habits like smoking & drinking, lack of a feeling of being motivated at work etc.

It is not as if one size fits all. The company's wellness team in consultation with employees can come up with the unique 'wellness' needs and issues of the organization which can then be addressed. The team can also track progress of the health targets and measure benefits accrued in terms of productivity and other parameters. A successful wellness program should have a blend of activities that address the 9 various dimensions of wellness mentioned earlier (physical, emotional, financial, spiritual, social, career, intellectual, creative and environmental).  

Tuesday 25 April 2023

Values Core to Your organization












A human being who has been taught or imbibed values in life on his own is very clear as to what is important and cannot be compromised. As for example, a person for whom, the value of honesty and integrity is high on his list of core values will not need to think twice, before turning down a dishonest proposition. Life becomes a lot easier with clarity and certainity when you have your 'core values' as the guiding light when faced with tough decisions.

Similarly, an organization that has declared and is living its core values will be able to handle conflicting internal/ external pressures and wade through seemingly difficult and turbulent economic storms with relative ease. These guiding principles and fundamental beliefs enshrined in the "Core values" help employees to function together as a team and work toward a common business goal. Business relationships, customer relationships, and company growth are all tied to the corporate values of the company.

The mission (discussed in detail in the last post titled "Ultimate purpose of an organization"), vision and the core/ corporate values (together) of a company determine the culture of the organization (click here for organization culture blog). 

It is seen that even the so called 'experts' have differing views on what is a  'mission' and a 'vision'. Some attribute the reason for existance of the intitution to the 'Mission' statement while others link it to 'vision'. However , they agree that one of the two terms gives the broad purpose/reason for existance and the other the destination and how you plan to reach there. I have accepted the position that the latter refers to the 'vision'. A reading of the mission and vision statements  of Tesla given below would give a fairly clear idea: 

Mission: To accelerate the world's transition to sustainable energy.
Vision: To create the most compelling car company of the 21st century by driving the world's transition to electric vehicles.

To sum up, along with the mission and vision of the company corporate/core values have a very imporatnt role in shaping the destiny of the organization. They determine an organization's internal and external standards and the behaviour of employees amongst themselves, with customers and external agencies. The core values of Hyundai Motor Company where I worked last, prior to retirement are (1) Customer (2) Challenge (3) Globality (4) Collaboration and (5) People.

The said values inspire employees to keep in mind the 'customer's interest' in what ever they do. The company expects its individual employee and teams to challenge themselves to achieve greater heights. As for example if a project was commissioned in two years, employees are motivated by the "Challenge" core value to do it in a year or one and half years. Similarly the "Globality" value inspires employees to think globally and maintain global standards in whatever they do. "Collaboration" is an important core value that team members practice to achieve big results. People orientation and behaviour is ensured by the "People" core value.

Integrity, respect, innovation, and drive are held important core values by many organizations while others hold inclusion, ownership, trust and transparency as vital and significant. What is important is to have core values suitable to your organization, the ones that represent you, your mission and vision the most. The ones to which the employees and stakeholders relate to easily. The values that best represent your brand.

In this connection, after coming up with some core values based on your basic objectives as an organization, consult your employees and take their feedback. Do they also think the said values are important ? At the end of the day it is the employees who would be translating them into their day to day work. The procedures, processes and work flows would be determined by these values. They have implications for both employees and customer experiences.Therefore the buy in of employees is very crucial for successful adoption of core values in the day to day work. Further, you can look at the values adopted by competitors that have worked for them. Have they missed out on something which you can include?

It is advisable to limit the number of core values to around five. Too many can be confusing and difficult to practice. They can always be modified later to suit contemporary situations if necessary. Employees work best when their personal values are in sync with the company values as they have a sense of belongingness and tend to naturally and spontaneously own the goals of the company. 

I would like to conclude this post with the observations of authors Jim Collins and Jerry Porras whose 1994 book "Built to Last" drew attention to the phenomenon that companies that lasted for many years had a set of principles called "core values" that they strictly practiced. Speaking of core values they said "Being inherent and sacrosanct; they can never be compromised, either for convenience or short term economic gain. Corporate core values may reflect the values of the company's founders."  

This post is a part of #BlogchatterA2Z 2023       

Monday 24 April 2023

Ultimate Purpose of an Organization


















It was a challenge to come up with a suitable topic starting with 'U' for the Blogchatter A2Z challenge. After pondering for quite some time, I zeroed in on the vital subject of "Ultimate Purpose of an Organization". The ultimate purpose or the reason for the very existance of an organization is reflected in its mission statement. The mission should be motivational and inspirational for the employees and other stakeholders to actively and enthusiastically collaborate. Businesses exist not only to make profit but also to make a difference to society and lives of people.

When you work, you put your heart and soul in it, not merely to earn enough to make a living. The job or activity should provide an opportunity to find meaning in one's life through work. For some, work enhances their feelings of competence, a sense of significance and of making a meaningful contribution. For others work nurtures a sense of belonginness as people work together for a common worthwhile cause. Work provides meaning to one's life. It should answer the question "Why is the work I do important?".

The 'Ultimate purpose" or mission statement of the company should answer the question " Are you a purpose-driven company? Is it contributing to making the world a better place?" The few words in the statement must be carefully chosen. To the extent possible, select a powerful verb that serves as an engine for the statement. The mission statement should be brief, in a few words (words that inspire and generate emotion) so that employees can remember it and use it to guide their daily actions.

Your mission statement should be directly aligned with your core values, which establish what behaviors you want to see from your employees every day. Every product decision you make should also be aligned with your company mission statement. You should ask yourself at the time of product change or diversification " Does this proposal align with our company’s purpose? The mission,while providing a clear direction, unites the leadership team to work unitedly and cohesively. Employees committed to a company’s mission have been known to have high levels of engagement and achieve higher levels of productivity.

Now, let us look at some mission statements of organizations that are operating in diverse sectors and serving various needs of customers:

A Bank : "We help people achieve their dreams."

Insurance company: "We provide peace of mind"

Bread company: "We nourish life."

Consumer products company: "We make life fun and easy"

Medical Group : We preserve and improve human life.


The mission statement of Facebook reads " We bring the world closer together" and that of TED "We spread ideas." IKEA says " We make everyday life better."

It may be interesting to compare and contrast the mission statements of the two rival/ competitor Cola companies. Readers may conclude for themselves as to which one of them better meets the definition of a mission statement, we have discussed so far.

Coco Cola: To refresh the world, To inspire moments of optimism and happiness, To create value and make a difference

Pepsi Cola:
Create more smiles with every sip and every bite. By creating joyful moments through our delicious and nourishing products and unique brand experiences.

In conclusion, it is to be reiterated that the "ultimate purpose of your organization" or the company mission is a significant and vital document providing direction to the organization. Along with the corporate vales and vision, it shapes the culture of the company.The company's mission statement should be communicated to employees before their first day on the job. It should be present on all your recruiting and onboarding materials, prominently displayed on social media as also on job search sites like LinkedIn and Glassdoor. Employees should know the mission statement like the back of their hand and feel aligned with it as they engage in day to day work. 

Sunday 23 April 2023

Training & Development











A recap of all that we discussed so far during the A2Z challenge of Blogchatter, would indicate and underscore the fact that the various activities of HR are interrelated. The tools used come in handy and useful for various purposes. As for example, well written job descriptions not only facilitates recruitment of right fit candidates but also assists us at the time of training and development. The gap between the requirement enumerated in the job description and the competency of the incumbent can be addressed by training. Similarly, training needs are thrown up after a performance appraisal exercise.

The tone, tenor and understanding of training has changed over the years. At one time, employers considered sponsoring an employee for a three day training to a exotic hill resort as a reward for good performance. You now know that training is not just about the fun and frolic. It is not merely a transaction to be completed so as to be able to proudly claim at the end of the year that "Ours is a great organization that has a healthy statistic of mandays training". We now examine and discuss about the impact of training. A lot of expenditure is incurred for training programs such as development of 'Future leaders'. How much of change happened after the training is a question asked these days.

In some of the posts we discussed about the significant skills gap between that of candidates passing out of educational institutions and the skill needs of the job. Therefore proper training needs to be ensured even before the job aspirants become employees. In this connection, it is important for educational institutions and corporations to collaborate and design syllabuses that meet the requirement of the industry. Industries can consider adopting community colleges in their geographical location.

This would enable the companies to provide inputs as to the actual requirements of the industry and the students can also be given opportunities to visit and see for themselves how work happens in real time. An initiative on these lines would be a Win- Win for both as students / interns are assured of employment and the employer can look forward to better quality of employees. In view of the bond created during the process, there are also better chances of retaining them.

The modes of learning have increased and the way or preference for learning is also undergoing change. At an evening meet of a professional body in Bangalore in October 2016, Dr Moorthy Uppiluri, then CEO, Randstad India, had predicted that in future there would be less of class room learning and that the focus would shift to E learning and webinar modes, He opined that this would be more so as there is an attention deficit in today's Gen Y students who would prefer learning at their pace through online courses. The arrival of the virus Covid 19 quickened this process, as many classes happened online during the period. With lot more acceptance of virtual learning, we can look forward to more of Hybrid learning in the days to come, be it at colleges or in corporations.

Learning and Development needs to be flexible like trapeze artists in the circus to contribute to a work scenario in which, the way people learn is changing drastically. It could mean using more of E learning platforms like Coursera and planet Ganges but coming out with more local solutions, relevant to the country and organization. In Hyundai Motor India Ltd, where I worked prior to my retirement in 2015, many courses are run for its employees all over the world through E learning platforms monitored by the headquarters in Korea. The learning & Development function can contribute to developing learning platforms and help corporates move from knowledge retention to knowledge creation.

The challenges and priorities of work force training would no longer be limited to enhancing skill sets but would also include aspects of cultural fit and style fit to the organization. Further, lot of uncertainties have been thrown up post covid , with the world economy undergoing a recession. Known opportunities could disappear with many new unknown ones emerging. Lot of horizontal movement could happen with production guys moving into service and those in service getting into production and so on. The role of training and development in such a scenario can be challenging and more collaboration may be necessary with external training providers.

The training and development role is poised to play a big role in the days to come as there is a demand for updating and relearning of skills. Technology blended learning solutions could be increasingly preferred. At a seminar in Bangalore Mr Mohan Srinivasan, Head, Centre for behavioural excellence, Wipro Technologies explained how technology was used effectively for learning and tracking the progress of their 8 day English speaking "Fluency Program" designed for fresh engineers from a rural background. Based on the extent their language is comprehendible to listeners, the participants are given alerts of how they are doing - green colour for very well and at the bottom red colour, poor. Tests and feedback through technology helps the trainee move up on their level of fluency.

As there is increasing demand and expectation to measure the impact of training, Training & Development department should take steps to implement the 4 level (reaction, learning, behaviour and results) Kirkpatrick model of training evaluation. Depending on the importance and financial implication of the training program, evaluation can be done at the appropriate level.

At a seminar Mr Bhat of Sundaram Finance shared how the impact of sales training was assessed. One of their units was selected for the experiment and provided training. The performance comparison between team members of the unit that received training and the other units which did not receive training revealed higher figures in terms of actual sales and other parameters for the employees of the unit that underwent the training. Blended learning is likely to be the future for the T&D process- Apart from face to face learning, E learning, tests, quizzes, role plays, learning during live situations at work, using the mobile and social media as tools of learning etc.

In conclusion, it is to be reiterated that as in the case of HR function as a whole, Training & development can be effective only if its importance and necessity is understood and appreciated by the executives/ employees of the whole company. There is a need to take inputs from line managers before designing the program, keep them informed about the learning imparted in the program and the support expected for implementation on the job, post training . The training objective is fulfilled and the circle is complete only after application of learning happens on the job after the training.

This post is a part of #BlogchatterA2Z 2023