Uday salunkhe dynamic role of management in global economy


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This article gives an in depth analysis on the Dynamic Role of Management in Global Economy. It has been co- authored by Dr. Uday Salunkhe, Director of the prestigious Welingkar Institute of Management and Research.

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Uday salunkhe dynamic role of management in global economy

  1. 1. DYNAMIC ROLE OF MANAGEMENT IN GLOBAL ECONOMY * Prof. Dr. Uday Salunkhe and Prof. Dr. P.S. RaoWe are living in a world of sweeping changes and swift movements. In everydeveloping civilization a period comes when old instincts and habits prove inadequateto altered stimuli, and ancient institutions and moralities crack like hampering shellsunder the obstinate growth of life. The type of change which has been witnessed inthe realm of business during the past two centuries since the dawn of the IndustrialRevolution era in the West, is of such a fundamental character that it has materiallyaltered the entire fabric of man’s way of life. While the Industrial Revolution, thus,has had its decisive impact on the environment, the latter too has reacted in turn byhaving its own influence felt on business. Recent times have witnessed a significantintensification of this two-way process. From the point of view of business, it can besafely stated that the most serious problem that business everywhere faces todayconcerns the challenge of this rapidly changing environment. An attempt is made inthis paper to critically examine the dynamic role of management in globaleconomy.Introduction:While business is the engine of growth for any country, Management is the key driverfor economic growth .The concept of global economy has now become a reality. TheIndian economy is passing through the critical phases of globalization andliberalization. We are facing tremendous competition from MNCs.* Prof. Dr. Uday Salunkhe, DIRECTOR and Prof. Dr. P.S. Rao, DEAN Prin. L.N. Welingkar Institute of Management Development and Research Lakhasmi Napoo Road, Matunga (East) Mumbai – 400 019 1
  2. 2. Many of the Indian companies have accepted the challenges and started adaptingthemselves to the change. Hence, it becomes necessary for them to bring the requiredchanges in the functioning of their organizations. At the same time, the role of themanagement has been changing with the time and level of organizational growth andexpansions.Business growth and business expansion in different parts of the world willincreasingly not be based on mergers and acquisitions or even on starting new, whollyowned businesses there. They will increasingly have to be based on alliances,partnerships, joint ventures and all kinds of relations with organizations located inother political jurisdictions.Emergence of Management:Human wants are unlimited. The more you get, the more you want. We haveexpanded our business from local level to state level, from state level to national leveland now we have extended our wings in International market. International businesshas become the key driver for economic growth of any country. The concept of globaleconomy or global village has now become a reality as we have stepped in globalmarket. Entering in global market is not so easy, but it can be easy if we apply theconcept of “Working Smarter than Working Harder”. This implies the Dynamismin Management.Management includes the actions of planning, organizing, directing, coordinating,controlling and evaluating the use of people, money, materials and facilities toaccomplish missions and tasks. It can also be defined as the activity consisting ofthose tasks that are performed to ensure that the mission of a project is fulfilled by,planning and controlling its scope, schedule, costs, resources and communication. 2
  3. 3. Hundred Years ago, on the threshold of World War I, when a few people were justbecoming aware of management’s existence, most people in developed countries(perhaps four out of every five) earned their living in three occupations. There weredomestic servants – in Great Britain, the largest single occupation, (a full third of allworkers), but a very large group everywhere, even in the United States. There werefarmers – usually family farmers, who accounted for more than half the workingpopulation in every country except England and Belgium. And finally, there wereblue-collar workers in manufacturing industries – the fastest growing occupation andthe one that by 1925 would embrace almost 40% of the U.S labour force.Today domestic servants have all but disappeared. Full- time farmers account for only3% to 5% of the working population in the non-communist, developed countries, eventhough farm production is four to five times what it was 80 years ago. Blue- collarmanufacturing employment is rapidly moving down the same path as farming.Manual workers employed in manufacturing in the United States now make up only10% of the total work force in the United States and elsewhere – with manufacturingproduction steadily rising and expected to be at least 50% higher. The largest singlegroup, more than one-third of the total, consists of workers whom the U.S Bureau ofthe Census Calls “Managerial and Professional”. And a larger proportion of the totaladult population than ever before – almost two- third in the United States, for instance– is now gainfully employed everywhere.Management has been the main agent of this unprecedented transformation. For it ismanagement that explains why, for the first time in human history, we can employlarge numbers of knowledgeable, skilled people in productive work. No earliersociety could do this. Indeed, no earlier society could support more than a handful of 3
  4. 4. such people because, until quite recently, no one knew how to put people withdifferent skills and knowledge together to achieve common goals.A sustainable business is that business which encompasses itself in the dynamism ofthe environment. Forces and counter-forces, which influence our environment, arealways concurrent. Any healthy business will overcome the illness of the environmentand the situation. The function of an effective management education is to instill inthe managers, solidarity and dynamism. It is rightly said that the only thing constantin the world is CHANGE. A durable business has to absorb new changes withoutlosing its originality and ethos. In the state of constant flux the management and theindustry has to respond to such a stimulus by a paradigm shift - to a new viewpoint ormodification of its ideals. No doubt, there will be resistance but every debate will bewelcomed, for the real challenge will lie in overcoming the obstacles. Applying theconcepts of classical thermodynamics and transfer of mass and energy, we will cometo certain conclusions relevant to modern time management. We talk aboutDynamism – Change in Management… But how it is possible?Management Dynamics:Dynamism in Management is possible by inventing Creative Thinking and NewInnovations in Management. "Creative Thinking" means original thinking (i.e. anovel way of perceiving, or rearranging data). "Innovation" by contrast is thesuccessful application or commercialization of creative thinking and applies to thevarious business processes (e.g. financing, production, marketing, distribution), aswell as to the improvement of existing (and/or development of new) services andproducts.Creative thinking is not an ability restricted to an artistically gifted minority,but rather a learnable competency for all. Since creative thinking is a learnable 4
  5. 5. competency, it can be increased by training programs. However, in order for thecreative thinking skillset to really add value, the organizational culture must also beredesigned to support its rollout as successful innovations. This requires a lot of hardwork and appropriate resources. (As noted by one of the worlds most prolificinventors, Thomas Edison, "Creativity is 1% inspiration and 99% perspiration").Innovation Management:Innovation management, which refers to the requisite organizational values, resourcesand processes that enable a high level of consistent innovation, is now an imperativefor organizations to survive and thrive in this era of non-linear change. It is also theonly sustainable way of working "smarter", rather than harder. Innovationmanagement requires employee training in creative thinking, plus modification of thecorporate culture to encourage risk-taking and the provision of logistical resources toenable the progression from developing creative ideas to successfully rolling them outas innovations.Great Britain, Germany and USA had emerged as economic powers during lateeighteenth century, nineteenth century and early twentieth century respectivelyenjoyed starring roles in the World economy based on Leadership in Technologicalinnovation. But the one great economic power to emerge in the second half of thetwentieth century – Japan has not been a technological pioneer in any area. Itsascendancy rests squarely on leadership in management. The Japanese understood thelessons of America’s managerial achievement during World War II more clearly thanwe did ourselves – especially with respect to managing people as a resource ratherthan as a cost. As a result, they adapted the West’s new “social technology” –MANAGEMENT – to make it fit their own values and traditions. 5
  6. 6. Management’s Contribution to World Economies:As we all know that USA produced approximately 50% of the worlds wealth with 5%of the world’s population in the early 1960s. Research Analysis revealed that if wesubtract all the non-business people from this 5% of the world’s population ofAmerica, we would be left with only 1% of business people who are responsible forgenerating this 50% of the world’s wealth. If we subtract further all the non-management people from this 1% of the business people would be left with 0.0018%which represent the cream of the management personnel who were responsible forgenerating this 50% of the world’s wealth. During the same period, Japan which wasnot able to produce 3% of the world’s wealth was able to produce 24% of the world’swealth with only 6% of the world’s population in 1990s whereas India produced only0.3% of the world’s wealth with more than 11% of the world’s population during1960s. However India could produce 3% of the world’s wealth with more than 17%of the world’s population in 1990s. With the introduction of new economic reformswithin the period of one decade, India could raise its world’s wealth generatingcapacity to nearly 10%. Unfortunately, this was not due to manufacturing but becauseof software engineering and development. India has been leading in the world insoftware development and exports. It shows that on an average India has been able toproduce 1% of the world’s wealth every year. If it continues thus, by 2020, Indiawould be in an in enviable position and could be able to produce more than 25% ofthe world’s wealth within a span of 15 years.Managerial innovations during the last 60 years represented the application ofknowledge to work, the substitution of system and information for guesswork, brawnand toil. Everyone, to use Fredrick Taylor’s terms replaced “working harder” with“working smarter” 6
  7. 7. What we knew about management 60 years ago – and have codified in our systems oforganized management education – does not necessarily help managers meet thechallenges they face today. Nevertheless that knowledge was the foundation for thespectacular expansion the world economy has undergone since 1950, in developedand developing countries alike. And what has made that knowledge obsolete is, inlarge measure, its own success in hastening the shift from manual work to knowledgework in business organizations. Management thus, has made knowledge the truecapital of every economy. For the first time in human history, we can employ largenumbers of educated people productively throughout the worldRole of Management in Business Growth and Expansion:Business growth and business expansion in different parts of the world willincreasingly not be based on mergers and acquisitions or even on starting new, whollyowned businesses there. They will increasingly have to be based on alliances,partnerships, joint ventures and all kinds of relations with organizations located inother political jurisdictions. They will, in other words, increasingly have to be basedon structures that are economic units and not legal – and therefore not political –units.There are many other reasons that growth henceforth will be based on partnerships ofall sorts rather than outright ownership and command and control. But in alllikelihood one of the most compelling ones will be the need to operate in both aglobal world economy and a splintered world polity. A partnership is by no means aperfect solution to this problem. In fact, partnerships have enormous problems of theirown. But at least the conflict between economic reality and legal reality is greatlylessened if the economic unit is not also a legal unit, but is a partnership, an alliance, a 7
  8. 8. joint venture that is a relationship in which political and legal appearance can beseparated from economic reality.The final implication: All businesses will have to learn to manage their currencyexposure. Every business, even a purely local one, is in the world economy today. Assuch, it is subject to currency fluctuations even if it does not sell outside its owncountry, or does not buy outside it.Even the most provincial and most local Mexican company was severely hit by thesudden collapse of the Mexican peso a few years ago. Even the most purely localIndonesian company was severely hit by the sudden collapse of the Indonesiancurrency in 1998.There is no country today that is immune to sudden currency fluctuations – for thesimple reason that the world is awash in “virtual money”, that is, in liquidity forwhich there is no profitable investment. Every country, therefore, is awash in moneythat is not invested in property, in businesses, in manufacturing or in serviceenterprises, but kept in liquid and volatile “portfolio” investment. And very fewcountries have enough of a surplus in their balance of payments to service the intereston this “portfolio investment,” let alone to pay it should it take flight. Every country’scurrency, in other words, is at the mercy of short-term movements of money forwhich there may not be any economic rationale whatever.Recent times have witnessed a significant intensification of this two-way process.“The proportion of contemporary change that is either planned or issues from thesecondary consequences of deliberate innovations is much higher than in formertime”. From the point of view of business, it can be safely stated that the most seriousproblem that business everywhere faces today concerns the challenge of this rapidlychanging environment. 8
  9. 9. Role of Management in Entrepreneurship:It should have been obvious from the beginning that management andentrepreneurship are only two different dimensions of the same task. An entrepreneurwho does not learn how to manage will not last long. Business – and every otherorganization today – has to be designed for change as the norm and to create changerather than react to it.Management must focus on the results and performance of the organization. This isparticularly more so with regard to small enterprise management. Indeed, the first taskof management is to define what results and performance are in a given organization –and this, as anyone who has worked on it can testify, is in itself one of the mostdifficult, one of the most controversial, but also one of the most important tasks. It istherefore the specific function of management to organize the resources of theorganization for results outside the organization.The new assumption – and the basis for the new paradigm on which management,both as a discipline and as a practice has to be based – is therefore: Managementexists for the sake of the institution’s results. It has to start with the intended resultsand has to organize the resources of the institution to attain these results. It is theorgan to make the institution, whether business, church, university, hospital or abattered women’s shelter, capable of producing results outside of itself.Industries, whether businesses or non-businesses, have to be managed differentlydepending on whether they are growth industries, mature industries or decliningindustries. A growth industry that can count on demand for its products or servicesgrowing faster than economy or population manages to create the future. It needs totake the lead in innovation and needs to be willing to take risks. A mature industry 9
  10. 10. needs to be managed to have a leadership position in a few, a very few, but crucialareas, and especially in areas where the demand can be satisfied at substantially lowercost by advanced technology or advanced quality. And it needs to be managed forflexibility and rapid change. A mature industry shifts from one way of satisfyingwants to another. A mature industry therefore needs to be managed for alliances,partnerships and joint ventures to adapt rapidly to such shifts.One example is Pharmaceutical Industry. Until very recently – since the invention ofthe sulfa drugs and the antibiotics just before World War II – it was a leading growthindustry. In the 1990s it became a mature industry. This means with high probabilitythat there will be fast and sudden shifts to new ways of satisfying the old demands, forexample, from chemical drugs to genetics, molecular biology, medical electronics, oreven to “alternative medicine”.In a declining industry one has to manage. Above all, for steady, systematic,purposeful cost reduction and for steady improvement in quality and service, that is,for strengthening the company’s position within the industry, rather than for growth involume – which one can only take away from somebody else. For in a decliningindustry it is more and more difficult to establish meaningful product differentiation.Products in a declining industry tend to become “commodities” – as is rapidlyhappening with passenger automobiles (except so far for a few luxury cars).In conclusion, institutions – businesses as well as nonbusinesses – will have to learnto base their strategy on their knowledge of, and adaptation to, the trends in thedistribution of disposable income and, above all, to any shifts in this distribution. Andthey need both quantitative information and qualitative analysis which was madepossible through management. 10
  11. 11. Role of Management in Changing Business Environment:Management should therefore be able to feel the several forces which shape theenvironment and judge the effects of their impact on business activities. Broadly,these forces may be classifies such as: (a) technological, (b) economic, (c) socio –political and psychological.(a) Technological:Scientific and technological developments which transcend even the moon and theplanets, will not be confined to a few developed nations in the days to come. Theimpact of such developments will be felt by every nation and every section of thesociety. Industries will be first to receive the impact of such developments.Innovations on equipments, processes and products, which enable mass production atlow cost, will be the order of the day. To live in obsolescence will be suicidal. It is arace against obsolescence. To keep ahead or even to stay where one is, one has tokeep , on moving fast. Innovative disposition reflected through research anddevelopment activities of business is the only defence against the onslaught ofobsolescence. Readiness to accept technological changes for hire productivity maysometimes conflict with the socio-political realities. A certain amount of compromisehas to be worked out in such areas where business is prepared to introducetechnological changes. But every given society has its own limitation andpeculiarities. For example, Large computerization in a developing country withunemployment as a major problem may invite resistance from other segments of thesociety. In such conflicting areas business and government will have to strike abalance and arrive at a satisfactory compromise. 11
  12. 12. (b) Economic:A developing economy such as ours is undergoing fast changes leading the nation tothe take-off stage, inspite of several uncertainties lurking in the path of progress. It isresponsibility of business to accelerate this movement by added production and anincreasing tempo of productivity.(c) Socio-Political and Psychological:The socio-political field which is charged with conflicting interests, each pulling in itsown direction, is a vital part of the environment in which the business functions. Thediscontented labour, the dissatisfied consumer, the disgruntled shareholder, thedisappointed community and the disillusion masses – these are the forces to bereckoned with. They cause major changes in the legal framework that direct, dictateand delimit business activities. New theories of distribution of surplus and new senseof values and norms tend to develop. The management has to adjust and adapt to thesechanges in order to keep the business alive.The psychology of the labour today is not same as it used to be. Higher educationallevels, better economic conditions, support trade unions, support of government andpolitical parties, have all been instrumental in changing the attitude of the labourtowards work and management. Management of workers today is not it was in thepast. These socio-political changes the resultant psychological climate of security, andthe demands for certain rights and privileges can be effectively met only by amanagerial revolution – a revolution which will change the outlook and attitudes ofmanagement towards problems and persons. A new managerial perspective shouldemerge to cope with such socio-political forces. 12
  13. 13. Management can meet the challenges of change by adapting themselves to thechanged situation or by adopting changes in advance. Those who ignore theenvironment or refuse to recognize the forces of change will be relegated to thebackground. Adapting to the changed situation is only a common response practicedby everyone. The fact that organizations and living beings continue to exist is in itselfan evidence of adaptation to the changing environment. Adopting changes in advanceis the result of foresight; innovating changes require formidable courage. Foresightand courage are the essential requirements for planning for change and planningchange respectively. These qualities are to be developed in managersRole of Management in Sustainable Society:The goals of the individual and the society have to be harmonised. This task lies withthe future managers and with their effective management education. Stability is themain plank on which every society is built upon. However, the objective is to build aprotean society. Hence survival with elements of ‘stability’ and ‘flexibility’ is a must.Managers in this world are in a quagmire of indecision and hyper decision. To have areally sustainable society, the process of growth will mean media education, rationalordering of social, economic, political life and management education. All attemptsdevoid of the above measures will be an exercise in futility. There should be a guidingvision of every organization and every institution for only then it can envision thefuture. Last but not least, every industry striving towards the goal of capturing theglobal markets buoyed by the screams of perestroika and glasnost should discardmalevolence of indifference towards a particular society. This means what the Indiansociety has been always advising the world about and yet not following it with respect 13
  14. 14. the Indian industry, "Vasudev Kutumbkum" which means in simple language, "thewhole world is yours." By channeling the emotions and aspirations of the futuremanagers we will gain the loyalties of the customer and accept the existingdifferences in societies with the hope of unifying the diverging goals; for only thenthe ultimate goal will be complete – a truly sustainable society.Role of Management in Future:The famous “BRICS report” published by Goldman Sachs contends that in the next40 years the BRIC nations (Brazil, Russia, India and China) could become larger(GDP comparison) than the g6 nations (U.S, Japan, U.K, Germany, France and Italy)in US $ terms. The emergence of the BRIC nations as the new engines of demand,growth, and consumer spending has interesting consequences for the world economyand the balance of the power in international trade.Even amongst the BRIC nations, experts believe that the rise of China and India willbe the most significant event of the 21st century. With different national conditions,advantages and disadvantages, the two countries will take varying ways and adoptdiffering models. The question that dominates is : as they take giant steps towardsbecoming economic superpowers will the coming years see an era of competition orcooperation between china and India.The future will be defined by co-operation as china and India will be the majorplayers and important trading partners. Each has much to learn from the other andfrom what has and what has not worked in the past. Both countries also have much tolearn about setting appropriate economic incentives, investing in infrastructure, role ofproperty rights and institutions, and indeed the role of democratic institutions infostering growth and welfare. 14
  15. 15. Conclusion:The coming forty years will see this technologically advanced, scientificallyresurgent, highly cultured and economically and politically mature nation i.e. Indiaemerge into its second century of existence in 2047 AD as the GURU OF THEWORLD. There is no need for India to change or question its own thinking. Thewhole of the world is moving in our direction. Concepts, such as non-alignment, orthe mixed economy or the democratic socialism and equitable ordering of society willbecome the accepted thinking the world over in few years to come.What is important for this great country is to realize its strengths, its roots and itsmission. This will come from a great restructuring of the educational process, a greatreordering of priorities: from a re-orientation of the pursuit of knowledge for its ownsake to the application of knowledge for useful purposes.References:Jones, M. T. (2002, May-June). Globalization and Organizational Restructuring: AStrategic Perspective, Thunderbird International Business Review, 44(3), 325-351.Levitt, T. (1983). The Globalization of Markets, Harvard Business Review, May-June,92-102.Porter, M. E. (1985). Competitive advantage. New York: The Free PressPowers, T. L. and Jones, R.C. (2001, July-August). Research Note: StrategicCombinations and Their Evolution in the Global Marketplace, ThunderbirdInternational Business Review, 43(4), 525-534.Rackham, N. and DeVincentis, J. (1999). Rethinking the sales force: Redefiningselling to create and capture customer value. New York: McGraw-Hill. 15
  16. 16. Barnet, R. J. and Muller, R. E. (1975) Global Reach, London: Jonathon Cape.Carnoy et al (1993) The New Global Economy in the Information Age, UniversityPark, P.A.Penn State University Press.Castells, M. (1996) The Rise of the Network Society, Oxford: Blackwell.Henderson, J. (1989) The Globalisation of High Technology Production, London:Routledge.Farmer R.N. and Richman B.M : ‘Competitive Management and Economic Progress’(Homewood, 1965)Flores F.C. : Applicability of American Management know-how to DevelopingCountries’ (New York, 1977)Benjamin Blanchard : ‘Engineering Organization and Management’ (Prentice Hall,1979)Pruthi S. P.S : ‘Economic and Managerial Environment in India’ (Progressive Corp,Bombay, 1978)Bipin Bihari : ‘Economic Growth and Technological Change’ (Vikas, 1976)Author’s ProfileProf. Dr. Uday Salunke Director - Welingkar Institute of Management is amechanical engineer with a management degree in Operations, and a Doctorate inTurnaround Strategies. He has 12 years of experience in the corporate worldincluding Mahindra & Mahindra, ISPL and other companies before joining Welingkarin 1995 as faculty for Production Management. Subsequently his inherent passion, 16
  17. 17. commitment and dedication toward the institute led to his appointment as Director in2000. Dr. Salunkhe has been invited as visiting fellow at the Harvard BusinessSchool, USA and European University, Germany. He has also delivered seminars atthe Asian Institute of Management, Manila and has been awarded "The YoungAchievers Award-2003" in the field of Academics by the Indo American Societyrecently. 17