Conditions For Success

With the purpose of creating independent agencies for regulating and controlling certain sectors of industry and distancing itself from direct managerial control, the government has created a number of regulatory authorities. The Securities and Exchange Board of India and the Telecom Regulatory Authority of India are two cases in point.

Till a few years ago, the government was setting up holding companies to serve a similar function. Holding companies for steel (SAIL) and textile (National Textile Corporation) were set up for this purpose. Though these holding companies served a limited function, they have not significantly changed the nature of control exercised by the ministry. The holding company merely became one more tier in the managerial hierarchy.

Regulatory authorities have now been set up to ensure the smooth transfer of control from the government to a professional body. Its functions include protecting public interest and taking remedial action where necessary, improving the quality of service of constituent units and encouraging professionalisation of the work system.

But will regulatory authorities be able to decentralise control? This article presents some research findings that indicate why controlling functions in the Indian context remain concentrated at the top level. The findings may help suggest an approach that could help a smoother transition of control from ministries to regulatory authorities.

The study relies on the experience of holding companies for inferences, since regulatory bodies have not been around long enough to allow for such findings.

In the early seventies, the then industry minister, K Kumaramanglam had set up SAIL in the hope that it would considerably reduce the supervisory functions of the ministry. The chairman of the body in those days was also the secretary, ministry of steel.

The functions were separated later and the areas of responsibility grew. The holding company was to have regulatory, developmental and overall supervisory responsibility while the ministry handled overall policy matters and sought cabinet approvals. The regulatory authorities being set up now differ from the erstwhile holding companies in that they are accountable for performance. It has, however, to protect public interest, encourage growth, provide certain services and pick up warning signals suggesting the malfunctioning of operating units. Thus, the regulatory body would be concerned with the performance of the constituent units and overall supervision.

Several studies of holding companies suggest the way they tend to operate:

(i) Headquarters tend to duplicate the work carried out at the operating units. In one holding company, for example, we found that daily absenteeism, production and down time data was maintained for each of the units. Each department analysed day to day performance of constituent units. The ministry duplicated this function. It received the same data. And the ministry too employed officers to control the operations of the units quite apart from the holding company.

(ii) Review meetings based on the same data were held at three levels: the unit, the holding company and the ministry. The reviews did not lead to any incremental advantages, only generating enormous amounts of paper work. The newly constituted regulatory authorities differ here in that they do not have to hold performance reviews, but must develop sensitive enough data to detect irregularities in performance, an aspect that is inadequately handled in the Indian context (consider the case of the RBI).

(iii) Proposals required clearances at several levels. These invariably came from the ministry, making the holding company merely another tier in the management structure. The way the functions of the regulatory authority have been defined, it has the freedom to frame rules and regulations, though it is still not able to detect problem areas early enough as in the case of AICTE, Sebi and others.

The regulatory body is conceived as a superior body controlling operations. But if it were to borrow the style of functioning of the government, it might end up creating an expensive administrative organisation where moving files will be more important than professional controls, militating against the very purpose for which it was set up.

Some of the reasons for the ineffectiveness of holding companies can be summed up as follows:

i) Studies show that Indians by and large seek power and control. Decentralisation and delegation of authority does not come easily to them. An organisation studied indicated this. Some of the central functions had been delegated to the branch office on the expectation that department heads would respond better to customer needs. But a review showed that branch managers merely sat on the delegated powers, leaving the departments to cope with control at three levels: the branch, the division and the headquarters.

ii) It has been found that while setting up a holding company or regulatory body, corresponding changes are not effected in the erstwhile controlling office. In the case discussed above, the controlling office continued to seek out data, with officers creating work for themselves to justify their positions. This also increased work at the branch level since these were called upon to provide data and answers to questions raised by the controlling authority.

iii) There is a tendency for the controlling authority to develop bureaucratic systems. The Parkinson principle begins to work here, with work expanding to fill space. Officers on transfer try to replicate familiar structures in their new locations. Given this scenario, the customer, the public or the operating unit concerned hardly experiences change despite pronouncements to that effect.

One general problem relating to the delegation of powers is behavioural. Indians seem to have a strong need for power and control, which only goes to highlight David McClellands studies of motivation with regard to Indian managers. Later studies by Hoefsted also emphasise the same point. The prime minister gets involved on an issue like inadequate power supply to Delhi even when there is a cabinet minister to deal with energy. The chief executive is involved in decisions which should really be handled at lower levels. The need for power and the response to it are strong factors contributing to concentration of work at the higher levels of the organisational hierarchy. And subordinates tend to pander to the whims of the authority. A subordinate promoted to a powerful position follows the same behaviour pattern. A change in working patterns would thus involve a change in the very way work and authority is perceived. Hence, the need for power and control has to be handled both at the individual and the organisational level. Perhaps training programmes or consulting support could help deal with the issues involved in what is referred to as power sharing.

Reworking of organisational matters is also a must, especially at the ministry level. The approach must, to start with, be more focused, so that activities are more thoroughly organised and data collected more selectively. And redundant manpower should be relocated.

At the level of regulatory bodies, it is necessary to examine how best they should organise work to serve the purpose for which they were created. They should consider the possibility of a style of functioning that is far removed from the bureaucratic set-up they are used to. We have outstanding examples of organisations which have tried to deal with the issue and, as a result, designed a system most suited to the purpose. To cite an example, there is the case of the first CMD of Exim Bank, R C Shah, who designed the organisation avoiding departments and creating groups which could freely interact among themselves. To counter this are the numerous instances of organisations which have imported systems completely from the government and set up offices that favour routine over professionalism.

To professionalise its systems of control, the authority must recognise the problems of operating units and concentrate on growth and development targets. It should not tie the organisation in knots with more and more rules and regulations that encourage inaction rather than growth.

There are many valuable experiences of setting up viable organisations in India and abroad and it would be worthwhile for new organisations to examine these cases. Training is essential but training that is not backed by experience on the job can achieve little.

Success of a regulatory authority would depend on how carefully the plan is made and implemented. Planning would have to include both the ministry and the concerned regulatory body. A devolution of powers by the government would be a necessary first step. And its purpose would be served only if the implications of each of its decisions is carefully thought through. The plan of action should include, as often repeated in management literature, both aspects of a viable strategy, namely the content and the process. The focus should thus be on what needs to be done and how best it can be done.

(The author is a senior fellow at Shri Ram Centre for Industrial Relations and Human Resources, New Delhi)

To professionalise its systems of control, the authority must recognise the problems of operating units and concentrate on growth and development targets. It should not tie the organisation in knots with more and more rules and regulations that encourage inaction rather than growth.