(This is the text of a lecture delivered by Amol Karnad, Chairman, Alacrity Foundations, at the Indian Institute of Materials Management, on 22nd November, 1989, explaining the concept of Value-based Management.)

Good Evening, Ladies and Gentlemen,

I would begin by offering you the proposition that we are perhaps going through a very critical phase of our social and national development. At every level of our social structure, the State, the Institution, the Individual, we appear to be gripped by a crisis of confidence. Whether it is Bofors, Midlife Blues or Drugs, we seem to know how to get embroiled but not quite how to emerge with our respect and dignity intact. And, while our newspapers and magazines feed us a regular diet of WHAT and WHO is wrong, there appears to be a dangerous confusion about and a total break-down of communication on what indeed is right. In other words, we are possibly faced with an unparalleled crisis of fundamental values or ethics. And so hell-bent and preoccupied have we been in running down frauds, nailing cowards and high-lighting failures that we have been unable to discover in our midst men of calibre, undisputed leaders or unconditional heroes who could guide us by their unequivocal and unqualified standards. Gandhi and Nehru already appear too distant and unreal to appeal to our younger generation as models for development. And yet, ignorantly or unwittingly, we continue to breed and commit to an uncertain future one of the world's fastest growing populations. If you agree that the picture is as gloomy and depressing as I have painted it, then I believe I have a reasonable basis for proceeding to discuss my subject this evening - Value-based Management.

Management in its essence is necessarily value-based for it is concerned with the wants and needs of people and with how we as individuals or as an organisation can prosper by providing them. Management terms such as productivity, profit, customer satisfaction, search for excellence, fair wages, return for capital etc., are all related to responsibilities incorporating a basic concern for and commitment to one's fellow-man. If properly integrated in practice they are capable of making management a powerful instrument in the process of social and national development. However, while the efforts to manage are today widespread, the crippling effects of misdirection and corruption have so limited the essential power of management, that an otherwise redundant term called 'Value-based Management' has been invoked in order to emphasise its ethical dimension. The need to coin this term also betrays, in a sense, the failure of our present day managers to integrate values into their efforts at management. This failure is particularly reflected in the fact that not many of us have been able to realise in our professional work the opportunity for developing the qualities of fortitude, forbearance and equanimity. So, we have continued to rely on traditional religion for this purpose and not quite succeeded in translating our scriptures into management practice. I must sound self-righteous when I say this but I presume that I have the authority of this meeting to do so. I also derive some authority for the purpose from the fact that the market today has granted my company, Alacrity Foundations the image of a successful value-based business. This image is captured no more effectively than in a recent column appearing in the Bangalore edition of The Hindu, which has commented on Alacrity's house journal thus :

Someone, who is warm and generous, has passed on to me what may be described as a lovely gift. I wonder if you can get at it. I mean the second number (before me) of Genesis, issued by a group called Alacrity Foundations.

I wish you had a look at it. As a thing of beauty, it steals your heart. But here beauty is allied to the good. Do not despair : there is still hope : you have Alacrity !

It carries a simple message. Whoever you are, wherever you are, be true unto yourself, unto your calling. Is that what the Gita enjoins? It would make the world a beautiful place to live in. Alacrity seeks to alter you. Your mind, your heart, your character.

Alacrity's experience of value-based management, which I shall now proceed to share with you, is necessarily restricted to business. But I would like to add that I believe with conviction that value-based management works just as effectively at the level of the individual as in the affairs of the State. For value-based management ultimately is a philosophy or a way of life enabled by the power of human reasoning.

As an introduction to Alacrity Foundations, let me first of all, try and impress you with the physical impact that we have made in the market place.

Our Buildings Division which is in the business of Urban Housing has in the relatively short period of about 7 years emerged as the single largest builder of residential apartments in Chennai, almost thrice as big as the next competitor. We have delivered over 500 apartments to date and another 600 apartments are presently under various stages of development or construction.

Our Electronics Division which makes Voltage Regulation and Protection Equipment in a specific range under the brand name of KRYKARD has emerged as a market leader in South India where its market share is in the region of 40%. About 7 years ago this market was in the stranglehold of well known brands like NELCO & KELTRON who have since transferred their attention to other products.

The value of our business currently on hand is worth about Rs.35 crores. We have about 200 people on our rolls and over 600 construction workers on contract, nearly 50% of whom are regular enough to be members of the company's provident fund trust.

All these are, undoubtedly, parameters of progress but they are mere physical indicators. What they do not reveal is the integrity, character and reasoning that we have attempted to bring to bear on our efforts to manage Alacrity.

I shall describe these efforts in terms of five principles of ethical power that have been propounded by a couple of leading American writers on management. These principles, called the five Ps are :

We have recognised the far-reaching scope of business management by giving Alacrity a larger-than-life Purpose and translated it into the following statement of Corporate Mission :

In committing ourselves to such an ambitious mission, we have also derived inspiration from the extraordinary success that business management has achieved across the world in this century. To highlight this, I have adapted here some words of Peter Drucker :

Business management has provided economic goals and services to an extent that would have been unimaginable to the generation of 1900. And it has performed despite world wars, depressions and dictatorships.

The achievement of business management enables us today to promise the abolition of the grinding poverty that has been mankind's lot through the ages. It is largely the achievement of business management that we today can ever consider mass education.

It is also business management to which our society increasingly looks for leadership in respect to the quality of life. Indeed, what sounds like harsh criticism of business management tends often to be the result of high, perhaps unrealistically high, expectations based on the past performance of business management. "If you can do so well, why don't you do better?"  is the underlying note.

The next step has been to view our mission in the proper Perspective. Our business activity, we realised, was but a small part of a larger national economic activity. Almost half the country's population was reported to be poor and without the basic necessities of life such as minimum food, shelter and clothing. Our modern education had sensitised us to believe that so long as these masses lived alongside us in their wretched state, our own quality of life was unlikely to improve. So, in our bid to improve our own quality of life we felt obliged to try and service the needs of the masses. We recognised of course that they had not the means to meet even the cost of our products and services, leave alone being able to yield us a profit. This meant that the conventional business economic policy based on return-on-capital employed was not going to be feasible for this purpose. The task of servicing the masses would involve massive subsidies. The most obvious source for these subsidies was the government which was already involved in huge expenditures for the purpose. But how was private business going to attract the support of subsidy from the government?. The alternative to this for rehabilitating the poor had already been declared, attempted and had failed to make an impact. This approach believed that through generation of employment and purchasing power for the masses, it would be possible to make them afford their basic needs and thus improve their quality of life. But over several years the employment opportunities generated had not been able to overhaul a galloping population. We decided, therefore, that the subsidy approach was worth an honest trial.

Happily for us, we were part of a political democracy in which the Government in power was obliged to commit itself to the welfare of the masses. So, at least there was no likelihood of a conflict of objectives between us and the government. But the relations between government and business had been traditionally hostile. While business was seen to be lacking in social integrity and commitment, government was believed to care little for the economic comfort of business, particularly big business. We had therefore to work systematically around this prejudice and gain the confidence of the government. To achieve this and also simultaneously establish our social integrity in the market place, we decided to express our Perspective in the following text of our Corporate Philosophy :

	The quality of life of the individual is truly enhanced only when the quality of life of the society in which he lives is improved.
	A business mission can be worthwhile and enduring only if it is in line with national goals and priorities.
	Business development can be integrated with social/national development only if there is uncompromising respect for laws and regulations and faithful compliance therewith.
	Professional fulfillment for any institution is attainable only when it accepts public accountability for its contribution to social/national causes.
	In the conduct of business, integrity - 'not knowingly to do harm' - is the only moral touchstone and excellence the only performance touchstone.

Having spelt out our Corporate Mission and Corporate Philosophy, we sat down to work on a Corporate Strategy which would take us through to our mission.

[STRATEGY FOR BUILDINGS DIVISION]

Let me now take you through the strategy that we reasoned out for our Buildings Division which had made fulfillment of the basic need of Housing its business.

We started by committing ourselves to help the government achieve the objectives of the National Housing Policy. The Policy had two main objectives :

- to increase the stock of housing and provide a shelter to everyone in need of it

- to regulate the housing development activity so as to ensure a hygienic housing environment

But now could we justify setting up housing in an Urban Centre like Chennai, when the mass requirement was obviously located in the rural areas? And how could we thereby hope to make an impact on a national scale? Our justification for this rested partly on the limits of our competence and partly on the limits of our authority. In terms of competence we had to first prove to ourselves that we could handle housing on a large scale without compromising integrity, quality and economy. We realised that this was best done in a market that was closest to our own style and standard of living. In terms of authority we had to create a performance record in this field before we could solicit subsidy support from the government for tackling the more stringent economics of rural housing. So we decided to build residential apartments for the middle class in Chennai City.

A young architect had reacted to this decision by asking us as to how we could justify building apartments when we were aware that an apartment did not amount to an ideal home. Our response to this was as follows :

The matter of a definition for an ideal home is not as simple as it seems. Is a beautiful bungalow set in an exquisitely landscaped surrounding but located a short distance from a slum a better home than an apartment in a neat, hygienic environment free from slums? Until we can answer this question beyond dispute, we believe we must observe the discipline of respecting CMDA's authority on the subject and so long as their regulations permit the construction of apartments, we believe we are justified in this activity.

[STRATEGIC IMPACT]

Our long-term strategy was to achieve three kinds of impact in the market place :

There were to be three levels under each kind of impact by which progress in mission would be measured.

Under Social Impact, at the first level we had to emerge as the overwhelming leader in terms of market share amongst the private sector. At the second level, we had to gain a favourable comparison with the Tamil Nadu Housing Board's housing activity in Chennai. This would encourage both public opinion and government thinking on why Alacrity should not be supported more substantially in order to achieve the goals of the National Housing Policy. At the third level of Social Impact, Alacrity's performance should have inspired enough confidence in the government to result in a greater share of responsibilities in national housing being assigned to Alacrity, including perhaps, a voice in policy making.

Under Professional Impact, at the first level we would look for consistent acknowledgement of our qualities to provide leadership in the housing industry from discerning members of the public and organised public opinion. At the second level, competitors inspired by our success would start emulating Alacrity's values and standards. At the third level of Professional Impact, government would extend recognition to us by calling us in to support them as consultants or experts.

Under Economic Impact, at the first level we would realise support from financial institutions notwithstanding our unconventional economic policies. At the second level, we would attract investment from the open market on our terms. At the third level of Economic Impact, we would have inspired enough confidence in our integrity and expertise to manage large public funds so as to attract government support in the form of land and subsidy.

On achieving the third level under all three kinds of impact, we would have both the authority and the means to attempt a meaningful impact on housing for the poor.

How has this strategy worked in practice ?

In terms of Social Impact, we are already thrice as big as the next builder at a time when the Housing Board's activity in the City is on the decline.

In terms of Professional Impact, we have literally become a household name amongst the public in Chennai though our competitors while respecting us seem to have difficulty in emulating our values, if not our standards. Senior bureaucrats recognise us as being responsible and exceptional in the market.

In terms of Economic Impact, we have succeeded last year in obtaining sizable support on working capital from a leading financial institution despite declaring a real loss in our Balance Sheet. Our share capital is wholly owned by the company's employees who do not expect for the time being a return on the same. Recently, an old gentleman who had sold a property to us some years ago and, in the process, become a friend and admirer, has decided to set up a Trust jointly with Alacrity for the purpose of rehabilitating the poor, and has earmarked a sum of about Rs.25 lakhs to be transferred to the Trust. The Trust is to come into being on the gentleman's demise and is to be managed by Alacrity's senior managers. When it comes to raising capital, we seem to be in competition with Mother Teresa and Bhagwan Rajneesh rather than with the rest of the corporate world which attracts capital by promising increasing returns.

Once we have demonstrated the solution of housing problems in Chennai, we should be ready with a model for similar development in other urban centres. We should also by then command the necessary confidence and experience to extend the model with due modifications to the rural areas. After all, did not Dr.Kurien's 'Amul' Dairy Cooperative Model lead to the formation of the National Dairy Development Board and the successful revolutionising of milk production and supply across the country?

[PROFESSIONAL INTEGRITY AND COMMITMENT]

I would now like to share with you a few outstanding features of our operational process in the Buildings Division which hopefully reflect the quality of our professional integrity and commitment.

When we entered the real estate market in 1982-83 everything seemed wrong about it. Black money flowed freely, speculators and middle men were rampant, builders were generally believed to be profiteers and exploiters and, government sanctions were reportedly available only against greasing of palms. Deliveries were unpredictable and costs often escalated far beyond the original contracted value. If this was true of most of the private promoters and builders, it applied in fair measure to the Tamil Nadu Housing Board as well whose notoriety for poor quality of construction and financial mismanagement was being widely reported. We decided to change all this, and I like to believe that we have achieved remarkable results in this respect.

	All our transactions from the very beginning have been wholly accounted for. In other words we have not touched a rupee of black money. By steadily increasing our market share, we have demonstrated a method of pushing out black money from this market which is perhaps more effective and accountable than any piece of legislation attempting to do the same. In growing and progressing more rapidly than all other competitors, we have also established the value of wholly accounted information for the efficient operation of a modern business.
	Every construction of ours has complied strictly  with  CMDA's development regulations. In the process, not only have we proved their technical and economic feasibility, but with a steadily increasing market share, also made town-planning discipline a practical reality even as the Enforcement Authority has appeared helpless in the face of large scale violations by other developers.
	We have obtained our sanctions strictly on the merit of our application and compliance, and when on occasion we have had to face extraordinary delays, we have compensated our customers through payment of liquidated damages. That we could afford to do this within a price that is fair and reasonable provides evidence that delays have been the exception rather than the rule, and that government departments, if properly approached are more efficient than generally given credit for.
	In the 40 projects that we have handed over to date, we have not charged a rupee as escalation over and above the cost that was committed at the time of the original allotment.

[CONCLUSION]

You might wonder whether it has been as smooth and easy as I have probably made it sound. No, there have been problems and crises whose details I am afraid I have to reserve for another occasion for want of time. But I would like to conclude by telling you that in Alacrity we have managed to retain the fire of idealism and the power of reasoning in the face of uncertainties and adversities. It has involved being Patient and Persistent and developing a Pride in the company's mission and what the company stands for. Today, we have the conviction that no wealth or power can be more valuable than our dignity; no loss or profit can be more critical than the loss of our credibility; and no skills or qualifications can substitute the integrity of our character. As a result, the dangers and risks have been turned into opportunities, and the failures have become the proverbial stepping stones to success.

And to those skeptics and cynics who have scoffed at ethics in business management, we have perhaps demonstrated that INTEGRITY DOES PAY and NICE GUYS DO WIN IN THE END!

They might then well ask me : "But, will it last?"

I think I will leave you to answer that.

Thank you.