Wednesday, October 19, 2011

Why are corporate controls needed in the present Digital Era

John KYRIAZOGLOU, M.S., B.A (Hon.), Management Consultant


And co-author of ‘CORPORATE CONTROLS’, to be published by, by 12/2011

A question was recently put in a discussion group whether corporate controls were indeed necessary in the present DIGITAL SOCIETY and ECONOMY.

My comments follow:

We live, at least in most Western countries, in a post-industrial society, in the knowledge society, also known as the information society. The new life-style (modus vivendi, in the sociological vernacular) enforces upon all of us a new set of operational factors and transactional characteristics in our societal and human interactions, a new socio-economic operating mode (modus operandi in the sociological vernacular).

This set of social interactions is permeated and driven by several socio-technical factors and functional characteristics, such as:

(a)Globalization of markets,

(b)Liberalization of markets,

(c)Services economy,

(d)Lack of governance controls in international fiscal and financial markets, transactions and activities,

(e)Very fast developments in the fields of Information Technology, Communications, Biology, Medicine, Management, etc.,

(f) Information plurality, diffusion and potential information over-loading, Increase of the leverage and focus on the needs of customers, the so-called customer-focus approach in all dealings,

(g) Differentiation of the needs and increase of the expectations of better provision of services to citizens, the so-called citizen-based service approach in all public-sector exchanges and transactions, and

(h) Reduction and de-strengthening of the traditional government model of a large central organization to a model of organization based on a de-centralized approach.

All of these, interacting and inter-connected in different sets, make up a new social, economic, technological, moral and political framework, within which society, economy, enterprises, government, non-profit organizations, communities, citizens, etc., operate and function productively. 

New and more complicated roles are being created for the state (central administration, regional forms of government, local governments, etc.), for the business entities (small size, middle size, large size, conglomerate, international enterprises, etc.), and for organizations of the main public sector and related public regulatory authorities, with greater expectations for improved quality of life, and socio-economic advancement and development, in all industrial sectors and socio-economic environments.

The noted management guru Charles Handy supports the view that we must re-examine the basic principles that govern the running of enterprises and think from scratch of what is the basic objective of doing business.

At the level of organizations (private, public, non-profit, non-governmental, etc.) rapid changes are taking place on a continuous basis.  This is due to the impact of innovative approaches of researching and designing new products and services (e.g., via the Web), the tremendous effect of quick and accurate information provided by ITC (Information Technology and Communications) infrastructure and systems, and to the new asset evaluating models.

Traditionally, organizations (at least in the private, for-profit sector) valued only physical assets (buildings, land, vehicles, heavy equipment, installations, plants, etc.), sales inventories, and profits. Presently, technology know-how, good-will and brand names, computer systems and application software, office automated support tools (Excel spreadsheet applications, etc.), electronic commerce and electronic data  distribution services, etc., must also be added as valued assets to the balance sheet of organizations.

The model and the role of the classical state is also changing, within the framework of the European Union, as well as within the framework of the international environment, with the approach of electronic government, the model for citizen one-stop shop services, and the devolvement of authorities and responsibilities to the regional and local level (prefecture, wide metropolitan area governments, city level, community, neighborhood level), etc.

All these new and very quickly developed roles are required for:

(1) Quicker and more effective service (in relation to costs and benefits)

(2) Better management and more efficient use of global resources

(3) More proper (ethical, ecology-friendly) resource management by all industries, in all countries

(4) Continuous improvement in the quality of products and services provided, in social and citizen participation, in the commitment to democratic  institutions and customer services, for all stakeholders (people and  organizations)

(5) Minimization if not total reduction of social, public sector and business fraud and corruption

(6) Better understanding of what has gone wrong in private and public organizations and what must be done to get things right.

All of these may be implemented on the basis of strategy (organizational philosophy, external regulations, strategy, risk and change management, and performance measurement) and management controls (at the strategic and operational levels, a management information system, and the reporting, communications, audit , monitoring and review activities), i.e. the two complementary support pillars of a Corporate Controls Framework.

The socio-economic needs in the present DIGITAL SOCIETY and ECONOMY for the establishment and existence of a Corporate Controls Framework to cover both the historical context (i.e. conformance) and the future forward-looking view (i.e. performance) will be based on the major concept that for the achievement of all of the above, there exists a requirement for the design and implementation of a new operating model for private corporations and public organizations, consisting of:

(i) creation and implementation of strategic objectives,

(ii) best and most optimal use of resources (social, corporate),

(iii) measurement of produced and delivered goods, services and target achievements,

(iv) monitoring and improvement efforts on a timely and continuous basis, in other words on performance, and

(v) a set of strategic and operational controls which includes a Compliance Monitoring and Performance Management Systems for collecting performance data, monitoring, reviewing, and improving performance and compliance.

All of these are very critical and should be studied further and practical solutions proposed by think tanks, professional societies, scientists and researchers across the globe.

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