Motto of ICWAI: Promote Profit withth May 1998. As soon as this
I am delighted to participate in the Golden Jubilee
Convention of the Institute of Cost and Works Accountants of
India (ICWAI) at Pune. My greetings to the organizers, officebearers
of ICWAI, costing specialists, industrialists, economic
planners and the distinguished guests. . I would like to talk
on the topic “
Integrity”.
National Ethics and sustainable development
Profit with integrity leads to sustained growth. How is it
possible? We need to have National ethics for sustained
growth and peace. Where from it starts?
(a) Nation has to have ethics in all its tasks, for sustained
economic prosperity and peace.
(b) If nation is to have ethics; society has to promote
ethics and value system.
(c) If society is to have ethics and value system, families
should adhere to ethics and value system;
(d) If families have to get evolved with ethics and value
system, parenthood should have inbuilt ethics.
(e) Parental ethics come from great learning, value based
education and creation of clean environment that
leads to righteousness in the heart.
Righteousness
Where there is righteousness in the heart
There is beauty in the character.
When there is beauty in the character,
There is harmony in the home.
When there is harmony in the home.
There is an order in the nation.
When there is order in the nation,
There is peace in the world.
So friends, finally the beauty in the character, harmony
in the home, order in the nation and peace in the world
emanates from the righteous hearts. Righteous hearts can be
evolved only by three people, who are they? They are father
and mother and a primary school teacher. Now you
understood the linkage.
While I was addressing the Company Secretaries
rendering value added services to the corporate both in the
public and private sectors in January 2008, I referred about
the document prepared by the Institute of Companies
Secretaries of India on Corporate Governance released in
November 2007, particularly, I liked the statement in the
document about the situation arising out of India achieving
full capital account convertibility.
It was stated I quote “in a couple of years, India will have
full capital account convertibility. When that happens and
Indian investor who has rupees 36 to spare will seriously
consider whether to put it in Indian company or to place it
with a foreign mutual fund. What does all this mean for better
corporate governance? Everything. The loyalty of a typical
Indian investor is far greater than its counterparts in USA or
Britain. But our Indian companies must not make the mistake
of taking such loyalty as given. To nurture and strengthen this
loyalty, our companies need to give a clear cut signal that the
words “your company” have real meaning. That requires well
functioning boards, greater disclosures, better management
practices and a more open interactive and dynamic corporate
governance environment.” Such a situation will definitely lead
to consistent support of share holders and creditors and
improve the competitiveness of Indian companies. Members of
ICWAI have a very important role to play in realizing this goal.
National challenges
Friends, we are meeting at a time when the whole
country is experiencing a shock wave by an unfortunate
happening in the corporate sector. From the points of view of
our national pride, investor confidence and employee
reassurance, I am sure that a professional body like you will
contribute expeditiously to systemic studies and root cause
analysis so that such an event is not allowed to repeat in the
country.
With a strong will, the country is on its march towards
development. The progress is visible in many sectors. Citizens
are willing to contribute their might to the development
actions. Still we have to overcome certain bottlenecks.
Despite a political vision, well articulated schemes, and
adequate fundings, many major programmes are not on
schedule and the benefits are not reaching the intended
beneficiaries. How can we reverse this trend through better
organisation, better transparency, better feed back, better
visibility of timely actions through purposeful auditing ?
Now I would like to share with you two of my personal
experiences.
Efficacy of Close Loop Guidance and Control
Let me first give you an event based experience of the
missile programme which has similarity to the mission of
auditing. When I see the role of cost controllers, I am
reminded of technical events taking place in sequence in the
case of flight trajectory. Let me refer to the launch of the Agni
missile system. It is a controlled and guided flight from the
time of launch till it reaches the target at long range. At t=0,
the time of launch, automatic launch control system gives the
take off signal, after testing more than 600 parameters in few
seconds. If all the parameters are within the specified error
band, computer gives a go-ahead signal. The missile lifts off.
The missile has an onboard computer that carries the
specified trajectory which is to be followed by the missile from
the time it lifts off till it reaches the specified impact point.
Any deviation from the trajectory is detected and quantified by
the computer and fed continuously to the control system of
the missile. The control system operates the fast reaction
thrusters in all the three axes of flight and corrects the
deviation and brings the missile to ride on the required
trajectory in real time. If the corrective action is not done in
real time, the missile will reach far away from the target and
the mission will be a failure. Guidance and control with its
onboard computer acts as the brain of the missile. During the
flight of the missile, it is essential to guide the missile in real
time to the target to meet the mission requirements and
succeed. From this guided missile flight example I would like
to share the following experience.
As you can see, if the correction is provided after the
event is over, the mission will not succeed. Similarly, if the
cost controllers recommendations are delayed beyond the
completion of the event, they will see but they are too late to
correct. I am sure you can realize the importance of providing
online cost control advice to ensure successful
accomplishment of the mission for the given cost, time and
performance.
Technology denial management
Let me narrate another incident which took place in
1998. In 1992, the LCA team had decided to go for Digital-
Fly-by-Wire Control System (FCS) for Combat Aircraft as it is
an unstable aircraft. At that time, the country did not have
the experience in developing FCS. We chose LMCS for the
contract since they had the experience in designing digital Flyby-
Wire system for F-16 Aircraft. Joint Team for design and
development of the FCS was formed with ADE (DRDO Labs)
and LMCS. The work share between the Indian team and
LMCS team was identified. Evolution of the SRS was a joint
effort. The prototype flight control computer was to be done
by ADE. Total system integration was a joint responsibility.
Flight certification was to be provided by LMCS.
The contract progressed though a bit slowly between
1992-98. The defence finance was constantly monitoring and
providing an impetus to the progress of the contract along
with our technologists. Then, as you all are aware, India
carried out its nuclear test on 11
event occurred, the American Government imposed
technological sanction. Due to the sanction, LMCS broke the
contract and retained all the Indian equipment, software and
the technical information which were in their premises.
This was definitely a shock for the Indian team.
Immediately, I called for a meeting of Directors of ADA, NAL,
ADE, CAIR, HAL, National Flight Test Centre, Prof I.G.
Sharma, a renowned control system specialist, Prof Goshal, a
noted digital control system expert and guidance and control
specialists from DRDL and ISRO along with our financial
advisors. The FCS team explained to these members the
situation arising out of the unilateral termination of contract
by LMCS. Finance team with their critical outlook and
probing questions participated in all the discussions. We had
a full day discussion on the methodology, which needed to be
followed, by which we could successfully complete the
development of digital fly wire system and fly the LCA. The
team after prolonged deliberations gave a structured method
by which the development could be completed and the system
could be certified for flight trials.
Based on the recommendations of the specialists we
immediately strengthened the ADE software team with an
additional ten experienced software engineers from ADA. ADA
was given the responsibility of verification and validation of
software. The integrated flight control system review
committee was constituted with Director (ADE) as Chairman
and PGD (ADA) as Co-chair to support development and
resolve all the conflicts arising between Control Law Team,
Iron Bird, Software, Hardware and simulation. This team met
once in a week and brought out all the issues arising in
different work centres and solutions were found. In addition,
an Iron Bird review team was formed with Project Director
Flight Control System as Chairman with members from HAL,
ADA, ADE, certification agency (CEMILAC) and Test Pilots
from the National Flight Test Centre as Members. This team
also met every week and resolved all the problems arising in
the development and Tests on Iron Bird. We also introduced
participation of certification agency (CEMILAC) and inspection
agency (CRI) in all these reviews. The aim was to see that any
problem in any system is brought into focus at the earliest so
that the solution can be found. The confidence building took
place by intensifying the tests. For example informal Iron Bird
test was carried out over thousand hours and the formal Iron
Bird test was conducted over hundred and fifty hours.
Similarly, the pilot flew the simulator for more than two
thousand hours. Thus, what we missed from the foreign
partner, we compensated by enhancing the critical design
review and increasing the test time to ensure safe man rated
design of the integrated flight control system.
The entire team took the denial as a national challenge.
They said if it were going to take three years we would do it in
two years. If it was going to take twenty million dollars we
would do it in ten million dollars. This event reassured me that
no country could dominate us by imposing technological
sanction or economic sanction. The collective power of
scientific, managerial and financial management team will
defeat the challenges from any nation. Now, LCA is entering
into production phase. I would suggest members of ICWAI to
analyse such success stories and draw lessons for cost
reduction of indigenous programme.
Important Partnership of Defence Finance in LCA
In respect of LCA, I would like to mention another
important feature. As you may be aware, the full scale
engineering development Phase I of the programme was
sanctioned at a cost of Rs.2188 crore. While sanctioning the
programme in 1993, we envisaged building two prototypes
only namely TD-1 and TD-2. Later, the ADA team in
partnership with finance revised the programme by increasing
the number of prototypes from two to four. This was acclaimed
as one of the very important milestones for LCA and the people
who participated in this great work were Shri Siva
Subramaniam, FA(DS), Shri K.P. Rao, FA(ADA) and Shri R.
Ramanathan, Additional FA(DRDO). This could be achieved
because of the online collective decision making system
instituted by them for the programme. During the
commencement of the programme many items were proposed
to be imported. While progressing the programme the project
team in consultation with cost accountants resorted to
indigenous development and manufacture of those items
leading to substantial savings in cost. Also, the CFC Wing
programme was contracted for half the planned amount
through hard negotiations. In all these areas, there was
excellent partnership among scientists, technologists, user
service and cost accountants. In the LCA management system,
Secretary (Defence Finance) is a member both in the general
body and in the governing council. The Additional (Finance
Advisor) from DRDO is the member in the Technical
Committee. This close knit system had enabled the
development of a state of the art aircraft at a relatively very low
cost.
Now let me discuss the economic environment prevailing
in the country.
Economic Environment
For the past few weeks, I was asking myself what type of
innovation is needed to enrich the Indian economy and other
world economies which are presently in turbulence. I had
discussion on this subject with the experts at Indian Institute
of Management Ahmedabad few days back. It came to light
that the Indian economy will be less affected due to the world
financial crisis. This is due to (i) the Indian banking system
has always been conservative which has prevented the crisis
(ii) The liberalization process in India has its checks and
balances consistent with the unique social requirements of the
country (iii) The Indian psyche is generally savings oriented
and living within means is part of the mind set. This situation
has reduced the effect of global turbulence in the Indian
economy. However, the resultant effect will be reduction in
export and reduction in outsourcing. The drop in annual
growth rate of GDP could be around two percent. This is the
time we need innovation in our thinking to rejuvenate the
agricultural sector particularly through value addition and the
small and medium scale industries and enterprises for making
higher levels of contribution to the GDP as I have discussed
before. As you are well aware, we need to ignite the minds of
our talents in the rural population for new product ideas
which are not only useful to the national consumption but
also for export market. Our numbers could lead to reduction
in unit costs. For this we have to quickly enable the village
complexes with urban amenities. We call this PURA (Providing
Urban Amenities in Rural Areas), by which physical, electronic
and knowledge connectivities are ensured for creating
economic connectivity. Friends while looking at the
investments and quick actions needed for these 7000 PURA
complexes for the whole country, I would urge this community
of cost and works accounting professionals to reflect on the
following aspects:
1. What will be the loss of manpower talent and loss of
resource mobilization opportunities if the PURA
implementation is delayed every six months?
2. How can we miss opportunity for product
developments in number and quality by harnessing
our latent talent and abilities?
3. We have to simultaneously improve agricultural
GDP, food processing and at the same time train
people coming out of agriculture into manufacturing
and service sectors.
4. With the development of PURAS and tier II cities, we
can make cities also perform better with lesser
problems of urbanization, visible day by day.
Law of development
Last few years, I have been studying the development
patterns and the dynamics of connectivity among nations,
especially in trade and business. As you all know the world
has few developed countries and many developing countries.
What is the dynamics between them and what connects them?
Developed country has to market their products in a
competitive way to different countries to remain as developed
country. The developing country to get transformed into
developed country; they too have to market their products to
other countries in a competitive way. Competitiveness is the
common driving factors between the two types of nations.
Competitiveness has three dimensions: quality of the product,
cost effectiveness and product is in the market just-in-time.
Indeed this dynamics of competitiveness in marketing of
products by developing and developed countries is the law of
development. There is a relationship between the core
competence and the competitiveness of the country. Such a
law applies to individual companies as well. As you have seen
one of the important dimensions determining competitiveness
is cost. Hence, all of you assembled here have a role to play in
working out strategies through which you can reduce the cost
of exportable products especially when there is a global
economic turbulence and a demand reduction.
Status of Accounting by ICWAI
During the last four decades role of CMAs has undergone
a change under new economic environment. Initially it was the
role for price determination, i.e. “cost” plus profit = selling
price, which has completely changed to manage your costs in
such a fashion that you earn profit, hence “selling price less
margin” = “cost”. In additional to the traditional techniques
used by CMAs such as Standard costing, Marginal costing,
Uniform Costing and so on, new techniques coping up with
the modern technology have been evolved. The concepts now
widely used are life Cycle Costing, Kaizen Costing and value
engineering.
Knowledge propels non-linear growth
I had an interesting study with my team. From the study
I could find among the Top IT companies in India, per capita
revenue per employee varies from $32,000 to $82,000 per
annum, whereas one of our Indian automobile industries the
value addition per employee is $205,000, which is second in
the world in manufacturing. But at the same time, I have
studied certain IT MNC’s whose business is based on
Knowledge products. Their per capita employee revenue is in
the order of $200,000 to $600,000. Per capita revenue of one
of the leading search engine company is over 10 lakh dollars.
Here you should see the difference. Why I am bringing this
point here is, to emphasize how the unique knowledge through
their Intellectual property can bring non-linear growth to the
organization as well as to the nation. Higher the growth of
knowledge and better outsourcing systems, better will be the
employee productivity leading to non-linear growth of the
company. I would suggest ICWAI to incorporate such bench
marking system for various industry, so that Indian industry
can definitely become internationally competitive.
Contribution to Industry
My study of the development and spread of Cost Audit in
India indicates that only 2000 odd companies covering 44
Industries are covered under Cost Audit in the last 43 years. If
we have to succeed in the globalized world, we have to enlarge
the scope of Cost Audit to cover all aspects of manufacturing
and service sector activities including healthcare and
education. In the golden jubilee year, I have the following
suggestions for ICWAI:
(a) Preparing a case for bringing all institutions
having a turnover of over rupees 200 crore within
the purview of cost audit.
(b) Creating a campaign of special cost audit for
export oriented manufacturing and service
industries, so that the cost of the products are
reduced at least by 10% to make them competitive
during the global recession phase.
(c) Creating a team of specialists who can work on
cost audit with quality improvement and lifecycle
costing to make our infrastructure projects like
roads, bridges, ports, metros, highly cost effective,
so that India can develop rural and urban
infrastructure at a fast pace and reduced cost.
(d) Working out a costing system for agricultural
produce and agro-processed food, so that
economics and productivity are transformed into
higher revenues for our farmers through farmer
cooperatives leading to inclusive growth.
Conclusion
I have seen three dreams which have taken shape as
vision, mission and realization. Space programme of ISRO
(Indian Space Research Organization), AGNI programme of
DRDO (Defence Research and Development Organization) and
PURA (Providing Urban Amenities in Rural Areas) becoming
the National Mission. Of course, these three programmes
succeeded in the midst of many challenges and problems. I
have worked in all these three areas. I want to convey to you
what I have learnt on leadership from these three
programmes:
a. Leader must have a vision.
b. Leader must have passion to realize the vision.
c. Leader must be able to travel into an unexplored
path.
d. Leader must know how to manage a success and
failure.
e. Leader must have courage to take decisions.
f. Leader should have nobility in management.
g. Leader should be transparent in every action.
h. Leader must work with integrity and succeed with
integrity.
For success in our mission of integrated development of
the nation, we have to create large number of creative leaders.
Creative leadership means exercising the vision to change the
traditional role from the commander to the coach, manager to
mentor, from director to delegator and from one who demands
respect to one who facilitates self-respect. For a prosperous
and developed India, the important thrust will be on the
generation of a number of creative leaders from all walks of life
including cost audit.
My best wishes to all the members of ICWAI success in
the mission of reducing the cost of all products and services
delivered by the Indian industries and thereby making India
internationally competitive in all fields.
May God Bless You.
CAclubindia
