OPTIMISING MANAGEMENT
OPTIMISING MANAGEMENT – BASIL SPRINGER COLUMN TO APPEAR IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON MAY 03, 2010
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“For the earth shall be filled with the knowledge of the glory of the LORD, as the waters cover the sea” – Habakkuk 2:14
I recall a conversation, perhaps several decades ago, with Dr. Courtney Blackman (now Sir Courtney). He was then the Governor of the Central Bank of Barbados and made the following comment: “There may be economies of scale of production, but no economies of scale of management.” We were then discussing the book entitled “The Systems Approach” by C. West Churchman which he kindly presented to me.
My interpretation of his comment was that whereas economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion since there are factors that cause a producer’s average cost per unit to fall as scale is increased; the same is not true in management. In management, as the number of “units” being serviced under one manager increases, there is a number of units beyond which diminishing returns set in and inefficiencies abound. This number of units is the optimal number of units for the manager to manage.
Just over 17 months ago, CBET (Barbados), now Barbados Business Enterprise Corp. (BBEC) – www.bimventures.com – was established. BBEC is a partnership between CBET Inc., the owner of the intellectual property rights of the CBET Shepherding Modelâ„¢ , and the Government and private sector of Barbados. The mandate was to expand the Barbados economy, one successful enterprise after another. We undertook a pilot with six projects and reflected on the challenges of taking these fledgling start-up enterprises through the shepherding process. Conservative estimates indicate that the five projects that made it through the pilot phase would collectively provide an additional contribution to GDP in Barbados of BB $30 million in five years or an average of BB $1 million per enterprise per year. The projections also show that the profitability would grow exponentially. The venture capital investment needed to effect this, for the first five enterprises, averaged about BB $200,000 per enterprise.
We predicted that six new enterprises would participate in the shepherding process every two months so that in one year we could have 36 new enterprises with a collective average (over five years) annual increment to GDP of BB $36 million. If this were to be achieved, with a Venture Capital investment of BB $7.2 million per year, then there could be no question that the mandate to grow the economy would have been handsomely achieved and in a very cost effective way.
Indeed, if BBEC were only successful in developing 20 new businesses per year, with a collective average (over five years) annual increment to GDP of BB $20 million with a Venture Capital investment of BB $4 million per year, the mandate to grow the economy would have been handsomely achieved and in a very cost effective way.
Given the exponential rise in profitability then, in either case, the return on investment to the public and private sector Venture Capital Fund investors would be very pleasing indeed. This however means paying particular attention to ensuring that all these businesses succeed.
BBEC started with four trustees and myself as project manager in November 2008. The additional members of the BBEC family that have evolved since then include: the executive management team; five enterprises to which Venture capital investments have been made; six entrepreneurs in the Seed Capital phase; shepherds; business advisors; the Boards of the enterprises. The count is upwards of 60 persons. I happen to be at the hub of all this activity which is the point of maximum pressure within the system. I have to be on top of what is happening at all the nodes within the system. The responsibility of reporting to the trustees stops at me, notwithstanding the excellent help which is received through the delegation process.
I am now very conscious of the remarks by Sir Courtney that “There may be economies of scale of production, but no economies of scale of management.” I am now seeking the optimal subsystem size for me to manage as has been suggested by a former colleague of mine Dr. Arthur Ferdinand in his book “Systems, Software and Quality Engineering”.
There is a steady flow of potential “sunrise” enterprises, with the “DNA of an Elephant”, naturally emerging. Seeking the optimal subsystem size for me does not need to restrict the rate of growth of the economy of Barbados. What it does mean is that we have to determine when it is optimal to have another hub manager. The procurement of shepherds, who can be comfortably matched to entrepreneurs, is a constraint in the sense that individual shepherds cannot manage more than one or two projects and hence more and more shepherds will have to be found to match the entrepreneurs, albeit not necessarily all from Barbados. We will also need business advisors to support them. We shall need to source private sector venture capital funds. The Seed Capital fund is designed as a revolving and growth fund so there is no constraint there; it may serve several hubs. The Governance structure and marketing infrastructure can service many hubs.
Makes sure the harder you work at the hub the less dependent the system is on you.
Meanwhile the earth fills up with awareness of God’s glory as the waters cover the sea.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. – CBET – Columns are archived at www.cbetmodel.org)
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