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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2702

A Sri Lankan Offers Advice To Barack Obama

By K.C. Somaratna

Colombo, 28 April, (Asiantribune.com)- A Sri Lankan who has worked with US conglomerates has written to President Barack Obama offering a set of five proposals to help jolt a beleaguered American economy.

Imploring the US president to invest heavily on infrastructure, K. C Somaratna, who heads his own Management Consultancy firm in Colombo, says there is a need to make battery powered cars and also exchange spent batteries for ones recharged using solar energy collected off solar panels placed above the highway itself.

He says the US should also research and develop a mechanism to use these same panels to prevent snow falling on the highways there by saving the expenditure on clearing of roads of snow.

This is sure to achieve a much greener world & save this precious scarce raw material called petroleum for future generations not to be burnt & wasted but to manufacture materials of comfort.

The other suggestions spelled out in the letter to Obama calls for the establishment of a new financial auditing methodology and the rapid development of software to provide quick capture of the three most important financial indicators in predicting a company’s financial collapse.

The letter also calls on Obama to get youth actively participate in planning the future which really belongs to them.

The letter reads:

Dear Mr. President Obama,

I do not intend to start this letter by congratulating you; because one need not be congratulated merely on acceptance of a challenge but only on successful-probably brilliant fulfillment of that challenge. Not that I have any doubt about your ability to achieve this, although you have inherited the toughest challenge for an American President after the Second World War and I do not intend to leave it at that either. I would like to make five suggestions to (a) use as a solution to the current problem, (b) help identify a possible trend towards a recession in the future, (c) consolidate and strengthen the safety net for the American corporates and (d) ensure that future plans are blended with the aspirations of the American people.

Why does somebody in far away Sri Lanka want to make these suggestions to an American President? Well, firstly because I am what I am to-day due partly to the training I have received at Du Pont and Union Carbide locations in USA. Not only that I have gained a lot from that training, but I also almost always publicize that training to advance my career to-day. Secondly, ever since I was borrowing books from the USIS library in Kandy Sri Lanka in late nineteen sixties, I have been influenced by American Management Gurus like Drucker, Porter, Peters, Waterman, Champy, Hamer, Hamel, Collins, Charan, Kaplan, Norton etc. Thirdly, I make use of and promote many concepts of American origin – namely Business Process Reengineering, Balanced Scorecard, National Quality Awards (MBNQA), Six Sigma, Capability Maturity Model Integration, People Capability Maturity Model. As such this is something, which in my mind, I owe to USA. On the other hand; now you will see this more as a reflection of some thought processes of American origin reflected with enhancement and refinements by a Sri Lankan mindset than something of pure Sri Lankan origin. As you will read this letter you will notice this more and more. And simply because you don’t agree with one suggestion or you think it too far fetched, please do not refrain from reading the other suggestions.

Now I will spell out the five suggestions

Suggestion I

I read in the papers that you want to enhance your investment in infrastructure as one way of boosting and stimulating the US economy. You had also mentioned that you want to create a greener world. Both these are noble thoughts and everyone should help you in these. So my first suggestion deals with this.

Creating a greener world implies creating a world where less green house gases are generated and one significant source of green house gases is the automobiles

On 02nd September, 2008 Ceylon Daily News carried an article featuring me wherein I suggested that we should convert petrol (gasoline) sheds into battery sheds, wherein one would exchange his spent batteries to recharged batteries just the way one would exchange an empty LPG cylinder for a filled cylinder.

I predicted that this could be achieved by laying solar panels above the highways to capture & convert solar energy to electrical energy at these battery sheds probably at a distance of two kilometers from each other. At the prices of oil prevailing at that time this was financially feasible, and at today’s prices and solar panel capturing efficiency levels it may not be financially viable; but with enhancements of solar panel capturing efficiencies it could well become financially viable in a few years; on the other hand does anybody question the financial viability of a highway or such infrastructure. So if you are bent on investing in infrastructure, invest in something that would save billions a year in way of foreign exchange. I know that in US you have Winrocks International head office which is completely powered by solar energy and in Germany there is a solar panel bank laid by the side of the autobahn providing electricity to a near by locality. So this is possible. Of course I have experienced that your weather in some parts of the year is not at all sunny. When I visited US for the 1st time in December 1980 to attend the 17th international Cement Seminar in Chicago, it was the worst winter in 10 years and on another visit in 1993 I was stranded in Charleston for a few days by a snow storm when the airport remained closed for air traffic and what I could see from my hotel room was nothing but snow.

If these panels are placed properly (at Winrock’s head office they form the shape of the wings of a bird) this could be also used to save the enormous amounts of money spent to clear the roods of snow. My prediction was this has the potential to become a trillion dollar industry in ten years and you can also save the foreign exchange you have to spend on importing oil. The system is not so straight forward as at today and you need to do a reasonable (not huge) amount of R&D. Battery driven cars is reality, solar panels with enhanced energy capturing efficiencies (29 % quoted in an advertisement in Fortune magazine & near 40% as quoted to have been achieved in research at Massachusetts Institute of Technology) and batteries with 85% retention capacity even after 15000 cycles of charging & discharging is reported and that is why I say not a huge amount of R & D is required. Ram Charan – the Indian Management Consultant to many fortune 500 companies in US said in an article to Fortune Magazine in 2002 that Companies should not cut down on R& D due to the recession because it this R&D which will help you to came out of the recession.

Further more you need to refrain from burning this oil for obtaining energy as oil is a very important raw material and it need to be saved for other purposes. In fact in Sri Lanka, scientists and engineers tried to convert a locally available waste material (coir dust) into briquettes and use as fire wood (an energy source worth only one point five dollar cents per kilo), but they failed & this material was available when I started research which I diverted towards a moisture retaining substitute for peat which was exported at twenty one dollar cents/a kilo. So when you start promoting R&D and building this infrastructure you will not only be reducing green house gas generation, but also saving the scarce oil resources for the future generations. I believe this is something which you owe to millions of youth who voted you to power. I am sure you want them to say in another 30 years time- they would be in their fifties- to their children - "you know we voted for that great president Obama who took the initiative which saved this wonderful resource, petroleum for you to make these light weight tough materials which is a part and parcel of every day life ".

More details about this are given in Ceylon Daily News articles on 02nd and 20th September, 2008.

So my suggestion is invest in infrastructure of putting solar panels on highways and generate electricity for battery powered cars, in situ where it is needed to be sold to the battery driven cars and you will be a) saving foreign exchange spent on importing oil, b) saving the oil for other more important uses c) creating employment and boosting the economy d) creating a greener world with reduced green house gas emissions and e) saving expenditure on snow clearing, etc. Once you develop and master this technology, you will have the ability to export it and earn foreign exchange and economies of scale will make this more profitable and attractive.

Suggestion II

Now I will come to my next suggestion and this will help you to predict economic recessions- I prefer to use the combination economic turbulence in the future. In this respect I will be drawing an analogy from our knowledge of turbulent flow in Fluid Mechanics.

In Fluid Mechanics if a layer of fluid flows above a stationary flat surface or say inside a smooth pipe, and as the fluid velocity increases the flow would change over from streamline flow to turbulent flow at a particular velocity. During streamline flow each fluid layer would flow in a straight line parallel to the stationary surface and when the flow becomes turbulent, the fluid layers start moving haphazardly. The Fluid Engineering theory predicts that this transition from streamline to turbulent takes place when a factor called Reynolds Number exceeds a certain value and this Reynolds Number is given as the product of the velocity of layer at the top if the flow is above a flat surface and at the centre if the flow is inside a pipe (u) multiplied by the distance of that upper most layer from the flat surface on which fluid flows if flow is above a flat surface or the diameter of the pipe if the flow is inside a pipe (d) divided by the viscosity of the fluid (?); so when Reynolds number (u d) exceeds a certain value, turbulent flow sets in.

Viscosity is a property of the fluid indicative of the friction the fluid will exert when there is relative motion between adjacent fluid layers and it stems from intermolecular forces. If you look at the economy of a country also you see a similar process. In the case of a country’s economy, one could see different companies progressing at different rates and the amount of linkages (inputs, outputs & returns) a company has with other companies within the same economy is like viscosity indicative of intermolecular forces. So when there are adequate linkages, other companies in the economy will also have to keep pace with the better performing companies.

So I hypothesize that we could use a product, which I would call SCL Number (S- Speed, C- Contribution & L - Linkage), equal to the product of ratio of rate of growth of the top 10% companies of the economy to the rate of growth of GDP (u) and the ratio of revenue of lower 90% of companies in the economy to the revenue of the lowermost 10% of companies of the economy (d) divided by the percentage of inputs, outputs and returns of the top 10% companies linked to the other companies within the economy (?). So SCL No. equals( u.d ) and when this number exceeds a certain specific value, economic turbulence will set in.

Of course I have neither tested this hypothesis nor established this specific value. But it seems very logical, and am very sure that this will come right. Since yours is an economy which has an enormous amount of data and has experienced a few recessions during the last twenty five years I strongly request you to get this theory tested and establish this specific number. Then you & your successors will be able to use this SCL Number and the specific value and identify trends towards getting into an economic recession and take remedial action to prevent the on set of a possible recession.

Suggestion III

Then I come to my third suggestion.

I always thought that American businesses has a safety net and this safety net is held by two parties at two ends. At one end are the audit firms. I believe all the four major audit firms Deloitte & Touche & Tomatsu, Ernst & Young, Price Waterhouse & Coopers and KPMG are of American origin and that if big American firms crash then there would be something wrong with the audit methodologies.

I also remember that when Enron crashed Arthur Anderson- the audit firm had to face a lot of problems. In order to prevent the recurrence of such an event in the future what did the state do. They came out with the Sarbanes Oxley act according to which the American Companies are expected to have a significantly documented Financial Management System and Chief Financial Officer and Chief Executive Officer have to sign off the annual financial report as well as assurance of compliance to the documented Financial Management System. I always used to think of it as the ISO 9001 for the Financial Management System. Did it reduce the rate of incidence of financial crises and calamities ? I do not think so.

What I believe is that we should have changed the methodology of financial auditing immediately after Enron. We should have introduced a methodology wherein the External Audit Firm should submit a report to the Chief Executive Officer of the company wherein are identified the sample frequencies adopted for the audits, their rationale for selection, the specific audit cases audited and the audit findings. What happens today is an audit report to say that according to the audit findings the financial statement is a true and fair view of the company and in case there are any observations demanding some corrective actions they are also specified. It is not compulsory for the auditors to indicate the sample sizes, their rationale and samples selected. This sort of a new report will not only create confidence of the CEO and the shareholders about how things are been run, but also create confidence of the senior partners of the audit firms. So this is my third suggestion.

Suggestion IV

My fourth suggestion is in respect of how the other end of the safety net is been held.

I always thought that the other end of the safety net is been held by the suppliers of the many Enterprise Resource Planning software packages with the Financial Modules. What do the ERP Financial Module suppliers say about these modules? They say in their advertising material that these modules will provide on-line information processing and facilitate decision making. Did these modules provide these facilities and if so why were the proper decisions not made regarding the decisions which determined the companies’ destines in a few months time. I do not think so.

I believe the three most important parameters that need to be relentlessly monitored to avoid a financial collapse of an organization, especially a financial services institution, are the weighted average cost of capital, weighted average return on investment and the weighted average cash- to –cash cycle time. How many of the financial modules of these ERP packages do provide this information on a continuous basis. WACC and weighted average return on investment may be reasonably well known financial indicators. But cash- to- cash cycle time, a financial indicator promoted by Kaplan & Norton in their Balanced Scorecard presentations is a lesser known entity and what it means is the time that elapses from the time an investment is made for the purchase of a raw material or providing a credit facility to a customer to the time investment is re-earned by selling the product made using the raw material or receiving the interest on the facility. Please remember that in respect of financial institutions, the cash received as capital from a customer of a savings account, time deposit or fixed deposit have been only entrusted to you for custody till it is requested back and your investment on that deposit is what you pay as interest to these customers.

So this is where I believe that the suppliers of ERP Financial Module Software have failed. They have failed to provide the ability to monitor all these three key financial parameters on a real time basis and as a result the companies could not see themselves going down the precipice to crash.

I suggest that ERP software suppliers rectify this drawback in their systems.

Suggestion V

My fifth and the last suggestion is the simplest and it straightaway comes from an American Origin.

According to most commentators what propelled you to the American Presidency is the very large young voter base. So my fifth suggestion is do not forget them in your planning methodologies. Sorry it is my suggestion only to the extent that I convey it to you (or many others may have suggested the same) but it was Gary Hamel in Leading the Revolution who impressed upon me its significance.

Conclusion

So in conclusion I suggest the following to not only ensure rapid recovery from the current recession but also to (i) predict a trend towards a future recession on an economy wide scale and (ii) prevent American Corporate crashing even outside a period or recession.

Suggestion 1. Invest heavily on infrastructure to make battery powered cars exchange spent batteries for ones recharged using solar energy collected off solar panels placed above the high way it self. Also research and develop a mechanism to use these same panels to prevent snow falling on the highways there by saving the expenditure on clearing of roads of snow. This is sure to achieve a much greener world & save this precious scarce raw material called petroleum for future generations not to be burnt & wasted but to manufacture materials of comfort.

Suggestion 2 – Research & develop SCL Number explained above to predict the onset of economic turbulence.

Suggestion 3 – Establish a new financial auditing methodology where samples audited, rationale for their selection and the positive results as well need also be reported in writing.

Suggestion 4 – Get ERP Software Financial Module Suppliers develop their software to provide quick capture of the three most important financial indicators in predicting a company’s financial collapse.

Suggestion 5 – Get youth actively participate in planning the future which really belongs to them.

I wish you a terrific two full terms as President clearing the way for your successors to leap frog from there to even greater heights.

K.C.Somaratna is a Chemical Engineer turned Management Consultant who heads his own Management Consultancy firm called Somaratna Consultants (Pvt) Ltd. He has provided consultancy services to more than 200 companies including local outfits of Fortune 500 companies and these consultancies include quality, environment, information security, business continuity, strategic planning, Six Sigma and software quality management assignments.

- Asian Tribune -

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