Essential components of privatized company

Abstract

Privatized companies have potentials for sustaining their function and growth as had been reported by observers of privatization activities in various conditions. A new privatized company where in the employees became the owners by virtue of their purchase of the stocks can likewise have the potential for growth if the following essential elements are developed within the company: commitment and ownership; ownership and competition; transparency; mitigating the social impact of privatization; market development and soundness of financial policies.

Function and Growth of the Privatized Company

The government has just completed the process of privatizing the company.  It had implemented the plans and financial packages that were duly prepared in order to enable its employees to purchase the company’s stocks.  It is now independent of direct control and support of the government. The change in ownership is intended to bring substantial savings for the government while giving the company’s clients the possibility of receiving better quality service from the company.

The process had been tedious but smooth and the new organizational structure is now in place.  During the transition period, however, there were some minor problems in the delivery of its services, but immediate steps were taken to prevent the problem’s recurrence.  The company’s services had been improving ever since.

From the time the decision was made to privatize, the company underwent phases of changes in preparation for an orderly transition into its new type of existence.  These included modifications in its systems and procedures requiring workshop seminars.  There were also personal stresses that had to be supported with counseling.   These workshops, seminars and counseling activities shall continue to be necessary during these weeks of adjustment.

The action of privatization had stimulated reforms in the working relationships within and among the departments of the company resulting to early signs of improvement in the delivery of the company’s services.  The challenge now is to continue improving in order to stabilize and then increase our share in the market.

Performances of  privatized companies have been monitored by financial institutions and organizations.  Their observations include a listing of factors that may have helped sustain particular privatized companies. Kikeri and Nellis (2002)   listed the following factors for successful privatization: (i) commitment and ownership, (ii) ownership and competition, (iii) transparency and (iv) mitigating the social impact of privatization. These factors were listed as characteristics of the privatization design, however, they would also very well apply when we consider the essential components for the effective and sustainable operation and growth of the privatized company.  The following is a discussion on how these factors relate to the company.

Commitment and Ownership

Just as the company and its workers had undergone a process of change in ownership, a process of transformation of commitment of each owner will also have to occur.  Most of the employees have never owned a business nor ever been a stock holder of a company before so this experience of being a part owner would be new to them.  They may have developed some sense of commitment as an employee in the past and may have performed excellently but now they shall have to learn and develop a commitment as a part owner.

Maturing into having an owner’s commitment may be better developed as a group rather than leave it to each individual for him/her to interpret what a part owner of the company should  or should not do.   Activities for this consideration shall be prepared in order that the part owners of the company may be guided in this transition.   It would be expected that these activities will result to a stronger form of commitment and care for the common interests of  all  in the company.

Ownership and Competition

Kikeri and Nellis (2002) also discussed the relationships between performance and ownership as against between performance and competition.   They presented observations where in competition was more important in improving efficiency rather than ownership.   However, they also observe that there were instances when the competitive drive was lacking in companies were there was no ownership change.   They expounded their observations as follows:

The difficulties of state owned enterprises reform and the substantial empirical evidence on privatization strongly supports the importance of ownership.  Ownership change is needed to make competition effective.  But competitive markets are also important if privatized – and private- firms are to perform well. Privatization realizes its full potential when competition is promoted. Competition means free entry and the freedom to fail.

Privatization allows inefficient firms that cannot compete – and that would otherwise have been kept alive – to fail.  Removing these barriers to exit also means removing barriers to entry.  Private firms will not enter if inefficient firms are not allowed to fail and if there is no level playing field.  Subsidizing such firms and keeping them in operation also makes it harder for private firms to access credit and to enter markets.  The issue is thus not one of privatization vs. competition.  Privatization and pro-competition policies are in fact complements that are mutually reinforcing.

This company, being fully owned by its workers and managers, may apply this principle to heighten the competitive drive and thereby result to continuing improvement of services to its clients.

Transparency

Reason Foundation (2005), an organization that monitors the privatization of government companies studied factors on why some privatizations succeed while others do not and the elements they found in successful relationships were: (i) The parties work together to arrive at solutions to problems that arise during the life of the contract; (ii) The parties trust each other; and (iii)

Public managers and employees support (or do not oppose) the contracting initiative.  Transparency and trust can provide and inner strength as well as protection against outside opponents who may want to weaken the company.  The higher management of the company shall be primarily responsible for the development and care of transparency and trust in the company.

Being the most visible entities in the company, transparency and trustworthiness of their actions shall be readily noticed even though others may not talk about it immediately.  Timeliness of appropriate action goes hand in hand with transparency and is likewise noticeable, so it would be highly advantageous for the company to see this in its managers and being followed by the other members of the company.  When a manager delays in making or announcing a decision on a particular issue, he or she must try to explain the cause of the delay  otherwise, it would lead to some misunderstanding.

Mitigating the Social Impact of Privatization

Even though the privatization of the company has been accomplished and the social impacts of privatization may have already been mitigated by this time, the company  shall continue considerations for other social impacts according, of course, to its viability.

Market Development

This paper has, so far, tackled the components within the company.  Other essential components would be its relationships with the external environment.  The company shall maintain a constant link with its market from where it shall obtain timely feedback on the needs of the market and improvements that may be necessary for the services it renders.

The company shall continue to implement measures so that it can maintain the basic provisions and its obligations in the privatization agreements.  This is its link to its original market and the market base from which it shall expand.  It shall prepare market projections and targets.  From these projections,  realistic sales for the next period shall be obtained and this shall be the basis for the budget for the next period. Being a privatized company, it shall have to rely on its own resources and its own marketing plan.  Its activities shall have to be market driven.

Quality of Work

Deller, Hinds, and Hinman (2001) surveyed 452 cities and villages in Wisconsin on the extent to which local public services have been privatized and  the two major factors contributing to success were Financial considerations and Quality of work. This was followed by responsiveness and timeliness.  In order for the company to meet high quality standards of work  out put, aside from the ownership and competitiveness factor, the company shall maintain close contact with the buyer through its feedback system such that each requirement in improvement, no matter how small it may be shall be studied and worked on. This shall be complimented with periodic training for adoption of improvements that result from the field.

Financial Considerations

The company shall maintain reasonable pricing for its services with the principle of low price for volume sales. The pricing, however, shall be within the allowable rates that had been set in the privatization agreement. Sound financial management and transparency with all the members of the company shall be maintained at all times.

References

Deller, S. C. , Hinds, D. G., & Hinman, D. L. (2001). Local Public Services in Wisconsin: Alternatives for Municipalities with a Focus on Privatization. University of Wisconsin-Madison June2001 Staff Paper No. 441

Kikeri, S. & Nellis, J. (2002). Privatization in Competitive Sectors: The Record to Date. World Bank Policy Research Working Paper No. 2860

Segal, G. F. (Ed.). (2005). Annual Privatization Report. Privatization Watch Vol.29 No.4. Reason Foundation 3415 S. Sepulveda Blvd. Suite 400, Los Angeles CA 90034