Corporate Development: Dimensions, Concept and Components

After reading this article you will learn about Corporate Development:- 1. Dimensions of Corporate Development 2. Concept of Corporate Development 3. Components 4. Scope 5. Characteristics 6. Importance.

Dimensions of Corporate Development:

In the broadest sense of the term, there are four essential dimensions involved in corporate development audit.

They are as follows:

(i) Regularity:

That means, the different elements of a corporate body are under constant watch.

(ii) Systematic check:

This suggests assessment of changing requirements of a corporate body in the context of forces generating from within and outside.

(iii) Review:

This assesses past performance, its quality and content, and its contribution to the corporate goals as definitively pronounced from time to time. This examines the deviations from goal realisation and suggests measures for achievement.

(iv) Appraisal:

This examines in detail the character, content and quality of the corporate goals set, matches the resources employed against the attainments recorded, and suggests the future course of action on the premise that nothing is taken for granted, even goals.

This element is both “diagnostic and prognostic aimed at informing the corporate management of the relative merits and the feasibility constraints under different alternatives for getting the best results”.

Concept of Corporate Development:

The term ‘corporate development’ covers both potential and kinetic aspects. The structural aspects of a corporation are concerned with the build-up of the ‘potential’. The ‘kinetic’ aspects are manifest in the organisation in action.

There are basically two elements of structural aspects:

(1) Organisation as a synonym of the corporate structure itself and

(2) Organisation concerned with planning the structures, departmentation establishing the lines of command, and so on. Thus, corporate development audit, from the above points of discussion, covers the entire gamut.

In sum, corporate development audit “approaches the structure and process of organisation, both in its potential and its transformation into kinetic energy. The premise is that unless an enterprise is structurally well equipped it cannot perform the functions entrusted to it. Such structural equipment can be seen from different points of view such as size and magnitude of its operations, technology, employment, investment, product and product-mix, growth prospects in the existing lines and diversification, manning, pursuance of adequate and sensitive policies and problems of departmentation, delegation of power and corresponding responsibilities to each position created in the organisation and mechanisms developed for both monitoring and applying centripetal forces to centrifugal movements, promotion and development needs of the people in the organisation, and other factors that have a direct bearing on different aspects of (a corporate) organisation understood in different ways”.

Since a corporate sector is conceived of as ‘a going-concern’ and its development is an endless process, the audit in relation to corporate development is a continuous exercise based on continuous evaluation and monitoring of the external and internal environments of a business enterprise.

Components of Corporate Development:

The Components of Corporate Development Audit may be indicated by the charts (stage-wise) as follows:

Chart 1:

Chart 2:

Chart 3:

Scope of Corporate Development:

The scope of corporate development audit can be viewed from two angles Macro level and Micro level.

The scope includes the following, among others:

1. Corporate Planning and Policy:

Planning is an exercise undertaken on a long-term basis even before the forecasts are drawn up. It requires examining the business enterprise and its whole environment in greater details from the view-points of potential strengths and weaknesses. The possible audit areas are planning and policy issues on product, production, finance, personnel, managerial—particularly ‘succession’, etc.

2. Corporate Forecasting:

Forecasts are usually medium-term and commonly short-term. The thrust of audit is to ascertain by a review process:

(a) The degree of co-relationship that exists between corporate plans and total industry plans.

(b) The competitive market share position within that industry.

(c) The factors for forecasts, such as supply and demand, industry trends, enterprise’s competitive performance, general economic and political trends, financial standing in relation to the competitors, etc.

(d) How well the corporate forecasts match with national economic development plans.

3. Corporate Strategy:

For a long-term strategy, the auditor attempts to assess whether a corporate sector will survive as a viable entity. For short-term strategies, the auditor examines and evaluates as to how a firm analyses its on-going strategy—the strategy of operations on existing lines.

Four broad dimensions are usually covered in any strategic audit, viz.:

(a) Product lines and basic competitive position,

(b) R & D and operating departments,

(c) Financial analysis and financial management, and

(d) Top management. For each dimension, past achievements, present attainments and future potential for each area are considered.

4. Corporate Externalities:

Certain elements external to a corporate firm have impacts on its policies and decisions. The audit, in this respect, seeks to evaluate the factors, such as economic environment, industry structure and corporate position, risk of technological obsolescence, socio-politico-cultural environment, etc., which affect the growth and devel­opment of an enterprise.

5. Corporate Internalities:

The areas covered are organisation development, management development, personnel development and their detailed sub-systems—which provide internal strengths or weaknesses to a corporation.

Characteristics of Corporate Development:

The following characteristics deserve mention:

1. This kind of audit is best performed by a team consisting of different types of relevant expertise as it requires multi-directional and multidisciplinary approach.

2. Large scale business houses can afford and offer opportunities to the conduct of corporate development audit.

3. In contrast to other forms of audit—statutory or non-statutory (viz., Financial audit, Cost audit, Efficiency audit, Propriety audit, etc.) where the totality of the picture has hardly ever emerged in their so-called exercises, corporate development audit plays a crucial role not only to sort out loose-ends but also to forge a link in the knowledge that emanates from different quarters and on the basis of different types of experiences in dealing with varied types of problems, covering both resources and their deployment in the organisational setting of a corporate body.

4. This audit recognises the criteria that:

(i) There is a close relationship between the corporate development plans and total industry plans, and

(ii) There is a connection between the corporate development plans and national economy development plans.

5. Necessary initiation and support should come from a firm decision taken by the Board of Directors and its Chairman.

6. As the very audit strategy, in this sphere, is to bring to light the corporate strengths and weaknesses, specially failures, inefficiencies and imbalances, etc., it should be undertaken by a high-powered team to earn credibility, feasibility and acceptability of all those concerned with it.

Importance of Corporate Development:

In a corporate enterprise, whether public or private, the variations in forms and form-related typicality’s are complex in nature and content.

The scenario, in general, can be seen from two broad aspects:

(a) External environments—in relation to economic, political, technological and socio- cultural—national as well as international.

(b) Internal environments—in relation to internal management of resources like men, materials, machinery, money, etc., where a corporate body aims at revamping their operations with reference to their own ‘structural build-ups’ with a view to meeting the challenges and threats posed by one or more of external environment forces.

Corporate development audit, seeks to assist the corporate management in assuring in particular that:

(i) The various factors and forces constituting a corporate enterprise are of the right kind and quality.

(ii) The motivational and coordination responsibilities are appropriately understood and implemented.

(iii) The elemental responsibilities of planning, co-ordination, motivation and control at departmental/functional management levels are discharged in the right spirit.

Coming to a typical scene in India, we observe that, as in many other spheres of corporate analysis, when conceptualizing the role of a corporate board in an Indian company, we are mostly influenced by western management literature, not so much concerned with western practices.

We see a Corporate Board “as a repository of the highest interests in the company, and a willing and able steering function through the troubled waters of the business oceans.”

In practice, however, this is rarely so. Such corporate level boards exist for statutory purpose at their statutorily regular meetings and “give statutory seals to policy decisions already made. Those decisions more often than not (are) made far away from the company by the group representing the dominant shareholding—in a capitalist’s chamber, in a multi-national headquarters or in the offices of a bureaucrat or a minister. This state of affairs exists in India in contradistinction to western practice, mainly because the vast majority of Indian companies are owned to the point of total control for all practical purposes by a single shareholding interest.”

The involvement of the board of directors in many corporate entities has so far been only legalistic, at best marginal. With the introduction of Industries’ Sickness Act, MRTP Act, FER Act, etc. and with the recent changes emanating from the Government of India’s new economic policies and the priorities of the latest Five Year Plan, a new orientation of corporate top management is a necessity.

The changes are bound to create considerable impact on the’ corporate culture and function in the years to come. In this said context, corporate development audit will foster a discipline of accountability and help expose the members of the Board to certain liabilities.