Optimizing Use of MDB Resources through Effective Partnering with the Private Sector

1. Optimizing Use of MDB Resources through Effective Partnering with the Private Sector Diana Smallridge President International Financial Consulting Ltd. March 2005

2. MDBs have a responsibility to ensure their activities “crowd in” the private sector • MDBs must ensure that their products and programs fill a precisely defined market gap • The need to maximize private sector financial players must be a critical part of their strategic focus • However, too often MDBs lose sight of this and their activities are not as catalytic as they could be.

3. There has been insufficient focus on this at the senior management level • Market gap thinking has not traditionally been part of MDBs’ strategic planning focus • While the mandate is well defined (poverty alleviation etc.), the strategies to execute the mandate are not. • There is often confusion and lack of clarity in the implementation of the mandate

4. Behaviour will change with new incentive structures & clarity of strategy • New management incentive programs and processes must be devised • Need for change in the behaviour of some institutions/officials • New strategic direction must be defined in detail • Time is right given change in leadership at several of the MDBs

5. Strategic Planning must be a high priority and be lead by professionals • Is not a top-down approach; should include input from all levels of the organization • Must be lead by individuals with “ears” to hear the views and perspectives of the full spectrum stakeholders • Senior management must have a stake in it • Must balance the needs of many; cannot be “hijacked” by one stakeholder group

6. Strategies must cascade down into individual’s performance objectives • Clear institutional strategies must feed into each employee’s annual performance objectives • Employees must be able to relate to the institutional objectives and strategies • Strategies must be detailed and specific

7. A Strategy Toolkit links Strategic Objectives with Performance Measures • Strategies must reflect the universality of stakeholders • The inherent conflicts in meeting divergent stakeholder interests must not be avoided but addressed head-on using balanced strategies • The Balanced Scorecard should be employed to measure progress against the strategic objectives

8. Measure What Matters • It is important to define what success means and measure it • What matters is incremental progress towards closing the gap between the current state and a well-defined future state • Measure how much progress is being made towards closing the gap • Measures are results-based and usually quantifiable

9. Manage What is Measured • This is a fact of life. Behaviour changes when measurement happens. Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it! H. James Harrington

10. OUTPUT OUTCOME INPUT Number of Loans issues Cost of Funds Level of per capita GDP There are different types of measures

11. MDBs must define the universality of their stakeholders

12. MDBs must be sensitive to their impact on stakeholders’ interests

13. ..and be willing to take a long, hard look at themselves and their impact

14. By identifying areas of strength and weakness where strategies must focus

15. Strategic Objective #1 IFC in a Leadership Role Establish a reputation for leadership in key spheres Priority Results • Review Environmental, Health and Safety Policy • Actively support Equator Principles • Review replicability of Tadjikistan Power Project Action Plan • New EHS Policy • More EQ bank members • Internal working group to define key elements A Performance Measurement System links institutional level strategies

16. Strategic Objective #2 Increased partnership with Private Providers Use IFC’s resource more effectively to catalyze private sector sources of capital Priority Results • Increase number of B-loan participants • Decrease the ratio of IFC capital to private capital in private equity • Decrease the cases of competition with other MDBs Goals A Performance Measurement System links institutional level strategies

17. Partnership with the Private Sector Providers • Regular formal consultations with international banks, local banks and private insurers on risk sharing concepts • Product development which reflects market gaps and IFC’s core strengths • Performance measures and incentive systems which promote co-operation Individual Objectives and Measures roll up into the Strategic Objectives and Measures Strategic Objective #2 Priorities • Define key market needs in financing private sector • Identify which organization is best placed to meet identified needs (international, local; private, public) • Survey key players • Define gaps which IFC could fill • Develop or refine product • Apply product to pilot transactions • Review Action Plan Performance Measure • Level of co-financing with commercial banks • Level of co-investing in private equity funds

18. Measurement should start at the strategic level and cascade down STRATEGIC OBJECTIVES President STRATEGIC MEASURES Vice President To be truly effective, strategic performance measures need to be linked directly to the day-to-day activities of people in the organization. An important way for this to happen is to link strategic measures to the competencies and the performance objectives of individual employees. “Bullseye! Hitting Your Strategic Targets Through High Impact Measurement” Schiemann and Lingle Division Heads BUSINESS UNIT MEASURES Managers INDIVIDUAL MEASURES Staff

19. An integrated Performance Management System links Strategic Planning with individual’s performance objectives Staff Strategic PlanningBusiness PlanningIndividual Performance Objectives Staff Manager Division Heads Staff Manager Staff Manager Division Heads Vice-Presidents President Staff Manager Staff Division Heads Manager Staff Manager Staff Staff Strategic MeasuresBusiness MeasuresIndividual Measures

20. For example, the President’s objectives can be those of the Bank Staff Staff Manager Strategic Objectives • Financial Sustainability • Risk Taking • Catalyst • Partner Staff Division Heads Manager Staff Manager Vice-Presidents Division Heads President Staff Manager Staff Division Heads Manager Staff Manager Staff Staff

21. Performance Measures • Profit • Net interest margin • ROE • RAROC • Loans/Assets Division Heads Deputy General Managers Division Heads Division Heads … and his performance measures are the Bank’s measures Staff Staff Manager Strategic Objectives • Financial Sustainability • Risk Taking • Catalyst • Partner Staff Manager Staff Manager President Staff Manager Staff Manager Staff Manager Staff Staff

22. Business Objectives A VP can have objectives which are a subset of the Bank’s Staff Staff Manager Staff Division Heads Manager Staff Manager VP Division Heads General Manager Staff Manager Staff Division Heads Manager Staff Manager Staff Staff

23. Performance Measures Business Objectives Division Heads Deputy General Managers Division Heads Division Heads …. and her performance measures are a subset of the Bank’s measures Staff Staff Manager Staff Division Heads Manager Staff Manager VP Division Heads General Manager Staff Manager Staff Division Heads Manager Staff Manager Staff Staff

24. Business Objectives Business Objectives • Introduce a Treasury Risk Management system A Division Head in the Staff area has objectives in support of the business Staff Staff Manager Staff Division Heads Manager Staff Manager Deputy General Managers Division Heads General Manager Staff Manager Staff Division Heads Manager Staff Manager Staff Staff

25. Business Objectives … and can be measured by achieving certain milestones Staff Staff Manager Performance Measures Staff Division Heads Manager Division Heads Staff Manager Deputy General Managers Deputy General Managers Division Heads General Manager Division Heads Staff Manager Staff Division Heads Division Heads Manager Staff Manager Staff Staff

26. Strategic Planning What Performance? Business Planning Goal Setting Action Planning How? Mid-stream Corrections Quarterly Monitoring How Did We Do? Why? Year End Measurement Individual Performance Appraisal Unit Performance Appraisal • Performance Improvement Actions and Skill Gaps • Training Needs • Performance-Based Rewards • Promotion • Career Path Planning • Staffing Plans • Skills Development • Process Improvement • MIS Improvement This forms the basis for the performance appraisal system

27. A Balanced Scorecard measures progress against the strategic objectives Financial Stakeholders Borrowers Internal Private Sector