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Optimizing Use of MDB Resources through

Effective Partnering with the Private Sector

Diana SmallridgePresident

International Financial Consulting Ltd.March 2005

2MDBs 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.

3There 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

4Behaviour 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

5Strategic 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

6Strategies 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

7A 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

10There are different types of measures

INPUT OUTPUT OUTCOME

Cost of Funds

Level of per capita GDP

Number of Loans issues

11MDBs must define the universality of their stakeholders

Local Gov’ts/ Communities

Other MDBs

Bilaterals NGOs

Employees

Shareholders

Private Banks/ Insurers

MDB

12MDBs must be sensitive to their impact on stakeholders’ interestsStakeholder ImpactNGO Concern about local community engagement

Need for regular consultations to be “heard”

Employees Line employees can provide bottom-up feedback into the system Need for them to relate to the overall specific objectives of the institution

Private Sector MDBs need to partner effective and maximize the private sector’s resources and capability

The role of MDBs must be define by the market gap

Local Gov’ts MDBs must focus on enabling environment The axiom works: “give a man a fish, feed him for a day; ;teach a man to

fish; feed him for a lifetime”

Bilaterals Who is best placed to take a risk, catalyze the private sector Who is best placed to facilitate coordination with host governments

(based on historical, geopolitical or other concepts)

Shareholder Listen before deciding what is best Do not be presumptuous or use MDBs for your own national interests

Other MDBs No competition

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

Internal

Strengths Weaknesses

External

Opportunities Threats

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

Strengths Weaknesses

Opportunities

1. 3.

Threats

2. 4.

15A Performance Measurement System links institutional level strategies

Strategic Objective #1

Priority

IFC in a Leadership Role

Establish a reputation for leadership in key spheres

Action Plan1. Review Environmental, Health and Safety

Policy 2. Actively support Equator Principles 3. Review replicability of Tadjikistan Power

Project

Results

1. New EHS Policy2. More EQ bank members3. Internal working group to define

key elements

16A Performance Measurement System links institutional level strategies

Strategic Objective #2

Priority

Increased partnership with Private Providers

Use IFC’s resource more effectively to catalyze private sector sources of capital

Goals1. Increase number of B-loan participants2. Decrease the ratio of IFC capital to private

capital in private equity 3. Decrease the cases of competition with

other MDBs

Results

17

Individual Objectives and Measures roll up into the Strategic Objectives and Measures

Partnership with the Private Sector Providers

1. Regular formal consultations with international banks, local banks and private insurers on risk sharing concepts

2. Product development which reflects market gaps and IFC’s core strengths

3. Performance measures and incentive systems which promote co-operation

Strategic Objective #2

Priorities

Action Plan 1. Define key market needs in financing private sector2. Identify which organization is best placed to meet

identified needs (international, local; private, public) 3. Survey key players 4. Define gaps which IFC could fill5. Develop or refine product 6. Apply product to pilot transactions 7. Review

Performance Measure 1. Level of co-financing with commercial banks2. Level of co-investing in private equity funds

18Measurement should start at the strategic level and cascade down

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

President

Vice President

Division Heads

Managers

Staff

STRATEGICMEASURES

BUSINESS UNITMEASURES

INDIVIDUALMEASURES

STRATEGIC OBJECTIVES

19

An integrated Performance Management System links Strategic Planning with individual’s performance objectives

PresidentVice-Presidents

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Strategic Planning Business Planning I

ndividual Performance Objectives

Strategic Measures Business Measures Individual Measures

20For example, the President’s objectives can be those of the Bank

PresidentVice-Presidents

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

1. Financial Sustainability

2. Risk Taking

3. Catalyst

4. Partner

Strategic Objectives

21… and his performance measures are the Bank’s measures

President

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Deputy General Managers

Division Heads

Division Heads

Division Heads- Profit

- Net interest margin- ROE

- RAROC- Loans/Assets

Performance Measures

Strategic Objectives

1. Financial Sustainability

2. Risk Taking

3. Catalyst

4. Partner

22A VP can have objectives which are a subset of the Bank’s

General Manager

VP

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Business Objectives

23…. and her performance measures are a subset of the Bank’s measures

General Manager

VP

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Deputy General Managers

Division Heads

Division Heads

Division Heads

Performance Measures

Business Objectives

24A Division Head in the Staff area has objectives in support of the business

General Manager

Deputy General Managers

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Business Objectives

1. Introduce a Treasury Risk Management system

Business Objectives

25… and can be measured by achieving certain milestones

General Manager

Deputy General Managers

Division Heads

Division Heads

Division Heads

Manager

Manager

Manager

Manager

Manager

Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Deputy General Managers

Division Heads

Division Heads

Division Heads

Performance Measures

Business Objectives

26This forms the basis for the performance appraisal system

• Performance Improvement Actions and Skill Gaps

• Training Needs

• Performance-Based Rewards

• Promotion

• Career Path Planning

Individual Performance Appraisal

• Staffing Plans

• Skills Development

• Process Improvement

• MIS Improvement

Unit Performance Appraisal

Strategic Planning

Business Planning

Goal Setting

What Performance?

How Did We Do? Why?

How?

Mid-stream Corrections

Action Planning

Quarterly Monitoring

Year End Measurement

27A Balanced Scorecard measures progress against the strategic objectives

Financial Stakeholders

Private Sector Internal

Borrowers