REPUBLIC OF THE PHILIPPINES

PROVINCE OF NORTH COTABATO

MUNICIPALITY OF MAKILALA
MAKILALA INSTITUTE OF SCIENCE & TECHNOLOGY
CONCEPCION, MAKILALA, COTABATO

Program: Bachelor of Public Administration

Course
FREE ELECT – Public Enterprise
Number/Title:
Credit: 3 Week #: 7 – 8 (March 29 – April 9)
Instructor: Mr. John Martin P. Alvero

Contact Email: alvero.answers4modules@[Link]

Information: Messenger: JOHN MARTIN P. ALVERO

General instruction: Read the content of the module carefully. This will help you
understand the topic for each module and will greatly help you answer the
exercises or activities at the end of each module. Each module is assigned within
a specific time period. You are expected to finish the module within the period
allotted. Should you have any queries and clarification regarding the module,
use the contact information available above. Kindly reach the instructor during
working hours from Monday to Friday. Do not forget to be courteous when
addressing your questions.

MODULE III. ORGANIZATION AND MANAGEMENT FORMS

OF PUBLIC ENTERPRISES
Overview:
Besides to its economic functions, the public enterprise sector is distinguished
prominently and importantly by its management characteristics. In other words,
the public enterprise sector exists as an identifiable and separate segment of the
public establishment because of its special management features. It is this aspect
that makes it especially significant in the study of public and development
administration.

The administrative systems devised to satisfy the requirements of traditional

government activities are not adequate to the requirements of industrial and
commercial enterprises. They were not set up to serve the needs of business
(flexibility and economic efficiency), but to serve expectations of political
responsiveness and bureaucratic conformity. Whatever improvement of
efficiency might exist in the conventional public administration system, it wouldn't
meet the requirements of business management since the needs of such
efficiency improvement are justifiably different and tailor-made. Public
enterprises cannot be dependent upon annual appropriations for the continuity
or flexibility of its operations. The accounting, audit and personnel systems
needed in traditional government do not satisfy the management system of
commerce. Hence, public enterprises need a different form of management,
which is flexible, adaptable and autonomous.

1
 I. LEARNING OUTCOMES
At the end of this Chapter, you are expected to:
1. enumerate and define the major management forms of Public
Enterprises;
2. analyze the organizational structure of Public Enterprises; and
3. determine how Public Enterprises’ manage its inter-linkages.

II. TOPICS
Lesson 1: Major Management Forms of Public Enterprises
Subtopic 1: Department Management
Subtopic 2: Government Company
Subtopic 3: Public Corporation
Lesson 2: Organization of Public Enterprise
Lesson 3: Managing the Inter-Linkages

III. REFERENCES

 Ali, Jamal, “Meaning, Characteristics and Rationales of Public Enterprises”, Jigliga University,
July 2016.

IV. COURSE CONTENT

Public enterprises have been established separate and different from the existing
public bureaucracy and are endowed with the management systems uniquely
necessary to their success. There are, however, very few public enterprises still
remain in the administrative system of the older government departments. There
are different kinds of public enterprises, which can be classified according to the
source and nature of their legal authority and management.

Three types of public enterprises; i.e. Government Departments or Department

management, Government Companies, and Public Corporations, can be
identified in terms of their categorization according to their legal bases and major
forms of management, the major features of which will be discussed separately
below.

A. Department Management: under this pattern, public enterprises are owned

and managed just like government departments that are staffed by career
personnel and headed by ministers. Notable examples of which could be
railways, Ports, Harbors, Electricity & Water systems, ETC, Ethiopian electric Power
Corporation, Addis Ababa Water & Sewerage Authority, posts and telegraphs
though these could also transform to a public corporation type. Department
undertakings display the following characteristics:

2
 (i) It is financed by annual appropriations from the treasury and all or a
major share of its revenue is paid to the treasury
(ii) It is required to work out financial results, determined through accounts
maintained on commercial principles
(iii) It is subject to the budget, accounting and audit controls applicable to
other government departments
(iv) The permanent staff comprises civil servants recruited under terms and
conditions similar to those other civil servants. In this case, the minister is
directly responsible for all aspects of policy and administration.
(v) It possesses the sovereign immunity of the state and cannot sue and be
sued without the consent of the government.

The departmental system of management has generally been adopted in the

following cases:

(i) Where the need for security or strategic importance make them difficult
to be operated by other forms of management, e.g., defense industry
(ii) In administration of national services, for instance postal, telegraph and
telephone services and railways.

The main advantages of this system are that it assures maximum government
control in vital public services. Secondly, it helps in bringing about greater
coordination by establishing a clear relationship between a public enterprise and
concerned government departments. This form of management, however, suffers
from obvious disadvantages. The bureaucratic form of administration is likely to
lead to inevitable inefficiency, red tape, and delay. The danger is that the
administration may be subjected to excessive fiscal and personnel restrictions
and interferences leading to inadequate departmental autonomy in vital matters
such as capital expansion, finance, technical improvement, and purchasing and
personnel administration.

B) Government Company: it is a registered joint stock company form of

management, which has been increasingly used by most governments in respect
of manufacturing industries. This type is also known as mixed ownership company.
The company form amounts to running purely commercial and industrial
enterprises. Its capital is contributed by the government and shareholders, and
the management is headed by the board of directors appointed by government
either from amongst its own officials or from outside. This form includes various joint
enterprises, shared between the state and private interests.
(E.g. Addis Mojo Edible Oils Co.)

Its principal features (characteristics) are:

(i) The whole of the capital stock or 51 per cent or over is owned by the
government,
(ii) It is a corporate body created under the general provisions of the
Company Law of the country
(iii) It can sue and be sued, enter into contract and acquire property in its
own name,

3
 (iv) The majority of the directors are appointed by the government,
depending on the share of private capital in the enterprise
(v) Unlike public corporations, it is created by an executive order of the
government without parliament's specific approval
(vi) Its funds are obtained from the government and in some cases from
private shareholders and through revenue derived from the sale of its
goods and services
(vii) It has almost the feature of a private limited company
(viii) It is generally exempted from the personnel, budget accounting, and
audit laws and procedures applicable to government departments
(ix) Its employees are not civil servants.

The company form of public enterprise is chiefly used by the government in

industries where it has to rely on foreign (financial and technical) aid and
assistance.

C) PUBLIC CORPORATION: public corporation is a relatively new concept of

administrative organization. Although it has been occasionally employed in
earlier periods, it is essentially the twentieth-century creation to meet certain
emergencies as a result of the Great Economic Depression. The public
corporation method is a sort of compromise between the policy of laissez fair and
strict bureaucratic control in public administration and is generally adopted in the
revenue producing enterprises. Public corporation has become an important
area of study in public administration as it represents a conscious attempt to unite
the advantages of public and private administration in one enterprise.

It has been also described in the following manner;

“Public corporation is a corporate body created by public authority with
defined powers and functions and is financially independent. It is
administered by a board appointed by public authority to which it is
answerable. Its capital structure and financial operations are similar to that
of a government company."

The emergence of the public corporation is a phenomenon of great importance

to modern administrative organization. It is run and administered by the board
responsible for overall policy, but not for day-to-day administration. Public
corporations were meant to combine democratic control over major policy with
commercial freedom in organization and management. In other words, the
method is based on the desirability of combining commercial freedom with public
accountability, and to protect such freedom of operation from an excessive
centralized ministerial control.
Examples:
 Finfinne Forest Marketing & Development Enterprise,
 National Bank of Ethiopia
 Commercial Bank of Ethiopia

4
Some of the important characteristics of public corporations are described as
follows:

(i) It is wholly owned by the state

(ii) It is a separate legal entity and is distinct from the government, which
created it. It has a corporate character or franchise, which confers power
upon it. It can do only what the charter authorizes.
(iii) It is incorporated under a special statute of the parliament (statutorily
created by a special law) outside the ambit of an ordinary company law,
which lays down public purpose and defines its powers, duties, and
immunities and prescribes the form of management and its relationship with
ministers.
(iv) It is managed by a board, which has a self-contained financial
structure. It is, at least in theory, independently financed through its revenue
and capital borrowing.
(v) It is a corporation in the sense that it has flexibility and initiative of a
private enterprise, has freedom of administration and finance, accounting
and purchasing, and has power to recruit its own personnel.
(vi) It is a legal person entering into contracts, which can sue and be sued
and acquire and own property in its own name.
(vii) Though the primary objective of a corporation is not profit, but public
service, it is run on business lines and not in accordance with bureaucratic
procedures and practices.
(viii) It holds funds in its own name, and is generally exempted from most
regulatory and prohibitory statutes and enjoys “complete” autonomy in the
management of funds.
(ix) It operates within the broad outline of government policy, while the day-
to-day administration is the exclusive responsibility of the managing
directors of the corporation.
(x) The personnel (employees) of public corporations are not civil servants,
and recruited independently in the pattern of business executives under
terms and conditions determined by the corporation itself.

The major advantage of this type of organization is that it has the flexibility and
initiative of a private enterprise combined with minimum public regulation of its
major policies. However, there are major operational problems in this type of
organization. Difficulties arise in reconciling autonomy of the corporation with
public accountability. The theory of corporate autonomy demands the largest
measure of operational freedom, which however, may be abused by
administrative elite in the organization. On the other hand, too much government
interference defeats the very purpose for which they are established. Reconciling
"democracy" with "efficiency" is, therefore, the crux (core) of the problem of
public corporations.

5
The second way to categorize public enterprises is according to the nature of
their functions. One group of such categorization may include production and
trading companies, industrial and commercial enterprises that are expected to
operate at profit such as mines, wholesale and retail stores, rubber and tea
estates, and steel and pharmaceutical plants. Other groups of enterprises in
accordance to the nature of functions are composed of public utilities and
services, which are supportive infrastructure types such as power, water
communication, railways, and ports. There are also other groups of enterprises in
this categorization, which are created explicitly for the purpose of development
that is for the purpose of giving encouragement, credit assistance under special
terms, and support to other institutions both public and private. Such enterprises
may include industrial development authorities, river basin development
agencies, etc.

A third way to categorize public enterprises is according to their location and

position in the governmental structure. In many countries, central and state
(regional) governments have established more or less systematic networks of
public enterprises. Such enterprises are created to develop a particular region or
location. Another growing trend in the third categorization is the emergence of a
hierarchical relationship among public enterprises, such as trading companies
that often have branches in districts and towns.

ESSAY. The Makilala Institute of Science & Technology falls under what category?
Explain.

TOPIC II. Organization of Public Enterprises

In countries where the public enterprise sector is very large, public enterprises are
shaped or organized into a hierarchical form similar to the conventional
government bureaucracy. This trend, together with its distinctive management
characteristics, is converting the public enterprise sector into a "third
bureaucracy" form, approaching the dimensions and importance of those of
traditional public administration and the private sector (Gant 1979:125).

Grouping of public companies operating in a particular field under a central

holding company is a more or less typical pattern. Holding companies or
corporations have been consciously adopted in many countries for
management functions of different public enterprises. They are established to
provide for more expert and rational management and for better co-ordination
of public sector companies as well as to enhance the autonomy of
management. In Ghana, for example, there are separate holding companies for
industrial, mining, trading, and financial enterprises. The Nigerian National
Petroleum Corporation (NNPC) is another typical example of the holding
company, which now manages the activities of other eleven subsidiary
companies.

6
This pattern obviously forms hierarchical relationships between subsidiary and
holding companies. In other countries also, large holding companies notably
trading companies, have set up operating branches to serve regions and districts.
Generally, public enterprises are related or organized horizontally and vertically
in a bureaucratic hierarchy. The holding company concept is often suggested as
a desirable option for public enterprises for its notable advantages, such as:

 The subsidiaries pursue common policies, and helps for uniform information
and reporting systems. Government policies are more effectively
communicated and implemented by subsidiary companies through the
holding company
 Cross subsidization or inter-transfer of funds: In the event of financial distress
or severe economic downturn, the holding company may provide financial
assistance to subsidiary companies or vice versa. By the same token,
subsidiary companies may help one another or among each other in the
case of emergencies through the mediation of the holding company.
 It helps for interchange of experiences when facing common problems.

Nevertheless, holding companies of monopolistic nature may pose demerits of

the following sorts:

 It is likely to curb operational freedom of the subsidiaries in matters of major

policy making decisions
 The subsidiaries, even though belonging to the same line of activities, may
have differences which require discrete handling
 The holding companies involve costs of establishment, personnel and
functions, which may duplicate the work of subsidiaries
 For successful operation, the holding company may need to delegate
powers, which would deviate from the necessity of its establishment in the
first place.
 Monopoly and centralization: They foster monopoly in particular sphere of
activity.
 Create time-consuming bureaucratic procedure: Holding companies
create another organizational layer in already inappropriate and time
consuming bureaucratic procedures. Thus, it hinders efficient and prompt
decision-making.

Like any government agency, public enterprises have formal organizational

structures depicting their intra and inter-relationships and their internal functional
arrangements. Broadly speaking, organizational structure can be described as a
pattern of responsibilities, that is, a framework within which the process of
management can be effectively carried out. The organizational structure of a
public enterprise is, therefore, the framework for carrying out the responsibilities
for the co-ordination of activities or operations and for the motivation of
members.

7
Although the framework varies from enterprise to enterprise depending on the
aims and objectives of the individual bodies, general observation shows that a
pattern is common to most of them, i.e. the public enterprise is so structured in a
manner that the Head of Government/Cabinet is on the top followed by the
Supervisory Ministry, the Board of Directors, and the Management (Chief
Executive) in order of their presentation. The holding corporation is adjacent to
the board. All public enterprises adopt this structure, which is aimed at achieving
an effective policy formulation and execution in line with government policy
directives. All the bodies that feature in the structure are supposed to see
themselves as parts of an organism and not as competitors for power.

Regarding their internal arrangement or organization, all public enterprises,

regardless of their size or mission, establish various segments or units that make up
the organization structure. This is done by dividing the overall operations into sub-
activities and then by combining these sub activities into specialized functional
units. This process of grouping specialized activities in a logical manner is called
"departmentation". Public enterprises do have different bases for
departmentation since they are different in their activities, objectives and areas
in which they operate. The most common bases of departmentation are function,
territory, product, customer, and process.

(i) Departmentation by Function: It is the grouping together of activities in

accordance with the functions of an enterprise - on the basis of similarities of
expertise, skills or work activities. In other words, jobs that call for certain skills or
the use of similar working methods will be put together. It is probably the most
common base for departmentation and is present in almost every enterprise at
some level in the organization structure. It asks the question “what does or what
kind of activities typically the enterprises do”? Examples of which a single
enterprise would have different departments arranged on the bases of function
are Engineering, production, marketing, Finance, etc.

(ii) Departmentation by Territory/ Geography: Departmentation in this

consideration implies arranging a group of business activities on the basis of
geographic location or territory. It is common in enterprises that operate over
wide geographic areas; i.e. it is attractive to large scale firms or other enterprises
whose activities are physically or geographically dispersed. The logic is that all
activities in a particular area or region should be assigned to a manager who will
be in charge of operations in that geographic area. Geographic
departmentalization works best also when different languages and traditions exist
that have a direct impact on the ways in which business activities must be
conducted.

(iii) Departmentation by Product (Product Line): It is the grouping and

arrangement of activities around products or product groups. Departmentation
by product is considered when attention, energy, and efforts are needed to be
directed to an organization’s particular products. This can be better used if each
product requires a unique strategy, production process, distribution system, or
capital sources. This approach works well for an enterprise, which is engaged in
very different types of products.

8
For example:
 Textile products - Nylon products, woolen products, silk products, cotton
products
 Petroleum refining - kerosene, diesel,
 Electronics - Radios, TVs, Computers

(iv) Departmentation by Customer: It is a grouping of activities around customers,

in response to the primary interests of customers. This makes economic sense
when the customers of a given enterprise are distinct enough in their demands,
preferences, and needs. It helps organizations to meet the special and widely
varying needs of customers. It can be used, for example, in retail stores
segregated in departments based on customers as men's clothing, women's
clothing, children's clothing.

(v) Departmentation by Process: Manufacturing firms often group activities

around a process or type of equipment they use. The final product of a single
enterprise may be obtained after passing through several processes and stages.
In this case, the output of a given process or department may be used as an input
for the other until the final product is produced.

TOPIC III. Managing the Inter-Linkages

The idea of inter-linkages lies at the heart of all development planning. Viewed
from the perspectives of the public enterprise, inter-linkages take on a managerial
face. Managers are consistently faced with external influences, pressures and
demands-from the government, consumers, suppliers, trade unions, the physical
environment, the private sector, and other public enterprises. The fundamental
premise is that inter-linkages are not mere phenomenon to be analyzed and
recorded as they occur, but to be planned and managed. The "constraints" must
be converted into managerial challenges. Indeed there is an organic connection
between the manner in which the inter-linkages are managed and the scope
and intensity of influences of those intervening organs or elements.

The first task is to identify the inter-linkages, to locate all the points of external
contact, which an enterprise has as part of managing the situation. While
managers are actually conscious of their external relations, there is rarely an
attempt to draw up a planned network and to view the interrelationships as a
system at work. Since the character of enterprises differ considerably, the
framework of inter-linkages and the intensity of the contact will equally differ. In
designing its corporate plan, each enterprise will have to draw up its own model
of inter-linkages, depicting the scenario of its external relationships and the nature
and content of contacts. The following are the inter-linkages that a public
enterprise would have for its success.

9
 (i) Inter-linkage With The Government
The most powerful influence affecting public enterprises comes from the
government. Indeed, public enterprises' managers are so pre-occupied with the
task of establishing an adequate relationship with the public authorities that
control, monitor, and evaluate them. Hence, mangers tend to view the inter-
linkage with government as the only one that matters. The relationship between
governments and their enterprises create immense problems of adjustment and
could even develop into a situation of tension. As it was mentioned earlier,
although there are common areas for government interventions, the specific
nature of this relationship differs widely from country to country and even from
enterprise to enterprise.

(ii) Other Public Enterprises

There are empirical reasons for the existence of interdependencies among
various public enterprises. The activity of one public enterprise will be determined
or significantly affected by the activity of the other. The horizontal linkages among
the family of public enterprises are as crucial as the vertical linkage with the
government. In a free market economy where enterprises have choices of clients
and suppliers, problems of interdependence may not perhaps be quite serious.
However, the situation in developing countries calls for the management of
horizontal inter-linkages among public enterprises. There are at least four sets of
inter-linkages namely, investment, production, pricing, and marketing.

RESEARCH and REFLECTIVE WRITING. What other Public Enterprise can MIST benefit
from a linkage? Explain and Justify.

(iii) The Private Sector

Most of the developing countries have adopted a "mixed economy" pattern. This
creates inter linkages between private and public enterprises. The private- public
enterprises inter-linkages are conditioned by the rules established by the
government. The various inter-linkages could be established for designed mutual
benefits or may happen as a result of the natural courses of activities, both as
collaborators and competitors.

(iv) The Workers

These days, most workers are organizing themselves into associations to protect
their interests. A fundamental aspect of the enterprises' inter-linkages is, therefore,
the relationship established with the organized labor. The objective is clear
enough; i.e. to create industrial peace and tranquility, involvement and
motivation, and thereby high productivity.

10
 (v) The Consumers
Marketing establishes a relationship between the producer and the purchaser of
the goods and services. The technique of marketing has been developed in order
to understand and satisfy consumer demand and taste. What is special with the
situations of public enterprises is that they assume heavy responsibility to provide
protections to the consumer, which the market place doesn't offer. Consumers
have their own ways of evaluating the performance of public enterprises. Their
criteria are related to their own benefits, including price, quality, service, and
after-sales facilities. Public enterprises would have to make a major effort to
understand consumers' needs through market research. This can be possible by
maintaining effective inter linkage with consumers.

(vi) The Physical Environment

Public enterprises assumed to take appropriate steps to prevent ill effects of their
respective operations and such effects caused by other family enterprises and
enterprises of the private sector on the environment. This concern of the physical
environment is expressed in many ways such as sponsoring and funding research
projects aimed at studying the causes and effects of environmental problems, as
well as by employing appropriate devices to protect the environment from
possible hazards. Viewing the relationship more constructively, one can say that
public enterprises should not only prevent social dislocations on the environment,
but also should make active contributions to the healthy growth of the
environment. This shouldn't rest only with the cosmetics of parks and gardens
created around industrial units, rather of great importance is the infrastructure
support that public enterprises can provide to local communities and the
environment. The problem of public enterprises with regard to their inter-linkages
with environment is that the contributions they make are not adequately
reflected in their profit-loss accounts.

(vii) Foreign Contacts

Public enterprises develop contacts abroad; arising from imports of technology,
equipment and machinery, raw materials, spare parts and components; export
of goods and consulting, contracting and other services; hiring of expatriate
managers and consulting firms, international shipping and insurances etc. Since
most public enterprises are exposed to such foreign influences, they are supposed
to develop their own "foreign policy" which defines their inter-linkages within the
provisions of the government in this regard. Foreign Inter-linkages of public
enterprises may focus, among others, in developing information networks on the
availability of goods and services from each other's side, skill and technology
transfers, understanding and exploration of market situation and possibilities,
assessing the availability and comparative advantages of establishing joint
ventures and selection of the right partners.

11