Problems faced by public enterprises
The following are the problems faced by government enterprises:
1. Bureaucratic management: The organizations are run by bureaucrats who may not have knowledge of running an enterprise or knowledge of the industry trends and practices.
2. Lack of autonomy: These enterprises lack freedom and flexibility. They are subject to the control of the politicians and bureaucrats. Due to this, their performance is affected.
3. Delayed decisions: Decisions are delayed due to red-tapism and bureaucratic procedures. A file may have to pass through many officials for approval before a decision can be taken. By the time a decision is taken, the business environment might have undergone considerable changes.
4. Unplanned production: Many of the public sector enterprises produce products which are not in tune with the market demand. The needs of consumers are not taken into account while planning production. The result is poor sales and the organization is left with huge unsold stocks which are then disposed off at a discount.
5. No clear-cut price policy: There is no clear cut price policy. Certain organization follow a cost plus price policy, some administered pricing, a few dual pricing followed by those adopting association pricing. There is no clarity with regard to the price policy.
6. Delays and cost overruns: Due to poor planning, lack of funds, mismanagement etc. many projects face delays and the consequent cost overruns. It is common to find new projects being announced without earlier projects being completed.
7. High overheads: Many of these organizations incur high overheads. There is very little focus on cost control and cost reduction. Wastage of resources are rampant. Many organizations even maintain entire townships and incur high costs.
8. Over-staffing: The salary costs and pension costs of many of these organizations are high. It is because government considers these organizations as generators of employment and many of them are overstaffed.
9. Poor productivity: Due to reliance on outdated technology, lack of upgradation and inefficiencies, low levels of employee motivation and poor work culture, the productivity of many of these enterprises is quite low.
10. Lack of proper planning: Planning is poor and in some cases even absent. Projects are commenced without detailed analysis and planning. This results in losses and delays.
11. Low capacity utilization: Capacity utilization is very low because of inefficiencies in management, inefficiencies in processes and procedures and low employee efficiency.
12. Poor profitability: The profitability of the enterprises is quite low due to several inefficiencies in the way in which they are managed. Many enterprises incur heavy losses and the government regularly infuses capital to run them.
13. Poor labour management relations: The industrial climate in many of the enterprises is strained. This results in poor employee productivity. Unions are strong and strikes, go-slow tactics and agitations are common. This results in low morale and motivation levels and as a consequence, low output, poor quality of products and services are common.
14. High employee turnover: There is no incentive for improved performance, very little freedom to implement innovative ideas and practices, promotions are based on seniority and not on performance, chance of work in new technologies is very less with salary levels very low when compared to the private sector. Therefore many talented employees leave the organization and the rate of employee turnover is high.
15. Nepotism and Corruption: Many of these enterprises function according to the dictates of politicians. There are many instances of corruption and undue favors being extended to select group of people who enjoy political patronage.
16. Poor work ethic: Employees of the public sector enterprises, enjoy job security. In many enterprises there are strong labor unions with political affiliations to protect employee interests. Due to these factors, employees do not feel the need to work in a dedicated manner and contribute to the growth of the organization. Low productivity, poor quality of work, absenteeism etc are common in these enterprises.
17. Low quality of output: The output of public enterprises, whether it is a product or a service, is not of high quality. This is due to lack of investment in technology, low employee morale, inferior quality of raw materials, poor work culture and lack of quality focus. Therefore they are not able to compete with the superior quality products and services offered by the private sector.
18. Uncertain financial allocation: These units are dependent on the government for funding and the quantum of funds allocation is uncertain. Therefore they are not in a position to plan for long term investment needs in an efficient manner.