TEXT OF SPEECH YBHG TAN SRI AHMAD SARJI BIN ABDUL HAMID CHAIRMAN, INSTITUTE OF ISLAMIC UNDERSTANDING, MALAYSIA

ISLAMIC PERSPECTIVES ON MANAGEMENT: WHAT WE NEED TO KNOW AND WHY AIM ASIAN BUSINESS CONFERENCE MANILA, PHILIPPINES 1 MARCH 2007, 3.45 PM ___________________________________________ 1. Islamic management, unlike the conventional management, looks at the management of organizations from the perspective of the knowledge from the revealed sources and other Islamic sources of knowledge. The application is compatible with Islamic beliefs and practices. There is no demarcation between the secular and the religious; human life is an organic whole. All human activities can be ibadah provided they are guided by Allahs commandments. In Islamic management, the organizational objectives are both economic and non-economic and are subservient to the larger purpose of human existence; whereas in conventional management, organizational objectives are also both economic and non-economic in nature, but are subservient to organizational interests. 2. The digital technology, thanks to faster chips, broader bandwidth and with common internet standard, with the cell phone for example, often with a camera to boot, is changing the way we live and work. What effect will the converged world have on management? There are now networks galore business now moves onto high-speed networks, within homes, offices, and throughout the mobile world. There are now voices with faces. As phones merge with computers, video calls have finally taken off. Far-flung teams now work on shared documents in virtual meetings, igniting offshoring and telecommunicating. How do we put values and ethics in action in this environment of advanced digital technology? This is a great challenge for both private sector management and corporate governance and public administration. 3. The Institute of Islamic Understanding, Malaysia (IKIM) and the Standards and Industrial Research Institute of Malaysia (SIRIM) under the Ministry of Science, Technology and Innovation have developed

the MS 1900:2005 Quality Management Systems-Requirement from Islamic Perspectives. The MS1900:2005 is basically the Islamic version of MS ISO 9001:2000. This Malaysian Standard is developed with the aim to ensure that organizations are managed in accordance to the principles and practice of the quality management system from Islamic perspective. ISO 9001 is the internationally accepted standard on quality management systems. It however, does not address certain aspects ofShariah requirements which are a concern to Islamic practitioners and consumers. Therefore, in addition to the existing ISO 9001Shariah requirements are being incorporated, where applicable. The user of this standard should be able to meet the following expectations and benefits: (a) to inculcateS hariah requirements into their quality management practice with the emphasis on valuebased management. Islam promotes good universal values, which are readily acceptable to all people in the world; (b) to enhance the level of effectiveness and efficiency. This standard requires the practice of universal good conducts at all levels of the organization that could lead to the improvement in the level and quality of production of products; and (c) to enhance level ofShariah compliance and confidence among Muslims and stakeholders. Some examples ofS hariah compliance are: (a) the formation ofS hariah Compliance Unit, a unit comprising two or moreShariah qualified persons who are accountable to monitor and ensureShariah matters. It is also the reference centre on Islamic management issues of an organization; (b) appointment of aS hariah qualified person who is accountable to monitor and ensureS hariah is observed and continuously practised in the management of the organization according to theS hariah Advisory Committees advice; (c) to ensure that things or actions are permitted or lawful in Islam (Halal), otherwise it will be non-Halal; and (d) the organization shall ensure that all processes for quality management system, i.e., (i) identify the processes needed for the quality management system and their application throughout the organization; (ii) determine criteria and methods needed to ensure that both the operation and control of these processes are effective;

(iii) ensure the availability of resources and information necessary to support the operation and monitoring of these processes, areS hariah compliance. 4. The Institute is also working on another standard, that is Value-Based Management System Requirements from Islamic Perspective. This standard is a systematic and, scientific mechanism for measuring performance excellence of organizations, both in the public and private sectors. The objective of establishing of this value-based model is to institute a constant, conscious focus on Islamic ethics and values which are universal. 5. The Value-based Total Excellence Performance is the result of two concepts in Islam falah (higgest level of success) andihsan (excellence). The strength of the Value-based Total Performance Excellence Model lies in the direct incorporation of core values in each of the twelve dimensions of organizational performance, namely, Leadership, Objectives and Strategy, Change Management, Resource Management, Best Practices, Innovation, Productivity Focus, Employee Focus, Customer Relationship and Stakeholder Focus, as well as Financial and Non-Financial Results. For example, with regard to Productivity Focus the Prophet Muhammad (pbuh) says, to the effect that: Allah loves those workers who perform their works to their abilities (narrated by al-Baihaqi) !he value-based measures are addressed explicitly in the baseline assessment using selected indicators, which are assigned accordingly to each dimension. The incorporation of values is the distinctive factor in the standard. This approach to Baseline Assessment is not alien to Islam. There are many evidences in the Holy Quran which explicitly address the issue of measurement. For example, in Chapter 41 Verse 10, Allah subhanahu wataala says: He set on the (earth) "ountains standin# firm$ hi#h above it, and bestowed blessings on the earth, and measured therein all things to give them nourishment in due proportion, in four Days, in accordance with (the needs of) those who seek (sustenance) %n another verse Allah subhanahu wataala says: And &e send down water from the sky according to (due) measure, and We cause it to soak in the soil; and We certainly are able to drain it off (with ease) (Chapter 23 Verse 18). With regard to the use of measurement in trades, Allah subhanahu wataala says And ' my people( #ive )ust

measure and weight, nor withhold from the people the things that are their due: commit not evil in the land with intent to do mischief (Chapter 11 Verse 85). It is therefore a step forward from the existing business excellence models developed by others. 6. As Chairman of the Institute of Islamic Understanding Malaysia, I had also proposed the introduction of the Malaysian*m m ah Development Index (MUDI), to provide a more comprehensive measurement of the development of Islam and Muslims. The Composite Development Index (CDI) comprising the Economic Development Index (EDI) and Social Development Index (SDI) established by the Government of Malaysia, which measure the social and economic development of the country. 7. Undoubtedly, the components of both EDI and SDI are consistent with Islamic principles. Therefore, they are included as components of MUDI. The new additional component introduced into CDI to form MUDI is the Spiritual Development Index (SDI). MUDI therefore is made up of the following components: The components of the Malaysian*m m ah Development Index A Economic Development Index (EDI) 1 Average monthly household income 2 Gini coefficient 3 Rate of Unemployment 4 Rate of Poverty 5 Ownership of share capital in limited companies (%) 6 Ratio of deposit of Islamic banking system and non financial institutions to total banking industry (%) 7 Per capita Zakat B Social Development Index (SDI) 1 Rate of enrollment in learning institutions 2 Rate of graduate per 10, 000 population 3 Doctors per 10,000 population 4 Life expectancy rate 5 Ratio of Marriages per 10, 000 population 6 Ratio of Divorces per 10, 000 population 7 Average number of children per family

C Spiritual Development Index (SDI) 1 Number of mosques per 10, 000 population 2 Number of+akat payers per 10, 000 population 3 Number of depositors of !abun# Ha)i per 10,000 population 4 Number of registered Muslim professionals per 10,000 population 5 Number of Religious School Students per 10,000 population 6 Number of crimes of integrity per 10,000 population 7 Number of drug addicts per 10,000 population

All figures are based on Muslim population. 8. The Malaysian*m m ah Development Index (MUDI) makes it possible to capture the development of the Muslim community in any country in its true definition. MUDI is also an attempt to illustrate that as a comprehensive economic system, Islam enjoins several practical solutions for distributing wealth and reducing inequalities including prohibition ofriba, encouraging savings, payment of+akat, seeking knowledge, investment in the distribution of the societies wealth among members, spending in the way of Allah, the right to ownership, waqf$ and equal opportunities to encoura#e every individual to work hard and make the best of his/her ability. 9. I hope that by the adoption of these indices and standards, Muslim countries can formulate, manage and monitor their development plans which will result in a more proper allocation of resources, more equitable distribution of income and wealth, eradication of poverty and improved spiritual development. The ability to realise all these objectives are indeed the way forward for a sustainable Muslim society.