Saturday, May 29, 2010

More to learn from the economic crisis....

A sober message for some of those whose businesses struggling to pull out of the financial crisis: Don't forget the hard lessons, don't let up on efforts to effect change, and don't think of short-term hoping there is a quick escape from facing the crunch.

For one thing, it's still far from plain sailing for many companies, the tough times are not over yet, many companies still have orders levels below those before the crisis. And capacity utilisation in a number of industries is still quite low. Obviously, Asia is growing faster again. But in Europe, with current Greece and some other euro zones in trouble, it may take 2-3 years more before we probably could reach pre-crisis levels.

It's very important to use the crisis to take on the structural challenges that many industries and companies are facing, and to really act upon them now, these could be legacy structures or activities that are not creating value. [ I think Keppel O&M has done a great deal in setting up research group to look into niche areas where potential offshore industry has not been yet developed or explored, eg. like the artic, this may take some time but once the feasibility of going into the area is close to reality, we will likely see the flooding of orders requiring special classed rigs with equipment capable of handling such extreme cold conditions in those places ]

The recent various crisis has created a window for change – in which most companies must grasp: This crisis made people more willing to accept change and to undertake those changes, so it could be very important opportunity to move. There are also very good opportunities for acquisitions, for driving consolidation within industries, for acquiring additional customers, new assets and top talent. We shouldn't say, let's protect the status quo. We should use the crisis to change the status quo - and maybe to change the business model. That is why some MBA schools are trying to adapt to the lesson learnt and making some curricula subjects change and relate more closer to the necessary understanding of business dynamics and some school topics may be too rigid without thinking through the respective sensitivity of the issues in the current crunch facing many big old wealthy companies. It is understandable that many companies cut costs during the downturn. Sales had plummeted, and in some cases survival was at stake. Cost cutting per se is not a bad thing, but the bad thing is when you cut talent even when you will need it again in the medium to long term. You have to be thoughtful about what to cut - and what not to.

Even with economies recovering from the worst of the crisis, companies should continue with restructuring efforts: It's very important to clean up balance sheets, not just for banks but also for other companies. It's also time to invest in marketing and advertising to increase sales, enter new markets or outsource certain operations. The opportunities to benefit from the uptick in the global economy are significant. One needs to reorientate. Going back to the old status quo will not work. If China is booming, go all out to entice and collaborate with them, know their culture and drink and handshake with them on deals and learn “kuan xi”, the non-relevant business theory but works in the chinese culture, of course, you need to watch your step with generating a closer “kuan xi” and do not get your pocket burn…. 

Not just business models, but corporate cultures, too, need to change, what we see is that institutions in general are regarded with more distrust than ever before as a result of the crisis.It is important not just to maximise shareholder value but also to maximise values, and to clearly adhere to the values we all claim to have one way or the other.

'I think the stress on values is not wrong if you think of long-term value creation. Long term, you'll find that the best value creators are those that have emphasised growth. These firms would have created jobs, paid their share of taxes and done well for their customers. They also play an important role in society. So in the long term, stakeholder and shareholders' values will be aligned.

Where there is a disconnect is when people focus on short-term value maximisation. The true long-term value creators are those that emphasise growth much more than profitability.

Companies need strong leaders with a clear idea of how they want to progress in creating value: It's very important that compensation be linked to long-term value creation and not just to short-term profitability. The key is to devise systems so that it is long-term value creation that is being measured.

Consultants provide ideas, support to implement these ideas, and act as coaches to strengthen the people within the client company.While some companies are reluctant to rock the boat, many are very successful companies that are self-critical, want to know more and want to change, these are the ones that could be a few steps ahead of those reluctant to make improvements.

According to CEO of BCG says, 'There are a lot of methods and tools you can apply. But in the end, it's the engagement with people that is important. So we need to find the right interaction. The chemistry must be right - and there must be respect and trust.'

No comments: