Holidays - What?

Well it is the time of the year where business practically goes into standstill. Even if you are among the few odd ones who would like to do something (other than shopping), most of your business counter parties would not be around. Every body is on holiday until the new year.

I am not arguing that we should not take a break, in fact most of us deserve the break. However, the break does not mean that whatever challenges that we are facing are having their own break as well. Most indicators such at the stock prices, oil price as well as commodities are fluctuating like yo-yo, with the tendency of heading south.

Perhaps the holiday period could be used to reflect about what's coming in 2009. If sure everybody would be preparing for a very challenging new year given most developed economies would be in recession. Not sure whether too much reflecting and thinking would upset your holiday mood!

Well, to ensure something for next year is for you to figure out something along this line:

• What would be something new that you are going to do?
• What are the things that you are presently doing that you are going to stop?
• What are the things that you are presently doing that you are going to do more?
• What are the things that you are presently doing that you are going to do less?

By being clear of the above, you are also clear how 2009 would be different.

So, holidays are not bad after all if you come out with better clarity of how the challenges in the new year would be faced.

The Hunting Begins

By this time, the 50 billion Madoff financial scandal does not surprise anybody anymore given that trillions of dollars had disappeared from the financial markets of the world. While questions around the scheme are not yet answered, especially on the role of SEC, the fact remains that even the smartest of investors such as HSBC trusted him and lost huge sums of money. Even Jewish educational institutions and charities were not spared.

Forensic accountants are now hunting for what is left in the attempt to recover the lost loot. It will be interesting to observe how much would eventually be recovered and returned to the "unfortunate" investors. In addition to that, some investors are already suing accounting firms for negligent.

In spite of the preaching about corporate governance and the introduction of laws like Sarbanes Oxley, people would be the ones that actualise the spirit of corporate governance. Even if all the boxes could be ticked, if the hearts and minds of those given the trust are compromised, similar stories like the present Madoff episode would continue to appear in the future. 

How many of those in charge of governance of organisations are fit and proper to do a good job? Their CVs may be impressive but doing a good job goes beyond that, it is about having real performance. It is about having understanding of the organisations and their surroundings, understanding strategic objectives, knowing risks, asking tough questions and demanding actions from the executive teams. If they don't think they can be different from others on the basis of principles and truths, maybe they should be reconsidering why they continue to serve their positions?

So, what are you doing to address the "heart" issue in the organisation that you are in now? 

Soulful Stewardship

It was really a proud moment for me when the MIA launched a monograph entitled Soulful Stewardship - Steering corporations through human governance, during the last National Accountants Conference at KLCC. The monograph was written by Dato Professor Aziuddin Ahmad and Associate Professor Arfah Salleh from the Graduate School of Management, Universiti Putera Malaysia.

The monograph discusses about the need for a more holistic governance approach for corporations by focusing to the hearts of the people that run corporations rather that imposing regulation on corporations. The writers argue that we should consider the governance model that governs the human within the corporations that will be supplemented by the existing corporate governance framework.
The issues pointed out in the monograph is rather timely considering the position of the global economy which we are in at the moment. Looking at what triggered the melt down at Wall Street which later affected the "Main Street", greed will be one that would be cited most.

Since most of the management system applied by the companies that failed originated from the West, there is a great risk that we are also being exposed to the same pitfall. Soulful Stewardship is an attempt to direct the attention towards the real issue, people. While structure and process help in providing conducive environment for enterprises to operate, it would be the people that would eventually call and make the shots. Looks like it is time to go back to basic and address the issues that make the heart ticks towards the right direction.

Now it is About Business and People

When this blog was started, it was focusing on business issues, particularly the small medium enterprise sector. The challenge that I faced was deciding which subject is closer to the hearts and minds of the entrepreneurs running businesses in that sector.

At the same time life is not only about business. There are other issues which affect us a normal human beings which may or may not related to business. On the other side, businesses should make sense to people, otherwise they lose their relevancy to exist.

Therefore, I have decided to change the focus of my postings and thoughts towards business in general and also on issues relating to people, the ordinary you and me. I trust which the new dimension, we could share more views and thought on matters which make out lives interesting.

Network-Centric Collaboration and Competition

We are living within societies which we were born into. Like it or not, being able to relate and make sense to others would be an important skill for us to be successful in our lives.

When it comes to business, the ability to connect and network would certainly contribute towards business success. In fact, the concept of network is becoming more critical towards having a sustainable and competitive business.

Let me show you the references which points towards the trend towards network-centric collaboration and competition.

Books:

• The World is Flat - A Brief History of the Twenty First Century
• Competing in a Flat World: Building Enterprises for a Borderless World
• The Global Brain - Your Roadmap for Innovating Faster and Smarter in a Networked World
• The Revolutionary Wealth - How It Will Be Created and How Would It Change Our Lives
• The Future of Competition - Co-Creating Unique Value With Customers
• Jump Point - How Network Culture is Revolutionizing Business
• Globality - Competing with Everyone From Everywhere for Everything
• Wikinomics - How Mass Collaboration Changes Everything

Forum:

• World Economic Forum - The Impact of Web 2.0 and Emerging Social Network Models, Future Series: Living in a Connected World, The Globalization of Science and Technology, Colloborating While Competing: Is There an Asian Model? My Idea, My Design, But Whose Property?

Web Based Collaboration:

• Linux
• Wikipedia
• InnoCentive
• Human Genome Project

Social Networking:

• YouTube
• Flickr
• Facebook

Who's Bailing Out Your Business?

Finally, the US 700 billion bail-out package (or buying-in as what it was last referred to) has been approved by the US Houses of Representative and Congress. This is in addition to few hundred billion dollars that were used to help Freddie and Fannie and few other Wall Street outfits, using the "main street" money. Off course, after the deal was sweetened with tax cuts and other initiative to "insulate" the taxpayers from downside risks.

That is corporate America. When things get tough, rules could be re-written. Does this apply to us, mere mortals in other parts of the world?

Globally, the general response by governments around the world have been two-pronged. Making sure there is enough liquidity in the financial market to enhance "market confidence" while at the same time throwing something to the laps of individuals and small businesses (read: voters) to appease their wrath against those who have been benefiting from irresponsible lending.

What about your businesses?

With the overall sombre mood globally, somehow demand for goods and services would be affected, purely on the more cautious spending by everybody around the world (unless you belong to the group who has endless resources to spend without thinking). This is a factor which you have to be prepared to live with, at least for the next 6 months.

Such changes would require a strategic response, since the ground has shifted. For example, a review on the impact of weaker demand to the financial health of your key customers would be a good starting point. This would provide you with a feel whether the demand for your products and services would be affected as well. A part from that, it would also provide you with the insight of the overall liquidity situation in your own industry and market.

Having tracked the possible risks, you have to figure out the response required to mitigate the possible downside effect. Sell more? Reduce price? Provide more flexible credit terms? Re-engineer your products and services? Increase efficiency?Some or all the options would need serious consideration to ensure the sustainability of your business.

After that, you have to work out the capabilities that you have or don't have to realise what you have decided to do. If you were to provide more flexible credit terms, do you have the financial strength to endure slower flow of cash? If you want to increase production efficiency to reduce cost, do you have the trained employees who are motivated to work smarter and harder under the present circumstances?

The interesting part about business is that the challenges keep of changing and when you feel that you had overcome one, another may crops out. The important thing is to have a process where the changes in the market place and the shifting of the ground are tracked and responded to appropriately. If you are contented with the success of the past, please be assured that tomorrow may be totally different!

While those who are on the Wall Street may have Big Brother the bail them out, you may not be so lucky. It is you and only you that have the better chance to ensure the business that you have been building all the while to continue to be sustainable and successful.

It is all up to YOU!

The Perfect Storm, Part 2?

September 15 would be remembered for a long time due to the collapse of few long standing financial institutions in the US. Lehman Brother, one of the largest investment bank in the world, filed for Chapter 11 bankruptcy protection on that day. At the same time, another investment bank, Merrill Lynch, was taken over by the Bank of America, still at a significant premium, while AIG, one of the largest insurance company in the world would have to raise something like US 70 billion to stay afloat. 

Were all these companies hit by Hurricane Ike?

The answer is a big NO!

There were the casualties of the collapse in the US housing industry, which caused the sub-prime bubble to burst. Lessons learnt? Perhaps, there is limit to everything, including lending to people who could not afford to pay back the loan and rely on the value of the houses kept high due to easy credit.

How far would the effect of the storm in the US financial market would go?

As the saying goes, when the US sneezes, the world would catch the cold. The capital markets around the world went down significantly, having heard the news about the demise of Lehman and acquisition of Merrill Lynch over the weekend. It would be interesting to observe the development today! Some commentators are predicting the worse is not over yet and are guessing who is next to fall?

If the recent sudden increase of fuel and commodity prices could be considered as the Perfect Storm 1, the present development could develop into Perfect Storm part 2. What are the implications to you and me?

First, the development in the US would have contagious effect around the world and at the minimum would affect market confident. This would cause companies and businesses to hold back expansion and new investment.

Second, depending on the reaction from banking and capital market regulators, availability of credit may be affected, although in Malaysia, Bank Negara seems to be comfortable with the present interest rate level and it expects inflation would moderate, going forward.

This is where the expected spending as indicated by the Malaysian government is important to provide some lifeline to businesses and to ensure the economy keeps on growing.

For directors and leaders of business, a clear strategy in managing the challenging economic environment is very critical in ensuring the sustainability of your business. Understanding the risks around the present business climate and ascertaining responses to manage these risks would reduce the downside potentials. At the same time, continue to look for opportunities which may appear, including potential value for money business acquisition.

As history has demonstrated, the mankind has survived various disasters, and those who are well prepared would have higher chance to survive.

Getting External Help On Your Financial Management

Generally, entrepreneurs start their business because they have strength in certain areas which would make the ventures tick. Some may be a good marketeer, some could be good and designing and manufacturing products, some may stumble on opportunities through good business contacts and so on. Above all, its the entrepreneurial spirit which is burning within the entrepreneurs which drive them forward.

On the other hand, cash is the bloodline of business. Any business which is starved of cash would not be able to survive. Sound financial management is essential to ensure the entrepreneurial spirit could be supported in order to create viable and sustainable businesses. This includes having budgets or financial projections, good understanding of cost of products or services, cash flow management, capital assets or project financing as well as the ability to appraise the financial positions and figure out plans for improvements.

Given the fact that not all entrepreneurs have the financial management skills, which may be the case for most of them, how could businesses enjoy the benefits of sound financial management?

In house Chief Financial Officers or Finance Directors could be one solution. Here, the business would have a dedicated qualified person to be responsible for the financial management. However, these professionals could be expensive and now days, difficult to be found. Most SMEs may have limited resources to afford a full fledged CFO anyway. So, is there another solution?

Why not consider out-sourcing the CFO services to firms which have the capabilities and are passionate to help entrepreneurs to be successful?

Under the out-sourcing arrangement, the scope of the CFO services could be agreed upon based on the needs of the business. For example, if the business has existing finance executives to take care of financial reporting, the out-sourced CFO could focus on more strategic areas such as developing cost strategies, reviewing cash flow requirements and identify options for the entrepreneurs to considers as well as identifying issues which result in financial issues and for those to be addressed in advance. This would focus the service to the areas which the internal staff of the business may not be able to address due to competency issues.

Out-sourcing the CFO needs of business would enable the business to have access to the strength of the whole firm which is engaged for the function, instead of just one or two individuals. This is critical given the mobility of talents now days. To a certain extend, this would manage the risk of people living half-way through the term of the contract.

The our-sourced CFO services would normally be structured for a fixed term with specific scope and fees. Additional needs would be negotiated separately. This would reduce the overall investment on the services as additional fees may be payable only when the needs arise.

An entrepreneur has to be honest in addressing the need for sound financial management of the business, especially under the challenging business environment. Why not start exploring whether your business would be better off if you bring in an out-sourced CFO?

Inovastra enables businesses to have sound financial management through its CFO services.

SEO, What Is It?

I am sure the acronym such as CEO and CFO would be familiar to most business people. However, lately, I have been reading about SEO being discussed, particularly in business magazines. What does a SEO do?

From my understanding, SEO stands for Search Engine Optimiser, a person who is responsible to ensure the website of a business is visited by its intended customers or users by tailoring the website to the ways search engines operate.

Among other roles of the SEO are:

• Reviewing and providing recommendations on your site content or structure


• Technical advice on website development: for example, hosting, redirects, error pages, use of JavaScript


• Content development


• Managing online business development campaigns


• Keyword research

As businesses integrate their business processes further with the world wide web, their websites are becoming more and more important in securing business.

AirAsia and Malaysian Airlines are two Malaysian companies which use the web to sell their tickets and do business with their customers. Not only such platform enables them to extend their reach, it also reduces cost as well as making it more convenient for their customers to transact with them. Opportunity to cross-sell products and services would be enhanced to the features of the Net.

Websites are no longer function just as billboards, to inform the world about a business but have became the shopfront for a lot of businesses. How far has your business leverages of the web to expend your horizon?

This is where a SEO would be helpful. I suppose a SEO may not necessarily be a technician, but the person should be able to appreciate how technology works and how to use them in making your web presence the key source of your business wealth. Whether or not this position is created officially, my view is that all business should have a SEO, somebody who as a matter of cause explores the potential of expending your web based business.

As the world becomes more connected and when 3 billion people are expected to be on the Net by 2012 or around that period, I am sure ignoring business on the web would deprive your business of a channel that has great potential.

Would you create a SEO position in the next 12 months if you have not done so?

Business Process Outsourcing, How Alien Is It?

When Business Process Outsourcing (BPO) is mentioned, the first image that would come to most of our mind would be ladies working in call centres, probably somewhere in India. This simplistic perception has caused many entrepreneurs to view BPO with much skepticism.

BPO is simply when a business contracts out its internal processes to a third party. For example, when an accounting firm is engaged to provide accounting services to your company, you are entering into a BPO arrangement. When you hire a headhunter to recruit new staff, you are outsourcing your recruitment process. Therefore, BPO is not something that a business is not familiar with and most enterprises have been involved with BPO, one way or another.

In a competitive business environment, the challenge for any business is to enhance value proposition while at the same time attaining more efficiency. This is where BPO could be one of the choices to be considered.

For example, to improve the distribution of a particular product, companies with wide distribution network could be used as outsourced distribution channels instead of investing in in-house business outlets. Not only capital expenditure could be reduced, access to market could be speed up while economic of scale attained in a short period.

When a company intends to offer e-learning services, it could consider working with a partner with ready platform and contents instead of investing to build its own platform. If a reliable partner is secured, it could focus on business development and market creation initiatives. The two entities could split the revenue depending on the investment and resources involved. In such an arrangement, assets utilisation are maximised, capital requirements reduced and cost of services minimised.

If a business enters into the BPO business by leveraging on low cost, such value proposition may not last long as cost would go up with growth and other players will scale and efficiency could be a substitute when competition becomes more intense. BPO in more strategic areas or arrangements at the higher stage in the value chain such as in research and development would be more difficult to be broken as both the consuming and processing companies are relying on each other to enhance their competitiveness.

As a general rule, the following consideration could be make as guidance when BPO is considered:

• Identify the desired value proposition and competitive edge;


• Break up your business processes leading to the desired position into smaller components;


• Consider processes where your company has edge over competitors and consider improving on that strength;


• For other processes, consider to contract out the processes to more efficient and competitive outsiders;

• Develop a strategic relationship with the BPO contractors so that both sides would understand the significant of the business arrangement, setting performance standards, identify and manage risks and develop a win-win value appropriation model.


• Periodically review the arrangement to cater for changing business environment and changes in the industry.

If an enterprise has multiple products and services, BPO could go to the level of outsourcing the whole business in a particular market. While certain elements of the business such as branding and quality assurance could be retained, such arrangement could free commitment of capital and resources and provides more opportunity to focus on higher value business.

For enterprises which choose to compete via a network of like minded companies, BPO is one of the ways to remain lean but able to provide wider value proposition to the targeted market. As proposed above, BPO is not focused on the processes but includes strategic elements which are shared among the BPO partners.

BPO is not necessarily simple to venture into. However, with changing business landscape, it should not be ruled out without due consideration either. Who knows BPO could allow your business to survive the perfect storm experienced by most companies today.

Pricing on Perception

I had the opportunity to shop at the Silk Market, Beijing. It's a one-stop market for tourists which offer varieties of goods from apparels, shoes, handicrafts, silk, watches, electrical products and a lot more stuff. The Chinese government sort of "guarantee" the quality of the products sold, although it does not mean all products are original. Hey, I was in China, the global producer of many things, genuine or otherwise.

What was interesting is the way the goods were offered. Most of the vendors were ladies who could speak descent English, enough to close a sale. They would always start by offering you at quite high prices, around 300 to 400 Yuan for a piece of cloth. You are supposed to bargain, sometimes at 25% of the price. And if you just move on if you could not get the price that you offered, they would grab you and close the deal. Such a practice maximises the price that they could get out of you. Since there were people from many parts of the world, everybody would have different ideas about how much, for example, a t-shirt is worth. By quoting high prices and getting the customers to counter offer, they could gauge the value that the customers attach to the t-shirt and would conclude the sale if the prices were good enough for them.
The customers, on the other hand, felt good since they were "successful" to get bargains, although the chances are they could have paid much higher prices. The comfort of Silk Market provides additional "good" feeling to the customers. Given the size of Beijing, customers tend to buy most of what they wanted at the market as it would not be convenient to go to another market, which may be 40 minutes to an hour away, under normal traffic conditions.
The whole case study demonstrate that price is not the function of the cost, but is more influenced by the perception of value attached to the goods and other physiological factors such as time, convenient and purchasing power.
By understanding the driver behind the perception of value towards a particular product, vendor could position the product in the way that stimulates the perception which attract highest value, hence price. Off course, by having lower product cost, the flexibility of pricing would provide the vendor with greater edge over competitors with higher production cost.
How do you price your goods and services?

Local Revenue, Global Cost

I have been observing this phenomena in Malaysia that we are increasing paying cost that reflects the global cost while still earning, generally, local revenue. The recent increase in the fuel price is an obvious example. Other example includes the increase in food prices, be it rice or vegetables. The recent lifting of ceiling prices of steel and cement is also an indicator that we could no longer shield ourselves from paying what others from other parts of the globe are paying.

The issue about brain drain to be is principally driven by the fact that we are not paying the global cost for local talents. The easy way out for them, especially Generation-Y, is to go elsewhere and get paid better for the same amount of contribution that they provide to their employers. What more if they get better deal in work-life balance and better amenities and facilities in foreign land.

Unless your business earns foreign revenue through export, or selling locally to foreigners at the prices they are paying in their own country (like what some of our cabbies normally do), you are going to face tough challenges in balancing between revenue and cost.

How could our businesses be re-structured to manage this risk?

First, we should look at maximising return from the production of goods and services that are generated from our businesses. Could we export if we are not exporting yet? Or, could be increase our export if we are an existing exporter. The whole idea is to get more from the same amount of output since out cost to generate the output is increasing as well. we could also have another serious look at the market segment that we are selling at. Could we move up the chain and re-package our products and offer new value proposition to get better demand and pricing? Increasing revenue is about selling more to existing market and selling to new market that was not served before. What about the way you distribute your products and services?

Second is about productivity improvements. Could we generate more with the same resources? This may require product re-designing, process review, increase training and motivation among the employees and perhaps investing in new technology which would allow you to run your business differently. Its all about identifying opportunities for improvement and having the attitude of not accepting everything as given and untouchable.

Improvements in your supply chain is the third avenue which may enable your businesses to be more efficient. Under the present cirsumstances, the concern is not just about buying at the right price, but security of supply and product quality are also critical. When was the last time you review your supply chain?

I am sure you could also figure out other options that you could consider in making you businesses more resilient and sustainable. The key issue is to understand the shift in the business landscape and review your strategies before the environment turns against your business.

Under the present circumstances, I do not believe that entrepreneurs are not forewarned enough about how much more challenging the future would be. Ignorance is not an excuse, and you'll be paying dearly when your businesses lose their viability.

Pricing Strategy in an Inflationary Environment

While the recent hike in fuel price would certainly increase the cost to run your business, another factor that would create challenge to entrepreneurs would be how to price their products and services. In as much as we would like to pass the increase in cost to customers, this may not be feasible in all circumstances.

How do you develop your pricing strategy in an inflationary environment?

Consider the following three factors.

First is to establish whether your target market is price sensitive or not. If the market is mature, that is when you have a lot of players selling more or less similar products or services, then there is a high chance that pricing would be the determinant when customers make their purchasing decision. Pre-paid handphone card is an example. We can find outlets selling pre-paid cards almost everywhere now days. That's why the margin for the re-seller is very thin. Under such circumstances, increase in pricing would results in customers moving to the next cheaper competitors. Higher price would also exclude certain customers who may not afford to spend on your products anymore.

Second is to consider the impact to your cost structure and the cost of your competitors' products and services. Are they having the same problems? Any of them coming up with new sales strategy which will eat into your market share? Can you use this as an opportunity to differentiate your business and gain more market share by maintaining your present price level by controlling cost?

Finally, look at opportunities to re-package your products or services in such a way where your customers would have similar or better deal and you are not worse off.

Once you understand how the increase in fuel price impacts your customers, your competitors and your own business, you are in a better position to decide the way forward. The idea is to at least maintain the gross profit margin of your products.

Let's look as the following example for us to work out the pricing strategy.

Say presently your product is selling at RM 100 and your cost of sales is RM 80, your profit margin is RM 20 or 20%. If your cost goes up by 10%, that is RM 8, your margin is now RM 12 or 12%. For you to maintain similar gross profit, you have to sell your product at RM 167 to get back RM 20. How do your get the additional 67% in sales?

Your options are:

1. Sell the product at RM 167. However, can your customer absorb the increase in price or would they go to other competitors who are selling at lower price? One way to commit your customer for an automatic increment in prices is to have a "price escalation clause" in the agreement with your customer.


2. Increase your price by lower amount and you absorb the different. Here, is your business able to withstand lower profit margin?


3. Sell more of the same product to get back the margin. For example, you need to sell 2 units at RM 100 each to get back margin of RM 24. You could, for example, offer volume discount to encourage customers to go for higher volume. The challenge here is whether the market can absorb higher sales volume and whether there is capacity to purchase on the side of the customers.

From the above, the better risk mitigation measure is to prevent a huge increase in production cost in the first place. If cost can be contained through better purchasing strategy, using alternative materials which would not result in decrease in quality, higher productivity or re-engineering of your production process, the pressure to recover margin through price increases would be reduced.

Do you really know the cost of your product or services? Well, if you do not have this information, your decision making may not be reasonable and as demonstrated above, the risks to your business would be higher.

Under the present circumstances, all businesses are calculating the impact of the increase in the fuel prices and working out their responses. If you are still not sure at this stage of what to do next, that is the sign of close and present danger!

Waking Up to the Reality of Life!

It is now confirmed that we have to pay more whenever we fill up the tanks of our cars. Some of us thought that we, Malaysians, are insulated from the effect of global oil price increase due to the subsidy from the government and the fact that Malaysia is a net exporter of petroleum. The raise in the pump prices of petroleum products is a real wake up call for everybody.

I'm sure by tomorrow, you are going to pay more for your teh tarik and roti canai and more price increases will follow suit. Looks like cost to do business will go up as well and early indicators in the media suggests that we may be looking at an inflation rate of 5%, and that may seems low for some of us who has to pay significantly more for most of things that we buy.

What are the options that you have when it comes to managing the impact of fuel price on your businesses?

First is to look at the impact on your cash flow and make sure there is no adverse impact to your operational cash flow. You have to understand the expenditure that would be affected by the new fuel prices such as transportation and material cost. Next is to look for the effect on the collection pattern from your customers. Is there any customer which may be adversely affected. Transportation companies could be among the likely candidates for this category. Having understood the possible implications, you could more or less figure out how far you operating cash flow would be reduced.

Second, is to consider options in ensuring the higher expenditure could be mitigated. First option that would come to the mind of most entrepreneurs would be to cut expenditure. However, this has to be done after careful analysis as the last thing that you want is to make your business to be less attractive to you customers due to deterioration is product or service quality. This is where you should be able to differentiate critical expenditure and discretionary expenditure. A discretionary expenditure is those that you could do without while still maintaining you core business offerings. Getting your team to travel economy class instead of business class would not affect your service to your customers. Off course this may reduce the morale of your team members! You could for example list down the discretionary expenditures of your business and perhaps, by going through with your team members, you would be able to identify those that could be reduced or deferred.
The third step is to look for opportunities which come along with the price increase. Could you, for example, offer products which help others to reduce their business cost. Offering teleconference facilities for companies which have high number of face to face meetings could be a growth area. This would help to reduce travelling cost while at the same time enables people to have more time to do other productive things rather than travelling. Similarly, helping companies to communicate to their customers or team members using electronic means instead of paper based communication would also reduce cost while at the same time increasing the effectiveness of the process.

In short, we have to accept the reality of the regime where cost to run business will increase. Doing the same thing over and over again will not lead us towards different results. We have to do things differently and quickly as well.

Surviving the Perfect Storm

People are saying that we are now experiencing the "perfect storm" the confluence of events which created havoc in the global economy and affected everybody around the world. Never in the history of the world we have high fuel prices, weak American economy, the burst of the sub-prime bubble, high commodity and food prices and disasters such as those experiencing in Myanmar and China, all at the same time.

Whether we like or not, our businesses would be affected in one way or another. Although the prices of fuel are controlled in Malaysia, the subsidy required to maintain present prices requires the diversion of fund allocated for other productive spending of the government. So we would perhaps less infrastructure and spending on strategic initiatives which would enhance the competitiveness of the future Malaysian economy. Well the government has to balance between the divergent of interests, especially after experience significant setback in the last general election.

So, what options do you have as leaders of your business setups?

First, in my view, is to look at the effect of the market dynamics to the demand for your products or services. Does the increase in the general price level reduce the capacity of your customers to procure what you are selling? Does is change their behaviour and start to go for goods or services that are more value for money compared to yours? Is the demand going to be higher because the shift in buying trend is to your favour? Understanding the effect of the perfect storm to the demand level in your industry would allow you to appreciate the risks and opportunities that come along with the storm.

Second is about to understand the effect of the changing demand to the competitive elements in your industry. Does is make competition more intense as demand is shifting to cheaper goods which has lower profit margin? How would you, as a business, differentiate yourself further from the "me too" businesses? Can you retain margin and volume by being more focus towards a certain segment of the market? Should you sell more abroad? By understanding the affect of the storm to the competitive elements within your industry and on your major competitors would indicate to you the options that you could consider.

The third step is to consider your firm's ability to seize the opportunities or managing the risks identified. Do have the people, technology, marketing capabilities or even adequate funding? Your key business processes would also need to be reviewed to support any changes in direction and value proposition that you may decide to pursue. Historically, the failure to support changes in business direction with changes in how things are done and how people think and behave, resulted in failure to achieve the desired intention.

Different business entities would experience different implications from the perfect storm. The longer the global economy remains stormy, the higher the uncertainty level and more challenging the business environment would be. This requires leaders of business to be on their toes in ensuring the sustainability of their businesses could be maintained.

It is obvious the present challenging scenario could not be left attended. Ignore it at you r own peril!

Post Election Strategic Review - Some Tips

As the saying goes, the people has decided. The outcome of the 12th general election certainly went beyond the expectation of most Malaysians. In as much as the politicians are wondering what's next, the business community would also be figuring out the implications of the changes brought by the results of the election.

What are the areas the we, business people, should review?

I would be interested to explore the possible changes in the areas of changes in overall national development strategy, policy changes at the federal and state levels, policy implementation issues and hanges in social elements.

Let's have a further look at each of the elements.
Overall national development strategy

With the Barisan National government being returned to power, albeit with just a simple majority, the overall development strategy is not expected to be changed significantly. Furthermore, the corridor development plans which were announced before the election are expected to be followed through, perhaps with further refinement to reflect the changes in the political dynamics. Overall, the thrusts of the corridor development plans would to be retained as most of the strategic thrusts reflect the desire to have balanced development, moving forward.

Policy changes as the federal and state levels

We should expect changes in policy, especially with the changes in the state government in Penang, Kedah, Perak and Selangor. The new state governments are expected to advocate policies which were promised in the general elections, reducing cost of living, free education and fairer distribution of wealth. Being new, there would be some learning curve which the new state governments would be going through.

At the federal level, the government would certainly be reviewing the policies which may have caused the erosion of support from the people. One interesting area is the subsidy of petroleum price, which has grown to be a large portion of the federal government budget. This would be a very challenging issue as the sustainability of the level of subsidy which is popular among the people. The longer the subsidy is retained at the present level, less development expenditure could be incurred, particularly with the increase in the global oil price. Furthermore, the cheaper the price of petroleum the higher the consumption and the faster Malaysia is moving to be a net importer of petroleum.

There will be new faces in the Cabinet as a number of ministers lost their seat in the Parliament. I would expect new ministers may introduce new policies, as what happened in the past, one way or another. This would not be clear until the new cabinet is announced.

Policy implementation issues

As what happened in Kelantan, when the federal and state government are not from the same party, tensions will emerge in state-federal relation, especially in allocation of federal funds. It would be interesting to observe whether the federal government would establish the "federal development department" in the states where Barisan Nasional is not in power. Furthermore, since states have limited sources of income by virtue of the power given by the Constitution, it would be interesting to see how the new state governments exploring new sources of income to finance new initiatives and deliver the promises made in the general election.

The civil servants would also need to adjust to the new policies of the state government. This is also a critical area to observe as changes in policy requires the implementers, the civil servants, to understand and execute. Furthermore, it is expected that there would be changes in heads of certain state controlled organisations such as the state economic development corporations, which are critical in the state economic development.

Changes in social elements

One clear message in the last general election is that the Rakyat wants more transparency in the way the government is ran. This would require governments to make their policies clear and reduce the discretionary powers, especially among the politicians, in their capacities as ministers or head of government agencies. Ultimately, the Rakyat expects the wealth of the nation to be managed in their best interest and those who are corrupts should be kicked out from office instead of being glorified unnecessarily. Definitely, corruption and abuse of power have to be addressed in a more aggressive manner!

Opportunities for Malaysians, in all aspects, should be distributed based on merit to ensure enhanced competitiveness of the country as a whole. At the same time, those who are not well off need to be supported, irrespective of race or beliefs. I would really like to understand how this is managed, by both Barisan Nasional and the new state governments.

Network-Centric Competition: What We Could Learn From Politics?

Today is the nomination day for the Malaysian 12th general election. I have a classmate and few other friends who would be taking part as candidates. In the next few days, the political parties would be competing to convince the voters of their merits to be given the "trust" as their representatives in the Malaysian parliament.

A part from the question of who is going to win, I am observing a pattern in line with the network-centric competition that was discuss in my earlier post. Let's look at how the network-centric concept is applied in this general election.

Malaysians generally arrange their political affairs along the racial lines. In view of this, most political parties are associated with certain races, although there are a few which have all races as members. If we could equate races as markets, such arrangement enables the parties to have their own niche and focus. They could offer and package solutions according to the target groups which would be more homogeneous. However, to win in a general election, the parties have to convince the majority of Malaysians and not just their target segments. Hence, the solution is to create networks among themselves, or in political term is "alliance".

In this general election, I could observe the competition are basically between two types of alliances, the Barisan Nasional model and the Barisan Alternatif model. Lets consider the features of the two models based on the network-centric competition concept.

The Barisan Nasional is arranged in the classic network-centric structure where it has clear network leader, which is UMNO. UMNO is able to be in this position in view of the number of seats that it wins in every general election (it had more than 100 seats in the last parliament). Such a dominant position enables UMNO to assert significant influence over the direction of Barisan Nasional and shape the policy and structure of the coalition. The other main component of the network is MCA which represents the Chinese. Although the number of seats is lesser, it has influence over the key economic players in the country. It has a clear structure and discipline mechanism and those who fail to observe the expectation of the group would be disciplined accordingly (network governance).

Although the components of Barisan Nasional represent various interest groups, Barisan Nasional goes into general election as a single entity. Therefore, it is able to capture the votes of various interest groups by getting them to vote for a single brand. As such, although individually the components may have different offerings to their supporters, collectively those support is blended and consolidated into votes for a single coalition.

The Barisan Alternatif which was born around the 1999 general election is not a cohesive as Barisan Nasional. It has no clear network leader although the leaders of the components are portraying that they are working as a group. In this general election, the components are trying to coordinate which seat should be fought by which component and there is no coordination on policies and strategies, as far as the public is made aware of. Each component has it own offerings and carries different brands although the candidates of smaller components are using the symbol of the larger components is certain seats.

As a result, the Barisan Alternatif, although has a common aim of denying the Barisan Nasional its two-third majority, is a more diffuse network-centric competitor.

In the era where voters are getting more and more mature and demanding, they would be looking beyond the promises and goodies that are offered during the campaign period. The network which is seen to be more organised and structured would have the edge.

Who says business cannot learn from politics? But make sure you just pick up the positive elements only!

Network-Centric Competition in a Flat World - Opportunities for SMEs

The world is flat, this is what peole is talking about nowdays. The term "flat world" perhaps was popularised by Thomas Friedman who describes the levelling of the world through 10 Flatenners including workflow, open sourcing, outsourcing, offshoring and supply channing, driven and enabled by technology and spread of information.

The flatenning of the world requires enterprises to re-look at how they deal with the concept of time, space and knowledge, the deep fundamentals which will continue to change on an ongoing basis. Alvin Toffler in his book the Revolutionary Wealth decribes the phenomena of "de-synchronization" where different groups of people react to change at different speed, creating opportunities and risks for them, depending on which groups they belong to.

Today, most of us has our own "spatial reach" - the places we have been, the origin of good and services we use and consume, the places where our friends come from, the source of news and information we have access to and the source and places of wealth we create - among others. Knowledge, the source of new wealth, keeps on being created, discovered and become oblolate as faster rates. The best part about knowledge is it is non-rival, if I transfer my knowledge to you, we ended up with both with the same knowledge.

Another transformation in the market that is exciting to be observed is the shift from competition based on supply chain to competition based on network of enterprises. Companies such as Li & Fund has managed to demonstrate that new capabilities that would create competitive edge is "network orchestration" where the orchestrator designes the overall supply chain, drawing together multiple suppliers at different locations to deliver the products desired by customers at the quality and prices determined by the customers. Yes, the customer is the central of gravity of the network.

Based on the above observations, the flat world creates opportunities for small and medium enterprises to be significant and meaningful to their customers through a "network-centric" approach where either their become the network orchestrator or they belong to a network of companies producing and delivering goods and services demanded by their customers. The network-centric approach is based on the realisation that vertical integration is no longer possible due to the diverse needs and wants of cutomers as well as the speed goods and services become obsolate. Such approach means the SMEs need not have all the innovation, production and distribution capabilities but work together with like minded enterprises, synchronised by the network orchestrator, in metting the demands in the markets they serve.

How do SMEs be part of this? They have to get rid of two beliefs that most enterprises have:

• Not Invented Here (NIH) - where people in the organisation only support their own ideas and are not open to knowledge and ideas from outside the organisation


• We Know Everything (WKE) - where people in the organisation believe that they know all that are required to be competitive in the market

The two main road blocks are mainly in the mindset of people. Therefore, for a network-centric approach to be adopted and successful, the major change that needs to happen is in the hearts and minds of key people in an organisation. This is where leadership would be really critical in transforming an enterprise from taking the world on its own to working together with groups of other enterprises towards fulfilling the demands of common ultimate customers.

A network-centric approach requires new capabilities to be developed within the network itself and within the network members. At the larger network, a leader has to take responsibilities over the success of the network as a whole and need to introduce and enforce clear rules and protocols for network members to observe. At the individual network member level, the ability to connect and perform based on the overall network strategy would be very critical.

In the final analysis, the flat world enable more enterprises to be significant and meaningful to their customers. Technology and information are two major drivers that level the world and having the capability to access and making sense of them would create opportunities for being more competitive. A network-centric approach is where customers is the major focus and the network of enterprises, lead by an orchestrator, align their innovation and supply chain to meet the demands of the customers at the quality and prices which make sense to the customers. A network-centric approach enable enterprises with lesser capacity and capability to offer quality and competitive goods and services based on the overall strength of the network.

Well, what would you do next?

Making Change Happens!

Well, we are now in 2008, another chapter in our life is ready to be written. For most people, new year means new aspirations and resolutions. Businesses have the same too. New strategies, new initiatives etc. However, as what we have experienced before, how sustainable the aspirations, resolutions, strategies and initiatives? Would all these lead to better outcomes, in life or business?

Different people have different ways in trying to make change to happen and in the manner it was planned. To me for organisations, there are five key elements that have to be managed to make change happens in the way we plan. I group them as 5Ps.

The first is Plan or strategy. The change has to lead to a certain outcomes that benefits the organisation as a whole and the stakeholders as well. This is the job for those who are in the leadership of the organisation. Not only the strategy or plan has to be developed, it has to be communicated to others in the organisation in the manner the people understand and excite them.

At the end of the day, it is the People in the organisation that drives and sustains the change, the one that really makes the change happens or not. As discussed earlier, the people should be engaged and should be given opportunities to be involved in setting the plan. This would encourage better understanding and buy-in. Furthermore, people would be committed to any initiative which they themselves propose. Its about the battle for the hearts and minds, command and control no longer works nowdays, in most cases.

It would be good if champions could be identified to promote and lead the change. This would be those that are respected and trusted by their peers and at the same time are also committed to the case for the change. The champions would be the ambassadors of change and would encourage others to participate as well as addressing the concerns and challenges that surface along the way.

The linkages between the change, the outcomes and performance measurement should also be clarified. People would like to see how does the whole scheme work and how they would benefit at from the whole affairs. This could be the tricky bit as some management may have difficulties in linking change to performance. Having clear milestones which people could to to cherish their success in making change happens should be made available to get the feeling of change across the team members.

We could not expect a different result if things are done the same way, over and over again. One of the elements which have to be reviewed is the Process in which things get done in the organisation. This covers the whole spectrum of processes right from how policies are determined, how decisions are made right to how the toilets are cleaned. One approach is to review the processes and identify the few ones that could make major differences and focus on changing them first. The idea is to clearly demonstrate to people that the commitment to the change is real.

Some of the changes in the processes could only be done if suitable Platform are made available. This would include tehcnological platform as well as knowledge and regulatory platform. Pleasent work environement could also be considered a platform due to how important human capital is to organisational development nowdays.

When it comes to investment in new technology, management has to focus on the strategic needs and the outcome that are expected out of the investment. Gone are the days where people invest in technology because others are doing so as well!

The final elements which is very important is Principles, the values that are internalised by the team member. Everybody has to work for the cause on which the organisation is established. The drive form the hearts will drive real performance. How to do this? Well, that the Five Million Dollar question!

I suppose this new year would be approached in a new way so that we could be proud of ourselves and the organisations we serve at the end of the year. Change will continue to happen, what is critical is does it happen in the way we want?