Monday, June 06, 2005


During the 1990s, the Malaysian economy had charted an average growth of 12%, in tandem with the country’s strong economic growth, which at one time exceeded 8% per annum. The economic exuberance was however reversed in 1998 due to a widespread East-Asian economic meltdown. The economic crisis had waned investors’ confidence. Capability had outstripped capacity. Liquidity has become drier and how the industries are able to survive in this uncertain climate is unpredictable.

In those good times, many companies were expanding at such a fast pace. Excessive risks are hastily justified by excessive returns. Poor utilization of resources is camouflaged with higher financial turnover. When business is booming, companies focus on sales achievements and high volumes of trade. In the frenzy mood, people are no longer sensitive to increased operating costs and wastages. Productivity and efficiency drops drastically, but these weaknesses were obscured by higher sales achieved.

In times of boom, CEO’s and their senior managers often have a euphoria regarding their business success. They get carried away and are often obsessed with issues regarding corporate images and their images. They start by diversifying their business beyond their core competencies; splashing massive amount of money on elaborated renovations and many even build new buildings for their corporate headquarters so as to look successful and great. They make financial commitments in fixed assets without much considerations and proper analysis on those investments, which ultimately tied the company in massive financial obligations and thus put the company in high financial distress. Their overhead expenses were growing extensively much faster than their sales performance and capacity. Suddenly, the crisis came, or shall I say, it came at the wrong (right) time.

The East Asian Economic Crisis had served an unforgettable lesson to Corporate Malaysia, particularly on the inconsiderate loading on the market capacity, overstretching the market capacity beyond its means just for quick short-term gains, adding fuel to the already bad situation.

When the economy was thriving, there were increased buying powers, pushing demands above its usual line. Due to the intense competition and the obsession for rapid growth over a short span of time, companies often undercut competitors in pricing to win more business. Many of these companies choose to compete on price alone rather than on quality of product and service. The tragic part about this approach is that some of these companies do not even know their actual costs or have underestimated their costs. The main fault lies in the increased costs due to inefficiencies, lack of knowledge and competencies and the inflationary costs of materials or labor. Many companies do not carry out any proper financial analysis such as the internal rate of return and net present value. The risk of financial exposure is one key element that finally broke those companies. These companies get more businesses, but also make more losses.

The 1998 Economic Crisis had cause an abrupt loss of global demand which compounded the fundamental problem of overcapacity that already exists worldwide. The era of over investment and the economic expansionist policy currently adopted by China had produced far too much capacity than the global base of consumption can possibly absorb. This will be the harsh and inescapable reality the global enterprises will have to face.

There are tremendous pressures for management today to apply their resources efficiently and in an effective way in order to survive in the current competitive business environment. Traditional sources of profitability are drying up, as quality and high productivity are increasingly becoming prerequisites of doing business rather than providers of competitive advantage. Competitive advantage will be the product of innovation in addressing the needs and desires of a demanding customer base notable for its constantly changing preferences. Innovation is a requisite in every industry as the competition to capitalize on shifting profit zones heats up and the traditional cachet accruing to market share evaporates.

Global and even local competition are putting tremendous pressures on organizations to seek cost reduction, asset restructuring, business process reengineering, business refocusing, quality awareness and to use modern & faster technological processes to improve the productivity and efficiencies of workers. Organization thus have to groom or to procure a new breed of managers who are capable to manage employees and at the same time, create corporations that are both risk-taking and innovative.

As globalization intensifies and technology grows by leaps and bounds, competition in the marketplace has also escalates. As a result, there is a pressing need to streamline, restructure and “right size” organizations. One of the worst of all fads and formulas to be implemented by management is the great panacea called “downsizing” or “rightsizing”. Executives desperate to show some actions in the face of poor results have determined that quick and dramatic actions required to save the bottom line (and to save their job). What is obviously amiss is that the bottom line can be renewed through rapid expenses reduction but not real productivity gains. The people that were retrenched were those who were getting things done and those not affected by the downsizing process were management cronies and co-culprits who help suck dry the companies’ coffers. Unless the nature of the work itself is changed, simply removing people does nothing except to worsen productivity.

Management guru Peter Drucker says, “We are seeing way too many amputations before the diagnosis”. The problem is that the productivity of most organizations immediately plummets upon that action. When a downsizing (often massive firing of people) is announced and implementation begun, productivity plummets because no one knows who will be the next person to be chopped. These cutbacks seldom focus on solely poor performers (as they are usually cronies of top management). The best employees will strike quickly and will be seized by competitors but the mediocre will remain. The contract of loyalty has been broken. The company no longer deserves “loyalty, sacrifices and commitment”.

Downsizing has permitted weak management to escape the consequences of its own incompetence at the expense of the blames, hardworking and performing workers. It is important that management understands that any gains to the bottom line made through expenses reductions, which are not accompanied by revenue increases will contribute towards the organizational downfall.

As declared by Peter Drucker, “no century in human history has experienced so much social transformations and such radical changes as the 21st. Century.” ‘CHANGE’ is threatening. There is no right way and there is no learning without mistakes. There are stages to transformation. Although an organization may skip over one, inevitably it realizes it must retrace its steps to cover the missing ground.

Everyone must accept the premise that fundamental change is necessary. The old way of doing business is no longer an alternative. Everyone must be aware of the situation everyone is trying to do something – often anything – for survival.

No society in history has faced these challenges. But equally new are the opportunities of the knowledge society. Access to the acquisition of knowledge is by learning, which will become the tool available to acquire the skills, technologies and knowledge. The knowledge society will inevitably become far more competitive. Knowledge has become the key resources – for a nation’s economic strength as well as its military strength. Knowledge is not tied to any country and it is portable. It can be created everywhere, fast and cheap. But knowledge is constantly changing. Knowledge always makes itself obsolete within a short period of time. For this reason, the acquisition of knowledge through learning can no longer stop at any age. “Life-long learning” will increasingly be a requirement for any knowledge worker.

In a rapidly changing business world, nothing stays constant even a short while. The worlds around us have changed fundamentally and that attitudes to the cost as well as the benefits of industrial activities and economic growth had undergone a profound transformation. The underlying causes which reflect turbulence in the economic, technological, political and social environments, ‘Triggers for Change’. There are so many external factors that can suddenly present themselves and make a company less competitive or drive a firm out of business if they do not adapt and respond to the changes. Companies that are merely focusing on cost cutting without doing anything new or innovative to win new business will achieve their self-fulfilling prophecy of reduction and diminishing into extinction. Abraham Lincoln has this to say about change: “the dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must think anew and act anew. We must disenthrall ourselves”.

In practice, a very severe recession or a collapse in property value may give rise to radical cost-cutting programmes, involving plant closures and redundancies. Top management spends a great deal of time and energy ‘Fire-Fighting’, as they develop tactical response to these short-term shifts. Unfortunately, this distracts them from paying attention to the underlying trends which in the long run may prove a much more serious threat to the organizational existence. The longer-term changes will certainly result in the need to revise the organization’s strategic thinking and in consequence call for more fundamental changes in the organizational policies and practices. During a severe economic downturn, the sheer need to survive a crisis may mean that actions are taken which are inconsistent with the organizational strategy.

Technology and knowledge are now the key factors of production. With increased mobility of information and the global workforce, knowledge and expertise can be transported instantaneously around the world. Any advantage gained by one company can be eliminated by competitive improvements overnight. The only comparative advantage will be the process of innovation where firms combined market and technological know-how with the creative talents of knowledge workers to solve a constant stream of competitive problems, and its ability to derive value from information.

The challenge facing us is how to leverage on technology to gain a competitive advantage. Organizations will need to adopt a mental model to rethink their notions of where value can be created and how they can capture that value. Successful knowledge management applies a set of approaches to organizational knowledge, including its creation, collection, codification, personalization and dissemination, which will lead to achievement of corporate goals and objectives.

The most successful corporations of the 1990’s will be something called the Learning Organization. According to Arie De Geus of the Royal Dutch / Shell, he says that “The ability to learn faster than your competitors may be the only sustainable competitive advantage”.

Businesses that had survived the economic recession in 1998 must view the development of a business and its financial stability as vital issues. Businesses cannot afford to ignore the need to think ahead and make a careful and regular assessment of all aspects of its performance, its ability to be innovative and creative, and its ability to learn and acquire new knowledge, and particularly its competitive strategy and its competitive advantage of their products or services.

Long-term commitment to new learning and new philosophy is required of any organization that seeks transformation. Best efforts and hard work will not suffice, nor new machinery, computers, automation, gadgets. There is no substitute for competencies. It is evident that in this competitive world, organizations and countries as a whole must achieve recognition from customers about their top quality activities at all times in order to conduct business successfully.

Today, Malaysian organizations and industries have to go further up the value added chain, producing more technological advance products and services to meet the new challenges. The focus must always be value-added production chain. Low value-added products after a period of cyclical upturn result in low prices, and low margin of profit. To be able to achieve the desired results, the drive must be market led.

Every country, every individual and every business have to take into serious consideration its competitive standing in the world economy and the competitiveness of its knowledge competencies. In order to sustain the long-term growth, industries have to be innovative, far-sighted, competitive, focused and fast to win in the ever-challenging market.

Industry players should also possess strong business acumen, continually improving their competitive advantage and being able to adapt their business to the ever-changing market needs. They have to ensure that their products would have to meet and possibly exceed the desired quality, delivered on time, and within the cost budgeted and most of all, satisfying the needs of the customers and ultimately bring in the desired profit which is the fundamental of why the business organization exist.

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