Saturday, 20 June 2015
I am again in London after attending my Harvard Business School AMP 182 class reunion in Paris.
This is our third annual reunion since our eigth weeks Advanced Management Programme in Boston, 2012.
I see more white hairs among my male classmates, some with less hair than before. The ladies look fine. Despite the jet lag, everybody was in good spirits. As with all reunion, an HBS case study was arranged.
One of our favourite lecturers, Professor Marc Bertoneche conducted the case study on Apple and its unique financial problem of having surplus cash of US$130bil in its coffers as at financial year end 2012.
At current exchange rate, this would amount to RM480 bil cash! Not “units”. If only Apple is owned by our Malaysian government, then we can easily solved 1MDB’s cashflow problem.
While he was alive, Steve Jobs refused to pay out any dividends as he felt that the cash hoard is needed to buy new technology and innovations without which, Apple will not be able to sustain its competitive advantage worldwide.
One of the key weaknesses of Apple was the risk of innovation. Apple has to continuously launch new innovative products to sustain leadership and consumer loyalty.
Apple’s “product advantage” is difficult to sustain in a commoditised market. The high margins currently enjoyed is slowly being eroded by similar smart products that is half its price.
The “BMW” strategy within a commoditised digital market requires continuous innovation to keep sales and margins high.
Just like three years before, I had another discussion on Malaysia Airlines with Ben, the COO of Alaskan Airlines. For comparison sake, Alaskan Airline share price has gone up 400% since three years ago.
They have been consistently profitable for the last five years despite the high oil price and they operate 200 airplanes with just 13,000 staff. Malaysia Airlines has less than 100 planes and getting fewer, and it had 20,000 employees supposedly going down to 14,000-strong.
Just like three years ago, Ben emphasised on productivity and cost. Everyday he looks at cost, cost and cost. That is because the US airline market is so competitive that nobody is able to increase the selling price of an airline ticket, so he can only focus on unions, productivity and cost. No legacy issues and definitely no political interference or indiscriminate pilferage in his airline.
Now that the airline business has become commoditised, Malaysia Airlines will have to galvanise its workforce to be more productive and the management to be cost conscious and cost effective. So far the only change that I have seen is a new company and a new CEO.
The same employees with the same attitude and all the legacy problems have been transferred to the new company so it looks like an uphill task for Mueller. I certainly hope that he can prove me wrong.
Oh.. did I mention that to rub salt into my patriotic wounds, Ben told me that his airline was buying new planes on cash terms so that it can get the lowest possible price from Boeing? I did not mention to him that our other airline is also in need of a cash injection. Call it Malaysian pride or whatever is left of it.
Talking about cash, what happened to all the initial public offering cash pile of RM4bil in Felda Global Ventures? All gone in just three years? I understand FGV now have to borrow from banks to finance the purchase of plantation and sugar assets from an Indonesian company who is in need of an urgent cash injection itself.
I hope these few examples that I have mentioned will serve as case studies to young entrepreneurs.
Case studies shows you not only on what and how to do but more importantly on what not to do.
If you ever list your company, you are solely responsible for looking after the well-being of other people’s money. For your sake, show some integrity and honestly look after other people’s money like your own. Then you can sleep well at night.
When you have lots of cash in hand, stay calm and stay humble.
Learn to differentiate between the vultures and the genuine business associates as everyone will be pushing new opportunities to you. Be strategically clear on where and how you want to take your company forward.
Just compare cash management best practices between Apple and FGV. Ok, that is not fair at all. It is like comparing apples to lemons. And you know what a lemon is.
All that is left at the end of the day is a sour bitter taste on shareholders tongue.
While Apple finally decided to reward its shareholders with high dividend payouts in 2014 and 2015, I wonder what will be in store for FGV shareholders and stakeholders – Felda settlers?
Darn… I was so engrossed with the amount of cash in the Apple account that I forgot to ask Prof Bertoneche the ultimate question on all Malaysian lips….what the hell is a “unit”?
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And to rub salt onto Rakyat’s wound, the explanation for the “unit” was attempted by a Minister in Parliament. Yet, the stakeholders i.e. the Rakyat remain clueless.