4/2016 – Right-sizing for the lean year ahead
by Tan Thiam Hock
Saturday, 30 January 2016
I have just had a rough time on the golf course today. Half my shots went into the bunkers and half my chips went elsewhere. As the greens in Tropicana was hard and lightning fast, I three putted half the time, and was scoring sixes and sevens most of the time.
I just could not focus with the task at hand. Maybe it was because I was paired with the CEO of UOB Bank whose massive straight first drive at the first hole made me play catch up for the rest of the day. Psychologically I was beaten even before I started. If the PJ Commercial team was playing a joke on me, it certainly work.
Honestly, I was not too concerned with my golf score. I was more concerned with the state of our economy and this was a great opportunity to glean some advice from a seasoned and experienced banker. Having gone through the Asian financial crisis, currency crisis and various economic recessions, he and the previous CEO have annually given me accurate macro outlooks, raised red flags and providing insightful opinions that are invaluable in helping me read the market and economy.
Successful entrepreneurs are experts in their own industries. As each industry is only a subset of the greater economy, there are many forces in the economy that will affect and impact your industry. As such, a good feel of the macro economic forces in play in the coming year is crucial for an accurate forecast of your business.
If you look back to early 2015, some of our major banks started trimming the fat that was accumulated over the growth years. In service industries, salaries is a major cost so it is only natural that at least 10 to 15% of staff are separated from the company, voluntarily at first and by compulsion if they are short of volunteers.
Oil and gas companies were slashing to the bone due to final realisation that low oil prices was the new norm. Media Prima and The Star Media Group had their VSS to prepare for lower advertising revenue partly due to poorer economic forecast and customers switching to digital advertising. If your business is facing a headwind that looks like turning into a severe thunderstorm, you had better run for cover. You must have the courage to face reality and make unpopular decisions. Like everybody else, you are caught in a downturn of an economic cycle. It would have been much easier if you had started planning last year as your retrenched staff would have had a better chance of finding alternative employment.
So you can imagine my surprise that Petronas is just starting to right size their 51,000 strong workforce this year. As one of the best employers in Malaysia for the last few decades, the CEO and his board must make the toughest decisions ever in the history of Petronas.
If only they had faced reality earlier like all the major oil companies in the world who has started right-sizing some 12 to 18 months earlier.
It is even more surprising that our government is revising its 2016 budget three months after approving it last October. The policy makers must have suddenly realised that our economy is not going to be as rosy as before.
To me this is hindsight rather than foresight as the troubled signs were sighted all over back in early 2015.
Even then, as the largest service organisation in Malaysia, the government has not taken the tough decision to right-size the civil service workforce.
We have the highest ratio per population of civil servants and cabinet ministers in the world and like Malaysian Airlines, a 30% staff reduction in both will not affect the delivery of services to its customers.
The key words in a downturn is productivity and lower costs. When you forecast lower revenues, you keep reducing costs until you find the right balance in income cost ratio in your operating budget. Simple as that. No geniuses required.
So with all these retrenchment exercises rolling out fast and furiously, how are we to solve the looming massive unemployment problems facing our country? I am no economist so I have no answers for you.
All I could remember from the last few recessions was that resourceful people who need to survive will take on lesser jobs and start small businesses. There is an entrepreneurial spirit within each one of us and as they say, when the going gets tough, the tough gets going.
When any country faces massive unemployment, the policy makers first task is to find jobs or provide opportunities for its citizens. Bringing in a few more million Bangladeshis is definitely not the answer.
In fact, we should reduce the number of foreign immigrants who has taken a fair share of small businesses through their entrepreneurial endeavours so as to let our unemployed youths a fair chance of being an entrepreneur.
Our young workforce must realise that our government does not have the means to feed everybody and you have to fend for yourselves. Political leaders must also face reality that they have to perform or they will be retrenched like everybody else. Cheap talk gets you nowhere.
If you are on your own, I hope that you have taken defensive positions a year earlier. Maybe you should start talking to your bankers now to prepare for 2017. Never mind if you are not able to talk to the CEO, an experienced branch manager will do as well.
As for me, I was about to give up golf for good since I was playing so badly that day. Then I birdied the last hole with a lucky putt off the fringe. I thanked the CEO for not giving up hope on me. The feeling was mutual.