20/2018 – Does the size of business matter?
by Tan Thiam Hock
One of the most intriguing question that have often been asked of entrepreneurs – does size matter? I am of course referring to the size of the business.
All entrepreneurs will dream of growing their business from small to big and from big to huge. Aspirational dreams motivates the entrepreneur until reality strikes.
Business cycles show growth and decline of any industry. During the growth phase, you need more people and more investment. When your business becomes stagnant and goes flat, you start to reign in the costs by right-sizing your organization in terms of investment and people. When your business decline in size/ revenue, you will stop investing, preserve cash flow and down-size your organization. #businessstrategy1.01
My last 30 years have been spent searching for answers to multiple choice questions. When I get a new distribution agency, should I hire first and hope the additional revenue will flow in? Or should I wait and look for visibility of success before I commit more resources. Which part of the organization chart will crack if we grow very fast? These are happy problems for any entrepreneurs.
A few years ago, we lost a major agency and we had to restructure, down-sizing rather then right sizing and it was a painful exercise. We offered early retirement packages to staff who wanted to leave and some staff opted for part time work as they wanted to spend more time with their growing kids. We had to reshuffle our sales and marketing team, move people around and double task some jobs.
The size of organisation determines the flexibility to change and to adapt. Smaller companies tend to be more nimble and quick in response. Big companies plan their needs for the foreseeable future and tend to be more structured and less flexible. Most GLCs who are local champions operates like a government department. Most GLCs who have to compete in the international markets face major headwinds eg Malaysian Airlines.
How many companies actually plan for incoming disruption? Traditional media companies like print and TV have seen disruption signals some 10 years ago and yet many failed to down-size until forced to do so. Businesses involved in sunset industries should milk the business for what its worth and reinvest the profits for the future and the planning starts now.
In view of the e commerce efforts of Alibaba/Lazada to bring in manufactured goods from China, has our supply chain of importers, distributors and retailers started planning for this disruption? What size of business will be taken over by the disruptors? Should they pivot now? If yes, how do you pivot? What is the right size after the pivot?
The biggest organisation that we have in this country is the government of Malaysia. The combined staff strength of federal and state civil service is approximately 1.6 million and this number exclude GLC’s, GLIC’s and contract workers. Assuming a total workforce of 16 million, one in 10 works for the government.
To ensure the security of the country, we have about 350,000 soldiers and policemen, 100,000 people in health service and 500,000 teachers. These are essential services for the benefit of the people. That leaves us with 650,000 civil servants to manage the country and provide other services through the various Ministries.
We have one of the highest ratio of civil servants to population in the world. If you add in the pension cost into the emoluments paid, our salary bills for the civil service runs close to a hundred billion ringgit a year. It is our biggest operating expenditure in our national budget.
Despite the bloated size of the civil servants, the new Pakatan Harapan government has decided not to down-size the organisation due to many reasons. I would speculate that even a 10% down-sizing would create 160,000 jobless people that are unemployable by the private sector.
The civil servants have also racked up a high debt of personal loans that has alarmed our Central Bank. A retrenchment exercise will cause such a massive non-performing portfolio for MBSB and Bank Rakyat and hopefully not cause a domino effect on our financial system.
If you are the Prime Minister of Malaysia, how are you going to right size this bloated organisation? If you are not able to do it now, what should your plans be in the next five years?
Some actions have been taken to reduce the opex. Previous frivolous hiring of highly paid contract workers have been discontinued with savings of billions.
Leakages in procurement are slowly but surely reduced by responsible Ministers. These are the low lying fruits. Further efforts are needed.
On calls to reduce the RM800mil budget of Jakim, the Minister recently revealed that half of the opex was for paying salaries of over 30,000 religious teachers. So the Ministry is considering to reduce the opex by half just by transferring the teachers out of Jakim to another department or Ministry. Brilliant strategy indeed.
With the Education Ministry already employing 500,000 teachers, adding 30,000 is just another number and all they have to do is just request for an additional RM400mil to the Education budget. Or perhaps IIUM might set up a national religious school just to keep the teachers employed.
The Government of Malaysia must have a five-year plan to right size the civil service. The first step is to stop employment. Reallocate the people resources from redundant jobs to areas where there are shortages. The MACC and the Attorney General Chamber certainly need more manpower resource now. Just an example of a happy problem and solution.
Each Ministry and state government must conduct a study for internal manpower requirements for the next five years and identify the right size set up needed to deliver exemplary services to the people. Gone are the days when securing a job with the government is liken to having a wooden bowl.
Trust me. It is better to right size now then to down-size later.