IN just a matter of three weeks, the new Pakatan Harapan government has made many major decisions at breathtaking speed which has left many citizens breathless in amazement.
While many decisions might look like populist strategies by a new government in its haste to fulfil its election manifesto, management students like me can draw parallels as to how to manage a large corporation embroiled in financial difficulties.
At the end of the first 100 days, we would be able to assess whether this new management team has got its overall strategies pointing in the right direction or this nation is left with a trail of disconnected strategies hastily conceived by a motley crew of novice political management trainees.
Corporate managers and SME owners have much to learn from this historical case study as it unfolds.
Fact. The government is the biggest corporation and the biggest employer in this country.
With revenues in the hundreds of billions and expenses always more than its revenue, its biggest management headache is always about balancing its budgets. The government can manage continuous deficit budgets because it controls its own bank which is allowed to print money whenever there is a cash flow deficit.
However there is a limit to borrowings to finance deficits as the government like a corporation has to be able to service its debts. Prudent financial management of the national balance sheet dictates that borrowings should not be more than 55% of GDP of this nation.
One of the major reasons on failures of large corporations and SMEs alike is over-borrowing. Short-term borrowings to finance long-term projects. Financing loss-making diversification activities from borrowings instead of profits from core business. The key consideration to additional borrowings must be based on the organisation’s ability to have sustainable forward cash flow to pay for its expenses and to service its debt repayment. Any capable chief financial officer (CFO) would be able to advise you on this basic accounting concept.
SME owners who also act as the CFO of their own companies are advised to adopt a prudent financial policy on borrowings. It will get even more messy if you include your personal borrowings with your company borrowings if the cash flow from your company is your only source to service both debts. There are so many instances of SME owners with a profitable business getting into cash flow problems when they over-invest into properties etc.
Fact. Rescue operations requires emergency life saving affirmative actions.
Once a patient is wheeled into an emergency ward, the medical officer has to immediately assess the overall health of the patient, diagnose the problems and implement corrective medical actions. Our good doctor, Tun Dr Mahathir Mohamad has recommended surgery, amputations where necessary, prescribed sour medicines and gave oxygen to the patient. Once the condition of the patient is stabilised, he will be wheeled into the ICU or general ward depending on how he respond to emergency treatments.
Many corporate recovery managers are actually financial doctors and they will be able to identify with Dr Mahathir in this case. It is also common practice that new CEOs/CFOs who have been brought into financially distressed corporations will resort to “kitchen sinking” – announcing all the bad news at one go, blaming all the covered up problems on the previous management. If the previous management team is found to have mismanaged with financial irregularities, they can be charged in court. If found to be poor managers, they will be labelled as stupid and incompetent.
For SME owners, you will have no such problem. If you mismanaged your company, nobody will help you and nobody will call you names. You will be declared a bankrupt and you will quietly slide into oblivion. No room for mistakes and no time for self pity. You are on your own.
Fact. Small companies, small problems. Big corporations, massive problems.
Just imagine you have been hired as part of the new management team to manage a corporation called Malaysia. Staff strength 1.6 million employees, 25 department heads, 25 different businesses, some revenue driven, mostly cost centres. Staff morale is low as job uncertainty weighs on their mind. Loyalty to old management team still high but prospects of side income not the same as before. Difficult to change old habits and lackadaisical attitudes. What should you do?
One department has 550,000 teachers on its payroll. With a student population of about five million, these teachers will have to adapt to smaller teaching classes and new teaching methods.
It will be more difficult to improve the teaching of English to students if the teachers themselves do not speak much English. Should the fake facts in history books be replaced with true facts and teaching of religion be restricted to respective religious schools? As the department head of education, what should you do?
Another department has a staff strength of 100,000 officers to uphold the rule of law. Some heads act above the law, some act like the law but more perplexing is that different laws apply to different persons. Cutting off rotten heads might stop the rut but only when no one is above the law, rules become rules then only the law will again be true and fair. In all fairness, what can you do?
So many departments, so many problems. Some problems are big and difficult, some are teething and irritating. So many staff, some are bad, many are good. As they say, one rotten apple spoils the whole basket. How do we sieve out the good from the bad?
It would be much easier to solve the financial problems than the people problems. Ask any CEOs, CFOs and human resource directors. Numbers can be crunched and analysed. To change attitudes and cultural habits, it will need a massive transformation of mind sets across the whole organisation. Definitely not achievable within a 100 days.
As Lao Tzu said, “A journey of a thousand miles begins with a single step.” Let us all walk together in this journey for a better and more prosperous Malaysia.
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