Everyone wants to know the winning formula behind a successful company. And while most CEOs will tell you that there is no one-size-fits all strategy that will work magic across all enterprises, there are some common characteristics that they share.
An example will be the winners of the Enterprise 50 (E50) Awards 2012, which recognises the contributions that local, privately held companies have made to economic development and carried the theme, “Navigating through uncertain times”.
The thread linking the winners has been resilience, and effective management of their strengths and vulnerabilities. Looking at the winners’ podium - where the top 10 hailed from a spectrum of industries ranging from real estate and construction to manufacturing and logistics - many share similar qualities.
In particular, these companies show that they have established strong financial track records which underscore their business acumen and financial prudence. They have built a niche for themselves within their industries with either a strong product or excellent service.
Achieving a balance between what you spend on and where you save is crucially important in business – especially in these uncertain times. Businesses need to think about their cost base as an investment and continually review whether the ‘investment’ is being made in the right areas.
Sustainable SMEs proactively manage their strengths and vulnerabilities by positioning their business to respond effectively to short-term challenges while planning for long-term.
They regularly re-evaluate their cost structures and monitor their cash management strategy. For example, they may have embarked on co-sourcing arrangements, shared service centres, programmes to streamline infrastructure or business process optimisation initiatives.
This year’s top winner, Lian Soon Construction invested in a costly German integrated scaffolding system to improve manpower productivity. With the German system, scaffolds can be assembled in a much shorter time with greater flexibility, resulting in improved productivity. This has hence ultimately built a sustainable cost advantage for the longer term.
Other winning companies such as Kwong Soon Engineering and Victor Enterprises invested in their people and systems to support growth. They understand that sustainability and the ability to excel in adverse conditions is about building a diverse business portfolio and a robust business structure.
Ultimately, the goal is to make their organisation leaner and more agile, thereby building a sustainable cost advantage for the longer term.
Continually seeking markets can lessen the blow if one sector is badly hit by a recession. In a downturn, enterprises that have diversified their product range and penetrated markets early are more likely to survive.
Lian Soon Construction made a bold move to diversify the company’s core business by venturing into other segments of the industry such as insurance brokerage, engineering, equipment and machinery lease as well as real estate managing canteens and cafeterias. Apart from reducing market risk, the diversification served as another strategic aim to expand.
High performing E50 companies also often take a longer view of expansion plans, with a preference not to pull back in bad times, while carefully managing costs. As Johnson Chen, Managing Director of Superworld Electronics, said in a recent interview with the Business Times: “Hard work is always required. Go slow and be certain, aim and shoot, one at a time, adjust or change if it is not right”.
His company who won third place in this year’s E50 Awards expanded their product lines and product transformation according to market needs. They are also expanding sources of supplies and diversifying their base of customers to balance different industry segments.
Keeping cash flow healthy
With the heightened need to raise productivity amidst a tighter labour market and higher business costs, it is important for enterprises to develop a strong corporate culture that ‘cares about costs’. Managers need to have a clear understanding of how their business model drives costs.
During sharp downturns, these enterprises are better able to respond quickly with cost-containment measures that do not damage the business in the long run. They understand what level of costs can be eliminated without compromising quality.
Golden Bridge Foods Manufacturing, another E50 winner, believes their business achievements are made possible with their strong financial management strategy. It helps to minimise bad debts and liquidity risk through close monitoring of debt collection.
The company has since achieved more than 50 percent of sales on cash terms rather than on credit. There are also extensive arrangements in place to meet the obligations of banking facilities which lead to healthy cash flow position and minimal fluctuations.
Cash management must be a discipline – not a short-term fix for companies at risk. Businesses that are good at cash management have a ‘cash culture’. They achieve clear alignment of cash management goals across functions within the business, and drive these down to the individual level.
Walk the talk
While none of the areas identified above are new, the proof of the pudding comes from enterprises that walk the talk. Many of the top performing E50 companies have made these fundamentals an integral part of their everyday operations.
Therefore, while uncertain economic climate can throw a gamut of challenges at them, they can remain resilient and possibly even thrive.
Minister of State for Finance and Transport, Josephine Teo said at the 2012 E50 Awards luncheon that the entrepreneurship spirit of Singapore companies is stronger than before. Many firms are coming up with ways to counter the effects of rising business costs.
She added that three factors of entrepreneurship – attitudes towards entrepreneurship, how companies are responding to global uncertainty, and thirdly the overall local business environment, gives us reason to believe that a reasonable set of conditions can still exist for the growth of local enterprises.
Winning enterprises therefore understand that even though the economy is shrinking, there are still new areas to pursue. They take calculated risks and come up with innovative ways to enhance existing products, build new strategic relationships and seek new markets. Staying resilient therefore involves effectively managing ones strengths and vulnerabilities even in the face of uncertain times.
This article is contributed by Mr Owi Kek Hean, Deputy Managing Partner and Head of Enterprise Services, and Mr Chiu Wu Hong, Head of Enterprise Incentive Advisory at KPMG in Singapore.