WITH companies around the world facing challenges on multiple fronts, many consider current business conditions to be the toughest in recent years. Whether it is due to slowing external demand, technology-fuelled disruption to traditional industries or rising costs, many firms are struggling to thrive in such an environment.
To cope with these headwinds, it is critical that companies develop a culture of resilience that will enable them to maximise its profits or business position during good times, and minimise its losses or any adverse impact during bad ones. Among other benefits, building such a culture will help a company get back on its feet quickly when it takes a hit.
Research has shown that an organisation's cultural resilience is almost always built on the quality of its leadership, says Kuan Li Li, managing director, country manager and chief operating officer at Barclays Singapore.
"Resilient organisations have senior leaders adept at critically assessing the cold hard reality in any situation that presents itself. They then lead the way to quickly and constructively respond whilst catalysing the organisation to the mission of survival and ultimately success," says Ms Kuan.
"These leaders walk the talk, being optimistic, decisive and communicative during times of crisis while at the same time maintaining the highest standards of integrity."
To do this successfully, companies must know both the controllable and non-controllable factors that can have a major impact on their business now and in the future, advises Keoy Soo Earn, regional managing partner, financial advisory at Deloitte South-east Asia.
"Strengthening capabilities to actively manage these controllable factors will be important to drive the destiny of the company. Understanding, monitoring and preparing for the adverse impact that a major change in one or more of the non-controllable factors will have on the business will improve the resilience of a company," says Mr Keoy.
Singapore-listed Micro-Mechanics is one company that has shown its mettle during tougher times. The company designs, manufactures and markets high-precision tools, parts and assemblies for the semiconductor, medical, aerospace and other high technology industries.
It has managed to be profitable every year since its IPO in 2003 despite experiencing two major downturns during the Sars crisis in 2003 and the global financial crisis in 2008 (see sidebar) .
The firm's strategy to deal with these setbacks was to view the downturns as an opportunity to implement initiatives for its future growth. For instance, since its IPO, Micro-Mechanics has reinvested about 60 per cent of its profits on advanced machines and equipment, as well as R&D to improve support of its customers' business. It also ensured that it maintained a healthy cash flow position to help it weather leaner periods of business.
Says Chow Kam Wing, executive director and CFO, Micro-Mechanics Holdings: "During the good times, we focus on strengthening our balance sheet by building a positive and healthy cash position with no bank borrowings. We also practise lean management in our operations by increasing automation and reducing our reliance on labour, which helps to lower our running costs, especially in Singapore.
"While some of our customers slowed their payments to us during the downturns, we were insistent on paying all our suppliers promptly, especially the smaller ones so that they could ride over the crisis with us and strengthen our relationships."
Similarly, Singapore-based Nordic Group uses good cash flow management as one strategy to overcome a challenging business environment. It does this by closely monitoring its collections from debtors, and also making accounts receivable management a top priority.
"Accounts receivable review is included in the monthly management meeting where top management is present," says Chang Yeh Hong, executive chairman at Nordic Group. The company provides maintenance, repair and overhaul as well as precision engineering services to customers in the oil and gas and aviation sectors, among others.
Nordic Group also embarked on a strategy of diversifying its business from the upstream to downstream segments of the oil and gas industry. This has helped it to mitigate its risk as the industry undergoes a severe downturn.
Says Mr Chang: "Expanding within our current business and customer footprint has enabled us to stay relevant to our customers' needs and avoid unforeseeable risks with venturing into new fields."
A strategy of diversification to counter sluggish demand can also be applied to the services sector, including those in the legal sector, says Haryane Mustajab, chief operating officer and head of finance at law firm Bird & Bird ATMD.
"Oftentimes slowing demand is a sign that the industry is evolving, other times it could be part of cyclical change. For instance, during a downturn, companies could expand their offerings to other areas. In the context of a law firm, it will be dispute resolution where there is strong demand in a downturn," she says.
She also advises companies to invest in innovation to differentiate their products or services from the competition. "This helps shift the basis of competition from price to quality of the offering and could help companies maintain their margins in the face of weak demand."
Mr Keoy agrees, noting that as technologies disrupt traditional industries, successful companies need to innovate to stay relevant and position themselves for future growth. He says: "Collaborating rather than competing is becoming a strategy to remain relevant to this fast changing world."
Dealing with a crisis
DURING the global financial crisis in 2008, Micro-Mechanics Holdings faced one of the most severe downturns in its history. The company's revenue fell by half within a month of the outbreak of the crisis. Executive director and CFO Chow Kam Wing describes the steps the company took to come back stronger from that crisis.
Instil confidence in stakeholders
"Our immediate action was to inform our people that we could ride through the storm because of our strong balance sheet and our confidence in the prospects for the semiconductor industry. We promised there would be no layoffs during the crisis. We also informed our suppliers that we would pay all our bills on time. We paid dividends to our shareholders to signal our confidence of the future and this could also help some of our shareholders who needed cash during the financial crisis."
Invest in future growth
"Our top management started planning for the future. We invested in new-generation machines to show our confidence to customers and implemented an Enterprise Resources Planning system to integrate information across our functions worldwide. We also set up our R&D department in Singapore to provide 'future products and services' to our customers. Because of the downturn, we successfully acquired a manufacturing plant in the USA. This not only helped us to set foot in the USA market but also acquire new technology that could not be found in Asia."
Build a culture of resilience
"These plans would have been impossible if we had not built a strong financial position in the past. To embed a strong business resilience culture in our people, we set up a learning platform named MM University to train, educate and grow our people at all levels. All these plans have proven positive and successful as our revenues and profits have been improving since then."