Balanced business leadership in 2014

Tuesday, 14 January 2014 00:01 - - {{hitsCtrl.values.hits}}

Last week I had a task of making a presentation to a chamber on balanced business leadership in 2014 and I based my argument on ‘Brand value vs asset value’ building. It was an interesting challenge given that the more I researched, the more complex the task was. The point I wanted to highlight to corporate Sri Lanka was that it’s important to build brands so that when this intangible asset is added to the fixed asset, the overall value of the company multiplies. In the outset it must said that the two sectors taken is to highlight the concept of tangible and intangible assets and is no way a comparison as it’s in two different industries. Global brand Samsung has increased from $ 8 to $32 b As per the Interbrand Corp., J.P. Morgan Chase & Co Citigroup, Morgan Stanley has revealed that the top 100 brands in the world account for US$ 1 trillion. This is equivalent to the gross national income of 63 countries as per the World Bank definition of low income countries, which gives us an idea of the value of brand building, especially at a time when the world is at a economic downturn and the focus is on business survival. Another important aspect that emerged was that this one trillion dollar value of the top 100 brands of the world is equivalent to one-third of the world’s income, which gives us an idea of the power branding.

We spend too much of our time developing sexy advertising and public relations programs that end up with the brand featured on all the cover pages of magazines and newspapers but whether all these efforts contribute to the value of the brand can be questioned. In the world of marketing this is termed myopic behaviour that actually leads to some of the top brands struggling to keep alive. The logic being due to strong brand equity the top of the mind recall increases and hence this leads to the propensity of repeat purchase increasing. Globally, Samsung is a classic example in the world of today that captures what a powerful brand can do to a company and how the competitor Sony was beaten. It took time to unearth conclusive data but the latest I got was that in 2012 the company had $ 129.7 billion in sales with a reported profit of $ 15.2 billion which was just $ 36 billion and $ 4.4 billion way back in 2002. But the important point was that the brand that was just $ 8.3 worth in 2002 was now worth a staggering 32.8 billion in 2012, which explains the brand development work that the company has invested in. Samsung also had become an outstanding company for refining other people’s inventions and building brand value and had climbed up to the top 100 brand band globally. A senior company official from the brand marketing had made a comment saying, “Samsung has mastered one crucial factor: Making brands relevant to a consumer.” This I believe is a result of a deep understanding of the consumer requirement and brand building communication that had followed. On the other hand Sony’s 2012 sales had slumped to $ 55.7 billion from the $ 75 billion recorded in 2002 whilst on the profit front the company was making a loss as at 2012, which just explains how even powerful brands can get wiped off in just a 10-year time space.

Asset value: Zesta a top brand A case in point from the agricultural industry of Sri Lanka is from the corporate tea sector of Sri Lanka, which consists of 20 Regional Plantation Companies. This shows what can happen to the total value of a company if asset enhancement of a ‘tangible nature’ is not adequately done. In 1996 the total assets value as mentioned in the Annual Reports of the RPCs was Rs. 25.6 billion, whilst in 2007 it stated Rs. 19.9 billion after it is been discounted on the GDP deflator factor. The findings are interesting with three organisations depicting a value addition on the lands that have leased but as a total the RPCs’ overall value has in fact declined in a 10-year time period. Maybe a future research area could be if the asset valuation was right 10 years back or whether one should not consider this evaluation criterion as at the end of the day the organisation has been turned around from a loss making venture to profitable. Another argument could be as follow: What if the tea industry commanded high prices with the cost of production curtailed without having to take wage increases due to political reasons? Maybe the monies earned could have been invested on brand building, similar to what Watawala RPC has done so effectively with the brand Zesta. Incidentally Zesta is the market leader in Sri Lanka beating top multinational brands, which is a classic example of value creation. It will be interesting to see. The company has also demonstrated strong leadership on diversifying the overall portfolio so that dependency on tea has been reduced whilst also brand building in the local market which is an interesting case in point.

Conclusion Hence it is very clear that the future depends on an organisation’s balance sheet including tangible and intangible assets like the brand value of an organisation so that the true health of a company is reflected. Maybe one needs to also carefully examine the numbers that are inserted into the asset value of a company as later on there can be comparisons made and the real worth of an organisation like the case we see of a large global conglomerate going for liquidation. Separately if these calculations are computed and reflected on the balance sheet of a company the day that more companies are listed in the stock exchange we can one day calculate the value of ‘Brand Sri Lanka’ rather than just looking at GDP values to evaluate the size/attractiveness of an economy. (The thoughts are strictly the personal views of the author and not the views of the organisations he serves in Sri Lanka and globally. Writing is a hobby he pursues as he is reading for a doctorate in business administration.)