Challenge and change

By Cassandra Mascarenhas

‘Changing Challenge – Challenging Change’ was the bold theme of the two-day CIMA Business Leaders Summit 2011, one that is apt in the face of constantly changing dynamics in the business world which calls for businesses to be more innovative in order to remain competitive.

The two-day summit which was held at the Cinnamon Grand this week showcased a diverse panel of speakers and was attended by over 500 professionals from various industries.

“Collective minds probably form the greatest of strengths. The ability to focus as one probably delivers the greatest ideas and knowledge exchange. The words change and challenge have been synonymous with not only business but also life. There are enough cases in business where one’s innovations have been challenged,” said Hatton National Bank PLC Managing Director and CEO Rajendra Theagarajah, while delivering the welcome address at the summit. He went on to say that the challenge here is to challenge the change that one makes.

The panel in turn kept up to this and shared their expertise on how they adapted to the compulsion of challenging their changes. Instead of best practices, a pool consisting of individuals from both the public and private sector shared what Theagarajah accurately dubbed the next practices.

Energy is the key driver of the future

The keynote address was delivered by Minister Ranawaka, who expanded on the financial transformation of the Ceylon Electricity Board, its new business model, the radical reengineering process, difficult decisions taken and management theory incorporated into the CEB, while stressing on the fact the energy is the key driver of the future global economy.

He commenced his presentation by breaking down the different types of energy; primary energy which is the collective energy used by an economy, secondary energy that consumers use and finally the third form which is energy consumed by services such as lighting.

Biomass currently accounts for 46% of Sri Lanka’s energy requirements and although the country’s use of fossil fuels is much lower in comparison to the usage of fossil fuels by the global economy which amounts to 80%, the increase to 44% from 19% in 1990 shows the country’s increasing dependence on imported fuels.

On a positive note, Sri Lanka’s level of energy consumption per capita is very low even in comparison to India. The country also one of the most efficient where green principles are concerned.

“We can afford to produce more carbon emissions as our levels are so low but the developed countries have exploited our space and they therefore owe us a huge carbon debt which amounts to around $ 16 million. We are a very low emitting country and we can afford to emit more as we are well below the environmental permissible level,” stated the Minister.

The power sector in Sri Lanka currently has a consumer base of 4.5 million people, with an electrification level of 87% and is the only country in the South Asian region to provide electricity 24 hours of the day, according to the Minister. With an annual revenue of Rs. 120 billion, the CEB accounts for 2% of the GDP.

Some of their goals include transforming the CEB to become a financially viable entity, to have a proud and content workforce, to provide electricity to every Sri Lankan citizen, to develop clean energy to the optimum level and to improve the CEB’s standing as a responsible, corporate citizen to name a few.

The CEB has faced a lot of criticism over the past couple of years after incurring heavy losses of nearly Rs. 117 billion between the years 2002 and 2009 although back in 1995, the CEB was the strongest financial institution in the country.

Approximately all of the country’s energy needs were met with hydro power in the past but thermal power has increasingly dominated the power sector over the years, which are more expensive, one of the main reasons for the heavy losses suffered by the CEB.

Finally after 10 years of making losses, the CEB was able to break even by making a profit of Rs. 5,000 million before tax – the result of the introduction of a new tariff, a new short term action plan and savings of nearly Rs. 24 billion on thermal power because of the heavy rains last years.

The Ministry is responsible for formulating the long-term energy plan and policies and it recently decided that its approach should be one of enhanced corporate shared value where the public too would have to bear losses of the CEB to a certain extent.

It is trying to use these policies to enhance operations within the CEB in order to achieve 100% electrification by 2012 under the project ‘Vidulamu Lanka,’ which Ranawaka called a huge challenge. The Ministry has also taken steps to improve the quality of service and supply to consumers by introducing a consumer call centre.

A trade off between green energy and fossil fuel energy will also have to be considered, cautioned the Minister, as there are serious limitations in the country’s modern development strategy. There is an obvious scarcity of fossil fuel but it is also unfortunately the base of modern economy and development. Therefore, the introduction of clean green energy is imperative in order to sustain the Sri Lankan economy in time to come.

“We are aiming for a greener future because we have to sustain this economic growth and development but we can’t depend on fossil fuels alone so we have to introduce green energy. We have to understand the situations and limitations when talking about generating power. We can’t sustain this development based on fossil fuels therefore we have to change attitude, life patterns and the entire development paradigm,” he concluded.

No boundaries: The turnaround of Sampath Bank

At the end of 2008, Sampath Bank had been in existence for 21 years and was making a profit of Rs. 1.4 billion and had 112 branches, stated Sampath Bank Managing Director Harris Premaratne, while delivering his presentation.

“After two years, profit after tax has nearly doubled and the bank will continue to make such profits in the years to come and the sustainability of the profitability is to be maintained by the management by changing its course continuously,” he said, proudly.

Today, Sampath Bank boasts many achievements including the best provision cover in the industry, outside the bigger institutions. While the bank incurred costs while growing, they have reduced the cost to income percentage and while maintaining growth, the bank has also maintained its quality. While doing this, they also created value for their shareholders the results of which can be observed by the bank’s remarkable performance on the stock market, with their share price at one point going over Rs. 500 – a feat that was only accomplished by Sampath Bank in that year.

Sampath Bank was a midsized bank in 2008, growing at a moderate pace and was never considered a challenger. However, there was a need to build a bigger bank for the industry to recognize Sampath Bank as a big player in the industry.

The bank also wanted to create the largest network of branches by a private bank – it planned to open 100 branches in three years and by the end of 2011, it will have 215 branches, which is in excess of the largest private banks in the country. The bank also holds the record for opening 10 branches in one day, which has never happened in Sri Lanka so far and Premaratne assured that the bank intends on keeping up that pace.

“In 2012, we will be equal to HNB and Commercial Bank but we still need to build up our assets, a process that will begin in 2012. We were also the first to go to Jaffna and recruit people – our entire HR team went to Jaffna as it was difficult for the youth to come to Colombo and had tests and interviews for 600 candidates and the final lot was brought to Colombo for a month and then posted in branches. This was a huge success, which other banks followed afterwards,” the Managing Director stated.

When entering the north for the first time, Sampath Bank also took the initiative of incorporating a Tamil translation of the bank’s name into its logo – a logo which symbolises a Sri Lankan identity and something all its customers can hence relate to. Strengths such as a loyal workforce and superior IR platforms, with the bank being the first to introduce ATMs to the country, were already present in the bank for the management to exploit and take the bank forward into aggressive growth.

It was also the only bank in 2009 to record a positive growth of 3% and in 2010 boasted the highest growth of 30% because of centralised lending. Selling credit cards though proved were a big challenge, admitted Premaratne, so they came up with a marketing plan to entice people into obtaining a Sampath Bank card.

“When we started in 2009, Sampath has a card base of 61,000 and the card industry was not growing. We decided to take the industry head-on. A survey showed us that consumers pay a lot of additional charges and we in turn removed a lot of the charges and we are still the only bank to remove the late payment charge on cards. We didn’t look to target newcomers to get our cards but instead convinced customers with cards to switch to Sampath Bank. That was the way to challenge and take the leaders head on,” explained Premaratne.

Taking this to the next level, Sampath Bank was also the first bank to introduce the infinity and signature cards to Sri Lanka which allowed them to cater to the higher end of the market effectively. Today they have a card base of 87,000 and have moved from the sixth to the second place in the industry and by the end of this year will have a base of 100,000 cards and target to be the leader by 2013.

The Managing Director credited several decisions and strategies for this remarkable change including the exploitation of their market position and making the best use of their Sri Lankan identity, the loyal employee base and rich culture, changing the way of making decisions and setting courageous targets.

Turning lemons into lemonade

Next onstage was the Associate Professor of the National University of Singapore Dr. Nitin Pangarkar, who delivered a presentation on Singapore Airlines – a robust strategy to engineer quick turnarounds.

In the 1960s, Singapore and Sri Lanka were almost on the same level, he pointed out, yet in the past couple of years, Singapore forged far ahead but he added that he feels that Sri Lanka can forge ahead too.

With estimated long-term rates of return of around one per cent, the airline industry is one of the most challenging industries in which to make profits. In the past, one of the industry’s top executives suggested that operating an airline is even more challenging than trying to survive an economic depression.

Yet, while facing such odds, Singapore Airlines has managed to operate for 39 years and has only shown one annual loss.

“Most of the time, we control our own destinies as business people. In the airline industry, there are lot of things that are totally out of your control, for example fuel costs which can go through the roof at no notice which will immediately increase your costs. When a plane breaks down, they have to provide compensation to the passengers in terms of hotel stays, meal tickets, etc.,” pointed out the Professor.

Revenues are affected by the high fixed costs because when revenues come down, fixed costs still remain the same, which Pangarkar described as a formula for disaster.

“Very often we talk about loyalty by customers, which is good but discerning customers is even better because they pay higher. For example, a customer who flies business class often makes the airline more money therefore as an organisation, you want to win the loyalty of the most demanding customers,” he added.

A total of 56% of Singapore Airlines is owned by Temasek Holdings, the only company to invest in the airline 39 years ago as no other company had the capital to invest in an airline and since its initial capital investment 39 years ago, it has had no need to invest further money in the airline.

Another interesting fact is that when 75% of the plane is full, the plane makes zero profits. The industry lost money for five straight years, then for the next two years they made money and lost money once again – proving that it is a very difficult and challenging industry. Singapore Airlines has managed to overcome all this and has won several accolades over the years, some of which it has been winning for 21 straight years.

“It was said by the keynote speaker yesterday that people look to work for a company that makes them proud and Singapore Airlines gives you that pride. They get good service from their employees by choosing the right people, training them constantly and empowering them. The airline boasts a brand value of over $3.75 billion today and in 39 years have had only four CEOs. CEOs of US based carriers promise unions a lot, thinking three years down the line they won’t be with the airline. However, the CEOs of Singapore Airlines are very fair, if they cut everyone else’s salary, they cut a bigger share of their own salaries,” Pangarkar revealed.

The airline faced a crisis back, when a flight from Taipei to Singapore crashed, resulting in the death of 83 people, yet no one talks about it because they did a remarkable job of recovering from it.

The CEO and another spokesman handled the media directly by giving them regular information via press releases and press conference to avoid sensationalising the story, visited the families of the victims, flew in trauma and grief counsellors and even hired lawyers to defend the pilots when Taipei threatened to press charges, effectively handling the situation from all fronts. Just two years later, the airline was voted the sixth most admired company in the Fortune 1,000 outside the US and in 2003 was voted the second most admired airline in the world.

“Singapore Airlines has demonstrated remarkable performance and resilience in a difficult industry and factors that contribute to its success include clever strategy, consistent execution, commitment towards customers and long-term orientation and crises over the past 10 years have proved to be mostly blips on a long-term upward trajectory,” he concluded.

Building world class businesses

The last speaker of the morning’s session was CIMA UK’s Managing Director Andrew Harding, who delved into the topic of building world class businesses for long term challenges and opportunities.

Taking the long view of the challenges ahead, he asked one of the most important questions – how can we build world class businesses that are equipped to deal with the long-term challenges and opportunities that lie ahead?

Harding began by defining the ‘new normal,’ current challenges which include modern communications, globalisation, new kinds of investors and the backlash against short-termism.

Drawing on CIMA’s extensive research into the changing dynamics of the business world, he outlined the change in both mindset and strategy that is needed to ensure that businesses protect themselves from the boom and bust cycle that has caused such turbulence in the international marketplace and used case studies from leading brands such as Tesco, Tata Motors and SABMiller to illustrate his point.

“Businesses in the future need to be looking at the triple bottom line, not just their short term successes. No business can survive without customers and Tata’s Nano is an interesting example of changing innovation – the company had to rethink car designs and explore innovative ways to launch a radical design and now reports $ 20 billion in annual sales,” he stated.

Panel discussion

Moderated by Hettigoda Group Managing Director Asoka Hettigoda, the panel discussion answered all queries posed by both the moderator and audience.

When questioned about growth in the banking industry in the future with lower interest rates, Sampath Bank’s Premaratne admitted that it was indeed a challenge compared to four or five years back.

“Four or five years ago, lending rates were 19 per cent to 20 per cent and banks were accustomed to a 5% per cent interest margin. Now lending rates have come down so there are no way banks can maintain a five per cent margin on a 10 per cent lending rate and banks have to get used to lower margins. How do banks earn money now? Like retailing businesses, concentrate on higher volume and lesser margins, and at the end of the day profits will remain the same if they take this line. This is the strategy Sampath Bank is adopting by going out to businesses, enhancing delivery points, getting a bigger volume,” he explained.

Professor Pangarkar was asked the thorny question of what advice he would give SriLankan Airlines. Having flown on the airline, he honestly admitted that while the service was not bad, it was not outstanding either.

“Singapore Airlines is a product of our times and it would be very difficult to create another Singapore Airlines today just because the times are different today. The first thing SriLankan Airlines has to do is look at its income statement and balance sheet. To have a loss of Rs. 2.6 billion shows that its costs are too high – but it doesn’t have the money to buy new planes, you have to break that vicious cycle, perhaps get a new partner. Try to expand business but not your workforce, don’t necessarily lay off people, seek growth with the same people and look into making internal flights more popular,” he advised.

CIMA UK’s Harding was asked what advice he would give to the new breed of investors – the young group that is now taking over age old companies. “Set a vision of where they want that company to be in 10 or 20 years and then set a strategy according to that and align day-to-day operations according to that strategy. People looking at the long term need to understand the changes that will happen in the future,” he responded.

The curse of the king

“What is the curse of a king?” was the puzzling question posed to the audience by Future Group India’s Chief Belief Officer Dr. Devdutt Pattanaik, who took to the stage after a break for lunch.

“The king is a metaphor for a person in a leadership position. However, the king never gets to hear the truth – everybody lies to the king because when you answer the king, you’re not looking at him, instead you’re looking at his sword,” he answered cryptically.

Modern management focuses on behavioural changes to help businesses but behind every behaviour is a belief and this escapes notice, he explained. Even with a customer survey, you will not get to the heart of the matter as belief is invisible, non-measurable and subjective.

Each one’s behaviour in a way is an output of his belief – because it is not measurable, it’s abstract. What cannot be measured cannot be managed is what management schools have taught us. We wrongly think that a person’s behaviour is a reflection of one’s belief.

“You can’t innovate without breaking the rules but whose belief is the truth? The alpha male will see a contender as a rebel; the contender will see himself as an innovator. In all our lives, we have rebels, innovators, people who comply and pretenders – they are present in all aspects of human society and will never go away. Belief only exists in the human kingdom, behaviour in both the animal and human kingdom. It’s the belief that makes all the difference,” he stated.

Nature looks at all animals equally; the word victim is one of human construction, he pointed out. Everything can be transformed into a threat or opportunity, so one starts believing that he is either a victim or a hero, which is part of human society.

Every morning, the predator has the problem of scarcity and hunger; it struggles in the search for food. This makes the animal sharper. In the same way, Pattanaik explained, the fear of scarcity and predation is inside all of us and we are all running. The one per cent difference that transforms us into human beings is the fact that we have larger brains. We are the only creatures on this planet that can imagine – imagination is the fundamental element.

We dominate the planet only because we can imagine, it is our revolutionary advantage. Humans are not only in the objective reality of nature, but are also in an imagined reality where they are heroes or victims.

“In India, they are building planned cities while 40% are below the poverty line so when you build planned cities are you building them for the 40% or 60%? They then say they will build affordable housing, but people below the poverty line can’t afford such housing anyway. People live in different worlds, which we forget and at some point, ‘my’ world becomes ‘the’ world which is where problems start,” he said.

The real world of the corporate begins with imagination – you begin with the vision statement, the Chief Belief Officer said. You imagine what you want in five years from now. Customers, employees, shareholders are all tempted with a promised land. In fact, business begins with the notion of the promised land, but whose promised land is it – that of the customers, employees, shareholders or someone else?

Voluntary domestication was how Pattanaik described the signing of a contract. Are rules made by an employer for the betterment of the employee or because he wants to build his organisation? In this way, opposing beliefs lead to opposing behaviours. Imagination terrifies humans – it amplifies fears, and Pattanaik pointed out, much to the delight of the audience, that humans are the only species on earth thinking of war during peace, which is the result of imagination.

“When you call it a competitive world, it says less about the business world and more about us. One does not need the fear of predation to succeed. With empathy for the other, you can succeed. Leadership is creating that context where everyone works for you because they want to, not because they are scared of you. Leadership is not about domestication – wee need to open eyes up and look at the subjective worlds of the people around you,” Pattanaik summed up.

The choice of response

Browns Group Deputy Chairman and the Taprobane Group CEO Ajith Devasurendra was up next to discuss the choice of response to change. “Change is permanent and the choice of response – that’s what challenging challenge is all about. It all depends on how you react,” he stated.

Whilst it’s true that the changes that have taken place over the last decade have happened at a much faster pace than the previous decades, he pointed out that human interoperability too has happened at the same pace, facilitating that adaptability. The difference perhaps is the pace at which one reacts, combined with the ability to make swift decision and more importantly, the right attitude.

“The formula for success in a nutshell is the individual’s close of response and the time within which the decision is made. All the rest moves around these variables. In an era where personal and public life are interwoven, individuals need this ability to stay ahead of the rest in both spheres of life thus ensuring success,” said Devasurendra.

Changing challenge in his opinion is interrelated in the context of an individual’s response; it is more to do with the right response and more importantly the time or how quickly one responds. What we did yesterday, he pointed out, might not work today and with certainty will not work tomorrow. In the era of information overload, one might get confused the path to choose with so many options and this process could result in uncertainty and delayed responses.

He went on to say that the more important matter would be to have an entrepreneurial mindset to make a swift decision with available information much ahead of the others. The winning people take the call before others thus to ‘challenge change’ is the ability to change swiftly and in turn becomes the core.

Therefore, the CEO concluded, the core insight would be response and time to change and individuals’ choice in doing so will eventually be the dividing line between being successful or unsuccessful in today’s world. This process should be discussed with particular emphasis on time, accuracy of data and entrepreneurial ability.

Thinking out of the shoe

The speaker who could arguably be called the most inspirational of the summit was saved for the last. Motivational speaker Jessica Cox who was born without arms yet overcame her handicap and now flies airplanes, drives cars and otherwise lives a normal life, using her feet as others use their hands.

She commenced with the very first challenges of her flight training – putting on the seatbelt which she said took her back to her days in elementary school when she had to learn to tie her shoelaces with her feet, leading her to coin the phrase ‘thinking out of the shoe’.

“With more and more practice, as it is with anything you do, you get better at it. The way I buckle a seatbelt, it’s not wrong; it’s just different. There is more than one way to accomplish something. For me the outcome of having a tied shoe, putting on a seatbelt all means the same to me, but it changed my perspective and that’s what I challenge you to do. I changed my perspective and was better able to accomplish the goal, realising that there is more than one way to accomplish it,” she explained.

Cox went on to say that desire is 80% of a person’s success; that one could have all the talent in the world but without the desire to accomplish it, one would not get anywhere. Desire was something that was very important in her own life and has driven her to do everything that she has. Desire, she said, allows a person to accomplish anything and she encouraged the audience to think of something that they have always wanted to do and told them to keep at it, be persistent and never give up.

Persistence, she went on to say, is never giving up and if you say you can’t do something, that’s an excuse for giving up. If someone says that they can’t do something, they automatically set themselves up for failure. On the other hand saying I can, Cox asserted, leaves room for possibility, creativity and changing perspective. Persistence, desire and fearlessness are three things that should be inculcated in everyone, she added.

“We create our own fear. Identify your greatest fear and walk directly at it. There is a very clear difference between what it means to be fearless and what it is to be a risk taker. Whatever we envision, we can accomplish. How often we are stopped because of fear, prevented from going forward because you’re afraid to. Our greatest fear is not that we are inadequate; our greatest fear is that we are powerful beyond measure,” declared Cox.