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Competitiveness is not about Minimum Costs

November 17, 2006 08:52 AM 1
Total Posts: 38
Join Date: October 18, 2006
Rank: Executive
Post Date: January 1, 1970
Posts: 38
Location: United States

Competitiveness is not about Minimum Costs

Hi All,

This one is a good read especially ones who have interests in Business management.

"Competitiveness is not about keeping costs to the bare minimum, it is about keeping the intellectual abilities and the integrity of staff to a maximum, "says Yeoh, Managing Director, YTL Corporation of Berhad, Malaysia, which serves 10 million customers globally.

"India still doesn't get it," says Francis Yeoh in exasperation. "In countries like yours and mine, we have to offer First World quality at Third World prices."

In Bangalore for a board meeting, Yeoh stayed at the Taj. "I paid $150 for a night. In the Ritz Carlton in Kuala Lumpur, which is a group company, you would pay $75 for a way better room, with every amenity," he explodes.

The point Yeoh makes is worth listening. The promoter of the YTL group, one of the biggest in Malaysia, won his spurs by pushing down the cost of electricity to 3.8 cents per kWh in his home country. Since then he has been wooed by politicians across the globe to do the same in their countries, much the same way Lakshmi Niwas Mittal of Ipsat International has transformed badly run steel mills from Kazakhstan to Mexico.

How does Yeoh perform this miracle?

The short, quick answer is by unbundling costs and searching for innovations to push down costs; by playing the currency game right; by removing corruption within the organisation; and by luring morally upright and incredibly bright people through wonderful salaries.

Read on . . .
Leaders and organisations have to help people avoid becoming corrupt. Many parts of Asia -- and Malaysia is no exception -- have a reputation for crony capitalism and corruption. Especially in the utilities sector, the businesses I am in. But it is possible to avoid corruption.

Let me give you a small illustration. In Malaysia, there is no capital gains tax on shares, whereas if you give people cash they will be taxed 28 per cent by the government. So stock options, especially for performing companies, are a good way to reward people.

From the time we listed in 1986, we have grown at 55 per cent compounded. $1,000 invested then is worth $55,000 today. An average staff member working in YTL can retire nicely with a nice home by selling his stock options.

My top leaders -- I call them my cabinet -- are millionaires, many of them are multimillionaires, and that is one of the reasons they are not corrupt. They work for the organisation, they do not need the kickbacks, the brown envelopes to enrich themselves and pay for the studies of their children.

A lot of corruption happens because employers do not pay their people well. With the share options put in, I think we are quite unbeatable as paymasters. Yet, as statistics show, we are among the most profitable employers in the world, with one of the highest productivity levels in our business anywhere in the world.

Helping people not become corrupt has interesting results.

Take cost competitiveness as an illustration. I do not believe competitiveness is about keeping costs to the bare minimum, it is about keeping the intellectual abilities of staff to a maximum, about keeping staff whose mindset is flexible enough to adapt to change and is armed with integrity.

The last is most important. Like Nick Leeson, the banker who caused the failure of Barings Bank, there are too many smart people with wrong moral values, even from universities like Oxford and Cambridge or MBAs from famous B-schools.

When you are able to find intellectually good and morally anchored people, then you get an organization like YTL and I am blessed in this aspect. I have very few complaints about the moral standing of my staff irrespective of their religious beliefs.

Intellectual firepower is the key to success.

A knowledge worker is a thousand times more productive than an ordinary worker. We look for businesses that need vision, tenacity, intellectual capital and a lot of financial capital.

If you want to attract incredible human capital, you have to pay and have incentives like staff options. It is a very potent formula. We have grown 55 per cent compounded and have beaten even Warren Buffet's performance between 1986-2002.

We pay the world's global best wages to get the best people. In the United Kingdom, we pay the world's best rates. Just because we are Malaysians we do not say, you are going to get Malaysian rates. For Malaysians, we pay the global best for Malaysia.

In each country, the country best for every person in every job is our management philosophy. We should not begrudge high stock option payouts. If you have to pay out $2 million, don't be greedy and suddenly snatch it off saying, 'Hey, now you are worth only a $100,000.'

Today we have to continuously look for global solutions at a more competitive price.

Every great global company does that. Toyota's Lexus is a good example where the Japanese asked two key questions. Are we good enough globally? Are we preempting the customer's needs enough?

When people are gifted, they always look for opportunities, read a lot, ensure they are in touch with the world. This makes them very productive.

When you are productive, you can always find ways to make more profits and at the same time offer products and services at a reasonable level.

First World quality at Third World prices.

We constructed the Express Rail Link (ERL) connecting Kuala Lumpur with its international airport in the year 2002. The ERL is virtually identical in design to the high-speed rail system that runs between Heathrow Airport and Paddington Station in London.