What price Malaysia’s corporate reconstruction?
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Idris Jala: had to get big results fast |
It has made something of a celebrity of Idris Jala, the CEO appointed in 2005 in what he calls “possibly the worst and most difficult time in our history”. In the first nine months of the 2005 fiscal year, the company had logged a M$1.3 billion ($370 million) loss. Continuing on that trajectory, it would have gone bankrupt by the middle of April 2006. Jala’s blueprint for revival was called the Business Turnaround Plan, unveiled in February 2006 with an immediate emphasis on survival, followed by profitability in 2007. Few gave it much chance of success, which made it all the more surprising when Malaysia Airlines beat its targets instead of ducking them. It was profitable by the third quarter of 2006 and has stayed that way, with all of the problems that so badly affected it in the past – low yield, inefficient network, low productivity and spiralling costs – dramatically improved. It has thus become the poster child of GLC reform, a symbol of what can be done with planning and effort.
“A business turnaround is different from a business improvement or business transformation,” says Jala. “In a business turnaround there is not much time. We had to do things rapidly and get big results fast.” He believes other attempted transformations fail because management is focused on enhancing capabilities rather than focusing on the key business activities that will directly improve the P&L. He could be viewed as something of a traditionalist in this. “Many managers, when embarking on a transformation, will send their staff to outward bound schools, training, fact finding missions in other countries to build their capabilities, only to find that the employees return and end up doing exactly the same thing they did before they left,” he says. “It is better to learn these capabilities on the job, fixing the problems on a daily basis.”
He demands profit and cashflow numbers daily, “because I run the business like a pilot flies a plane. When you’re in a crisis and your plane is nose-diving, what you need most is all the indicators to be clearly displayed to you at all times. I can react fast if my daily P&L and cashflow indicator shows that we are heading in the wrong direction.” He thinks the same principles can be applied in any other businesses, “including GLCs”.
If there’s a controversy to the Malaysia Airlines turnaround, it’s the programme the airline used to reduce headcount. The company called it a Mutual Separation Scheme – basically a voluntary redundancy programme, but one that would only be offered if the management decided the employee was expendable. Malaysia is a sensitive country on labour issues and a lot of effort was made in severance packages, help desks and placements. In total, 2,622 applicants left through the scheme and a further 3,086 were released through retirement or non-renewal of contracts between July and December 2006. In total, 15% of the workforce left. What’s controversial about it is who paid for it: former prime minister Mahathir says it was the government. “Yes, Malaysia Airlines has made a profit, but it laid off 6,000 employees and the government gave them [the money] for severance pay,” he said in the April interview. “If Malaysia Airlines were to do it on its own it would not be able to declare a profit.” Indeed, Mahathir is one of the few who seems unimpressed by the airline’s turnaround, believing some profitable routes with full loads were suspended without proper explanation. Anwar Ibrahim, who is likely to return to politics in future, has a similar objection, but in the opposite direction: he says he understands that Malaysia Airlines was required to keep one route open at the insistence of the government rather than the management.
None of this is likely to bother Jala, who instead of having to worry about finding cash to keep his aircraft flying is now focusing on sustainable profit generation. The airline logged a M$133 million first-quarter profit – which is, in itself, ahead of its original full-year profit target for 2007, at $50 million – and Jala is already talking about plans beyond recovery. He expects slowing macroeconomic growth ahead, and intense competition caused by overcapacity in Asia, low-cost carriers and the forthcoming Asean open-skies policy that will kick in in 2009. “If we do not act now and are not prepared we are going to see all our success to date being taken away,” he says. Instead, he talks about what he himself calls an “impossible dream” – being a five-star airline with a low cost structure. In essence, this means sticking to existing approaches to service while improving cost efficiencies with such things as inventory management, better sales and distribution channels, more attention on codeshares, better cargo processes, and a revamped engineering division. A new local airline called Firefly, flying ATR aircraft, will help expand the business.
Jala is certainly not lacking in energy. “I still have work to do,” he says.
