Wednesday 4 June 2008

Waking Up to the Reality of Life!

It is now confirmed that we have to pay more whenever we fill up the tanks of our cars. Some of us thought that we, Malaysians, are insulated from the effect of global oil price increase due to the subsidy from the government and the fact that Malaysia is a net exporter of petroleum. The raise in the pump prices of petroleum products is a real wake up call for everybody.
I'm sure by tomorrow, you are going to pay more for your teh tarik and roti canai and more price increases will follow suit. Looks like cost to do business will go up as well and early indicators in the media suggests that we may be looking at an inflation rate of 5%, and that may seems low for some of us who has to pay significantly more for most of things that we buy.

What are the options that you have when it comes to managing the impact of fuel price on your businesses?
First is to look at the impact on your cash flow and make sure there is no adverse impact to your operational cash flow. You have to understand the expenditure that would be affected by the new fuel prices such as transportation and material cost. Next is to look for the effect on the collection pattern from your customers. Is there any customer which may be adversely affected. Transportation companies could be among the likely candidates for this category. Having understood the possible implications, you could more or less figure out how far you operating cash flow would be reduced.

Second, is to consider options in ensuring the higher expenditure could be mitigated. First option that would come to the mind of most entrepreneurs would be to cut expenditure. However, this has to be done after careful analysis as the last thing that you want is to make your business to be less attractive to you customers due to deterioration is product or service quality. This is where you should be able to differentiate critical expenditure and discretionary expenditure. A discretionary expenditure is those that you could do without while still maintaining you core business offerings. Getting your team to travel economy class instead of business class would not affect your service to your customers. Off course this may reduce the morale of your team members! You could for example list down the discretionary expenditures of your business and perhaps, by going through with your team members, you would be able to identify those that could be reduced or deferred.
The third step is to look for opportunities which come along with the price increase. Could you, for example, offer products which help others to reduce their business cost. Offering teleconference facilities for companies which have high number of face to face meetings could be a growth area. This would help to reduce travelling cost while at the same time enables people to have more time to do other productive things rather than travelling. Similarly, helping companies to communicate to their customers or team members using electronic means instead of paper based communication would also reduce cost while at the same time increasing the effectiveness of the process.
In short, we have to accept the reality of the regime where cost to run business will increase. Doing the same thing over and over again will not lead us towards different results. We have to do things differently and quickly as well.


Mr. Bam said...

Well thought.

I agree with you that various critical strategies should be employed by business people nowadays. Exogenous as well as endogenous factors are imperative where entrepreneurs should be able to forecast or predict future impact of businesses. It is important to perform 'stress testing' on business based on different scenarios that may affect businessperson. They must have robust strategies to mitigate future risks. It is not easy to build a crystal ball to predict future but it is worth to prepare business with a forward looking view.

Hasyudeen said...

Thanks for your comments Azrie. The era of a reasonably predictable world is over. The sooner we accept that uncertainty would be the norm, the better for us as we would invest in capabilities that is required for that. Off course accepting reality can be challenging since we have to accept the future would be tough unless we work harder and smarter.