DOCTORATE OF BUSINESS ADMINISTRATIONLEADERSHIP & ORGANIZATION EFFECTIVENESSBDHS 7013

LECTURERDR. ZAINOL B ABDUL RANI

INDIVIDUAL ASSIGNMENT 3Appointment of Foreign CEOs in Malaysian GLCs/Conglomerates:6 Thinking Hats

PREPARED BYMOHD HAFIZ BIN HAMZAH(900913)

DATE SUBMISSIONJuly 5, 2015

This case study using six thinking hats will focus on the suggestion of 360-degree transformation of selected GLC, i.e. Keretapi Tanah Melayu Berhad (KTMB) by Foreign CEO. Service of foreign Chief Executive Officer (CEO) in managing Government Linked Company (GLC) or Malaysias conglomerate is considered new. Until today, only MAXIS and MAS airline have hired foreign CEOs to transform the companies into a new era. By definition, a CEO is responsible for leading the development and execution of the Companys long term strategy with a view to creating shareholder value. The CEOs leadership role also entails being ultimately responsible for all day-to-day management decisions and for implementing the Companys long and short term plans. The CEO acts as a direct liaison between the Board and the management of the Company and communicates with the Board on behalf of management. The CEO also communicates on behalf of the Company to shareholders, employees, Government authorities, other stakeholders and the public.Malayan Railways is now more commonly known as Keretapi Tanah Melayu Berhad (KTMB), and traces its origins to 1885 when local railways were first constructed to move bulk commodities, especially tin, from inland mines to coastal ports for export. The train services started operating in the country on February 12, 1885. Railways connecting Taiping to Port Weld began a new era in the history of Malaysia. From Taiping to Port Weld, the train then spread to the north and south and also connected Gemas and Tumpat in Kelantan. Trains bring not only economic change but also social transformation because the railway connects the villages with the town. Gradually the train replaced the river as a major transport link. While roads and motor transport simultaneously became popular after World War I, the railway remains a more comfortable mode of transport for those who want to visit distance places.Throughout its 112 years, KTMB has played a significant, if not predominant, role in Malaysia's economic development, especially on the west coast of the peninsula. August 1992 marked a radical change in KTMB's history when it became the first ASEAN railway to be incorporated. Although its equity is wholly owned by the government, since 1992 the railway has been operating entirely as a private-sector business. Malaysia's recent rapid socio-economic growth and the constantly changing business environment are placing greater demand on KTMB, which introduced Malaysias first electrified commuter system in 1995. 1997 marks the bid by the government to attempt to privatize KTMB, when the Government handed over the management of KTMB to a consortium (which created a vehicle named Marak Unggul) that was majority controlled by a conglomerate called Renong Berhad. The original plan had the consortium taking over the management of KTMB and purchasing the equity from the Ministry of Finance incorporated. However, the privatization attempt failed (Renong experienced major financial difficulties as a result of the Asian currency crisis) and the Government ended the arrangement, taking control of KTMB from Marak Unggul in early 2002. At present, KTMB has three subsidiaries train companies, namely Komuter, Intercity and Kargo. Currently KTMB is lead by Lt. Kol. (B) Hj. Sarbini Tijan, who was appointed to the Board on 1 May 2015 as CEO and President. He succeeded the post from Dr. Aminuddin bin Adnan. During its existence, KTMB (which some people see as another MAS) has not made any profit from the railway operation. Having foreign CEOs from Japan or Europe, which both have excellent track records in providing top service to commuters on high speed railways, could lead KTMB to another era of railway service in Malaysia, not only for the sake of financial stability but also to enhance customer service. We are now less than five years away from Vision 2020, which has the goal of marking Malaysia as a developed nation. One of the criteria for this label is reliable, high quality public transportation. With the current service of KTMB through their subsidiary i.e. KTM Komuter and KTM Intercity, numerous improvements are needed to meet this requirement. Population growth in the cities has caused an increase in traffic congestion. Building more roads is not a practical solution within the already crowded city limits. Moreover, the impact from a hike in petrol prices and growing concern about emissions makes road transportation only a temporary or short term solution. The only way to reduce congestion is to introduce better public transport facilities, which will reduce the number of people who travel by car on the roads. Railways are one of the solutions to address this problem. In addition to the fact that it can reduce traffic congestion, the efficiency and professionalism of KTMBs operations are among the critical issues that have been discussed by commuters. Although there were some improvements in terms of punctuality and waiting time, enhancing the operation is one of the chief concerns that needs to be tackled by KTMB. The frequency and capacity of the trains also needs to be highlighted and new investments must be made in order to meet the growing demand. On the other hand, the railway also requires a large investment of capital. The cost of construction, maintenance and overhead expenses are very high compared to other modes of transportation. Moreover, the investments are specific and immobile. If the traffic is not sufficient, these investments may result in a huge waste of resources. The railways must have a full load for an ideal and economic operation. As it has a very large carrying capacity, under utilisation in many regions can be a great financial problem and economic loss. Poor management only compounds the issue, making things even worse than what happened at KTMB.KTMBs financial performance has been unsatisfactory for the past few years since the company suffered net losses after taxation. Since KTMB's cooperation in 1992, its audited collective revenue as of 31 Dec 2013 was RM491 billion. KTMB underwent a corporate restructuring program to reverse the poor national rail operation and consultants have been hired to assist them. The A-Gs audit report states that the RM36.60 million (44.5 per cent) increase in losses in 2008 was due to a sharp increase in operational expenditure. The report also noted that up until December 2008, KTMB had acquired five easy loans from the Federal Government amounting to RM880.50 million, which they have not made payments on for the past two to eight years. KTMB posted a loss of RM92.6 million in 2009, compared with RM84.6 million loss in the previous year. However, during the same period, KTMB recorded collective losses amounting to RM2.5 billion. In 2008, KTMB experienced losses amounting to RM118.91 million compared to RM82.81 million in 2007. From 1994 to 2008, KTMB had to acquire help from the government in the form of cash fund injections totaling RM760 million. The annual audit report of 2013 shows that a total of RM100 million was paid for maintenance and servicing on 38 sets of electrical multiple units for six coaches. Daily servicing in 2012 was not fully implemented between August and December. In 2013, maintenance was undertaken in February, May and July. The report states that improper payment took place, as there was no payment deduction made for daily servicing and service maintenance was not carried out for 25% to 51% of the year. These deductions were not made because of weaknesses in the contract management, payment for the three types of maintenance was made in a lump sum, and also the absence of specific clause in the contract. As of end-2008, KTMB had failed to collect debts amounting to RM40.7 million and RM3.8 million more was still owed to its subsidiary. The greatest advantage of railway transport is that it is the most dependable mode of transport, as it is the least affected by weather conditions such as rains, fog, etc. The rail transport is also better organised than any other form of transport. It has fixed routes and schedules. Its service is more certain, uniform and regular as compared to other modes of transport. Its speed over long distances is greater than any other mode of transport, with the exception of airways. Thus, it is the best choice for long distance traffic. Railway transport is economical, faster and better suited for carrying heavy and bulky goods over long distances. It is also a cheaper mode of transport as compared to other modes. Most of the working expenses of railways are fixed cost. Every increase in railway traffic is followed by a decrease in overall cost. Rail transport is also economical in the use of labour, as one driver and one guard are sufficient to carry a much larger load than motor transport. Railway is the safest form of transport. The chances of accidents and breakdowns are minimal when compared to other modes of transport. Moreover, the traffic can be better protected from exposure to sun, rain, etc. The carrying capacity of the railways is extremely high. Moreover, its capacity is elastic and can easily be increased by adding more wagons. Having foreign CEOs, particularly Japanese CEOs, may benefit KTMB greatly, not only by transforming the company but also by changing the work culture and service operation. One of the solutions to solving the huge losses in KTMB is to improve accountability through privatization. Privatization itself, however, will not make a huge difference in the issue because the cost investment and overhead are so great. There is still the need to have top management that have proven experience in running the railway company. The financial crisis of KTMB may be due to the lack of experience and specific skill from top management. In Japan, even with the current economic downturn, the East Japan Railway company forecasts a full-year net profit of over 130 billion yen. With strong financial stability, this company may use its current facilities and assets to upgrade the quality of the service as well as the work culture amongst its staff. A Japanese CEO may transfer this same high quality work culture and customer service through the implementation of various new procedures. The punctuality of Japanese trains is almost legendary. In 2003, the average delay per train on the Tokaido Shinkansen was six seconds. During rush-hours, the Shinkansen trains depart from Tokyo once every three minutes. And this astonishing performance is not limited to Shinkansen services. All trains, even the slower local services, follow strict timetables.

Having an outsider as a company leader who has a different culture and beliefs may result in conflicts if not dealt with properly. Some may resist, while others try to adjust and fit into the new system. A new foreign CEO is surely going to face many challenges, especially in terms of transforming the work ethic and culture, as well as attitudes toward providing good service to commuters. These problems can be mitigated by having a short term collaboration with the Japan Railway Company (JRC). This may be done by doing an exchange program in which KTMB staff are sent for training with JRC to learn and acquire operational skills, including work ethic and culture. At the same time, the senior staff of JRC may do short term work at KTMB to organize in-house training for the staff of KTMB. With the double track railway coming soon, using JRC as a role model may help to improve and upgrade service as well as make KTMB into a profitable company. 5