Friday, June 14, 2013

Example of excellence in the public sector

TWO weeks ago I wrote about the effect of culture on economic growth and development, and want this week to follow up with an example of a public sector company that has excelled during the recession. The company is Jamaica Ultimate Tyre Company Limited (JUTC2), a subsidiary of JUTC, which I have written about before, but want to do so now as I am about to demit office as chairman after six fulfilling years.

JUTC2 is an example of what a culture shift, performance reward, good management, and supportive governance can do. It is an example for not only other public sector bodies to follow, but also what can happen in Jamaica if we develop an enabling environment for businesses.

Jamaica Ultimate Tyre Company has not suffered from any political influence, says Dennis Chung, who has served the company through two transport ministers — Mike Henry (left) and Dr Omar Davies.

It was incorporated in 2001, and I became chairman in 2007, under then Transport Minister Mike Henry. At the time the company was losing approximately $1 million per month; and as a small subsidiary of JUTC and not very important on the national agenda, we were uncertain about getting financial support. In fact, the company was really not afforded much attention.

The first thing the new board did was to look at the business model, and determined that it could not work as it was, as the JUTC (which was cash strapped at the time) was the major customer accounting for 65 per cent of production, and was the main challenge of the company's cash flow and profitability.

The first decision therefore was that we needed to change that ratio, and focus on expanding the commercial base thereby reducing JUTC's impact on the business. Second, we determined that there were five key principles on which we were going to manage the business, which included a value-added approach to every decision made in the company. Third, we had to manage our balance sheet carefully to ensure that we could finance the strategy without any external debt or capital injection. And finally, we ensured that the proper personnel were in place based on what we wanted to achieve.

We also had to deal with the audited statements being six years in arrears, and therefore did not have properly audited numbers we could rely on. One of the first orders of business therefore was to get the audited statements up to date, as information is critical to analysis and management. This is a lesson the Jamaican economy must learn. One of the advantages the US economy has is that they have every type of data you can imagine, and it is very timely, even if not 100 per cent accurate. The important lesson is that relevance and timeliness of information is just as important as accuracy — a very important principle of accounting. For the past three years we have filed the audited statements with the ministry within the statutory period of 120 days, and all our statutory payments done on time.

By 2009 we were able to show a profit, and more important JUTC was no longer the majority of our production sales, and today represents just 30 per cent of production. Profitability continued to grow, where it peaked in 2011/12 to over $30 million, but fell last year as the economy declined. Since 2009, however, we have consistently made profits.

What is it that contributed to this performance, which the country can learn from?

First, the company did not suffer from any political influence. Under Mike Henry, the Transport Ministry was very supportive of our direction and gave us strong analytical support. When Omar Davies took over as minister I explained to him what we were trying to achieve, and indicated to him that I would be willing to stay on for two years to complete a project we were working on to make the company stronger. He asked me to stay on and never one day interfered, and the strong support continued from the ministry. This is illustrative of what needs to happen generally in the country, and is a tribute to both ministers.

Second, the board members I worked with (under both administrations) were business-focused, and gave significant support to the direction. Again this is a tribute to the ministers who appointed people who were well qualified, with their only agenda being good governance.

Third, while the board focused just on policy direction, the management executed the operational strategy efficiently. This relationship between the board and management was critical, where board members never interfered in operations. Management was made aware that their employment depended on profitability, as that was the only way to ensure the company remained open.

Every decision we made was based on a careful value- added approach. If it was not financially prudent, even if the activity was a part of the operations from the start, it was discarded. Everything we did had to have a value proposition attached to it.

Finally, the workers were a big part of the transformation. In around 2010, the management wrote to the finance ministry and got them to approve 10 per cent of the audited profits to be distributed to the employees. This caused the workers to defend jealously the profitability of the company, and in fact when a new worker was found attempting to help himself, the workers gave him up, and effectively terminated him.

I want to pay tribute to the ministers, board members, management, and workers for the tremendous job they have done and hold them out as an example to be followed. The company has been featured in international, as well as local media. It is not any one of the high profile loss making entities, but just a set of workers trying to increase their compensation through their own efforts.

Can Jamaica learn from this? You decide. What I will say is that if we do not improve the environment for doing business in Jamaica, then how can we expect companies, and workers, to excel internationally?

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