Geof Brown
WITHOUT QUESTION, a too large number of businesses are failing in Jamaica these days. The matter of the contribution of government policy, the effects of globalisation and the factor of poor or inefficient management are all properly under the microscope of public scrutiny. But a serious question which arises is this: If we find ourselves in a fix, what do we do to fix it? Or do we throw up our hands, run away from things or just roll over and play dead?
I am fascinated with how business firms react to the fix. For even in the prevailing economic climate, there are business firms doing extremely well, while others having problems are finding ways to turn around and survive. At the recent Jamaica Institute of Management (JIM) Convention, delegates were treated to some revealing 'How we do it' from four highly successful businesses dubbed 'Pearls of Excellence'. They are Island Grill headed by Thalia Lyn, Orthodontists Ltd., headed by Dr. Jeffrey Meeks; Jencare Skin Farm headed by Mrs. Jennifer Samuda and Marguerites Ltd. co-headed by Ian Deer.
Much as these business and professional firms have great and inspiring stories deserving a full future column, it seems to me we ought to take a closer look at those businesses which manage to turn around from misfortunes.
They should have lessons for others in a fix as they rise from the ashes, so to speak. NCB appears to be one such. Life of Jamaica (LoJ) is not one which has bitten the dust but it has an acknowledged challenging situation.
I have chosen to look closer at this one as a case example and the principals have kindly co-operated.
Dominant insurer
LoJ has been dominant insurer in Jamaica and continues to be so according to statistics published by the Life Insurers Companies Association (LICA). In the October 1999 stats, LoJ was shown as having Ordinary Life market share of 60 per cent. Nearest to that was Premier Life with 16 per cent, others were distantly low. But in the May 2000 LICA statistics, Guardian Life had come into the picture aggressively. It was showing 26 per cent; Premier Life moved down to 11 per cent and Island Life jumped to 10 per cent.
Despite vigorous competition LoJ still held its dominant position with a hefty 51 per cent. In other areas like Group Pension LOJ has some 70 per cent, Group Life over 52 per cent, Group Health over 47 per cent (a number one position). On the face of things, therefore, LoJ should be facing no serious challenge in the market place. Yet here is LoJ seeking a cash injection to cover previous losses in the amount of some $2 billion dollars. How can this be? I believe readers will be enlightened by some of the answers I requested. But before I come to that, the LoJ case for cash injection reminds me of the Chrysler situation under CEO Lee Iacocca and a parallel case of Air Jamaica dealt with in this column of July 14.
In the Chrysler case, chairman of the board Lee Iacocca saved the company from bankruptcy. First he reduced company spending and then persuaded the US government in 1980 to guarantee cash injection of US$1.5 billion dollars in loans in 1980. By 1983 Chrysler had recovered and paid off all the loans. LoJ is a replica case. It had dramatically reduced spending in recent times while maintaining its dominant position. At the same time, its Five-Year Plan which I have seen, projects full solvency by 2002 with the necessary cash injection.
Why does LoJ need this injection and what is it doing about reduction of spending? The answer to the first part of the question is all too common in Jamaican business. Under a previous administration, the company, then awash with premium cash, over-extended itself in various non-core business ventures. Even paper growth sales were treated as cash profits. In the words of an internal report, LoJ became a "bloated organisation with large overheads". There were over 600 staff, over 500 agents, 15 branches in unproductive distribution. There were massive debts of $3 billion arising from bailing out the run on its segregated funds in 1993.
Extension of business then into the volatile health field saw expansion into Puerto Rico, Bahamas, and Guam. Unrealistic ventures into places as far as the Philippines, Indonesia, Mexico and Argentine were on the verge of being financed by the subsidiary ASICO. The Citizens Bank subsidiary was also insolvent and without adequate reserves. Over-extension into real estate was another factor in the building up of debt and losses.
Now as I said at the beginning of this piece, the main interest of this column is what a business does when it finds itself in a fix in order to turn around. LOJ's current actions are instructive. The Hon. Dennis Lalor became chairman in 1996. After a thorough analysis commissioned by Price Waterhouse Canada, a number of drastic steps were taken to reduce spending.
Downsized
Staff was reduced from 606 to 201. Field force was downsized from 500 to 200. Branches were reduced from 21 to 10. Head Office rented space was reduced from 95,000 square feet to 27,000 square feet. Debt was reduced from $3.3 billion to $1.2 billion. Overall expenses were cut from $827 million to $64 million. Space does not permit detailing of other dramatic contractions and the solid Five Year Plan projections. But it seems to me if Chrysler deserved a cash injection which Iacocca turned to good use, LoJ also does for how it is handling the fix.
Incidentally, its foreign currency subsidiaries in Cayman and the Bahamas are profitable. This column will be watching the LoJ case example.
Geof Brown is an HRD consultant who lectures part-time at the UWI, Mona.
