Recently represented my school in a business case competition, was held in one of the universities in New Zealand. I was required to analyse the situation of a company based on several articles and extracts from its annual report, then subsequently provide recommendations to improve on their business operations. I had the chance to compete with many seasoned competitors, and this was definitely an eye-opener for a freshman like me.
The best experience for me however, was the opportunity to present in front of the management team of the company that I was analysing. My team was lucky to have had the CEOs of all the companies as our panel of judges in all 3 rounds we participated in. The idea of having to analyse a business in 5 hours, something that the CEOs had done for the past 20 years, was indeed scary but I relished the challenge at the same time.
In one particular round, the CEO of a certain listed logistics company was particularly defensive about his business. A quick analysis showed that the cash conversion cycle was low and that a huge portion of its current assets lay in accounts receivables. In such a climate, bad debt expenses are likely to increase substantially and the company could face a cash flow problem. Although operating cash flow was positive for now, the company could soon run into some cash flow problems, especially if it kept up with the acquisition strategy.
The problem with our team was our candidness in providing a solution. We decided to come forth with the problems that the company faced, and the CEO started to become defensive about it, claiming that gearing was still low for them, and that they could continue acquiring. Which leads you to think, is gearing up really the best way to obtain cash? It seemed to us that he was fairly unreceptive to comments. In the end, the university which claimed that the company was doing well and only suggested fine-tuning the business won that round. What about us? No kudos for guessing what happened. We came in last for that round.
We paid the heavy price for that; our subsequent performances were pretty good, eventually missing out on the finals by a single point. Lesson? sometimes, do look at the other party you are addressing, and be careful with what you say. The CEO obviously did not enjoy having somebody talk about his business in a negative way, and did not seem to accept that viewpoint. We subsequently changed our strategy to something more pleasing for the CEOs and came out fairly well, winning one round and coming in 2nd in the other, although our better performance might not necessarily be attributed to "bootlicking".
Ultimately, the experience of presenting in front of the CEOs was definitely very enjoyable, and their approach to looking at businesses taught me a lot about how to analyse business models and the real-life issues that companies face. I would definitely be able to impart this knowledge to investing in future.
Anyhow, happy Valentine's Day to all out there.:)
9 comments:
Interesting...it seems that some COEs are indeed not comfortable talking about the short comings of their company. But a good COE is one who accepts this shortcoming and find solutions to it. What you think?
Hi Akatsuki,
I definitely agree with you. A good CEO is somebody who accepts that there are flaws in their businesses and constantly tries to find ways to improve it.
I wouldn't say I;m definitely right though. After all, he's been in the business for so long, and what he's seeing could be just a small blip in the radar screen.:)
patrick ho
Well, if you don;t mind me saying. Some CEOs think they have been in the company very long means they are of an all knowing important asset to the company. But sometimes, their big ego and lust for more praise/money/power blinds the CEO from actually spoting shorting comings of his company. Very good examples are CEOs from Citibank/GM/Lehman/AIG even Meril...the big qn is, "What the hell have they been doing all these years?"
Hi Akatsuki,
I agree with u, but before ascribing blame squarely on CEO shoulders, let's take a step back too and think about how the crisis has affected everyone within the sector, so it wasnt specific to these management as well. But of course which doesn't absolve them of guilt:)
patrick ho
My 1st visit to this blog.. :-)
Are you a biz or MBA student ?
Interested to know how you analyse the company. Company + industry + economic analysis ?
I guess we have to be tactful in words on this situation especially when it hurts the ego of the CEO in front of public.
Hi WY,
I;m an undergraduate student. Thks for visiting, I've not been updating at all due to my v v busy schedule in school, barely any time to update this blog. will try to do so when I have time during the hols:)
yep u're right, will need to be much more tactful, although he should have anticipated that the competitors will provide such comments when analysing their business case.
Thanks for the post. It is too bad that the CEO was not open to constructive criticism but this is the real world. Basic psychology applies everywhere. It does not matter whether you are talking with the CEO or a manager of a gas station. Few people want to be told that there is something wrong with their "baby."
What a fascinating experience- and very clever that you saw the problem with accounts receivable could lead to a cash flow problem. I have found that often companies will try to book A/R as a means to offset poor sales and meet income targets. It's great that you spotted it! This article was a pleasure to read.
Best Wishes
NVI
Most of the time CEOs would think that they have been in the company very long means they are of an all knowing important asset to the company...
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