SEA firms that transformed outperformed peers during Covid: EY

• Transformative actions led to 13 percentage points in improvements
• Four types of transformation actions outperformed peers

A recent EY-Parthenon report noted that companies that proactively undertook transformative actions throughCovid-19 pandemic saw outperformance by 13 percentage points (pp) based on total shareholder returns, as compared to reactive transformers. 

Titled ‘Transformation in Southeast Asia: Four archetypes of outperformers’, the firms said in a statement that transformative actions include but are not limited to environmental, social and governance initiatives, digital transformation, supply chain management and portfolio optimisation.

It said the report studied the top 70 listed companies by market capitalisation across seven sectors namely advanced manufacturing and mobility, consumer products and retail, energy and utilities, financial services, health care, real estate and technology, media and telecommunications. 

The countries in Southeast Asia that were covered in the report include Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, and their performance was reviewed from between 2018 and 2021.

Sriram Changali (pic), EY Asean Value creation leader, said during the pandemic, businesses scrambled to adapt to the new normal, and drew up crisis management strategies to respond to an alphabet soup of possible recovery trajectories. 

“Yet, many of these transformation actions have not translated into value creation for the companies.

“Hence, it is important for companies to understand how their transformation approaches and their execution impact the success of their transformation journey and enhance the value of their organisation,” he said.

Angela Ee (pic), EY Asean and Singapore restructuring leader, said, “It [the transformation] can be a multitude or combination of approaches, which include acquisitions, digitalization or even divestments and restructuring, to help optimise the value of the business.”

The EY-Parthenon study found possible correlations between the companies’ performance and their transformation approaches. 

The study also found that companies gave little attention to the key levers of transformation, including balance sheet and financial restructuring.

Changali said initiatives such as digital transformation are typically expensive, with unclear business cases that some boards may struggle to navigate. 

“Therefore, it is critical that such initiatives are combined with cash release through cost optimization, working capital optimization and financial restructuring,” he said.

The EY-Parthenon study also highlighted that execution would determine the success of the transformation initiative. It said there are five imperatives that companies should note when undertaking any transformative actions:

• Align CEO and board on the purpose of the transformation and the value for the organisation;
• Set aspirational targets and incentivize success over and above what is available in a business-as-usual setting that aligns with the objective of transformation and linked to clear outcomes;
• Set up execution rigor and get commitment from the top is crucial to maintaining accountability;
• Calibrate the journey to balance the costs with the potential upsides and communicate with key stakeholders along the journey; and
• Build capabilities to improve functional, technical and leadership expertise and equip employees with the right tools.

Ee said “Transformation is not just for companies in distress. We see that companies that have been resilient during the pandemic have also undertaken transformative actions that helped to position them for long-term success.

“Transformation via business restructuring, be it an operational turnaround or a financial restructuring can be a vital tool to preserve value for a company and its stakeholders.

“From refinancing and cash flow improvements, to the divestment of assets and management of liabilities, there are numerous ways that executives can maintain or create value in their organisation.”